'India has what it takes to beat US, China' - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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'India has what it takes to beat US, China' 

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In this issue:
» Management guru feels that India has the resources to trump US, China
» Chinese central banker rings alarm bell on US dollar
» Airlines seem to be getting in good shape
» Ban on P-Notes stayed
» ...and more!!


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00:00
 
The core competencies of businesses have often been proven to be the ones that drive economies as well. Who would be a better counsel of this other than the author of international bestsellers like 'Core Competence of the Corporation', 'The Future of Competition and 'The Fortune at the Bottom of the Pyramid'?

We are referring to famed author Dr. C. K. Prahlad. It would interest readers to know that Dr. Prahlad believes that Indian economy has what it takes to trump US and China over the longer term. Provided government and corporate will and policies are in place.

In an interview to a business daily, Dr. Prahlad has opined that India could steadily improve upon three key factors that push it lower in the world economic order. These being innovation, entrepreneurship and economic reforms. What intrigued us is his opinion that entrepreneurship does not necessarily mean volume of investment. In fact, it largely depends on innovation and the way you think. He also says that India already has a good crop of entrepreneurs who can take advantage of innovation and quick pace of reforms.

With regard to the larger corporate, Dr. Prahlad believes that the global recession has provided them an ideal opportunity to consolidate and focus on growth and profit opportunities. Particularly, in the under penetrated rural areas. While we wholeheartedly agree with these views on the long term trend for India, we believe that the move upwards will not be without hiccups.

00:48  Chart of the day
Readers of this space surely know by now that we are big fans of gold deserving a small place in your portfolio. Today's chart of the day only helps reinforce this further. Gold surely has turned out to be one of the best asset classes to be in on this side of the 21st century. A person who would have bought gold on 31st December 2000 would have seen the value of his investment go up each year for the next 8 years, and if the prices till date for the current year are any indication, he could well be on his way towards a ninth successive year of gains. Considering that the global economy is not out of the woods yet, the yellow metal could well prove to be the trade of the next decade as well! So, if you haven't bought gold already, it may still be not very late.

Source: Bonner and Partners' family office

01:27
 
It is very difficult to find a Chinese central banker getting a chance to air his personal views. But that protocol was broken recently. The Deputy Governor of the People's Bank of China has let his views known to an academic audience. And it really turned out to be an eye opener of sorts. He feels that there aren't just enough US dollars around to buy the gigantic US debt that is likely to come onboard in the coming months.

It should be noted that until 2006, the US ran a current account deficit to the tune of US$ 800 bn. This means that exporters to the US got US$ 800 bn annually and they used most of this to buy US debt. But with the US consumer going into a shell after the crisis, the current account deficit has come down an eye popping 50%, thus leaving the exporters with just US$ 400 bn with which to buy US debt.

On the other hand, debt issuance by the US has increased at an alarming pace, thus creating demand supply mismatch of epic proportions. Little wonder, investors are placing huge bets that price of US debt or in other words US treasury, would go into such a free fall that it would be difficult to arrest its decline. Of course, the US Fed can come to the rescue and buy all the excess debt, but this would mean injecting trillions and trillions of dollars worth of cash into the system and giving an open invitation to runaway inflation. Clearly, there seems to be no easy way out for the US out of its current mess.

02:21
 
Fortunately, the US can print the US dollar, the reserve currency of the world, at will. Thus, whenever any creditor knocks at its doors, it can simply turn on its printing press and make good on the default. But that may not be the case with other countries. Recent episodes like Greece and Dubai have clearly highlighted that the chances of a sovereign defaulting on its debt is perhaps higher now than any other time in history. Hence, banks do not want to take chance.

As per a leading daily, top managers of some large banks are now discussing whether they need to start making provisions for different forms of sovereign risk, in the same manner as they now make reserves for corporate or emerging market risks. Whether this could be executable is not known for sure. What we know for sure is just as mortgage and corporate risk were the big themes of 2008 and 2009; sovereign risk is likely to emerge as one of the biggest themes in 2010.

02:55
 
Here's something that can pull in higher foreign inflows into Indian stockmarkets going forward. As per a leading business paper, the finance ministry has decided to keep the issue of taxing participatory notes (P-Notes) on the back burner as of now.

* As % of total FII money invested in India; Data Source: SEBI

Remember, P-Note investors and nothing but a sub-set of FIIs who wrecked havoc on the Indian stock markets in 2008 - by selling stocks left, right and centre. And given that these P-Note investors are like faceless entities, we remain clueless of their real identities and reason for investing in India.

As Mr. Ajit Dayal wrote one of his June 2009 issues of The Honest Truth - "The P-Notes are a strange animal in the Indian capital markets. As an Indian, if you want to buy shares, the government wants to know everything about you. As an Indian, if you wish to buy a mutual fund, the government wants to know everything about you. If you are a US, European, Japanese pension fund; a university endowment; a charitable foundation; then the government wants to know a lot about you. But if you are a P-Note holder, heck no one wants to know who you are!"

We believe, by deferring a tax on P-Note investors, the government is doing a disservice to the local investor!

03:44
 
The eerie looks of empty malls during the dark days of the credit crisis finally seem to be getting over. Reports suggest that people are lining up once again to do their shopping. And with 750 odd malls under various stages of development across India, many projects are seeing a revival. Malls projects across the length and breadth of the country were almost instantaneously put on the back burner since the Lehman collapse rattled the financial world. But evidently, spring is back.

Especially for the ambitious family of retailers and builders whose once lavish plans had suddenly become sources of embarrassment for them as the crisis took them by surprise. But now things are slowly improving. One can just hope that they've learnt their lessons well. And that they don't end up becoming victims of their own over ambition this time around.

04:12
 
Despite being a great example of human innovation, the airline industry in general makes very little money. Sometimes, things get really bad. Like in the past couple of years. High oil prices, low passenger traffic and intense competition left most Indian carriers in deep turbulence. However, as per a leading business daily, things have improved over the last three months for airline companies.

SpiceJet expects profits this quarter. Jet Airways is also likely to break even for the first time in the last seven quarters. The reason behind the turnaround is higher net revenue per seat and greater load factors. This is due to the narrowing of demand and supply in the sector. In our opinion, the long term investor must ask whether the basic nature of the industry has changed. Fuel prices are still beyond the airlines' control. It remains extremely capital intensive. There is no insulation against competition. In fact, given the glamour angle - the sector tends to attract more players. Finally, travel remains a commoditized service where customers are extremely price sensitive. Little wonder then, we remain cautious about the sector.

04:48
 
Meanwhile, at the time of writing, Indian markets were mirroring their Asian peers and were trading in the positive territory with the BSE-Sensex higher by nearly 100 points. European indices have also opened on a strong note.

04:54  Today's investing mantra
"Chains of habit are too light to be felt until they are too heavy to be broken." - Warren Buffett
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14 Responses to "'India has what it takes to beat US, China'"

Uma P.

Mar 20, 2010

Despite the factors and effects of Hidden hand, the real Indian strength is in the spirit and Indian thought. Management in a large scale is the best when one places emphasis on emotional intelligence, collective consciousness and relate to people to solve the problems with the application of conceptual knowledge. Who would have thought micro economy concepts would clear the debts that made one live in a below average economic condition and raise them to levels they have only dreamed of for their children? For someone who could not provide two square meals a day for their children, investing their skills by taking loans for small projects and coming out with concepts like selling raw material for the hair industry, preparing snacks and reaching out from an undernourished family to a well fed and well educated family with social recognition means a lot. What we need to focus is on networking, developing trust and motivation to achieve success in all fields. With motivation and trust someone who may have only dealt with oil and gas as a helper at the gas station can mint billions by using strategy and acumen to achieve success and be a world leader. Reading journals/ blogs as this is a great way to communicate and touch lives. Thanks for this opportunity.

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MURALI KRISHNAN K

Jan 14, 2010

GROWTH OF MALLS / REALTY SECTOR / AIRLINE INDUSTRY:
A BIG HYPE IS CREATED BY MEDIA, EVEN FOR THE SLIGHTEST CHANGES. APPROPRIATE WORDS ARE NOT USED IN REPORTING. MINIMUM OR NORMAL INCREASE IS QUOTED AS 'SURGES'!! SIMILARLY, A MINIMUM OR NORMAL DECREASE IS QUOTED AS 'STEEP FALL OR SLIPS'. THEY WANT ONLY SENSATIONAL NEWS. IF THERE IS NO SUCH ONE, THEY USE SENSATIONAL VOCABULORY. HOPE IT IS TIME TO TEACH BOTH REPORTERS AS WELL AS EDITORS THE USAGE OF PROPER ENGLISH. IN INDIA EVERYTHING NEEDS TO BE REGULATED!!!!!

Like 

MURALI KRISHNAN K

Jan 14, 2010

ITS SHAME ON THE INDIAN GOVERNMENT'S POLICY ON P NOTES: A RECENT REPORT INFORMS THAT FIIs HAVE MOPPED 80% RETURNS FROM THEIR INVESTMENTS IN INDIA OVER LAST YEAR, AFTER THE FALL OF MARCH 2009 SENSEX. RESULT: DRAINAGE OF FUNDS FROM OUR COUNTRY (IT IS AN 'UNEARNED MONEY') FROM THIS SPECULATIVE ACTIVITY. THIS DRAINAGE IS CREATED BY KNOWN SOURCES. WHATS THE GRAVITY OF SUCH DRAINAGE OF INDIAN FUNDS THROUGH THIS 'UNKNOWN EVILS'. WHY THE GOVT FAVOURS IT????????

Like 

MURALI KRISHNAN K

Jan 14, 2010

U S CAN PRINT U S DOLLAR:
WHY THIS PRINCELY STATE TO THIS COUNTRY ALONE? WHY NOT CREATE A 'COMMON CURRENCY'? EVERY COUNTRY SHD EXCHANGE THEIR OWN CURRENCY WITH THE COMMON CURRENCY. WHO SHD TAKE THE INITIATIVE? THE WORLD BANK ALONE! BUT AGAIN IT IS IN THE HANDS OF U S! HOPE NOW CHINA CAN IDEALLY MOOT THIS IDEA, AS THEY HAVE ALREADY TAKEN UP THE ISSUE, 'WHY U S DOLLAR'

Like 

vdsabnis

Dec 23, 2009

it is known that the in India corrupt politicians and their illgotten money shaake the share market.KYC shall have no effect whatever, SWISS banks abound in black money of politicians and their family members.God save India.

Like 

Kanu K Warriar

Dec 22, 2009

the chart fo gold prices from year 2000 has been taken to push the point forward, where prices moved from 274 to 1200. Gold was at the $680 mark in 1980, formed a low of $300 in 1984 and languished for the next 16 years.

editor's should always ask analysts to give a longer period price movement and then put the shorter period move in context. i'm sure the case is not that the view was formed first and the chart period chosen later to support the view.

Like 

sanjay

Dec 22, 2009

with per capita income and gdp at levels after 60 years of independence its wishfull thinking.
also great ideas like nrega have implemetaion where you can only dig lands!!!!!!!no bettr ideas.
and best nrega winner have all phd's working to do labour work to get their best implementation price as reported in one daily.
thats what our leadership can think of employing phd s for land digging!!!!!!
jai ho !!!!

Like 

Prem Singh Dhankar

Dec 22, 2009

I fully agree with Mr. Prahlad that we have every thing but dedicated POLITICIAN!!! ALAS, WE HAD ONE LIKE Dr. MAHATHEIR OF MALASIA! WE NEED ANOTHER IRONMAN OF MODERN ECONOMY. MAY GOD GIVE SOME IMPOWERING VISION TO OUR PRESENT POLITICIAN. LET US ALL WISH THEM A CHALLENGING AND NOT SO PROSPEROUS AND HAPPY YEAR 2010.....SO THAT THEY START WORKING FOR THE NATION BUILDING AND NOT PERSONAL ASSET BUILDING...long time back during my defence services leadership course i learnt---- LEADER LEADS BY EXAMPLE, WE LACK SUCH LEADERS IN MANY FRONTS.
Thanks a lot for the veiws.

Like 

Jaskaran Teja

Dec 22, 2009

I have heard Dr.Prahlad speak before and he is good at inspiring his business audiences. But his reported view as reported in your comments today seems way over the top! China's GDP is nearly three times bigger than India's. If you seriously want to compete, you have to outdo the Chinese in almost all areas. It would be interesting to see Indian corporations set goals where they think they can beat China and then monitor/evaluated our performance. I have not seen any statement from any Indian business leader!
Jaskaran Teja
Geneva, 23 December 2009

Like 

sachin pande

Dec 22, 2009

while this idea may seem far fetched as of now, i am a strong advocate that in near future there could be some large corporations 'buying out' complete countries (or land mass of the country) at a promise of reviving the economy of those countries. looking at the current spree of companies picking up mining rights across poor countries and countries like US facing the financial crisis, that day may not be far away when few larg corps actually go all out, cut a deal with a country for its resources for a price.

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