These investors are looking at India like never before

May 24, 2010

In this issue:
» First year of UPA-II government: Good or bad?
» Euro economies staring at default, says Raghuram Rajan
» MNC pharma cos. gaining strong footing in India
» With stocks in a correction, what investors need to remember
» ...and more!

--------------------- FREE Webinar with Ajit Dayal - Exclusively for Equitymaster Subscribers! ---------------------
If you are worried about the global crisis reaching India, then do tune in to the Equitymaster FREE Webinar, titled, 'Global Fears, India Cheers?' Listen to Ajit speak on the opportunity he can foresee for India...and for a long-term investor like yourself. And if you send in your questions on investing quickly enough, he will be happy to answer them. Scheduled for Monday, 7th June, 5.30 pm (IST). Register now and also get FREE subscription to The Daily Reckoning.

Most experts believe that the UPA government has not been able to do proper justice to the reforms process during the first year of its current regime. The reasons aren't far-fetched. During this period, the government's focus has largely been on non-economic issues like Naxalism and the IPL fiasco. Add to that the economic issues like mis-handling of the 2G spectrum auctions and rising inflation.

Overall, there is a feeling of frustration within the country with respect to the pace of the reforms process. However this hasn't deterred foreign investors in India. After all, for them, India's long-term potential is too compelling to ignore.

This is given that the economy, despite the poor governance, continues to chug along well. Corporate profits are in a recovery mode. India's young and emerging middle-class is coming back on a consumption drive. And in order to exploit this, automakers like Volkswagen and retailers like Wal-Mart and Tesco are working around restrictions to access the huge untapped opportunity.

As per stats, FDI into India during the first 11 months of FY10 was US$ 33 bn, nearly an all-time high. Add to this the US$ 24 bn poured in by the FIIs during this period.

Data Source: Department of Industrial Policy & Promotion, Govt. of India
* Data for FY10 is for the first 11 months - Apr. 2009-Feb. 2010

So there you are. Despite the growing internal frustration regarding the reforms process, foreign investors (and more of the 'serious' variety) are not ready to give India a miss! What about you?

Are you frustrated with the speed of reforms in the Indian economy? Share you view.

 Chart of the day
Today's chart of the day compares the performance of stocks, oil and gold since the current UPA government came to power last year. The chart also shows the change in food prices during this period.

Without doubt, stocks have been the best performer, followed by oil and gold prices. While oil prices have cooled off a bit, gold has seen a sharp surge of late owing to the deepening Greek crisis. As for the stocks, while the broader markets look fairly valued, long term investors can still find some valuable companies at reasonable prices.

Data Source: Yahoo Finance, Kitco

Large question marks loom over the world. They threaten to disrupt global financial stability. And if you thought that the credit crisis of 2008 was as bad as it gets, you may have to think again! 2008 was led by question marks over the private sector, and fears of default therein. That's when governments stepped in to sooth anxious nerves with numerous bailouts and stimulus packages. But now that many governments themselves, especially in Europe, have become debt laden like never before, there seems to be no one left to shift this burden onto. No wonder that financial markets have become such an anxious lot.

Raghuram Rajan, a former IMF chief economist, offers reasons for this volatility. He feels that markets doubt that governments will follow through on unpopular promises to raise taxes. Particularly after watching riots in the streets of Athens. For them, there's only one of two inevitable outcomes - inflation or default. In Europe's case, a large portion of the debt is short term. And inflating it away takes time, thus that's not likely to be effective. Default, then, is the demon that we may be staring at.

MNC pharma companies are slowly but surely regaining their lost footing in the Indian pharma market. In the past couple of years, these companies have gone all out to either forge alliances with generics players or buy their businesses. Sanofi-Aventis, Pfizer, Glaxo, Novartis have all realised the importance of generics. And the latest to join this bandwagon is Abbott Laboratories. The company last week purchased the domestic pharma business of Piramal Healthcare for US$ 3.7 bn. Now with Daiichi also acquiring a majority stake in Ranbaxy, this means that the top 4 players in the Indian market are MNCs. India's pharma market is poised for growth and MNCs are looking to capitalise on the same. It will be interesting to see what domestic pharma now chooses to do.

The Indian Depository Receipts (IDR) issue by Standard Chartered Plc. will avail Indian investors an opportunity to invest in an overseas listed entity for the first time. This will be the first of its kind in Indian capital markets. Does this make it a good enough reason to lap up to the IDR? We don't think so! The merit of the issue needs to be judged with the same diligence as is exercised in case of any other offering. In fact, in the case of IDRs investors may also need to gauge the level of risk involved in the global business, particularly in light of heightened economic uncertainties in developed economies. As far as the IDR issue of Standard Chartered Bank is concerned, its global access to low cost funds, the possibility of better credit off take in the emerging markets and likely improvement in fee income are arguments in favour. However, investors cannot ignore macro-economic and exchange rate related risks.

The jitters from the Euro crisis have taken a heavy toll on stock markets worldwide. The usual reaction of investors in such a situation is to panic. But that would be the wrong reaction. Just look at the trailing twelve months price/earnings ratio. This indicator measures how cheap or expensive stocks are based on latest actual earnings and not forecasts.

When stocks start sinking and the ratio starts getting really low, the odds are that markets is over discounting the bad news. The latest bad news being the sovereign debt crisis in Greece and other European countries. Warren Buffett has said it many times - be greedy when others are fearful. Indian investors would do well to remember that piece of advice. And one yardstick to look is the trailing twelve months price to earnings ratio.

Anyways, Indian stock market had a strong outing today, led by the Reliance pack after yesterday's truce between the Ambani brothers. The BSE-Sensex was trading with gains of 135 points (0.8%) at the time of writing this. Among other key Asian markets, while China was up 3.5%, Japan was down 0.3%.

Following the Greek debt crisis, the Euro has depreciated very sharply. Against the US dollar, it is down by about 13% this year. The Indian rupee has gained about 14% this year against the Euro. With the currency depreciating so sharply, concerns over India's exposure towards it has emerged. However, as per the RBI, the slide in the Euro is unlikely to erode India's foreign reserves significantly. The reason for the same is that Euro is just a small component of the nation's foreign reserves. Although, with uncertainty looming over the overleveraged European nations, a further depreciation in the currency cannot be ruled out!

 Today's investing mantra
"We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children." - Warren Buffett

Today's Premium Edition.

Recent Articles

All Good Things Come to an End... April 8, 2020
Why your favourite e-letter won't reach you every week day.
A Safe Stock to Lockdown Now April 2, 2020
The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
One Stock that is All Charged Up for the Post Coronavirus Rebound April 1, 2020
A stock with strong moat is currently trading near 5-year lows.
Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...

Equitymaster requests your view! Post a comment on "These investors are looking at India like never before". Click here!

18 Responses to "These investors are looking at India like never before"

hiralal shah

Jun 26, 2010




May 28, 2010

Government has to focus and implement Infrastructure Projects, if India is to see a growth of 8.75% to 9%.

The ambitious Road Project of building 20Kms per day is still a far fetched dream of Mr.Kamal Nath.

Land acquisition is a big hurdle in India for Infrastructure Projects.Government has to go about in a systematic and time -bound manner.

Lack of Capital for investment in Infrastructure is holding up lot of projects across India.The returns on investment from this sector are with hig gestation period and PSU Banks are reluctant to lend to Corporates.

Government of India has announced that it will allow Private Sector Companies to float Infrastructure Bonds in order to make up for the shortfall of capital in Infrastructure sector.All this should be implemented immediately without any further delay.

If Infrastructure grows,country will automatically grow.



May 26, 2010




May 25, 2010

Is the DFI and FII investment mainly due to higher interest rates in India (nearly zero in USA, Japan and very low in other western nations)? Max foreign investment in India is in services - that tells you that in the long run it will not do any good to India.
What India needs is a step up in Infra-structure, Water and waste disposal, social reforms, good governance and fiscal discipline. Stock analysts are a bunch of crooks who mislead every one by their mumbo-jumbo. 90% of them on TV are wrong 90% of the time. Rest are good at guess work it seems.



May 25, 2010

Warren Buffet continues to dazzle and puzzle investors with his vast experience. "We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children." says, Warren Buffett.
I have, myself felt this for a long time, but, was afraid of saying this in the face of so many stock analysts making so many short term predictions daily.


B H Upadhyay

May 25, 2010

During the last two (02) crisis, India remained isolated or came out with bearable injuries. Hence it is general perception that the policy of government of India is better than those of rest of world. the speed of opening or financial reforms at the time when whole of world is passing through one or more problems will not be a wise decision. We have lot more to do in India itself, like development of infrastructure, education and health. We can sustain the rate of growth with this reforms. My belief is we need to take extra care.



May 25, 2010

Reforms........,yes it is indeed frustrating to note the slow or snails pace of reforms especially in the areas of power, irrigation, infrastructure. If India has to maintain its growth potential and keep the interests of FII alive then infrastructure is the key to development. Here the action ofthe government is too lacklusture , hope they act fast.




May 25, 2010

What is frustrating is how the middleclass views reforms. For most of us reforms is about opening up of retail, insurance, banking etc. It is about opening up the pension sector. Reforms sadly for us has come to mean all of this. I do not speak for the UPA government, God knows it has managed to squander a perfect endorsement of the voters a year back.

And yet there have been some pathbreaking "reform laws" which we choose not to consider or ignore totally because it does not fit in with our description of "reforms"

I refer to to the Right to information act and the Right to Education act. The impact of this will be so far reaching even if executed improperly ( alikely scenario !) and yet I find very little reference to these path breaking events.

Also have you seen how after almost two decades of so called reforms the process of disnvestment has been intitutionalised? Not one word from either the left or the BJP. Disinvestment has gained accepatnce finally. A big big step in my view. The truth is irrespective of the mandate it is impossible in India to push through largescale "big ticket" reforms. There are too many vested interest involved. What we all should hope for is incremental and insidious steps that will be there to stay.



Rajkumar hallan

May 24, 2010

Yeah its frustrating to see that infrastructure sector is not at all improving in terms of any key project initiatives which will drive of the core growth for our industries.I hope the govt. will soon act on this or the frustration will be beyond control.



May 24, 2010

yes, these politicians, members of corporationcouncils to the chief ministers, who were all living in jobdapatti, a few years ago, are travelling in posh cars with the money pocketed from the dole-out by the government to the poor, below poverty line people. They make you nervous about the country's future. can we ever get a hundred Lal Bahadur Sastri, abdul kalam azad?

Equitymaster requests your view! Post a comment on "These investors are looking at India like never before". Click here!