Should the 'I' in the BRIC be removed?
In this issue:
» Is the American dream a 'myth' now?
» Realty stocks are falling despite property price rise
» Is the Fed thinking fundamentally wrong?
» Is this the gold rush for Indian pharma?
» ....and more!
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Just like the people who took the above mentioned test, there are a lot of economic experts out there who are falling prey to the anchoring effect. The topic concerned however is of an entirely different kind and with very huge implications. These people are of the view that since India's GDP growth has fallen to 6.5% in the last financial year, it no longer deserves to be a part of the brIC group of nations. Let us tell you why we think this is a real life example of follies that arise due to the anchoring effect. You see, these experts are basing their judgement only on the 8.5% average growth that we saw in the preceding few years. The fact that this 6.5% growth is higher than in any other period is being completely ignored.
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This is not all. As per a leading daily, brazil, another member of the group, has grown faster than 6.5% only once in the last 20 years and its average growth since 1996 has been less than 1%. Russia is no great shakes either with GDP growth rate of mere 4% in 2010 and 2011. Thus, if the brIC has to break up at any cost, it will be far better to call it IC than brC.
Lastly, even India's investment rate has not done badly for itself. The very ratings agency that has questioned India's position in brIC has maintained that its investment rate has been a healthy 35% of GDP in FY12. Thus, it is only the policy bottlenecks and the slow pace of reforms that seem to be putting a spanner in India's wheels and once those are removed, we should be back to notching up attractive long term growth rates.
Do you think India should be removed from the brIC group of nations? Share your views with us or you can also comment on our Facebook page / Google+ page.
01:32 |
Chart of the day | |
02:06 |
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Well, it must be noted that land is the major cost component in any realty project. And typically the builder ropes in a Private Equity (PE) investor to purchase the land. And considering the long gestation period of realty projects, PE investors ask for a high hurdle rate in return for lending the money. Now, since the builder wants to keep his returns intact, he jacks up the prices of the property to incorporate the PE investor's return expectations. Increasing prices result in lower volumes. This impacts the profitability of the realty companies and thus their stock prices decline. Thus, in such an environment, investors should look out for zero debt companies with sizable land bank that is completely paid off. Such companies are better placed to weather the current downturn.
02:44 |
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That the US Fed's money printing policy has miserably failed to stimulate growth is well known. But that the Fed did so to ensure rise in prices of risky assets, particularly stock markets, was a hidden truth. The crash of 2008 evolved out of Wall Street's greed for high risk returns. Post that, the Fed's cheap money policy ensured that greed remains in the US and global stock markets. At least so long until there isn't another big ticket bubble bursting. However, how many more bubble bursts will it take for the US Fed to acknowledge its flawed thinking is anybody's guess.
03:24 |
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He argues against the notion that faster growth widens income gaps. On the contrary, the US grew much faster in the decades following the Second World War when inequality was lower. Whereas after 1980, while growth was slower, income gaps widened enormously. In fact, there is growing evidence that growth, equality and stability are quite linked. Whatever be the case of the US, India certainly needs to take home some lessons.
03:58 |
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Between 2012 and 2015, around US$ 60 bn worth of original drugs are going to see their patents expire. Out of this, US$ 34 bn will be ripe for exploitation this year alone. As a result of this, the US generics market is expected to grow by around 12-13% during this period. Indian pharma companies are leaving no stone unturned in capitalizing on this opportunity. Many of the big ones have a slew of drugs slated for launch over the next few years. Even a 90% price erosion still presents a good opportunity to mop up more revenues and profits. The potential risks could be in the form of delay in regulatory approvals. This is because the US FDA has become stricter in processing filings. Overall, those companies having a healthy product mix of big dollar drugs with some niche products having lesser competition will certainly have the edge over the rest of the pack.
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04:56 |
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4 Responses to "Should the 'I' in the BRIC be removed?"
Krishna Kumar
Jun 27, 2012"BRIC" is just a marketing term coined to sell mutual funds and increase asset under management. India's growth is not on account of somebody in west coined the term "BRIC". So even if they remove the word "I", it shouldn't matter. Indian economy actually has a negative corelation with Brazil and Russia which are commodity driven. So BRIC anyway is a meaningless term created by overpaid investment bankers.
Philip
Jun 27, 2012If "I" is taken out of BRICS then the guy's who are bringing down the GDP of "I" nation are themselves fooling, India's GDP is all the last 5 years steady and not like the other BRIC nations, compare that to the population which will make the people speak less and work more. Are the guy's thinking to get "I' out of the BIRCS so that they can show the world down trend of "BRICS" . Keep out those dirty tricker's. Be what one is .
C K Vaidya
Jun 27, 2012Your advice to 'investors' in Real estate companies left me confused.
If a company has land bank which is fully paid for, it does not require investor money. Typically, it keeps selling flats and asks the buyers to keep paying corresponding to the progress of construction. Since all these payments are in proportion to the total cost of the property, even the land cost gets paid over the period of construction.
Secondly, are there any real estate company which have land bank fully paid for? Are they listed? If so, pl let me know.
Dr M.Chandrashekhar
Jun 27, 2012Kindly send the free Guide to PPF.