My Top Two Worries for Make in India - The 5 Minute WrapUp by Equitymaster
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My Top Two Worries for Make in India

Mar 28, 2016
In this issue:
» Financial sector banking on technology for future growth
» Flip side of falling oil prices
» ...and more!

0.00 Chart of the day

Ankit Shah, Research analyst

I'm sure many of you are returning after the four-day long mini vacation.

I hope you got a chance to rest...to spend time with family...and to enjoy the colourful Holi celebrations.

I certainly did.

But the economist in me is not happy. He's worried...

My #1 worry is 'Made in China'

I came across some startling findings based on a survey carried out by the Social Development Foundation of Associated Chambers of Commerce and Industry (ASSOCHAM).

Indian manufacturers of Holi colours, water guns, balloons, and other products are facing huge losses as 'Made in China' products beat them on the two most important counts: product quality and price. According to the survey, 'Made in China' products were more 'innovative' and cheaper by about 55%.

But it's not just the Holi festival...

Chinese products dominate many major festivals in India. You've probably heard about 'Made in China' idols of gods and goddesses?

And it's not just festivals and idols...

Probably the most embarrassing of these products was the Indian tricolour flag with a 'Made in China' tag. But I'm seeing an influx off 'Made in China' products in every aspect of our lives. And it worries me...

My #2 worry is 'Made by Robots'

We have been talking about the megatrend in robotics and automation for quite some time. As per The Times of India, funding to private robotics companies more than doubled in 2015 to US$587 million. Since 2011, the companies have globally raised more than US$1.4 billion in cumulative funding. Last year witnessed a record 83 venture capital deals. That's compared to 45 in 2014, 25 in 2013 and 2012, and 13 in 2011.

Investments in robotics double in 2015

'Made in China' and 'Made by Robots' worry the economist in me because about 13 million young Indians enter the work force every year. If they are not productively employed, then I think we have a big crisis ahead of us. Indeed, I sense that it may have even begun...

That's why 'Make in India' must not fail...

That's why Modi must not fail...

But I believe it's not the job of the investor to worry about threats to the economy. That's the job of economists and politicians.

Investors, I believe, should be focused on identifying businesses that are ahead of the curve...that are using technology to their advantage. So if robots help companies build a strong competitive edge and earn high returns on capital, then that's indeed a big positive for you!

My colleague Richa certainly isn't afraid of robots...

Two weeks ago, in her Hidden Treasure service, she recommended a small-cap company taking full advantage of robotics.

When she met the promoter of this technology-driven Indian small cap, she was impressed that the company has built world-class robots in-house. Steered by passionate, technocrat promoters, this company has built a durable competitive edge that is difficult to replicate.

The stock is already up 8% since she recommended it two weeks ago. But Richa tells me it's still within the maximum buy limit. So you still have a chance to learn about this investment opportunity before it's too late...

Meantime, we're curious what you think are the biggest threats to 'Make in India'. As an investor, how do you plan to take advantage of the advances in technology and robotics? Let us know your comments or share your views in the Equitymaster Club.


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3.10

Apart from Make In India, there are couple of other signs of India's golden decade megatrend that we track very closely for The India Letter. If you recall, one of the key signs of economic megatrend that we have spoken about is financial inclusion. By financial inclusion, we do not mean more Indians having bank accounts. But it also means banks being able to offer more services and financial instruments to the remotest areas with the help of technology. Given the deep penetration of mobile phones and the increasing usage of smart phones, mobile banking is certainly a trend to follow.

Top private sector banks like HDFC Bank have been claiming in their annual reports that significant portion of their banking transactions are taking place on mobile. PSUs like SBI have also begun focusing on it. Data from Livemint says that the volume and value of mobile banking transactions have doubled and quadrupled respectively in the past year. While the numbers are still a fraction of the industry, the trend could be encouraging if it makes a difference to the rural banking scenario.

As investors you will have to keep a close watch on financial players that are adapting technology are using the same to penetrate deeper in India's hinterlands.

3.40

Falling oil prices certainly have many bright sides for the Indian economy. This is quite evident, as the country's deficits have continued to narrow down. However, the trend may soon come to an end. This is because since last few months, the forex inflows that come from remittances have fallen too. India is the leading country that receives highest remittances annually. And this being the most stable source of dollar inflows, its importance cannot be overlooked.

As reported in Mint, around $72 billion was remitted to India in 2015. The Gulf countries account for large chunk of cross border remittance. These countries are facing financial strain owing to falling crude prices. Consequently, this has also impacted the remittances to India. Thus if the oil prices continue to contract, such transfers could further decelerate.

For the growing economy like ours, such inflows help in building the forex reserves. Thus a declining trend would disrupt the forex reserve position. Further, it will also weaken the Indian currency which has been depreciating since some time.

4.10

The strike started on 2nd March by the Indian jewellers continues to protest the government's proposal, to levy 1% excise duty on non-silver jewellery. So what is it that the jewellers fear? Vivek Kaul, author of Vivek Kaul's Diary has written an interesting piece on this. And this is what he states -

The beauty of gold is that a lot of wealth can be stored in a very small space. A lot of black money in the form of gold can be stored in a single locker. Hence, instead of holding on to paper money the holders of black money prefer converting it into gold. Also, with gold there is no fear of wear and tear as is with paper money. Read on to know more...

4.30

The RBI governor will possibly have his final chance to determine interest rates in India in the forthcoming Monetary Policy review on April 5th. There are speculations about a major rate cut, given the benign inflation scenario. Plus, the US Fed's rate hike prospects seem bleak in the near term. More importantly, Dr Rajan needs to do his final bit to help the government kickstart economic growth. So the rate cut will certainly help sentiments if not actually re-ignite the capex cycle.

In his latest Honest Truth, Ajit Dayal, the founder of Equitymaster, has elaborately explained the key reasons why he believes that RBI's forthcoming rate cut could be as high as 1%.

Well, we have reasons to believe that Dr Rajan will do more than pleasing the markets and the government in his last Policy review.

What if he indeed plays to the gallery with a sharp cut? What if he doesn't? Stay tuned to know our views on these in the forthcoming issues of The 5 Minute Wrapup.

4.45

After opening the day on a flattish note, Indian indices have slipped below the dotted line. At the time of writing BSE Sensex is trading lower by 290 points. Among the sectoral indices, stocks from realty and metal sectors are leading the losers. Stocks in both small cap and mid cap space are trading down by 1.3% each

4.50

"You can be sure that over the next 10 years, you'll see something that you did not think was possible." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Ankit Shah (Research Analyst) and Bhavita Nagrani (Research Analyst).

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4 Responses to "My Top Two Worries for Make in India"

Balaji

Mar 30, 2016

Products that are obviously sold at below cost price should be subject to punitive tariffs...Trump calls for that and shows us how we can counter the Chinese juggernaut. All products imported fro China should be quality checked - and sellers forced to guarantee sold products. Buying cheap does not mean we buy trash...once, quality is forced, these imports will stop. Its weak consumer protection in india that motivates traders to buy cheap Chinese products and foist these on indian consumers. They are loyal only to their profits - not to country or their clients.

On other hand, what worries me most about make in india is :
(1) in a bbc article on Chinese advances on high speed trains it was mentioned that the Chinese facilities are like a city - with over 20000 PGs and PhDs working 24x7...that kind of motivation to excel is hard to come by and results in world class technology that pushes past Jap or European technologies behind...And we cant even get decent blue collar workers who are half as dedicated at what they need to do in India. Labour costs are high - with labour laws protecting the labour but not the employer who invests in training them...How can we compete ?
(2) Land prices are too high to get decent start-up,
(3) too many regulations that spawn an ex-bureaucrat lead consultant industry to "grease" the official machinery and facilitate business - "consultant" leaches who thrive on the murky regulation world...at the expense of entrepreneurs..
(4) taxations and the new penchant for cess...on everything...!!

My heart is with Make in India and my mind despairs...



(4) cost of

Like (1)

Sarat Palat

Mar 30, 2016

The population growth need to be controlled. If not, it not only create problems associated with employment but also food supply. It is high time every one need to think about this and outlook need to be changed. "A SMALL FAMILY IS A HAPPY FAMILY".

Like (1)

Muthuswamy N

Mar 28, 2016

Made in China is a worldwide threat and is there whether or not Make in India is there. Its effect is far worse if there is NO make in india than if there is!
China is known to produce goods at 10% of the American price and India at 40 % of the American price. But India's quality matches with those produced in the USA but China produced goods' quality is notoriously bad. This may not be true with the stuff that you have taken for comparison but is true of most other goods!
Again the logic will spell doom for jobs is same thing as what we heard that computers would ruin job market and that internet will kill the print media. These are flawed judgments are proven.
I do not agree with both your observations.

Like (1)

Suresh Kumar

Mar 28, 2016

Make in India has threats from missing pieces in end-to-end offerings for various industries. Besides "Robotics" and "Make in China for all verticals", it includes "Design in US", "Tools in Germany", and "Rail/ Road Infra in Japan" etc. Rather than a short-sighted approach focussing only on manufacturing, the government needs to create end-to-end offerings for the end customers. Last, but not the least significant, the agricultural productivity needs to be improved with better co-ordinated research suiting Indian conditions so that agricultural subsidy could be reduced.

Like (1)
  
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