Monday, November 10, 2014

INDIAN INVESTMENTS AND EQUITY MARKETS A OPPORTUNITY IN 2015

Predication is a part of analysis but it should be taken as the ground realty of unforeseen future. Indian economy has set the stage for a strong economic growth over the next 5 years. The initial affects are visible but a stronger picture would come out in 2015.We have already noticed and heard the Make In India is the new manufacturing music being heard across India and Globe . We are set to create a stupendous growth for the Indian economy. In relation to that I find the India stands to be one of the most favorable destinations of investments in terms of generating a higher return on Investments compared to developed economies. For equity markets I have tried to highlight only two of the few majors blows that’s will change the shape of the global investments.

Make In India is an opportunity for the Global Economy to Survive.

China is currently going through a slow down phase as exports have taken a hit and its economic policies are now focused towards internal consumption driven. Moreover china currently is going through high labour cost followed with gaining population in the middle class segment.  Hence china is no longer the cheap country in terms of manufacturing. Further to this there have some stringent measures of vigilance over the foreign companies which has also spooked the thought of shifting manufacturing base out of china. India is having low cost of production due to cheap labour cost followed with an abundant supply of young manpower compared to other economies. If we look at the chap cost comparison between china and India we find that in India manufacturing cost stands to $0.32 where as china stands to be $3.52 according to Boston research. Further in the research its being found that China’s estimated manufacturing-cost advantage over the U.S. has shrunk to less than 5 percent. Brazil is now estimated to be more expensive than much of Western Europe. Poland, the Czech Republic, and Russia have also seen their cost competitiveness deteriorate on a relative basis. China is going to loose many many manufacturing jobs since  in a research  it has been found that in2004, China’s average manufacturing costs were estimated to be 6 percent higher than Mexico’s, according to the BCG index. Mexico is currently around 4 percent cheaper on average. Chinese manufacturing wages have nearly quintupled since 2004, while Mexican wages have risen by less than 50 percent in U.S. dollar terms. 

 Make In India is going to be game changer for the world economy as manufacturing in India will result to more profitability particularly when there is slow down in the developed economies. Hence shifting manufacturing out of china on a gradual basis would be profitable for these companies who will set up their plants in India. Mr Modi’s dream of Make In India is based upon the success of story of Gujarat which contributes 13% of the manufacturing compared to the total of 21% In India during the tenure of his Chief Minister of Gujarat. Its time to take advantage and also make advantageous for the overseas investors to invest in India.

Equity market valuations and Short Term major Triggers…..
On the other hand an equity markets valuation is around PE of 18.5 and has huge potential to climb from these levels of 28000. The simple reason behind the same is that historic highs of PE were calculated when the revenue growth was around 20% whereas now the same is around 10-12%. Hence increase in revenue would push up the PE and hence the market of 28000 is very low. But this revenue growth will happen gradually as inflow of capital would increase.  Low commodity prices and crude prices are boons of the Indian economy but still they might be short lived, despite of that long term prospects of Returns on Investments are much higher compared to developed economies.
Indian government is already taking steps to simplify the labour rules and land acquisition rules which would make easy for outsider to create his manufacturing base. Infrastructure investments would find a clear way since it will get linked with Industrial development. We are in the rally of making India global hub of manufacturing. Slow down in Europe and US volatile economic recovery leaves less thrust for investments in these economies and also lucrative nature of the same. Europe is having huge young generation unemployment hence they are finding difficult to get jobs. Indian economy is open to all of them and that’s why Mr. Modi also asked the overseas communities to come to India and work for the country. Hence inflow of human capital is going to be another trigger which needs high attention.  India is going to be the next destination of work and island of technical knowhow’s.

The equity markets across the globe are also going to witness one of the radical changes in terms of investments and inflow of capital into the financial streets. These are few of the triggers which will happen and would create opportunities for the Indian market and economy to take a safe bet.
Basel III: This will change the game of the banks across the globe where liquidity system will take different shape DIRECTION. This regulation asks banks to hold more cash for payment of debt. Thys will have to invest in low interest rate bearing securities and risk free products. This leads to outflow of capital form risky assets and cooling down of asset bubbles across the globe. This will lead to  correction of the global markets across asset classes which will be an opportunity where toxins of the market would get flushed out. It raises billion questions about how the investment process of the banks would shape after the Basel III implementation begins.

Volcker Rule: This will be creating a big problem for the US merger & acquisition market as it restricts banks form betting on their own money. This includes hedge funds and private equity funds. The Volcker Rule proposal has two main components: a prohibition on proprietary trading by covered banking entities, and a prohibition on covered banking entities investing or sponsoring a hedge fund, or private equity fund, or other ‘similar fund’. This will be change the landscape of speculative investments ball game of the US economy and will flush the global economy from speculative hot money invested from 2008.This is going to be another opportunity for the Indian investors to find short term correction and invest in the same.


I restrict my self to these high powerful rules which will be implemented from 2015 and its effect on the global economy. Keeping the above rationales the best solution to get good return from investment is to invest in Indian economy. India have been loosing despite of low cost of production due to weak regulation and cumbersome business process. Mr. Modi is all set to remove the bottlenecks. He is indirectly asking global economy to come and join India to save the massive slow down of the global economy.

1 comments:

Praveen Vishnu Shamain

Labour cost is ONE OF THE COSTS and NOT THE ONLY cost which does influence the investment in manufacturing.

What about "Utilities Costs" in India compared to elsewhere (say China)?

What about availability of Utilities in India?

You are assuming that our Labour cost benefit will remain for ever for somebody to invest in manufacturing in India. When you are investing large amount of money in manufacturing as a businessman you have to foresee whether this benefit will remain at least in the foreseeable future to commit your money.

Tell me, why did NOKIA closed its plant in Chennai? Do you have answers?

IMO, this "Make in India" is a farce.

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