Wednesday, November 24, 2010

Global Car Indian Market


My Big India My small Car

The rupee one lakh car is now very much on the streets and as well as in the garage of many thousand Indians. The small car market was discovered by TATA motors. It was discovered by Maruti. Yes that company made the first mark on the Indian consumer mind that one can be an owner of a small car. The Indian stock market took the hit that Volkswagen AG’s Polo and Ford Motor Co.’s Figo — the new kids on the block — have found more buyers than both companies initially expected. Nissan Motor Co. and Toyota Motor Corp. have also lined up their own small car markets. This will reduce or eradicate maruti from the market. Sorry to say and disappoint all my speculator friends that still now maruti holds 50% of the small car market .

The following crunching of numbers will make it more clearly about the Maruti small car market position currently held by it:

• The Delhi-based automaker’s bestselling model Alto clocks sales of 17,000 to 18,000 units per month on average.

• Compare those five-digit figures with Ford’s April sales of 7,509 vehicles, a record monthly figure boosted nearly threefold by strong sales of the Figo, its maiden small car in India. Volkswagen is not far behind with its Polo model receiving bookings of 7,300 units in the two months after its launch. Both are still a good way below Maruti’s numbers.

The Indian automobile market is now the most favored detonation of doing sales as well establishing manufacturing house in India. Every company wants to take advantage of the Idnian consumer market.

Indian Consumer mind have taken major changes in making India to dream the GDP growth of 10%.The urban population in India is India is currently 30% urbanised, while 70% of consumers are still in rural India. As far as consumption goes, 404 Million are either consuming or are aspiring consumers. One of the prime reasons for a one way growth in consumer product market is higher percentage of savings. Indian currently have savings a rate of 36.8% as compared to 28.4%.This high savings rate is making the one way growth of consumer product market. Higher per capita income, radical changes in the salary and business income growth opportunities are making the Indian consumer market to propel like mango groove.

So its well clear than India will be a pool of funds in the automobile sector and the competition in the coming days will not bring smile on the face of the companies. Domestic companies have to find and compete with innovative ideas and concept to deal with the overseas competition.

One thing is granted that Indian consumers will have new tastes and new demands as they have an never ending income generating force. In other words India possess the highest number of young generation of income holders whose taste and preference are enough to be tempted. What the automobile companies needs to understand is the way of luring that temptation. Just imagine Maruti the company which enjoyed the premium by simply changing the mindset of the consumers and asking them to dream and convert the dream of having a Car in front of their house.

Today the competition is fierce and in the coming days it will be very hard to say by gazing at the crystal ball about the future of the domestic car companies in India. Small is the only concept being produced in factories and companies are just feeling impossible to increase their market share at a rocket speed. But all these will be sound of good music till the crude price remains under the mark of $100.Once this start climbing along with the India petroleum prices the sales of automobiles will take a major hit. This sector growth will increase the demand of steel and auto ancillaries market. But one should be very careful taking a short term outlook of growth for this sector.
2011 Investments Strategies.
According to the Investment Commission of India, India is among the most competitive manufacturers of auto components in the world. India is turning into a global hub for research and development (R&D). Companies like Daimler Chrysler, Bosch, Suzuki and Johnson Controls have set up development centres in India. Many international auto-component majors including Delphi, Visteon, Bosch and Meritor have set up operations in India. Auto manufacturers including GM, Ford, Toyota, etc. as well as auto component manufacturers have set up International Purchasing Offices (IPOs) in India to source their global operations. Apart from all these there are number of new plans of investments standing at the door. A few glimpses of all those are here given below:

• German automotive components company, Wallstabe & Schneider, has established its Indian presence by signing a joint venture (JV) agreement with Thane-based Mecnam Products and Mumbai-based Deshmukh Rubber Works Pvt Ltd.

• The world's largest automotive component manufacturer, Bosch, plans to invest US$ 433.5 million in India over the next three years. "India will be an important market for the company in the immediate future," said Bernd Bohr, Chairman of the Stuttgart-based Bosch Automative Group.

• Tyre manufacturer, Apollo Tyres Ltd, is set to make Chennai its manufacturing and research and development (R&D) hub and is establishing a US$ 433.6 million manufacturing facility, which is likely to see an additional investment of US$ 130.09 million.

• Now one might say that these investments might take some time as global liquidity and other factors might be a cause. I would like to clear one thing Indian market consumer resources are now the life Blood of the Entire Global Consumer and corporate market. So even if there is a short term hiccup the long rider is very sweet and will be memorable for the Indian automobile market History.

Policy Initiatives

The government has taken many initiatives to promote foreign direct investment (FDI) in the industry.

• Automatic approval for foreign equity investment up to 100% of manufacture of automobiles and components is permitted

• The automobile industry is delicensed

• Import of components is freely allowed

The Ministry of Heavy Industries and Public Enterprises has envisaged the Automotive Mission Plan 2006-2016 to promote growth in the sector. It targets to:

• Increase turnover to US$ 122 billion – US$ 159 billion by 2016 from US$ 34 billion in 2006

• Increase export revenue to US$ 35 billion by 2016

• Provide employment to additional 25 million people by 2016

• The automotive sector is expected to contribute 10 per cent of the country's GDP by 2016

According to ACMA,

• Overseas auto-component manufacturers, especially small and medium enterprises (SMEs) should invest more in capacity enhancements and Greenfield manufacturing in India to meet growing domestic demand for auto-components

• Investments in Auto-IT sector is a high potential area

• To encourage new wave of partnerships at the Tier 2/3 level covering the entire automotive supply chain to address not only product technology, but also "Process Technology"

DTC/GST---BOON
The introduction of new taxation laws like GST and DTC will spur the market growth of these sectors. Automobile will find growth equivalent to other sectors but with little hiccups in between. A higher margin of disposal surplus due to New Direct Tax code will enable consumption demand of Indian economy to take new shape and size. GST will add up in bringing in better pricing and margins to the automobile industry. GST is expected to bring down cost for the industry, which is currently marred by endless taxes charged at different state levels. If experts are to be believed, the cost savings will run into double-digits for the sector. GST will eradicate those small tax windows and lead to seamless travel of products from one state to the other. It would remove multiple taxes and bring forth the right value of the products. This will also increase the growth of the sector in the coming quarters and specially after April 2011.

The international crude price affect on the Indian consumer minds remain on high alert. Investors across all corners will find growth form the industrial investments as well as stock market. Small car market companies along with new diversified products and new market products will be flavor of Indian automobile company.Crude prices are to be taken as short term hiccups and there is no sign of immediate reach of it to the mark of 100 dollar/barell. So plan your car and your investments and ride it for long.

Indian Cement@ Growth


In the past couple of my write ups I have tried to bring you the potential growth momentum invisibly present in the Indian sectors. I hope I was able to give all investors from corporate finance to individual retail investors a probable idea on their investments plans.

As we all know that Indian infrastructure is poised for huge growth in the coming decade particularly with the 12th –Five year Plan, where investments in this sector will bring the growth not only for Indian economy but also for the global economy too. With infrastructure we bring growth of and demand of steel and cement. These two are the prime inputs of infrastructure. In other words these two sectors are the eyes of Infrastructure. Demand of cement will be increasing in the coming quarters. Infrastructure is not only the reason behind demand but also Real Estate will be another momentum builder for cement.Without making any further nanalysis of finding out from where the growth of the Indian cement industry will come we will try to hit the "BULL's EYE"

2011@unlimited Growth
In 2011 we find a golden era for the Indian cement sector. Those speculators who are speculating that the industry is facing excess supply and low demand are just betting on the short term outlook and now enabling to foresee the long term huge potential of growth waiting outside the door.
New Investments
  • Cement and gypsum products have received cumulative foreign direct investment (FDI) of US$ 1708.69 million between April 2000 and March 2010, according to the Department of Industrial Policy and Promotion.
  • Madras Cements Ltd is planning to invest US$ 178.4 million to increase the manufacturing capacity of its Ariyalur plant in Tamil Nadu to 4.5 MT from 2 MT by April 2011.
  • Surya Group plans to invest US$ 873.3 million in a new 5 million MT cement plan to be set up in Gujarat.
  • My Home Industries Limited (MHI), a 50:50 joint venture (JV) between the Hyderabad-based My Home Group and Ireland's building material major CRH Plc, plans to scale up its cement production capacity from the existing 5 million tonne per annum (mtpa) to 15 mtpa by 2016. The company would undertake this capacity expansion at a cost of US$ 1 billion.
  • Shree Cement, plans to invest US$ 97.13 million this year to set up a 1.5 million MT clinker and grinding unit in Rajasthan. Moreover, in June 2010,
  • Shree Cement signed a memorandum of understanding (MoU) with the Karnataka government to invest US$ 423.6 million for setting up a cement unit and a power plant. US$ 317.7 million will be used to set up a cement manufacturing unit with an annual capacity of 3 mtpa while the balance will be for the 100 mega watt power plant.
  • Jaiprakash Associates plans to invest US$ 640 million to increase its cement capacity.
  • Swiss cement company Holcim plans to invest US$ 1 billion in setting up 2-3 greenfield manufacturing plants in the country in the next five years to serve the rising domestic demand.
  • Holcim is present in the country through ACC and Ambuja Cements and holds around 46 per cent stake in each company. While ACC operates 16 cement plants, Ambuja Cements controls five plants in India.
  • The Aditya Birla group is the largest cement-making group by capacity in the country and controls Grasim Industries and Ultratech Cement.
  • The opening up of the cement-grade limestone regions is expected to draw investments to the tune of Rs 18,000 crore for the cement industry. 
If we look towards the probable (M&A), we find another round of good growth for the domestic market.
Mergers and Acquistion (M&A), PE deals
  • KKR- Dalmia Cement signed a deal worth US$ 159.57 million in May 2010.
  • French cement company Vicat acquired a 51 per cent stake in Bharathi Cement Company Ltd, promoted by Y S Jagan Mohan Reddy, Member of Parliament, to tap the southern markets, which represent 40 per cent of the total Indian cement market.
Government Initiatives
The cement industry is pushing for increased use of cement in highway and road construction. The Ministry of Road Transport and Highways has planned to invest US$ 354 billion in road infrastructure by 2012. Housing, infrastructure projects and the nascent trend of concrete roads would continue to accelerate the consumption of cement.
  • Increased infrastructure spending has been a key focus area. In the Union Budget 2010-11, US$ 37.4 billion has been provided for infrastructure development.
  • The government has also increased budgetary allocation for roads by 13 per cent to US$ 4.3 billion.
Where we need change?
But apart from these growth and investments opportunities we find a number of hindrances for the growth of the sector. Coal is one of the biggest problems. It’s not that India don’t have coal blocks but it’s the mining and environmental policies which makes the delay in getting the coal from the blocks.
A very quick proof of the upcoming demand of cement industry is being found from the requirements of the raw material required for Cement production. Jindal Steel is going to open 129000 tones cement production capacity and for this they will need coal. This have made them to acquire the Canada's CIC Energy Corp. for $414 million (Canada $422 million). The deal involves JSW picking up a 100% stake in the coal mining and power firm which owns 2.6 billion tonnes of coal reserves in the Mmamabula region of Botswana.
This buyout only reveals that flow of funds is moving from Indian investments to other pockets. If the money spend for global acquisition was deployed in the domestic process of cola fields then imagine and work out the growth mining and other industrial ancillaries would have achieved. We need to work out on mining and environmental policies otherwise Indian economy and industrial growth will not be able to pick up the pace of growth.
Historically the Cement Industry have witnessed growth of :
        • Until 2008, cement production in the ten countries in question grew by more than 10% each year, as cement plants strove to meet growing demand.



   • As a result, output in 2007 exceeded the figure observed four years before by more than 50%.


    • In 2008, however, the 90 cement plants operating in the region reduced production levels to just over 90   million tonnes – with Russia accounting for 60% of total output – in order to adjust to the more modest demand for, and increased imports of, cement to the region.


   • This was followed by a 17% reduction to fewer than 76 million tonnes in 2009, as construction activity declined substantially.
The below chart shows the growth of cement industry globally ------ chart estimation by CIS

Where others capitalize?
We often do comparison with Chinese economic growth. One must remember they have easy guidelines for promoting investments in their economy. China's cement industry for the rapid development of domestic production capacity could lead to a surplus situation, at all levels within and outside the industry have been discussing with the call for the domestic large-scale cement enterprises to go abroad, to foreign investment. They have grown well within the house and plan to move further. China's cement enterprises go out consists of three levels: Firstly, the cement exports, and second, cements technology and equipment companies go global, three cement manufacturing companies invest and build factories overseas. We need strategies like this to grow and expand Indian cement industry.

Go for a Long Drive@Clear the Haze.


At the end I would like to advise investors and corporate finance and private equity investors do open their eyes and look for the invisible growth of the future of cement industry. There are plenty of investment opportunities in hand at present and will be more in the coming quarters. Demand fluctuates but that does not mean it will not increase beyond the ordinary level. Once it start picking up it might be impossible for the existing production capacity to entertain the growth. Invest with long term mindset and don’t go for the words of short term. If one can understand that if sensex needs to surpass and reach higher figures Indian infrastructure is the only wheel and that wheel needs the support of cement, steel and finance to keep rolling the wheel. 30000 sensex is possible and Indian GDP growth of 10% is achievable provided we change the outlook towards the growth. We had enough of conservative outlook. We need to have a bold and a cautious outlook so that we don’t miss any opportunity of the long term

Tuesday, November 23, 2010

INDIAN CONSTRUCTION@GROWTH


The demand of construction is increasing with a speed equivalent to the speed of Delhi metro traveling each day. Road Construction and infrastructure construction is wheel of Indian economic growth from the time of 2004 when it became a word of mouth. Recent economic growth is placing increasing strains on India's physical infrastructure, not only from population growth and expanding economic activities, but also structural changes in the economy. Before recession have touched the Indian shores the total investment in India's infrastructure was estimated at approximately 5% of GDP in 2006-07.
But after recession there have been quite delays in the achieving the desired targets despite of adequate supply of liquidity. Constraints have been due to other reasons apart from liquidity or recession dark nights affects.
Very recently the governments of India have geared up to meet the target of building 20 km of highways a day. We are currently doing around 12 km a day. By next year, we will have work in progress on over 25, 000 km of highways. I am hopeful that we will soon be able to achieve 20 km a day target," Kamal Nath. The government is very keen to put strict practices for on target completion of projects. According to a recent survey done by IQPC, the major challenges in road construction is meeting project deadlines and upgrading existing construction techniques with the latest technologies and materials. The industry is actively searching for best practices in delivering projects within time frame and budget, constructing sustainable and low maintenance roads and most of all incorporating road safety into the design and planning of roads.

In the month of December 2010 many senior representatives from the Ministry of Road Transport and Highways India, National Highways Authority of India, State Road Transport Authorities, consultants and contractors are congregating at Le Meridien, Delhi for a conference to bring g out new strategies for on target completion of projects. The discussion will be focusing on recent projects and overcoming the challenges in designing, planning and constructing roads in India. India will need to spend over USD 1 trillion in infrastructure development during the 12th Five-Year Plan. .Hence new strategies and techniques of execution of road and highway construction projects will be required to be adopted and implemented.

Apart from strategies we also need huge supply of cements and steel to carry on the construction without any interruption. Inadequate capacity to meet demand for coal, natural gas, power and other utilities is “worrying” as it constraints economic growth. This has been raised many times on the table but this time we need to pay real attention for these ancillaries.

Recently the governments of India have banned import of steel and export of iron ore. The industry and the stock market needs to understand that these have been deployed to expand our own production capacity. If we simply meet our demand from export we are just giving away part of the huge growth of Indian economy. We need to setup internal plants and production capacity which will add growth to the companies, stocks prices and also to the Indian GDP. If we set up internal plants we will attract huge amount of FDI and other venture capitalist. Employment and consumption of Indian products will increase bringing huge growth across many sectors.

For example The Ministry of Construction predicts the country's cement consumption in 2010 will reach 50 to 51.5 million tonnes, an 11 per cent year-on-year increase. But this growth number is still inadequate as compared to upcoming huge demand. Coal is another material which will be needed for construction sector. Mining of new coal blocks needs to be increased so that cement and steel don’t have to scout for import of the coal.

The construction sector is facing not only problems of supply of cement and steel and other ancillaries but also of manpower. The construction sector is facing labor shortage of around 10 million persons in any given day and the situation will worsen in next decade when requirement for workers is expected to go up three-fold.

The blessing of this crisis has taken birth from the womb of Business and Technical Schools. The mismatch between the requirements of the industry and the learning in engineering and business schools is creating the gap of skilled manpower for the sector. More surprisingly the only about 1-2 engineers out of every 10 seeking work are employable, according to human resource managers in construction companies. The problems occur from the students and colleges who are having the responsibility of sending the students to site of construction. Now everyone avoids and builds a mindset of working in a cool place away from the site.

The 2011 Growth Path.
To achieve a target GDP growth rate of 9% set by the Planning Commission, gross capital formation (GCF) in infrastructure should rise to 9% of GDP by the end of 2012. This equates to an increase of GCF from 2,598 billion rupees in 2007-08 to 5,740 billion rupees in 2011-124. If achieved, the 11th Five-Year Plan period (2007-12) will result in an aggregate GCF of 20,115 billion rupees (US$447 billion at an exchange rate of 45 rupees/U.S. dollar).


The below chart depicts the picture of opportunities for growth in Indian infrastructure :


• More than USD 475 bn worth of investment is to flow into India’s infrastructure by 2012. No country in the world other than India needs and can absorb so many funds for the infrastructure sector. With the above investments India’s infrastructure would be equal to the best in the world by 2017.

• In the next five years planned infrastructure investment in India in some key sectors are (at current prices): Modernization of highways -US$ 75 billion, Development of civil aviation US$ 12 billion, Development of Irrigation system- US$ 18 billion, Development of Ports-US$ 26 billion, Development of Railways- US$ 71 billion, Development of Telecom- US$ 32 billion, Development of Power -US$ 232 billion.
Investments in this sector Shows in the Chart:

Under the 11-Five Year Plan.
• Investment in the above sectors (Aviation infrastructure ,Construction infrastructure, Highway infrastructure ,Power infrastructure, Port infrastructure ,Telecom infrastructure ) will be US$ 384 billions(Rs 17,20,000 Crores) considering the huge infrastructure market potential in India.

• In addition to the above, investments to the tune of US$ 91 billions have been planned in other infrastructure sectors like Tourism infrastructure ,Urban infrastructure ,Rural infrastructure, SEZs ,and water infrastructure and sanitation infrastructure thus making the total infrastructure investments in the eleventh plan period 2007-08 to 2011-12 as US$475 billions.

• Domestic and global infrastructure funds have exposure to Indian infrastructure sectors.
Infrastructure sector targets for Eleventh five year plan ending 2012.
• Electricity: Additional power generation capacity of about 90,000 MW , reaching electricity to all un-electrified hamlets and providing access to all rural households through Rajiv Gandhi Grameen VidyutikaranYojna (RGGVY).

• National Highways: Six-laning 6,500 km of Golden Quadrilateral and selected National Highways, Four-laning 6,736 km on North-South and East-West Corridors, Four-laning 12,109 km of National Highways, Widening 20,000 km of National Highways to two lanes, Developing 1000 km of Expressways, Constructing 8,737 km of roads, including 3,846 km of National Highways, in the North East
• Rural Roads: Constructing 1, 65,244 km of new rural roads, and renewing and upgrading existing 1, 92,464 km covering 78,304 rural habitations.
• Railways: Constructing Dedicated Freight Corridors between Mumbai-Delhi and Ludhiana-Kolkatta, 10,300 km of new railway lines; gauge conversion of over 10,000 km and doubling, Modernization and redevelopment of 21 railway stations, Introduction of private entities in container trains for rapid addition of rolling stock and capacity, Metro rails and world class stations.
• Ports: Capacity addition of 485 million MT in Major Ports, 345 million MT in Minor Ports, construction of jetties and berths, Port connectivity ,channels deepening and port equipments.
• Airports : Modernization and redevelopment of 4 metro and 35 non-metro airports, Constructing 7 Greenfield airports, Constructing 3 airports in North East, Upgrading CNS/ATM facilities ,Establishing training facilities and MRO.

• Telecom and IT : Achieving a telecom subscriber base of 600 million, with 200 million rural telephone connections, Achieving a broadband coverage of 20million and 40 million internet connections.
• Irrigation: Developing 16 million hectares through major, medium and minor irrigation works

• Urban Infrastructure: Urban renewal projects for selected cities; one million plus cities, state capitals and places of historical, religious or tourist importance under Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

• Rural infrastructure :As per Bharat Nirman action proposed in rural infrastructure for irrigation, roads, housing, water supply, electrification and telecommunication connectivity.
• Construction and Real Estate infrastructure :Development of residential and retail real estate ,Green buildings ,construction of SEZs, Infrastructure projects, Infrastruture facilities for Common wealth games 2010 .
• Mining Infrastructure :Mineral exploration,Mineral extraction,processing ,technology and equipments .

The below chart shows the probable investments growth rates:
We are still lagging way behind under the 11 plan and we need to finish the backlog as well as proceed with the future growth plans. Hence one can clearly understand the volume of capital will be needed by this sector in the comings days’ .Huge investments opportunities will come from Venture Capitalist, Corporate Finance and Private Equity under the flagship of PPP. China’s economy, which was about the same size as India’s $183 billion in 1980, has swelled close to $5 trillion, four times that of India, after it boosted public spending. We are yet to witness such numbers in Indian economy.

The infrastructure-growth cycle suggests that India should be growing at these rates for the next five years, and this growth should see the Sensex at 40,000,” CLSA’s strategist Christopher Wood, who was ranked second in Asia by Institutional Investor in a 2010 survey. It may not be 40000 sensex but 30000 sensex is very much possible and we should make our minds ready for the growth keeping the small hiccups in mind. One should understand that the growth of Indian market is not dependent on Global Platform. India has identified its own growth opportunities and will en-cash on them. Today it may sound funny about that 30000 mark but will not be in future. Since everyone wants to make money from investments in Indian economy irrespective of the funds which comes from US QE1 or QE2 or Ireland bailout.

Monday, November 22, 2010

INDIAN POWER..................

Power Conference 2010 held in Hyderabad, Andhra Pradesh. The conference was organized by Confederation of Indian Industry and was attended by over 200 delegates from various central and state utilities like NTPC, NHPC, PGCIL, KPTCL and UGVCL along with prominent system suppliers. In this conference apart from presentation and discussion the most appreciating part was the target achievement made followed with the process of ongoing projects.

The 11th five year plan (2007-2012), which is near about double the 10th five year plan is expected to meet about 80% of its targeted addition of 78,700 MW from conventional sources and 14,000 from renewable sources. From a current level of about 157 GW the installed capacity by end of March 2012 is expected to go up to about 212 GW. The target for the 12th five year plan (2012-17) is addition of 100GW.But still the India’s finance ministry estimates that India produces about 10% less electricity than it needs, and roads, which account for 65% of the nation’s cargo, are plagued by single lanes and irregular surfaces.

We are delighted with the number and the growth achieved by the companies in meeting its target. But among all these the sector reels under certain major issue which acts as a bottleneck for the growth of the industry. We find delay in operation of projects and finally that exerts pressure on the long term outlook of the sector and stock too. In this article I will try to present the few of the major reasons which fails to make the companies to deliver the growth according to the desired plans.Along with this the investment opportunities and PE and Corporate Finance opportunities for the sector in the coming days.

Land Acquisition and Environment Clearance
When a new power projects comes up the statutory guidelines of the government of India poses a big threat to the futures plans of the projects. We have heard earlier that all the infrastructure projects in India have gone up by 35% in terms of cost due to various delays. Among them the prominent reasons for the delays is the clearance of Land Acquisition and Environment Clearance from the governments. The old traditional land reform bill is still pending on the tables of parliament. Land is available but the policy regarding the acquisition is the biggest ball game among starting the plants. The environmental policy is designed to keep the said purpose free and healthy for our livings. But the stringent regulation so getting the clearance makes the projects delayed more than its usual course of operation.

Manpower
Manpower and human resources for the setting up the projects is another big hurdle which companies have to face in the recent industrial growth. Companies and the Indian government made arrangements of growth of the Indian economy but not the wheel of the growth. As more industrial growth will happens the requirement of SKILLED manpower increases. Currently every industry at every corner is facing the trouble of shortage of manpower. Everybody is interested to work under White color Collar and not blue. India is having one of the 2nd highest populations in the world but that population is illiterate and not capable to meet the demand of the industrial force. Companies are earning more cost due to training and other facilities to improve and develop the skill to match their demands.

Technical Equipment shortage is another big round problem which forces the companies to go for overseas technical knowhow. Reliance Power became the first Indian private sector firm to ink a record $8.3-billion deal with a Chinese firm. SEC will supply 36 coal-fired thermal powers. Currently the industry is facing shortage of capital intensive goods from ABB, Larsen and Turbo and Bhel.

Fuel Availability
Fuel availability is another round of problem which further puts brakes on the plant process..Coal and other fuels requirement is one of the biggest problems. Supply constraints for domestic coal remain and are expected to continue going forward. Consequently, public and private sector entities have embarked upon imported coal as a means to bridge the deficit. This has led to some Indian entities to take upon the task of purchasing, developing and operating coal mines in international geographies. While this is expected to secure coal supplies it has again thrown upon further challenges. The failure to achieve the planned target from the captive coal blocks presents itself as a major challenge to the power sector, as only 24 blocks have become operational out of the total 210. Experts believe that the non-operational status of majority of these blocks is attributed to land acquisition (R&R) issues, permit delays and infrastructure problems.

For example, the main international market for coal supply to India – Indonesia, poses significant political and legal risks in the form of changing regulatory framework towards foreign companies. Again over here the Indian mining policy needs to be changed. Unless this policy gets changed new coal blocks will not be discovered and which will lead to huge increase of coal export followed with steep increase in international market will exert pressure on the POWER PRICING.

India Helps
Despite of all these hurdles the Indian government have taken steps to boost the growth and plug-in the loopholes of the system.

• The government has introduced a separate visa regime -- called `P' (Project) Visa -- within the employment visa for foreign nationals coming to India for "execution of projects in the power and steel sectors".

• The new regime will pave the way for foreign companies to bring "highly skilled or skilled" foreign nationals to India for executing projects of their Indian clients (companies) for a maximum period of one year without getting into the nitty-gritty of the two existing work-related visa regimes -- Business (B) and Employment (E) Visas.

• Only these two sector have been given the grants to meet the shortage of skilled technical manpower .

• Hence India needs huge pool of talents and in house manufacturing hubs of this technical knowhow so that overseas talent don’t eat up our talent pools .It’s a serious invisible threat for the long term.

100% FDI permitted in Generation, Transmission & Distribution - the Government is keen to draw private investment into the sector

• Policy framework: Electricity Act 2003 and National Electricity Policy 2005

• Incentives: Income tax holiday for a block of 10 years in the first 15 years of operation; waiver of capital goods' import duties on mega power projects (above 1,000 MW generation capacity)

• Independent Regulators: Central Electricity Regulatory Commission for central PSUs and inter-state issues. Each state has its own Electricity Regulatory Commission

Cash the Dues.
If we make a quick look towards the probable investments opportunities and the growth there of in this sector we find :

• Hydel power potential of 150,000 MW is untapped as assessed by the Government of India

• Over 78,000 MW of new generation capacity is planned in the next five years

• A corresponding investment is required in Transmission and Distribution networks

• Power costs need to be reduced from the current high of 8-10 cents/unit by a combination of lower AT & C losses, increased generation efficiencies and added low-cost generating capacity

• Large demand-supply gap: All India average energy shortfall of 9% and peak demand shortfall of 14%

• The implementation of key reforms is likely to foster growth in all segments

o Unbundling of vertically integrated SEBs

o “Open Access” to Transmission and Distribution networks

o Select distribution circles to be franchised/privatised

o Tariff reforms by regulatory authorities

• Opportunities in Generation for:

o Ultra Mega Power Plants (UMPP) – 9 projects of 4000 MW each

o Coal based plants at pithead or coastal locations (imported coal)

o Natural Gas/CNG-based turbines at load centres or near gas terminals

o Renovation, modernisation, up-rating and life extension of old thermal and hydro power plants

• Opportunities in Transmission network ventures - additional 60,000 circuit km of Transmission network expected by 2012

o Private sector participation possible through JV and 100% equity mode

• Total investment opportunity of about US$ 150 billion over a 5 year horizon

I think huge quantum of private equity and corporate finance will be required in this sector as the day’s progresses.

• The value of these 15 investments is estimated at $ 751.2 million (Rs 3,600 crore). private equity (PE) players to park their money, with close to $1.64 billion worth of infrastructure funds, mainly in power, awaiting their launch.

• According to Venture Intelligence, a research service focused on PE and mergers and acquisitions, investments in this sector for a comparative period in 2006 were $122 million, which increased to $495 million in 2007. Some of the funds currently in India are IDFC Private Equity, 3i India Infrastructure Fund, IL&FS Investment Managers Limited, SBI Macquarie Infrastructure, IDFC Project Equity and ICICI Venture are doing the major investments as private equity and corporate finance in Power sector.

• GVK Energy Ltd, a subsidiary of GVK Power & Infrastructure Limited, has raised Rs 1,200 crore (~ $274 million) in private equity funding round led by 3i India Infrastructure Fund. The deal to pick up a 21.1% stake in the power arm of the infrastructure group values the unit at nearly Rs 5,700 crore ($1.3 billion).

• 3i would be investing Rs 800 crore in what will be the infrastructure firm's second investment the power sector after Adani Power.

One can clearly understand the growth of ROI one will get from doing investments in the Indian power sector. The hurdles mentioned above are subject matter of time and will get over under the flagship of UPA-II.

Once these hurdles are overcome Indian power sector will see one of the brightest days of its history. Investors should stay invested in this sector for longer time frame as delays in operation are subject matter of time. Once they are on the verge of getting over one may not get the chance to invest at these levels. One might have to accept at higher levels. Stay invested for a long ride which will be sweet at the end.One more thing I would like to add is that one can understand how Indian economy will acheive the GDP growth Dreamt by Pranb Mukherjee ourFinance Minister of India.Its possible.Very Much possible.

GOLD AND ITS NEW RELATIVES...

Three thousand year old traditional color of hoarding stores of wealth that are physical, portable and easily devisable are hard to break.This report is not a speculative figure or number guessing.It brings you the fundamental reasons behind the futuristic growth.
Blessing of Arab
Very Soon the Gold prices will see demand and price increase as the famous festival of Arab countries Haj is about to begine. Muhammad Azouz, member of the National Committee for Gold at the Saudi Council of Chambers of Commerce, said the gold jewelry markets flourish in the Kingdom during Haj. He said the majority of customers are pilgrims from Asia and Africa. He said local gold merchants have a reputation for good quality products. Abdullah Al-Amri, manager at a jewelry shop in Jeddah, said the demand for gold increases during Haj. Despite of the higher prices gold will see huge sales in this festival. One should not consider that higher prices of gold will make an effect on this festival. Since Araba countries have more surplus and more buying capacity as compared to any other economies at the present times of world economy. Gold will have rate of sales despite of higher prices.
According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes. About 2,000 tonnes goes into jewellery or industrial/dental production, and around 500 tonnes goes to retail investors and exchange traded gold funds.

The Reports.
The ten years Washington Agreement on Gold (WAG), which dates from September 1999, limited gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 500 tonnes a year. In 2009, this agreement was extended for a further five years, but with a smaller annual sales limit of 400 tonnes. This have also further increased the appetite of buying Gold by these nations followed with more focus towards Gold accumulation. European central banks, such as the Bank of England and Swiss National Bank, were key sellers of gold over this period.

According to the very recent report from Goldman depict the picture of underline principles of the rising gold demand and its price. The Goldman Report, authored by Damien Courvalin and David Greely said that With the US real interest rates pushing lower off the slowdown in the pace of the US economic recovery and the growing prospect of another round of quantitative easing, we expect gold prices to continue to climb.”

The report added that, “Despite the rebound in net speculative length, it remains well below levels consistent with the current low US real interest rate environment.” The decline is bound to persist with rates even going lower over the near-term once the Fed undertakes QE measures. As a result, Goldman raised its gold price forecast to $1,400 in three months, $1,525 in six months, and $1,650 in 12 months.

As the emerging economies are having a higher savings rate and global imbalances are exerting pressure on the currency, the demand for gold will rise constantly. According to the Reuters Global Banking Summit Report gold is being used as an income and alternative savings instruments. This means the paper currency is replaced by Gold. The cost of gold mining has also increased in the last couple of years. Russia Australia South Africa is facing steep increases of cost in gold mining.

Cooling demand of real estate sector of China and other high yielding investments sectors in China will spook up the demand of gold in the coming months. Moreover the more tight belts are being developed the more demand of gold will rise. The People's Bank of China said in August it would let its banks export and import more gold in a program to drive the development of the country's market in the precious metal. China is having a savings rate of 40% and hence its promotes among its citizens to save under gold. China is doing massive advertisements through TV, Radio, SMs and other communication means to invest and convert the savings into Gold. Inflation is another blessing for the gold price. Uncertainty among investors forces them to turn to Gold as a hedge against unforeseen disasters. Whether it’s a recession or inflation Gold will act as the only way to survive any crisis among all situations.

Made by Gold

In 2007, Mumbai-based Benchmark Mutual Fund became the first financial institution to offer a gold ETF . Since then, gold-based ETFs have drawn more and more Indian investors away from equity mutual funds. We have found in the recent figures that Equity Mutual funds schemes are reflecting outflow of cash. That outflow is the inflow in ETF made of gold. In India more raw gold prices and jewelry prices will increase the demand for gold ETF will increase taking this as an alternative investments avenue within the range of Indian pockets.Over here alos we find diversification of investments class among the investors. Volume of Indian gold ETF have jumped like a galloping horse in the month of October. Exchange traded funds doubled in October near to 13.999 tonne on year.

Very soon the demand for gold ETF will arise from new nations. Among them the recent one will come from Sri Lanka. Sri Lanka has hammered out a regulatory framework for exchange traded funds (ETFs), a pooled investment scheme, which will also allow precious metals to be traded on the Colombo Stock Exchange from next year.

According to the World Gold Council report on India:
• India's gold import, which had already exceeded 2009 levels, is likely to cross the 750-tonne mark this year due to increasing consumer demand for jewellery despite soaring prices.

• In 2009, the total imports stood at 559 tonnes.

• In Q3 2010, India, the world's largest consumer of the yellow metal, has bought 214 tonnes of gold compared to 176 tonnes in the same quarter in 2009.

• Gold jewellery demand in India in the July-September quarter surged 36% to 184.5 tonnes from 135.2 tonnes in the corresponding period last year

• The total gold demand rose 79% to 650.4 tonnes in the January-September period compared to 363 tonnes in the same period in 2009, indicating a robust demand.

According to the Global Gold demand position:
• The total demand grew by 12 per cent to 922 tonnes.

• The global demand for jewellery rose 8% in Q3, with four of the best performing markets -- India, China, Russia and Turkey -- accounting for 63 per cent of the demand. Retail investment went up by 25% to 243 tonnes during Q3 this year, the report said.

• The global industrial demand for gold registered a 13% growth in the third quarter at 110.2 tonnes, driven by improving demand for consumer electronic goods, WGC said.

• The total industrial demand rose 19% to 320 tonnes for the nine-month period (Jan-Sep) against 270 tonnes in the same period last year.

• At the same time the total Electronic Traded Fund (ETF) fell 7% to 39 tonnes in the third quarter compared to 41 tonnes in the same quarter in 2009.

Well clear that how the global gold and Indian gold market is taking a paradigm shift towards investments attitude.

Inflation Gold Relation

The QE2 will exert more pressure on the worlds most safest instruments of investment The Bond. Bonds will remain under pressure followed with low yields and higher prices. Gold is the left out instruments which will soar due to more printing of money under the QE2.The US balance of payments will exert pressure on the US economy resulting more gold price hikes. The below chart will show the trade imbalances of US and the climbing prices of GOLD. Dollar will remain under pressure forcing other nations to convert their assets and savings into gold.

In other words QE1 spooked the global equity market back to the era of pre recession phase leaving no space for further investments in these equity market conditions. The first round of massive quantitative easing, valued at more than US $2 trillion took the Dow from a low of 6,469 all the way back up to significant resistance at 10,729.When QE1 came to an end the QE2 have been deployed.

The major difference between QE1 and QE2 is that the first one spooked the equity market valuations leaving no space currently for the equity markets to have a safe upward rally and QE2 came when all asset classes are being forced to cool of due to inflation worries..Finally the blessing goes to gold now. As inflation will happen in merging economies more gold will be deployed to hedge inflation.

New ETF
As gold will become a scare resource in the coming year’s silver and platinum will see new decade of growth. Silver and Platinum and basket of ETF will be the next phase of tremendous growth. Very recently first ever precious metals basket ETF which consist of Gold, Silver, palladium and platinum, launched allowing investors to have ownership of each share equal to about 0.03 troy ounces of gold, 1.1 ounces of silver, 0.006 ounces of palladium, and 0.004 ounces of platinum.

A part of this type will flourish the Indian market too. We already find huge growth of these financial products in US and other economies. Silver, palladium and platinum are used in a wide range of industrial applications and hence the demand is increasing more than the Gold .Very soon gold will be replaced if not then more diversification of assets will happen in these new upcoming products.

Gold will shine and before it loses its shine new products will come where again we have to look for diversification. Investors should invest in gold keeping the futuristic demand of gold and should invest for long and not taking a call for a short term price hike. ETF should be a part of your portfolio but not more than 10-15% of your portfolio size. Physical gold should also be part to that extent. Finally every call should be a long term since global uncertainties are hard to dig. Nobody knows when a financial time bomb will burst taking the entire market in to the deep ocean of collapse.So invest in gold with a,ongterm mindset.Remember commodities have a never ending stopage of demand.

Saturday, November 20, 2010

US FEDERAL ……………BUILD IT IN ONE DAY………………

We have been under great speculation when the US FEDERAL system declared $600 billion dollars buyout of bonds spread over a series of months. We speculated and the end result of the speculation was this that the World indices across the nation propelled up and soared to some new heights.

The most debatable topic was that will the $600 billion dollars buyout of bonds will really increase the momentum of the Fly wheel of the US economic growth. Well before drawing any further speculative dreamlands I would like to bring you some invisible facts regarding the current position of the Wall Street companies and how the latest moves are unrealistic.

Beds made out of Cash.

The US companies are having a huge margin of cash piles under their belts. The total cash piles of the total US companies stood now at $1.6trillion.I hope many of my readers eyes might have taken curious movements. Yes the US companies are having a raw cash pile of $1.6trillion dollars. Whatever money has come from the stimulus packages and other areas, out of whatever have been used to save the bailout companies are now sitting on that stimulus package with cash pile of 1.6trillion dollars. This figure itself conveys that less amount of money have been deployed in to manufacturing and other areas which ultimately will bring the growth of the US GDP. But companies are reluctant to invest and take risk in doing investments in US economy. A half of the 1.6 trillion dollars can bring the GDP growth of US by 1%.

Companies have piled up this cash only to save under the crisis situation which is being expected by the US companies to hit their economy any time soon. They have saved the funds to face the uncertain times just like 2008 recession phase .It clearly indicates that whatever the US market ACTOR’S represents their economy to the world the real picture is very much dark with no signs of any light into it.

Banks & Circulation of Money.

Moreover the US banking system is also following the same footprints of US companies. According to the US banking guidelines they are supposed to keep a margin of 9% in cash reserves. That margin have propelled up now to 12%-13%.This simply reveals that US banks are reluctant to take risk and damage again with toxic assets on their balance sheet. They are more inclined in maintaining their clean faces to the Dow Jones and doing investments in emerging economies. So even if US Federal system comes with another round of trillion dollars they money will only be kept in safe lockers.

What the US Federal system has forgotten is that CIRCULATION OF MONEY within the US economy. The Fed can print or buy bonds to inject liquidity in the system but it will only get absorbed by a certain class of the economy.US Fed and its government policies have failed bitterly to inject faith and trust among its economy thorough its policies and structures. What US Fed and economic policies want to do is that BORROWS AND INVESTS, BORROW AND CONSUME. Main reason for this theme is that consumer spending, accounts for about 70% of gross domestic product.

US policies have forgotten to put a note in their policies regarding the behavioral change among its citizens. This $600 billion buyout of bonds will only reduce the attraction towards the safe investment avenues and will force to take risky assets as the best choice. This will spook another risk of another major crisis in which it might be difficult to save with another trillion of dollar.

Why FED did not raise voice Then?

US have been pressing hard that China and other major currencies are putting pressure on dollar and hence US economy is unable to come out of the recession. Can the US Fed explain why and How the Dow Jones climbed to 11000 marks when the economy, manufacturing and consumption is struggling to make a living. I hope the US Fed and its policies want the entire world to stop its own production and buy only from ‘MADE IN AMERICA’. If US cost living have gone up what it has to do with India and China. What happened when US made trillion of funds each year taking advantage of the offshore business and cheap labor cost? Why at that point of time US did not raise the voice saying that the currencies of the emerging economies were undervalued and needs appreciation.

When American companies opened up shops in China and made trillion dollars via export incentives in china along with the low cost of labor of China why at that point of time the US polices did not raise the voice against currency. Mr.William Crinche an economist said that if China currency were made to appreciate by 20% then that will result to reduction of trade surplus of China by 170-250 billion dollars whereas of US it will get reduced by a meager number of 20 to 60 billion dollars. So well clear who will gain the most in the tussles.

India and China were always on the ladder of US exploitation of resources. The US has responded negatively to geopolitical change and the idea of polycentricism. America’s ideas about its own exceptional status and the universality of its values are expressed prominently in dealings with other states. The fruits of these are being now on the table of US.

Fall of the rates.

US lowered its Banking interest rates to fight WAR. Funding of the war was the main motive of lowering the rates. If we look at the below historical rate chart we will find that till 1988 to 1991 the rate was healthy. But after that when the Kuwait war started in 1992 we can figure out the changes. Again we find the growth of rates in 2000 just before the Dotcom bubble burst out. After that it only plummeted. If we make a quick look at the pattern of interest rates lower we find the clear position of what have forced the dollar valued higher against other currencies. In the other way other currencies dollar have forced other currencies to be undervalued.

 Let’s look at the history of Fed Funds rates since 1981. We will leave out the punitively-high rates of the early 80s. Let’s begin in the late 1980s when rates were somewhat “normal”.

 February 1988 (peak of rate cycle) Fed Funds 9.75%

 February 1991 (approximately half way point) 6.25%

 September 1992 bottom of rate same rate cycle) 3.00%

 Here is the next cycle:

 May 2000 (peak of rate cycle) 6.00%.

 June 2003 (bottom of cycle (1.00%). Stayed at 1.00% until June 2004.

US have been complaining about unhealthy trade practices made by china into US economy.US exports to China have been 38% where as US export to other countries dropped by 8%.US at one point of time have exported everything they created and now the country have lost its own position.

Who is favored to whom?

In the US, the current private sector debt-to-GDP level is in excess of 170%- pretty much the same level as the start of the crisis. On the other side of the story the US economy is have started attracting Venture capitalist and investments from other corners. We find that around $18.8billion have been invested in 2016 deals across US economy till now. If we look at the profit margins of the US companies we find a staggering growth of 35% in total. This reveals that business is happening but the real pick up which US policy makers want will take considerable amount of time.

One must understand that unemployment will not get reduced alike the Dow Jones climbed to 11000 marks within a year of the recession. When US opened up the gates for China at WTO, US acclaimed China as the most FAVORED DESTINATION. After the gates were opened up 5.5million people of US got the bonus of unemployment. After recession it is growing at an average rate of 95000 jobs each month.

Now my readers can make the meaning very clear why US market China s the most favored Destination in 2001.They exported everything they created in their own homeland as result later on US companies moved out and opened up shops in China. Skilled manpower is another reason for the loss of Job.

As globalization have opened up more skilled labors are available at cheap rates across the world. Then why the US companies who are currently under severe pressure of cost margin will deploy high paid man power force. The proof of the pudding is that according to Boston Consultancy group US have fallen from the rankings if Innovative products and India have climbed up. Moreover those innovative products of India are 80% cheap as compared to US.Us have lost the skill of labor which it enjoyed in the late 1970 and 80’s.The quality have fallen and also the price have gone up due to Borrowed living and Borrowed Consumption.

The last Weapon.

The last weapon which will be used after US fails to raise US economy by this QE2 is called as TRADE PROTECTION. Don’t worry if that happens since India and China under their respective 12th Plan are focusing their shifts from Export to domestic consumption and growth. There might be jitters in the beginning but growth lies a long way domestically. I know what my readers are murmuring in their minds.US will not be able to apply TRADE PROTECTION.I agree but when some one wants to grow at any cost God Help them. India and China did not build in a day. But US want to build it in day.

Friday, November 19, 2010

INVEST FOR LONG IN CONSUMER.


The ultimate objective of all production is consumption for the satisfaction of varied needs of man. A free market economy provides freedom to the consumers to buy and consume goods of their choice. Buying preferences of the consumers send signals to the producers to produce various commodities in required quantities. Producers, therefore, produces only those commodities which are desired by the consumers. Consumer behaviour is related to likes and dislikes and expectations of the consumers. Consumer behaviour has changed in recent years owing to enhanced awareness, information technology and more importantly governmental intervention through legislations Everyone from every corner of the world wants to be a part of the Indian economic growth. But where are the real gems of growth and resorces are lying hidden is needs to be identified and act accordingly.What we need to indentify  the resources which wil bring growth of India in the coming decades. 

But is this growth is only for the Indian corporate and business dealers. To be very precise yes it is, but it is half true. Indian citizens have developed not only in terms of lifestyles but also in mindsets. Indian consumer minds have changed dramatically in the last 5 years if examined under a microscope. Indian Consumer mind have taken major changes in making India to dream the GDP growth of 10%.The urban population in India is India is currently 30% urbanised, while 70% of consumers are still in rural India. As far as consumption goes, 404 Million are either consuming or are aspiring consumers. 742 Million though are still under privileged. The urban populations have increased its appetite not only for Indian made goods but also foreign made goods. This is one of the main reasons why FDI investments in Indian consumer products have increased over the time.
The below  image shows the population pattern of Urban and Rural.

One of the prime reasons for a one way growth in consumer product market is higher percentage of savings. Indian currently have savings a rate of 63.8% as compared to 28.4%.This high savings rate is making the one way growth of consumer product market. Higher per capita income, radical changes in the salary and business income growth opportunities are making the Indian consumer market to propel like mango groove.

Recent shift of focus by the Indian corporate towards the Indian rural market is the next growth opportunity being identified and delivered by the industry. Earlier we never saw tooth paste being sold at Rs.2/-.Now we find highest consumption of Rs.2/- packet toothpaste as compared to 100gm or more sized packets. Earlier purchasing electrical goods like TV, Refrigerator and other products were a dream. Now with falling prices (due to the blessing of competition) all these dreams are now a real part of day to day activities.

Opening up shops in rural India was a nightmare. Now due to lack of space we find mobile shops being run across the villages. Banks have also achieved one way growth to a certain extent with the business of loans. Banks have replaced the credit crisis of rural India but only to some extent.

In the coming years the Indian consumer market will find a host of radical changes which will force the Indian GDP to climb to 10%.
We alreday see that shooping places have got converted from old Bazar types to malls followed with various other type of chnages from watching movie to going for an holiday tour.All thse will bring the GDP growth of 10% for India.
Household assets are climbing in urban area and hence we will see a saturation point in the urban area in terms of consumer growth. Hence we will find a paradigm shift of focus towards rural Indian market. Over here the most interesting part will be the demand of cost competitive products and pricing of goods. Target oriented pricing will only improve the quality and market of rural India. What we need is affordability outlook from the rural consumer mindset.

The below image shows the consumer pattern in Urban and Rural India.

Rural market will improve further with adequate infrastructure development. Since proper infrastructure support will enable more companies in India to open up shops in villages and shift their resources to uplift the rural Indian economy. India is still ruled by a huge margin of many differences. Among all of them few are:

• 80% urban India is low/lower middle class in income terms – below Rs. 12,500 p.m

• Only 15% is middle class, 5% upper class (64 million)

• Avg. monthly family income of urban Indians is Rs. 8,910 p.m

• 2/3rd urban Indians live in the tier 3 small towns (only 20% urban Indians live in the metros)

• Metros account for only 25% of the uppermost socio-economic class

• Only urban affluent (5%) lead the popularly perceived modern lifestyle

• Only 20% urban Indians have gone to college, only 3% have had their education completely in English

• Only 1 in 3 ‘employed’ in Metros works in the corporate world, an equally sizeable chunk are shop owners/traders/skilled workers

• Less than 3% urban Indians prefer to read in English

We find this GDP numbers not to climb from only on the shoulder of the consumer but also on the AGE and employee factor of the Indian population. Some analysis of the data will make it easier for all of you to understand what I wanted to communicate.

• Gen Now’ (roughly 30 to 45 yrs of age) is the biggest generation group in India (308 million individuals).

• ‘Gen Next’ (roughly 15 to 30 yrs of age) is a close second at 300 million individuals

• Only 16% ‘Gen Next’ are gainfully employed (2/3rd are students)

• ‘Gen Yest’ (roughly 45 to 60 yrs) are the most employed (60%) and have the best individual incomes (avg. of Rs. 4,985 or USD 110).

• ‘Gen Yest’ also have the highest penetration of credit cards, life insurance, and takes leisure holidays somewhat more frequently.

• There are only 40 million working women in India (9% of all women). 260 million are housewives.

• 2 out of 3 working women are also working moms.

Now its well clear that this pattern of change in the Indian population and behavioral change will bring the real growth for Indian corporate and GDP. One must understand that any countries GDP is dependent on the behavior of the consumers of that country.

We will find growth in long term perspective in doing investment in consumer goods related industry. I would like to accentuate the attention to this regard that a consumer goods industry includes health products too. So pharmacy will be another booming sector despite of several fights out with the patents. Mobile health centres are going to be the next improvised version of health care system.

Long term investments strategy should be the key investment theory in consumer goods industry. Short term investments will not provide you immediate results as investments in this sector and expansion of the business and gestation period of profitability is the key factor for taking long term call on investments and ROI. Rural India needs small consumer products at affordable prices. Companies dreaming to en-cash the potentiality will have to keep in mind this law of consumer.

Thursday, November 18, 2010

ASIAN TIGRE ,INDIAN BULL IS YET TO CHASE.



The Asian equity market have started back it mad bull run from the past 2 months starting from September 2010.Pockets have filled up with soaring profits from lower level buyouts. The phase of the bull have so high that every one  If we rewind back to the phase of 2008 when recession clouds were hanging over the world market, no body dreamt of that within 2 years time frame the Dow Jones , Nikke,  Hangseng, Nifty all will rose up and scale back to 2008 January levels. I will not go with the traditional ways of identifying and elaborating the stories of growth juts like the famous speculators does. What I will try to show you the real growth behind the numbers and quarter results and vague speculators games.
The below chart shows the bull run of the Indian and Chinese stock markets.


Standing on November 2010 its quite impossible to figure out what have really changed in the investors mind after taking lessons from the recession of 2008.We have again pumped up thousand billons of liquidity in the world market irrespective of cautious investment approach. In the era of 1980 and 1990 world investors pumped billion dollars in to Developed economies and made their profits gallop like an horse. In the period of 2000 the same liquidity changed its hands and came galloping to emerging economies .Emerging economies consists of BRIC put particular focus of investments was towards Asian Economies. The reason for the sudden shift from the traditional ways of investments strategy was that these developed economies came to stagnant phase of generating ROI. One fine morning the whole world turned the eyes towards Asian economies and its immense potentiality of growth.

In 1980 India and China were each the recipient of 0.1% of global foreign direct investment (FDI). By 2008 India had welcomed 2.4% of overall FDI, China 6.4%.Today we find magnetic attraction of liquidity and other technical knowhow by India and China alone. In this article I will try to present the brief growth opportunities awaiting for Indian Economy with little bit of touch of Chinese economy.

• The US expanded its bilateral trade with India and China. U.S. merchandise exports to India quadrupled between 2002 and 2009 to $16.4 billion, while U.S. services exports increased from $3.3 billion in 2002 to more than $10.5 billion in 2008,

• According to the Department of Industrial Policy and Promotion (DIPP) of India’s Ministry of Commerce and Industry, FDI flow into railway-related components was USD76.7 million from April 2000 to August 2009, a meager 0.08 percent of the total. This ranked the sector 47th among all the sectors that received FDI during the same period.

• Electrical multiple unit (EMU) trains and high-power electric locomotives loom as the next big investment themes in Chinese infrastructure.

• Urbanization requires more high-speed passenger lines, which, in turn, will create strong demand for EMU.

• China will experience an influx of EMU trains in the next three to four years, with around 800 sets expected to be in operation by 2012, up from 176.

• Indian railway is going to be the next hot destination of FDI investments

• Forty-six percent of FDI flow into India has been captured by five sectors: services, computer software and hardware, telecommunications, and construction, in this order.

• Power-related projects account for 4 percent, while port-related projects, another area were India needs a lot of improvement, ranked 18th with 1.5 percent of total FDI.

• When I found the flow of liquidity being absorbed after 2008 recession I find astonishing magnetic power attraction of liquidity by India and China alone.

• More than 60% of the funds included in the various stimulus packages introduced by emerging economies during 2008 were committed to infrastructure-related spending in 2009.

• China and India led the way, with 88% and 83%, respectively.

• In the next ten years emerging economies will spend between USD15 trillion and USD20 trillion on infrastructure projects.

• The China and Indian health sector will draw the most highest amount of Global liquidity and will provide immense growth of investments.

• China, for example, increased the number of vaccines included in its national immunization program from 5 to 15 in 2008 and boosted its budget for research and development from USD75 million to USD400 million.

• Indian and Chinese education sector will be next un-trapped huge potential investment destination.

• From 2013 to 2020, China will focus on implementing policies such as free primary education in rural areas, where 737 million.

China economy is already heated up and process of cooling it is still on the way .In that term Indian economy has a long way to go. It bulls have just started warming up for the bull rally.

The below chart shows the Growth of the GDP of India and China from 2006

• India recorded a GDP growth of 7.4% in 2009-10. It has been further consolidated in the current fiscal year with growth in the first quarter estimated at 8.8 per cent. This is in line with the GDP projections of 8.5 ± 0.25% growth in 2010-11, made in the Economic Survey. The recovery is broad based with growth improving in all the three sectors, industry, services and agriculture.

• The pick up in investment growth in 2009-10 seems to be continuing in the first two quarters of the current fiscal. There are also signs of consumption growth moving towards its trend rate. The recovery is led by industry and with improved growth in services.

• The partial restoration of the tax cuts, compression in expenditure and revenue from 3G auction and disinvestment will help India in meeting our fiscal targets for the current year. This makes the Indian economy more prunes to investments as less fiscal burden on its shoulders.

• In the coming years the Indian economy is poised for more growth due to radical policy changes like a nutrient based fertilizers subsidy regime culminating in direct transfers to farmers at a later date; flexible petroleum pricing policy with levels of subsidy calibrated to international crude prices; public expenditure management; a new Direct Tax Code; and progress towards goods and services tax.

• Among all these the biggest boost will be the New Direct Tax Code which will increase the per-capita savings rate of Indian households which is currently pegging at 36.6% climbing from 28.4%.The new GST regime will also make the Indian trade practices left with huge margin of profits and investments surplus.

• The medium term Fiscal Policy Statement 2010-11 has outlined a decline in fiscal deficit to 4.8% of GDP in 2011-12 and 4.1% of GDP in 2012-13.

The only problem the India economy and china are having is the Inflation devil. Indian economies have taken adequate steps to control the inflation. These include: selective ban on exports and futures trading in rice and some pulses, zero import duty on select food items and removal of restrictions on licensing, stock limits and movement of food articles under the Essential Commodities Act of 1955. Permission was given to import of pulses and sugar by public sector undertakings. Distribution of imported pulses and edible oils was permitted through the Public Distribution System (PDS) and a higher quota of non-levy sugar was released. Along with all these the RBI have taken adequate steps to control the inflation through repo and reverse repo rates.

The economic trade balance and currency have also went through some turbulent times. A robust domestic demand coupled with a weak global demand has resulted in a widening of the trade deficit, which has spilled over into higher levels of current account deficit. The current levels of capital inflows, which exceed financing requirements of our current account deficit, have put pressure on the Rupee, resulting in its appreciation in the last few months. This has implications for India exports.

But apart from all these the Indian economy and China are poised for further upside growth. Flow of funds will dry up some times and again it will flood but the thing which will never be erased will be the immense growth story and the resources yet to found from the Asian economies.

Indian Bull is yet to begin its chase. Whatever has been happening till now can only be called as warm up phase. But the Asian Tiger has made lot of chase and needs some relaxation to begin another round of chase. The conclusion of the Bull and the Tigre is that they have more steams lefts month themselves to fire up and move a head,

Investors should not panic to sell off or neither should develop the thought that they are investing at higher levels. We are in the new phase of changeover of mind where new highs will be our base line .What has happened in the previous phase does not necessarily means we will have to continue and settle with low. We are in the journey of asking more and stretching our outlook beyond the ordinary means. We should now understand that Indian stock market growth is linked with the internal growth of the streets of India. Its not dependent on borrowed capital of Developed economy. Indian growth resources have been identified by Developed and world economy.

The Asian economy will see new sunshine which is yet to come in the coming decades. Just remember everything has a time to come and when it comes it comes in uncountable numbers

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