Apr 28, 2009|
A tale of two countries
While the causes and effects of the global economic meltdown have been adequately documented, some key developments in recent times have brought out the differentiating factors between what is happening in India and China.
Growth not for the sake of growth
The World Bank and the IMF have rejected all possibilities of the Indian economy growing anything in excess of 6% this fiscal. While this may sound distressing considering the 9% YoY GDP growth clocked last fiscal, there are other facets to be looked into. The central bank in India (the RBI) is worried about insufficient private investment in infrastructure. At the same time, however, although lending by financial institutions is picking up, risk aversion is still forcing them to seek higher collateral while sanctioning loans. As per a business daily, the NBFCs have in certain cases, such as promoter funding, not just doubled the collateral requirement but also sought more securities to cover themselves against the risk of default. Infrastructure and vehicle financing NBFCs, which used to take collateral of up to 90% of the loan amount earlier, are now asking borrowers to place higher collateral either in the form of cash, equity or direct equity participation for availing loans.
On the other hand, China, our neighbouring country which proclaimed to have overcome the slowdown impact is now seeing red with the record high sums lent by some of its biggest banks. As per the Wall Street Journal, the explosion in China's bank lending this year as compared to the sharp contraction in credit in the Western countries, has been crucial to shoring up its economic growth. The Chinese government is nevertheless concerned with the size and unusual structure of the lending so far this year. In the first three months of 2009, China's banks have disbursed 4.6 trillion yuan (US$ 640 bn) worth of loans, which was nearly equal to the entire lending for 2008 and equivalent to around 70% of the nation's GDP for the quarter. Further, nearly 30% of these were working capital loans, which the government suspects that companies have borrowed and invested in stock and property markets.
India's resilient 'consumption' story
As the full year FY09 result season sets in full swing, investors are keen to know which are the companies that have been resilient to the slowdown and which are the ones worst affected by the same. The companies that are linked to the India's consumption potential, particularly in buying goods that do not require financing, have emerged triumphant. In fact, even global FMCG companies are eyeing this market to minimise the slowdown impact on their P&L. For instance, as per the Wall Street Journal, Coca Cola's sales in India climbed 31% YoY in 4QFY09, its 11th consecutive quarter of growth in the region. We had earlier spoken of McDonalds India having enjoyed similar fortune. Coca Cola, meanwhile, is so enthused by the opportunity that it plans to invest 20% more (US$ 250 m) in India this fiscal.
During the difficult times in the past fiscal, neither the Indian government nor Indian companies have, however, been particularly transparent with regard to their operations. Leaving the Satyam episode aside, even excessive leveraging, pledging of shares by promoters, cancellation of orders and fiscal mishandling were shoved under the carpet for too long. At such times, it was interesting to come across a detailed track record of the US government's bailout programme on CNN's website. Probably we need to take some lessons here.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
Aug 16, 2017
And what it has in common with beating the stock market too.
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Aug 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407