INDIA – THE LAND OF OPPORTUNITY
India is no longer the country of Taj Mahal, elephants & snake charmers only but has become the land of opportunities. The old age tag line of “Bird of Gold” is slowly getting prominence and acceptance in this modern competitive environment. We as a country have seen it all – Ruled by the outsiders, Gaining Independence, Green Revolution, and Political Coalitions but above all, the growth of our economy from US$ 10 billion USD to over US$ 1.2 trillion since independence. This is just the beginning of the growth that we have embarked upon and will cross many more milestones in the journey towards US$ 2 trillion to 3 to 4 and so on and so forth. What is driving growth in our country, when the world is struggling to keep their head above water? What are the businesses that will provide the much needed impetus to our economy which will make the world sit and notice? What will make the world believe that “Ignore India at its own peril”?
Our GDP contributors have been changing from dominance by Agriculture to Services & Manufacturing. 30 years back agriculture used to contribute over 30% to our GDP but the same has dropped to under 15% whereas Service sector has increased from over 30% to over 50%. The entrepreneur spirit couple with the service mindset has helped us in reaching such high growth in services sector. The manufacturing sector contribution has increased from 19% to over 28% during the same period.
What makes the Indian opportunity so exciting from an investment destination point of view?
Expanding per capita: The 1 billion plus population is the most promising opportunity that any business can look at. The below the poverty line population has fallen from 93% in 1985 to less than 50% currently and is expected to come down further to below 25% by 2025. This will bring a large part of deprived population under the consumption net. What doubles the excitement is that fact that over 60% of the population is below the age of 35. This demographic change will present a huge opportunity for the companies catering to consumption.
Fiscal Discipline: The ministry of finance has been working overtime to control and bring down the fiscal deficit. The fiscal discipline will improve the quality of finance of the country and will allow the government to make money available for growth. The current 3G and BWA auction has just helped the cause.
Government, the big spender: The biggest challenge for the government is to impart fiscal discipline but at the same time do not compromise on the growth story across key sectors like Infrastructure. To bridge the gap and execute large projects, government is seeking private participation in projects like Airport modernization, Metro railways etc. We are currently spending 6.50% of GDP on infrastructure and the same is expected to go up to 9% by 2013. This will give a huge boost to the economy and will create large employment opportunities thereby increasing the purchasing power of people.
Savings boom: By nature and culture, we are savers and do not believe in leveraging ourselves as individuals. The Indian savings rate is between 35 to 40% thereby giving a huge opportunity to BFSI sector to be instrumental in such large savings. With GDP all set to grow to 2 trillion USD, our savings will be close to 1 trillion USD.
Keeping the above factors in mind, India looks to be a great investment destination and anybody who has vision, discipline and patience will immensely benefit out of it.
How are the markets looking currently and our view going forward?
During the month of May, stocks and commodities across the globe, collapsed on growing fears that the Euro- Zone Sovereign Debt crisis may deepen, thus adding to the uncertainty on the global economic recovery. The ripple effect of this was felt in emerging markets like India which showed higher volatility and the benchmark indices fell by ~9%. During the month, the Sensex touched 16,000 levels but recovered in the last week and closed at 16944, which is a 3.5% fall during the month of May compared to April.
On the fundamental side, there may not be a major impact on India's trade as the PIIGS
(Portugal, Italy, Ireland, Greece, Spain) nations' contribute only 3% to the total trade,
although the share of Europe is about 20%.
However, there are some bullish indicators for our markets as given below:
• The domestic macro economic situation continues to be strong, backed by strong GDP numbers. The markets reacted positively to the robust economic performance for Q4 and the financial year ended March 2010. India's economy grew at 8.6% in the March quarter driven by robust growth in the manufacturing sector due to increased government and consumer spending and the full year GDP figure for FY10 stood at 7.4%.
• IIP figures for the month of April stood at 17.6%
• The government has increased gas prices as another reform measure which would impact the Oil companies positively.
• The fiscal deficit situation will improve considerably based on the 3G auction, thus easing the pressure on the 10-year bond yields.
Sectoral Performance analysis for the fourth quarter:
• Metals and Engineering sectors performed better than expected.
• The Auto, IT and FMCG sectors performed in line with expectations.
• The Infrastructure, Oil & Gas and Real Estate Sectors fell short of our expectations.
• Sectors where both EBITDA and PAT growth was disappointing include Real Estate (PAT growth of 180% v/s est. of 206%), Oil & Gas (PAT decline of 27% v/s est.decline of 14%) and Cement (PAT decline of 13% v/s est. decline of 4%)