'China is passe, invest here', says leading fund house - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

'China is passe, invest here', says leading fund house 

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In this issue:
» Living in Mumbai not as expensive as in global cities
» Where is China's growth headed?
» US deficit in 2010 will hit an all time high
» India Inc. is on a hiring spree
» ...and more!!

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So we all know that China is miles ahead of India when it comes to infrastructural development and manufacturing. Not just that, in the global arena, China is the largest trading nation in the world and the largest exporter and second largest importer of goods. The country's economy also had been growing 11% plus as compared to India's 9% for three consecutive years before the global crisis erupted. Infact, China had the fastest growing major economy in the world for the past 30 years with an average annual GDP growth rate of over 10%.

So where does that leave India? Both China and India were growing at a furious pace before the crisis erupted and are expected to perform much better than their developed peers in the near future as well. The stockmarkets in both these countries have zoomed as global investors looked for better returns in a scenario where the developed nations had not much to offer. And yet, there must be something that gives India the edge over China. According to Franklin Templeton Investments, India offers better long-term returns on stocks than China. This is taking into account the outlook for India's economic growth and corporate earnings. Stephen Dover, the MD of Templeton, opines that India's economy may sustain faster expansion from a smaller base as 'favorable' demographics boost consumption. Further, he believed that price clearing and the exchange rate were 'freer' in India.

We could not have agreed with him more. Unlike China, India enjoys the advantage of strong domestic consumption and thereby lesser dependence on exports. Unlike China, India's financial institutions notably banks are transparent and better managed and regulated. Unlike China, India's economy at present is not overheating in the manner China's is. Whether India retains this edge over China on a consistent basis in the future remains to be seen. But we are certainly enthused over India's growth prospects in the long term despite various challenges.

01:24  Chart of the day
If someone were to tell you that Mumbai figured among the list of 132 most expensive cities in the world in 2009, you would not be surprised, would you? After all, buying your dream home in the city has become an expensive proposition, prices on an average have risen and the city certainly seems expensive when compared to other metros in India. But that is not the case if you go in for a global comparison. As today's chart of the day shows, Mumbai is not as expensive as some of its global peers. Infact, according to the list of 132 most expensive cities in the world compiled by the Economist Intelligence Unit, Mumbai is ranked 131. This means that the cost of living in Mumbai (in terms of housing, food, clothing, transport and utility bills and the like) is lower than in Moscow, Shanghai or even Rio de Janeiro.

Data Source: The Economist

The Union Budget has been done and dusted with in India. And we are happy that the country is going down the path of fiscal prudence. However, there is one nation that is going in the other direction and that too, at a breakneck speed. As per reports, the Obama administration is projecting that the deficit for the 2010 budget year is likely to hit an all time high of US$ 1.56 trillion, up from last year's US$ 1.4 trillion. Infact, it is being predicted that even in 2011, the deficit is likely to remain above US$ 1 trillion, resulting into three straight years of trillion dollar plus deficits. So much for pulling the nation out of the worst economic slump since The Great Depression. And it does not stop here. The deficits over the next decade are likely to total US$ 9 trillion! Clearly, all that the US could hope for is pay interest on this debt and continue to rollover the debt. Furthermore, if foreigners, the largest buyers of US treasuries, start losing confidence in the greenback, even repayment of interests may look like a very difficult proposition. Little wonder, the US taxpayer is a picture of haplessness right now.

While globally companies may be wary of increasing their compensation budgets, companies in India are losing no time in tapping the best minds. In fact as per leading Healthcare, hospitality, real estate and IT sectors will lead the employee addition drive. While most of the hiring is expected in the second quarter of FY11, companies may see an impact on their operating costs by the end of the next fiscal. Having said that, hiring the best minds at a time when India Inc. is trying to be globally competitive is a pertinent move.

The world doesn't yet realise the gravity of the world's sovereign debt problems. Or so says Mohamed El-Erian, co-chief investment officer at US based Pacific Investment Management Co. He is of the strong view that the potential shock arising out of many countries' deteriorating public finances may affect the global economy much more than is currently realized. The governments of many developed countries have been on a spending binge off late in a bid to get their countries out of the financial crisis. Thus, they may now be left with no choice but to raise taxes and slash spending if they have to cope up with their swelling deficits. This may lead to years of subpar performance of these economies, causing much more pain than is currently realised. Looks like a global recovery will prove to be much more elusive over the long term than it is thought to be right now.

Is China's growth rate going to slow down? Readers would do well to recall that the government had released a stimulus package of US$ 586 bn in 2008 in response to the global recession. As a result we saw China's GDP growing by 8.7% in 2009. However, rising inflation is now a matter of concern in the dragon nation. In February 2010, consumer prices rose by 2.7% YoY, higher than estimates. Moreover, it has been seen that the production in the first 2 months of the year increased by 20.7%, the highest in 5 years while exports and property prices also rebounded much sharper than anticipated. This is building up a case for tightening monetary policies by increasing the interest rates. When this happens the high cost of capital is expected to have an effect on the ability of companies to grow at the rate we have seen in 2009. Thus, in the event the giant's growth slows down, it will have an adverse effect on the economies of not only the Asian Pacific region but also the Western world.

After a volatile trading session in the morning, strong buying led the indices to trade firm in the ensuing hours. At the time of writing, the BSE-Sensex was trading higher by about 26 points (0.2%). While the Asian indices were trading mixed, the European indices had opened in the red. Gains were seen in banking and energy stocks. However, auto stocks were at the receiving end.

04:58  Today's investing mantra
"The most important quality for an investor is temperament, not intellect...You need a temperament that neither derives great pleasure from being with the crowd or against the crowd." - Warren Buffett
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10 Responses to "'China is passe, invest here', says leading fund house"


Mar 13, 2010

Excellent. Your forecast is sensible. Slow & steady would be the Indian achievement


Anish Shah

Mar 13, 2010

Like Equity master, I am bullish about India Story, but am a bit skeptical given our political will to usher path breaking reforms in agriculture, Labour or Finance. I would say, given the fact that we Indians have come up to a level where world is giving some respectability despite the odds of doing business, speaks volumes about individual capability.

But I agree with Ankur Jain, that Chinese indeed is a bigger threat given their autocratic structure and day when Chinese people are comfortable with english language.


Ranjeet Jaiswal

Mar 12, 2010

You need to edit the contents of '5 Minute Wrapup'. The description is too long to make us read it.


Prem Singh Dhankar

Mar 11, 2010

Good job done. Keep it up.Lack of individual will in India will continue to be an excuse for some us- i.e mokaterians. Still I agree that India is a better place for investment due alive democracy.


zahid sakarwala

Mar 11, 2010

Excellent article keepit up


Dr. Atul Tiwari

Mar 11, 2010

Just try to get get abstract of your all articles of 10 last 10 or more months. All are over cautioning, fearing to make an investments in stocks!! Some times they talk about "Double dip Depression" or "Global debt problem" or "US credits" or "over construction in China" or "Greece problem" Other times they terrorize for "over valuation of Indian stocks", "Mood oriented investments of FIIs" or "Power problems in India" Etc.
I have not gone through a single magazine, encouraging us to invest in stocks. If any edition said it any time, the suggestion was followed by lots of "ifs & buts" !!
Since your magazine is only read by stock oriented small investors, it effects negatively to stock market !!
Big traders take their decision by own.
So it makes only small investors scared of investing.
Can I quote this magazine as, one of the many causes for decrease in liquidity in market!!



Mar 11, 2010

While we can feel happy over the fact that, on the basis of the current statistics, we do appear to have an edge over China, none of us should stop with just gloating over it. For retaining that position and improving on it, we should discard complacency and put in our best efforts. When Stephen Dover, the MD of Franklin Templeton Investments envisages a faster expansion in the case of Indian economy, he too bases it only on that presumption.The exhortation,"China is passe, invest here" will become meaningful, only if our endeavours are earnest and in the right direction.

The write-up was highly informative.


sanjeev gupta

Mar 11, 2010

It is interesting piece of information.More so, because it is projecting a further improvement in our global image.


Nitin Lele

Mar 11, 2010

You have correctly worded "quality for an investor is temperament, not intellect".


Ankur Jain

Mar 11, 2010

'China is passť, invest here', says Stephen Dover, MD, Templeton... and we are pleased.

I do not know whether the pleasure comes from the fact that someone has rated us on comparison with one of our neigbhour


Its a white skin who has said this


We in India have a lot of opportunities but lack the necessary political vision, strategy and execution. I would think that China is much better placed than us. If Chinese population becomes more at home with the English language, which I am sure they will, we can start counting our days.

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