India Inc. is losing interest in India - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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India Inc. is losing interest in India 

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In this issue:
» No respite for Indian Auto industry
» Are vintage cars better than gold?
» China acknowledges fudging data
» The detractors of the land acquisition bill
» ...and more!


00:00
 
The fact that foreign investors are losing faith in the Indian economy and the government is there for all to see. Factors such as slowing economic growth, high inflation, current account deficit, lack of reforms among others has led many to pull out money from the country. The ineffectiveness of the government in particular has been the pain point for the most serious foreign investor. So what are India Inc.'s views on the same? Are most of these companies of the view that the economic climate in India conducive for investments?

Not really. Because as per an article on Firstpost, India Inc. has sent a message to the government to seriously start putting things in order. Otherwise, the latter will have to face the consequences of lack of investments in the country. Indeed, some companies have already begun scouting for lucrative investment opportunities overseas. For instance, Biocon is investing about US$ 200 m in a manufacturing plant in Malaysia to offset unreliable power and water supplies back home. This is just one example. Other companies grumbling about government apathy are the Aditya Birla Group, Piramal Enterprises, Cipla and so on. The statistics also highlight the growing lure of investments abroad. Indeed, Indian Inc's overseas direct investment, including bank guarantees issued to overseas units, stood at more than US$ 21 bn in the first seven months of this year. This is up 38% from the same period of 2012.

Of course, many of the problems related to the government are nothing new. Issues such as slow decision making, bureaucracy, poor infrastructure were impediments even in the past. Despite that, the economy managed to grow at a healthy pace in the three years before the global crisis. And the fact that India has world class companies had a lot to do with it. But the tolerance level has now significantly reduced.

If the goal of 9% growth has to be achieved, then the current sorry state of affairs cannot simply continue. The government had the chance to go in for some bold reforms when the Indian economy had been steadily growing. But it chose to just sit back. Now, when it is forced to act fast, it neither has the ability nor the means to do so. In the meanwhile, it is looking at ways and means to stop the dollar outflow and induce foreign investors to pour money into the economy. But all of these measures do not look at a longer term picture. Somewhere down the line, none of these myopic measures will hold the attention of foreign investors. What will instead make matters worse is that domestic investments will dry up. And that is something that the government can hardly afford to let happen. But will it do something about it? That is the million dollar question.

Do you think that domestic companies will gradually stop investing in India and look for opportunities overseas? Please share your comments or post them on our Facebook page / Google+ page

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01:26  Chart of the day
 
FY14 is proving to be another difficult year for the Indian auto industry. As can be seen from the chart, volume growth in the first 5 months of FY14 has been very poor for most segments in the auto space. And this is likely to continue unless there is a pickup in economic activity. There are hopes that good monsoons and the festive season will help in providing the much needed boost to the beleaguered sector. But growth will really start accelerating once a meaningful recovery in the Indian economy begins to take shape. Whether this will happen anytime soon remains to be seen though.

*Passenger vehicles, **Commercial vehicles
Data Source: SIAM


02:11
 
Do you know which is a better investment than gold? Well, as per property consultant Knight Frank, it is none other than classic cars like Ferraris, Bugattis and Bentleys. This conclusion was arrived on the basis of a survey carried out during the first six months of June. As per the survey, while classic cars rose 28% in value, gold slumped 23% and hence remained a huge underperformer. What more, even other items like rare coins and stamps performed way better than gold.

Should this lead to a rethink in one's investment strategy? Should gold be discarded in favour of the other items that outperformed it? Certainly not we believe. First, the survey has been conducted over a very short term period and hence, cannot be a true indicator of long term performance. Secondly, while gold has been in existence since thousands of years, we don't even know whether these classic cars would exist a few decades from now. In other words, they carry a high risk of turning obsolete.

Besides, it would be much easier for gold to change hands during times of economic distress. Who would want to keep hauling Bugattis and Bentleys of the world from one place to other in exchange of essential goods and services? Therefore, it is unlikely that they would continue to steal gold's thunder over the medium to long term.

So, should you buy gold now? And if yes, how much? We know it is questions like these that concern you these days. And your trusted source for views and opinions, The 5 Minute WrapUp, too has unfortunately not helped by staying silent on such questions. We understand that, in addition to stocks, you might be concerned about other asset classes like fixed deposits, gold and property as well. And thatís why we are taking steps to make The 5 Minute WrapUp more relevant to you. Watch this space for more details in the coming weeks!

02:46
 
Doctoring of numbers and misreporting financial data is not unheard of in India or the West. If Enron was the tipping point, the Satyam scandal was the first full blown instance of fraudulent reporting. However, when it comes to economic or government data, nothing beats the opaqueness of the Chinese. True, that the sanctity of India's inflation and industrial production data (IIP) has been questioned several times. However China's economic data is inaccessible or opaque at best. Whatever little data is publicly available is again highly unreliable. So, while China does have a poor track record in information sharing, for the first time ever it has acknowledged fudging the same.

As per an article in Economic Times, the National Bureau of Statistics (NBS) in China has reviewed the financial numbers of over 7 lac companies. These together contribute about 80% of the country's GDP. As per NBS, in a single province of Yunnan alone, 28 companies reported artificially inflated industrial output numbers. Now, Chinese companies are known to have shown higher export figures for years. This helped them claim high duty drawback from the government. In fact, duty drawback became a widespread racket in China sometime back. Some companies even claimed more drawback than their export earnings. While the Chinese data quality points at gross negligence on the part of the regulator, it is time that even SEBI smells the coffee!

03:22
 
The land acquisition bill was passed by parliament last week. The objective of the bill is to provide proper compensation and rehabilitation to those displaced. This would bring transparency in the land acquisition process. However, since the bill has been passed, industrial lobbies have started criticizing it on two grounds. First, the new bill will make the process more bureaucratic. Second, it will increase land acquisition costs of corporates since there are provisions in the bill that mandate a payment which can be four times more than the existing land price.

However, the situation is not as grave as it is being painted. For one, until now the land acquisition laws in the country were archaic. They were ages old. Plus, they had no provisions of rehabilitation. As such, industrialists used to acquire land via coercion. They used to arm twist laws at will. In this process, they benefitted the most while poor land owners suffered. As such, a law was needed to make the entire process more transparent. A bill serves this purpose. True, that new bill will add a layer of bureaucracy. But this will ensure that poor land owners are not exploited. Further, the fears of increasing project cost due to new bill are also overblown. As per CRISIL, project cost will increase by only 3-5%. And this is not a huge amount. Lastly, the bill also has provisions that require consent of majority of people before the land is being sold. This will ensure all affected individuals can have their say. Thus, forced acquisitions will be a thing of past. All in all, while the bill has its own pros and cons, it does not seem as bad as it is being made out to be.

04:01
 
The US Federal Reserve has been pumping cheap money into the global financial system. US$ 85 bn every month through purchases of long term bonds! The aim is to keep borrowing costs artificially low so that it would boost investments in the economy. More investments mean economic growth and more jobs.

The problem is that central banks assume that their actions will have only the intended effects. But this is a dangerous assumption. And none other than a top Fed official John Williams has pointed this out. According to him, monetary and regulatory policies can trigger asset bubbles that can later burst and lead to a widespread economic crisis. Take the US subprime mortgage crisis. Was it because of an external shock? Not at all! The problem was within the system. Mr Williams goes on to say that policymakers need to change their approach and factor in such possibilities. While the rational asset price theory may say something, the reality is nowhere close. Investors and financial markets behave in a very different way. We couldn't agree more with the gentleman.

04:46
 
The Indian markets were trading firm during the post noon trading session. At the time of writing, the BSE-Sensex was trading up by about 520 points or 2.7%. Stocks across the board were trading firm with those from the capital goods, auto and FMCG spaces leading the pack of gains. Midcaps and smallcaps were also in favour with the BSE Mid Cap and BSE Small Cap indices up by about 1.2% and 1% respectively. Stock markets in other parts of Asia were trading firm as well with Japan, China and Hong Kong up by 1.5%, 1.2% and 1% respectively.

04:56  Today's investing mantra
"Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding. We will simply take the lush earnings of the business and use them to buy similar businesses elsewhere."- Warren Buffett
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4 Responses to "India Inc. is losing interest in India"

Subba Bangera

Sep 12, 2013

The loss of speed in achieving what you have to achieve due the pulls and pushes of our policies is making people like me to think that India is industry friendly. The single window clearance is only slogan as we have to get 35 licences even today to set up a manufacturing unit. We are floating with fantastic ideas, but our speed of implementation is very poor. We are discouraged than encouraged. Yes the enthusiasm is lost and hunt is on outside India.

Like 

amrchopra

Sep 11, 2013

Indian rules do not favour people who believe in hard work. I do not like to sit idle so I go to work every day and what ever I earn govt takes away at least one third and then I have deal with atleast 25 inspectorates. If I sit at home and just invest money in debt funds I have to pay only 20% tax on gains after indexation and no other hassles. Moneyed people are better off.

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Troy Steven Rodgers

Sep 10, 2013

Yes "India Inc" will lose interest in India and why not.When the babu's and Politicians wan't money or some favour to pass every project.And if they do get they way than they find a millions of ways to put the project on hold.

so why should not India businessmen go out and invest where they are given more respect for the money they invest in another country.

Its High time the people in the government know one simple facts.If you have investment coming in you can fund all your free project which you plan for the poor just to win an election.but when you do not have money coming in than that is a very big and serious problem.

So please wake up fast to the Indian business man's request and let them invest in they own county or they will take the money out of the country.

Like 

Dr.Veeranna Doddipatla

Sep 10, 2013

The short terms measures to stop dollar out go and get FII dollars and advising PSUs to go for ECB will be disastrous in the long run unless simultaneous long terms to improve productivity, improve exports and reduce imports are taken. It is important to reduce oil bill but it is not easy. It needs very long term planning to improve infrastructure and public transport system. Govt. should encourage public transport. Attract FDI. Govt. should definitely look at ways to stop dollar out go, but taxing TV brought by returning NRIs is too silly step to give any credibility to the intention while increasing the limit of dollars one can send to his relations outside to meet the expenses. What we need is very sincere commitment without selfish motives.

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