India's growing 3 times faster than China - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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India's growing 3 times faster than China 

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In this issue:
» Faber calls China's bluff
» US economic crisis in not over, says Wilbur Ross
» India Inc's June quarter performance...good or bad?
» Food inflation's pinching Indian consumers
» ...and more!!


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00:00
 
This can really be the revelation of this decade. Marc Faber, a leading economist and publisher of the Gloom, Boom and Doom report has said that China's economy is growing at 2% and not 7.8% as its government claims. If this is true, then the Indian economy, expected to grow by 6% in the current fiscal, will be outperforming China by 3 to 1 (now this is assuming that the Indian statisticians are not lying as well!).

Source: IMF World Economic Outlook 2009

Interestingly, Faber has also told a leading business channel, "The Chinese government is one of the few governments in the world that knows its GDP numbers three years in advance. I'd be a bit careful about China."

Faber adds, "If you throw money at the system, lots of things go up in value - but maybe they go up for the wrong reasons. What disturbs me today is that the lows in March and late last year, sentiment was incredibly bearish about everything. Now there's this incredibly bullish sentiment when insiders are actually selling and the technical picture of the market doesn't look that great."

Faber believes that the Chinese markets face headwinds because there's a huge supply of available shares and a record number of new issues, which dampens share-price increases. (China State Construction Engineering Company just launched a US$ 7.3 bn IPO, and the shares listed 56% higher than the offer price...at 40 times 2009 forecasted earnings!)

Faber warns, "My sense is that, near term, we could still have disappointments because now the mood is very optimistic. I don't think we'll make new market lows in Asia, but I do think we'll have a meaningful correction."

01:17  Chart of the day
Today's chart of the day displays a long term correlation between gold prices (measured in Rupee terms) and Indian stocks (represented by the BSE-Sensex). As we had mentioned yesterday as well, gold prices have really moved sharply up since 2007 when the first hints of brewing financial market collapse were visible. This chart is a reiteration of the fact that gold must be a part of a long term's investor's portfolio. But then, as Bill Bonner of The Daily Reckoning says - "If you are looking for quick profits, gold is probably not a good buy. It's a monetary metal. It is fundamentally a protection against paper money and financial distress, not a real investment...or even a speculation."

Source: Gold.org, Trend

01:31
 
The recent run up in share prices has led many into saying that the economic crisis is over. And mind you, not just here in India, but also possibly in the US - the epicenter of the crisis. Wilbur Ross, the investor famous for acquiring and turning around failed companies, knows a thing or two about turnarounds. No wonder he takes so much interest in companies like SpiceJet and JetLite in India.

Ross says that the US economic crisis is not over by a long shot. He believes the enthusiasm is exaggerated. The US unemployment data is still so bad that it should invoke horror. Also, housing prices might have gone up on a QoQ basis, but are still down on a YoY basis. As reported on Bloomberg, Ross believes the US recovery will not be before mid 2010. Investors are so desperate to hear positive news that they are drawing cheerful conclusions from negative data.

02:09
 
As we write this, curtains are coming down on the June 2009 quarter performance of India Inc. And the event has unfolded exactly how we expected it to be when we set out to make predictions at the beginning of the results season. We had said the biggest joker in the pack could be the operating profits and rightly so, they have been the reason why results for some big sectors have turned out to be better than expected.

None more so than auto. Aided by a substantial reduction in raw material costs and other cost cutting measures, auto companies on an aggregate basis have managed to log in impressive bottomline growth of 40% on the back of a mere 7% growth in sales. Of course there are other factors like change in forex accounting rules and lower taxes that have also helped. Other major sectors that have done well are banking, FMCG and of course IT, whose performance is indeed commendable given the backdrop it was operating in.

However, there were sectors like pharma, real estate and steel that did not have a particularly good outing. All in all, a better than expected quarter and the most important conclusion that can be perhaps drawn is that the worst seems to be behind us.

Source: Equitymaster Result Scoreboard


03:05
 
It is dangerous for the economy when companies believe they are too big to fail. Reiterating what the investing legend Charlie Munger recently said, US President Obama has rebuked US corporations for taking extraordinary risks because they knew that they were too big to fail. And rightly so! Obama has been accused for being 'anti-business' by the same corporations whom his administration has pulled out of the brink of bankruptcies.

03:22
 
Meanwhile, food prices continue to rise in India. Even when the wholesale price based inflation remains in the negative, higher vegetables and pulse prices have pushed up the country's food inflation by 1.2%. The maximum increase has been seen in the wholesale price of vegetables (up 4.9%), followed by pulses (up 4.2%) and meat/egg/fish (up 3.5%). The major reason for the rise in the food prices is more demand and less supply (due to weak monsoons). In fact, as per a leading news portal, what's also pinching consumers is that retail prices of most food commodities are ruling about 50% higher than the wholesale market!

03:48
 
National Hydroelectric Power Corp. (NHPC) is coming out with India's second large IPO (after Adani Power) in recent times. The company is looking to raise up to Rs 60 bn through this issue, largely to part-fund its new hydro power projects. The offer will start and end on 7th and 12th August respectively and the price band has been fixed at Rs 30-36 per share. While Rs 20 bn of this Rs 60 bn will go to the government which is divesting about 5% of its stake in the company, the rest of the funds will go to NHPC, which by 2012 intends to commission almost 2,300 MW of hydro power projects.

The IPO meet held by the company yesterday saw quite a healthy turnout of analysts, offering an indication of the amount of interest in the issue. The Indian equity markets were lying in tatters after the brutal crash caused by the credit crisis. But with such large issues now making attempts to test the waters, optimism seems to be slowly building up in the system once again. But for how long, we wonder. There's still mess all around!

04:35
 
Anyways, stocks in India traded strong today. At the time of writing, the BSE-Sensex was trading with gains of around 200 points (1.4%), closely following its Chinese benchmark index that was up 2.7%. BSE's midcap and smallcap indices closed with 0.8% and 0.1% gains respectively.

04:47  Today's investing mantra
"Most businesses change in character and quality over the years, sometimes for the better, perhaps more often for the worse. The investor need not watch his companies' performance like a hawk; but he should give it a good, hard look from time to time." - Benjamin Graham
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14 Responses to "India's growing 3 times faster than China"

SUAHMA KUMARI

Aug 8, 2009

Thanks a lot sir
for all the important inforation.
Food's price hike is really a interesting information for me because i am also worring about this, that despite of negative inflation price of food commodities keep on increasing, what so ever is the reason; but it seems that govt. is not taking effective measures. If they are taking then there might not be effective implementation.

well, once again thanks a lot
and i wish you to keep sending eye opening 5 minute wrapup.

Like 

VALUEFUNDA

Aug 2, 2009

Can we have a chart which compares the gold with sensex for the last 15 years. I am of the view that Equity is beeter than gold in the long term. Gold has risen sharply over the last years, please dont forget that gold had reached these levels 25 years ago only to comedown.

Marc Faber's comments on China will probably open a Pandora's box, China always looked too good to believe. Though I dont have much info on thier banking sector, but my take is that thier financial system is quite opaque and one day there will be major issues of NPLs which they will have to contend with, given the excess capacities they have created in thier industries. I would like to suggest the Equitymaster team to do some further analysis on the China Factor, somehow I have a bad feeling that the Chinese bubble bursting will have severe global ramifications.

Overall - the 5 minute wrap up is great reading and a must for me everyday. Keep it up.

Regards.

Vijay (VALUEFUNDA)

Like 

SHARAD

Aug 2, 2009

Your analysis and comments are a " Must Read" for

me . I agree with most of your views and I

relish your blunt at times contrarian opinion.

One small point though "Anyways" should be

Anyway according to me for it to be

grammatically correct.

Like 

Narendra

Aug 1, 2009

This is ahard reality that is just surfacing. INDIA is the best hope for wests economic survival for the next 2 decades. But Indian corporates have to change their corporte mindset to offer better goods and services to its own citizens which can be leveraged at later stage, to globalise.
A free democratic functioning,stable judiciary and dynamic political leadership can propel India far ahead than China in the years to come.
The hard Indian reality of a huge demand from its vast population which can propel the installed capacity of most sectors by at least three times during the next decade, if properly steered by proiper policies, when China starts tottering with self inflicted economic indiscipline can make the Indian dream true during our lifetime.

Like 

chandrashekhar

Aug 1, 2009

we are verymuch educated from your view reports,but in infrastructure,where the buying gone?whats your view on infrastructurer story next six to ten month,because mall culturer is totaly fall down.

Like 

sumanto

Aug 1, 2009

China is very smart in playing with the figures. It is making others believe that its economy is growing by 7.8% which will indirectly attract foreign investers to come and invest, ultimately leading to growth of their economy. I can say that the country which is growing in its real sense is India in which the corporates are making good figures in their P&L account inspite of gloval turmoil. The report given is really a eye opener for the investors who are distracted by virtual figures.
This report gives a very good insight of what is actualy happening.
Thanks A Lot.
Sumo

Like 

Joshy K S

Aug 1, 2009

It will create a positive impact and confidence on investors !!!!

Like 

A.Mani

Aug 1, 2009

Great

Like 

GOMS.KRISHNA

Aug 1, 2009

There are 3 types of LIES ...

LIES....
DAMN LIES....
STATISTICS....

Our Country is not fully equiped to give a Reliable Statistical Data... It may take more than 10 years more to reach near that point...
Till then Just Ride on the Feel Good Sentiment..

Like 

kakusathyanarayanarao

Jul 31, 2009

Sir,
First I want to thank you for giving very good
information relating to growth in sectot wise
other analysis in your letter is also
very much useful to investors like me.
Thanking you,

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