Sunday, December 11, 2011

Goldman's O'Neill "Disappointed" as India "Explodes"

For at least two years in a row, BRIC has, in the words of SGS's Albert Edwards, stood for Bloody Ridiculous Investment Concept, not an acronym for populous emerging markets of Brazil, Russia, India and China as Goldman Sachs' Jim O'Neill saw it ten years ago.

In fact, O'Neill has himself expressed disappointment in India, one of the BRICs, a designation that has boosted foreign investment in India and helped accelerate its economic growth since 2001.

"All four countries have become bigger (economies) than I said they were going to be, even Russia. However there are important structural issues about all four and as we go into the 10-year anniversary, in some ways India is the most disappointing," said O'Neill as quoted by Reuters.

Noting India's significant dependence on foreign capital inflows, Jim O'Neill went further and raised a concern about the potential for current account crisis. "India has the risk of ... if they're not careful, a balance of payments crisis. They shouldn't raise people's hopes of FDI and then in a week say, 'we're only joking'". "India's inability to raise its share of global FDI is very disappointing," he said.



United Nations data shows that India received less than $20 billion in FDI in the first six months of 2011, compared to more than $60 billion in China while Brazil and Russia took in $23 billion and $33 billion respectively. Stocks in all four countries have underperformed relative to the broader emerging markets equity index, as well as the markets in the developed nations. Pakistan's KSE-100 has significantly outperformed all BRIC stock markets over the ten years since BRIC was coined.



As India's twin deficits continue to grow and the Indian rupee hits record lows relative to the US dollar, there is pressure on Reserve Bank of India to defend the Indian rupee against currency speculators who may precipitate a financial crisis similar to the Asian crisis of 1997.

In addition to Jim O'Neill, a range of investment bankers are turning bearish on India. UBS sent out an email headlined "India explodes" to its clients. Deutsche Bank published a report on November 24 entitled, "India's time of reckoning."

"Suddenly everything seems to be coming to a head in India," UBS wrote. "Growth is disappearing, the rupee is in disarray, and inflation is stuck at near-record levels. Investor sentiment has gone from cautious to outright scared."

India's current account deficit swelled to $14.1 billion in its fiscal first quarter, nearly triple the previous quarter's tally. The full-year gap is expected to be around $54 billion.

Its fiscal deficit hit $58.7 billion in the April-to-October period. The government in February projected a deficit equal to 4.6 percent of gross domestic product for the fiscal year ending in March 2012, although the finance minister said on Friday that it would be difficult to hit that target.

As explained in a series of earlier posts here on this blog, India has been relying heavily on portfolio inflows -- foreign purchases of shares and bonds -- as a means of covering its rising current account gap. Those flows are called "hot money" and considered highly unreliable.

Indian policy makers face a significant dilemma. If they do nothing to defend the Indian currency, the downward spiral could make domestic inflation a lot worse than it already is, and spark massive civil unrest. If they intervene in the currency market aggressively by buying up Indian rupee, the RBI's dollar reserves could decline rapidly and trigger the balance of payment crisis Goldman Sachs' O'Neill hinted at.

Related Links:

Haq's Musings

India's Twin Deficits

Karachi Tops Mumbai in Stock Performance

India Returning to Hindu Growth Rate

Soft or Hard Landing For Indian Economy?

Karachi Stocks Outperform Mumbai, BRICs

41 comments:

Anonymous said...

United Nations data shows that India received less than $20 billion in FDI in the first six months of 2011, compared to more than $60 billion in China while Brazil and Russia took in $23 billion and $33 billion respectively.

ok As a percentage of GDP India is # 2 among the BRIC and Russia is ahead because most of the investment is in oil as it is the world's largest oil producer.

Riaz Haq said...

Anon: "ok As a percentage of GDP India is # 2 among the BRIC and Russia is ahead because most of the investment is in oil as it is the world's largest oil producer. "

Yes, but India depends on foreign capital inflows (FDI+FII) to balance its current account ....a fact that makes India much more vulnerable than China or Russia.

Anonymous said...

Yes, but India depends on foreign capital inflows (FDI+FII) to balance its current account ....a fact that makes India much more vulnerable than China or Russia.

well the CAD is worst case $60 billon...after $40 billion FDI (the six month figure X2 )it is $20 billion..even if it is $30 billion..it becomes $30 billion...

30/1600= <2% of GDP hardly the sort that causes an 'explosion'..also exports are picking up as indian goods become more competetive vis a vis China due to strengthening yuan and depreciating rupee...

Also there will always be some FII net inflows so the CAD may well be less than 1% of GDP...

But yes some caution is warranted!

Riaz Haq said...

Anon: "well the CAD is worst case $60 billon...after $40 billion FDI (the six month figure X2 )it is $20 billion..even if it is $30 billion..it becomes $30 billion..."

Yes, if the situation remains steady.

But there are three issues to consider:

1. With the alarm raised by Goldman Sachs, UBS and Deutsche Bank, the FDI and FII inflows are likely to continue to decline.

2. Indian exports are likely to suffer with Europe in crisis, and this could make India's trade deficit worse.

3. There could be rapid decline in reserves if RBI decides to intervene in currency markets, precipitating a balance of payments crisis. If it doesn't intervene, rising inflation would hamper economic growth and further reduce investor confidence.

It's a tough situation for Indian policy makers.

Pavan said...

Thanks. I agree with this analysis. Incidentally, foreign debt worth 100 billion dollars is due for payment by June 2012. There is an option of rolling it over but then interest costs will rise only further. When the big deal defence contracts now being signed come up for payment over the next few years, the situation will get worse. I am afraid we are getting into a debt trap situation as health expenditure has to be tripled if we want to improve human development parameters.

Riaz Haq said...

Here's a Bloomberg report on shrinking of industrial output in India:

India’s industrial production shrank in October for the first time in more than two years, adding pressure on the central bank to pause this week after a record run of interest-rate increases.

Output at factories, utilities and mines fell 5.1 percent from a year earlier after a revised 2 percent gain in September, the Central Statistical Office said in a statement in New Delhi today. That’s the first decline since 2009 and compares with the median estimate for a 0.7 percent drop in a Bloomberg News survey of 24 economists.

Manufacturing has moderated in nations from China to Brazil as Europe’s debt crisis saps global growth, prompting officials to hold or lower borrowing costs. Prime Minister Manmohan Singh’s efforts to bolster the Indian economy have been hampered by corruption scandals, inflation and the decision last week to stall the easing of investment rules for foreign retailers.

“The only policy authority that we are going to see responding to boost growth will be the central bank,” Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse Group AG, said before the report. “Once the RBI is content with inflation and is sufficiently worried about growth, we will see it cut interest rates.”

Prior-Wandesforde expects the Reserve Bank to keep the repurchase rate at 8.5 percent in the Dec. 16 policy meeting.

India’s inflation rate has exceeded 9 percent every month this year as the rupee’s 14 percent slump against the U.S. dollar during the period, Asia’s worst performance, adds to the cost of imported goods. The BSE India Sensitive Index has lost a fifth of its value in 2011.

Slowing Inflation

India’s benchmark wholesale-price inflation probably eased to 9.04 percent in November from 9.73 percent in October, according to the median of 24 estimates in another Bloomberg News survey. That would still be higher than the levels in Brazil, Russia and China, which including India make up the so- called BRIC nations. India’s commerce ministry will unveil the data on Dec. 14.

Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.

Reserve Bank Governor Duvvuri Subbarao has raised the repurchase rate by 375 basis points since the start of 2010. That’s the fastest round of increases since the central bank was established in 1935, Bloomberg data show.

Consumer demand has begun to wane as a result of higher borrowing costs.

The Society of Indian Automobile Manufacturers may cut its annual domestic passenger-car sales target as costlier loans and fuel prices sap demand for Maruti Suzuki India Ltd. and Honda Motor Co. vehicles, Sugato Sen, a senior director for the group, said last week.
------------
Singh, halfway through his second term, is under pressure to revive a legislative agenda derailed by graft allegations in the award of telephone licenses and street protests against inflation. His government faces at least five regional elections next year, including one in Uttar Pradesh, India’s most populous state.

The government on Dec. 7 was forced to suspend a decision to allow overseas retailers including Wal-Mart Stores Inc. to open supermarkets amid protests by the opposition and its allies that forced repeated adjournments of parliament for two weeks.

“This confirms the perception of policy paralysis and that hits investor sentiment which will ultimately hit growth,” said Leif Eskesen, a Singapore-based economist at HSBC Holdings Plc. “It can have implications for medium term growth outlook.”


http://www.businessweek.com/news/2011-12-12/india-factory-output-falls-for-first-time-in-more-than-two-years.html

Anonymous said...

There could be rapid decline in reserves if RBI decides to intervene in currency markets, precipitating a balance of payments crisis. If it doesn't intervene, rising inflation would hamper economic growth and further reduce investor confidence.


Please explain the link between a weaker rupee and inflation.

Except oil which is sold under an administered price mechanism most of the constituents of the inflation basket are indeginous to India.

Riaz Haq said...

Anon: "Please explain the link between a weaker rupee and inflation."


From electricity to telecom to transport vehicles, most of the items of daily use in India rely on imported components.

Take infrastructure for example. Every one uses it, and India imports most of the infrastructure equipment in power and telecom sector. India imports various chemicals, gypsum and cement from Pakistan, etc etc.

Chinese are now supplying equipment for about 25% of the new generating capacity India is adding to its national grid, up from almost nothing a few years ago. There are thousands of skilled Chinese expatriates at Indian plant sites, along with Chinese chefs, Chinese television and ping pong.

India is already the biggest export market for China's two leading telecom equipment manufacturers, Huawei Technologies and ZTE, as both companies have focused on India in recent years. As India has grown to the world's No. 2 mobile phone market in recent years, its imports of Chinese handsets have soared.

And oil is a big part of the imports. The fact that Indian govt subsidizes it doesn't mean it doesn't cost Indian treasury and tax payers. These subsidies also worsen India's twin deficits which affect rupee valuation.

Anonymous said...

'Take infrastructure for example. Every one uses it, and India imports most of the infrastructure equipment in power and telecom sector. India imports various chemicals, gypsum and cement from Pakistan, etc etc.'

except telecom equipment India is a net exporter of infrastructure goods.Please check trade figures..capital goods exports are #2 after ITES and software...

And oil is a big part of the imports. The fact that Indian govt subsidizes it doesn't mean it doesn't cost Indian treasury and tax payers. These subsidies also worsen India's twin deficits which affect rupee valuation.


Not really india has a cross subsidizing scheme in place petrol is very expensive(costliest in Asia) which means most cars sold are small HOWEVER diesel is subsidized so the fuel used in transport is fairly moderately priced,petrol doesn't impact price of goods diesel does...
Diesel cars sell at a hefty price because of a excise structure that taxes them heavily to prevent a wholesale conversion of the car fleet to diesel...

Net-Net the government makes massive money on sale of petroleum products via petrol taxes well in excess of subsidies given and are the biggest source of funds at the state level.
Ever wondered how India's tax/GDP ratio is higher than China?

Riaz Haq said...

Anon: "except telecom equipment India is a net exporter of infrastructure goods.Please check trade figures..capital goods exports are #2 after ITES and software..."

Then why does India run such huge trade deficits? What do you import from China? Power and telecom equipment. And what do you export to China? Iron ore is India's biggest export to China. Please check your facts.

In spite of Gandhi's Swadeshi movement and Indian policy of developing self-reliance, the nation remains heavily dependent on imports from China for its critical infrastructure, and its growing appetite for weapons systems on Russia and Israel. These growing imports are fueling India's current account deficits, and adding to its paranoia with regard to the rise of China. In response, Indian government is acting to reduce dependence on Chinese imports, a move that will likely add further to its trade imbalance because of the higher costs of imports from non-Chinese and non-Russian sources.

Read more at http://www.riazhaq.com/2010/05/soaring-chinese-imports-worry-india.html

Anon: "Net-Net the government makes massive money on sale of petroleum products via petrol taxes well in excess of subsidies given and are the biggest source of funds at the state level."

If that is true, then Indian govt is passing oil price increases to the consumers which will fuel inflation as the rupee falls.

Anonymous said...

Then why does India run such huge trade deficits? What do you import from China? Power and telecom equipment. And what do you export to China? Iron ore is India's biggest export to China. Please check your facts.

I have the main export markets for India's infrastructure goods are South America,Asean and Africa.
In volume this is more than what is imported from China.

Yes India-China trade is very skewed as is China-US/EU/Japan trade....

But overall India's uncovered CAD should be less than 1% this fiscal,well well below comfort levels.

As for China power equipment imports are a transient phenomenon that started 5 years ago when 9% growth created a supply side problem this has started FALLING as our own Industry adds capacity with massive expansion underway at BHEL,Larsen and Toubro,Thermax, JSW, Bharat Forge etc etc

Telecom is another story though...we are self sufficient in Fibre optic infrastructure but are woefully short in other aspects...

Riaz Haq said...

India industrial output falls 5.1%, reports Wall Street Journal:

Industrial output fell 5.1 % from a year earlier in October, after a 1.9% expansion in September, dragged down by a contraction in manufacturing and mining production, government data showed Monday.

The reading widely missed the median estimate in a poll of 15 economists for a contraction of just 0.55%.

Industrial output last fell in June 2009, when it shrank 1.8%.

Government bonds rose following the data amid growing expectations the RBI will hasten a rate cut. The benchmark 7.80% 2021 bond rose to 101.85 rupees from 101.76 rupees before the data and closed at 102.26 rupees.

Economists said a rate cut may come early next year if inflation continues to decline over the next few months.

"While the governor of the RBI continues to stress that he is more concerned about inflation than growth, this is the sort of number that will surely make him sit up and take notice," said Robert Prior-Wandesforde, director of Asian Economics at Credit Suisse.

The RBI, which has raised interest rates 13 times since March 2010, has previously said the likelihood of another increase at its next policy review on Dec. 16 was low.

Despite headline inflation likely remaining elevated at about 9% for November, the sharp contraction in production could prompt some monetary measures at the policy meeting this week, added Citigroup economists Rohini Malkani and Anushka Shah.

Monday's data showed that manufacturing output, which has a 75.5% weighting in the index of industrial production, fell 6% from a year earlier in October, compared with a 2.4% rise the previous month. Mining output shrank 7.2%, after falling 5.6% in September.


http://online.wsj.com/article/SB10001424052970203518404577093490474041970.html#articleTabs%3Darticle

Ashmit (India) said...

It's ironic that you question the consumer growth story in India, when O'Neill's disappointment arose out of the fact that policy flip flops disallowed the likes of tesco, walmart and carrefour to profit from the multi billion dollar indian retail space.

In other words, if India's consumer growth story was under question, there would not have been any ripples in the global biz circles because of India’s moves on FDI in retail. The "disappointment" arises from recognising the inability to profit from the vast the potential that india holds.

As for the CAD, trade imbalances and the rupee fall - as you so ardently believe - a glass can either be seen as half full or half empty.

For those who appreciate how market economics work, there are clearly two very visible aspects of the rupee fall. While, it's true that the it hits the import bill, it is also true that a devalued rupee makes indian exports more competetive. The rupee's fall gives it an edge over the yuan.

With the Indian services sector contributing, vastly, to the GDP - the services exports will benefit from the sharp rupee falls.

Extrapolating from the rupee-export co-relation - the falling rupee should aid the exports, allowing for bridging the trade deficit and also allowing the inflow of dollars that would help plug the leaking CAD.

The Indian policy makers are lost in a maze that they themselves created. The investors, global and domestic, are nervous - as they should be. The growth numbers are looking increasingly fragile, but to start pondering over an obituary is insane.

Besides, Mr. Haq, allow me to point out to you a dichotomy. You reject my claims of India's potential as a superpower, when I quote Goldman Sach's (GS) reports. You dismiss the projections and refer to the likes of GS as "dangerous" and "unhealthy" for the economy.

Yet, you endorse the "dangerous" and "unhealthy" claims of GS when its suits your end of running down India.

But how about some perspective?! Despite the nervous situation that india finds itself in, it continues to perform better than pak on most economic indicators - such as inflation, unemployment, growth, forex reserves, growth in exports, etc.

Drawing conclusions about pak based on indicators used in your analysis - such as rupee, trade imbalance, forex reserves, inflation - will present a feeble picture of pak.

For instance, the trade deficit for nov 2011, shot up by 55.5% YOY and by 48.7% for the first 5 months. Meanwhile, quantum of exports fell by 13% in Nov 2011 YOY. Meanwhile, for the same period, imports soared by nearly 20%.

But the import bill is set to get worse as the pak rupee (like its indian counterpart) also hit record lows. So with pak importing about 80% if its oil needs, the writing, it seems, is on the wall. And i assume that we're only too aware of the expected domino effect that expensive crude will have on inflation in pak (higher than india). A reuters report claims that, "With dwindling reserves, coupled with import payments, debt servicing and a lack of external aid, the pressure on the local currency is expected to continue."

Moreover, the CAD situation and the potential for BOP crisis (just like 2008 when pak had to go begging to the IMF for 11 billion USD) cannot be ruled out. Pak's CAD in July-Oct increased to 1.55 billion USD as compared to 541 million USD in the same period last year. If not the quantum of the deficit, then the pace at which it increased should worry you.

As for stable inflow of foreign investments - according to the SBP - Foreign Private Invesments in pak for july-oct fell by 61%, while FDI for the same period fell by 27.7%.

Here's some food for thought - if according to you Pak is too big to fail with an GDP of 175 billion, what does it mean for india with a GDP of 1.73 trillion??

Riaz Haq said...

Here's a Bloomberg report on India exaggerating its exports:

India’s commerce ministry said it overstated merchandise exports by $9 billion in the eight months through November because of “misclassification and errors” in computing overseas sales.

“Notwithstanding the misclassification, there were errors in double counting and all sorts of things which inflated exports by about $9 billion,” Commerce Secretary Rahul Khullar told reporters in New Delhi yesterday. Overseas sales in the April-to-November period now stands at $192.7 billion, Khullar said.

India’s monthly export growth has averaged about 44 percent since April even as Europe’s debt crisis and a faltering U.S. recovery reduced global consumer demand, prompting economists to question the quality of the data. Today’s revision explains “in part the weakening of the rupee,” Asia’s worst-performing currency this year, said Jay Shankar, Mumbai-based economist at Religare Capital Markets Ltd.

“The global economy isn’t doing well, so it was hard to understand how India was posting such fantastic export numbers,” said Biswajit Dhar, director of New Delhi-based Research and Information System for Developing Countries. “There were reasons to believe something was going wrong.”

The rupee weakened 0.6 percent to 52.04 per dollar in Mumbai yesterday, extending its decline this year to 14.1 percent. The BSE India Sensitive Index (SENSEX), which has lost a fifth of its value in 2011, dropped 1.7 percent. The yield on the 8.79 percent bonds due November 2021 rose two basis points, or 0.02 percentage point, to 8.54 percent.
Waning Demand

India’s exports in November were $22.3 billion, Khullar said, without elaborating. Bloomberg calculations based on previously announced data show exports grew 3.7 percent last month from a year earlier, the slowest pace in more than two years.

The South Asian nation’s imports in November were $35.9 billion, he said. Imports in the eight months through November were $309.5 billion, causing a trade deficit of $116.8 billion in the period, Khullar said.

India will get “close to, but not quite $300 billion in exports” in the year ending March 31, he said.

The South Asian nation’s export growth has vacillated this year, surging 82 percent in July before slowing to an 11 percent gain in October, according to previously reported data by the commerce ministry.

A report by Mumbai-based Kotak Institutional Equities Research in October showed “wide gaps” in engineering export numbers released by the government and data culled from annual reports of the top 500 companies on India’s exchanges for the year ended March 31.

While official announcement showed engineering exports jumped 79 percent to $68 billion in the year through March, data collected by Kotak from company reports indicated only an 11 percent increase to 638 billion rupees ($12.3 billion) during the period, according to the report written by Sanjeev Prasad, Sunita Baldawa and Amit Kumar.


http://www.bloomberg.com/news/2011-12-09/india-overstated-exports-by-9-billion-this-year-ministry-says.html

Riaz Haq said...

India rupee has slid 19% against US dollar since March this year, according to the Wall Street Journal:

The Indian rupee partially recovered from a fresh record low against the U.S. dollar Tuesday, aided by a late rebound in local stocks and as the euro pared its losses.

The dollar was at INR53.22 late Tuesday, after touching an intraday high of INR53.515, and compared with INR52.84 late Monday. The greenback's previous record high was INR52.85, on Monday.

The rupee has borne the brunt of global risk aversion emanating from the euro-zone crisis and due to concerns over high domestic inflation, slowing growth and a possible widening of the federal government's budget deficit.

The dollar has gained nearly 19% against the rupee since March, making it Asia's worst-performing currency this year.

The rupee could easily be set to fall to as much as 55 to a dollar by the end of the year, as unhedged local firms rush for cover on their dollar debt, said Ashish Vaidya, head of trading at UBS in India.

Local authorities are making efforts to boost foreign-exchange supplies to help arrest the rupee's slide against the U.S. dollar, the junior minister of finance said. "The finance ministry has been keeping a close watch on the situation," Namo Narain Meena said in the upper house of parliament.

A subcommittee of the Financial Stability and Development Council, headed by Reserve Bank of India Governor Duvvuri Subbarao, is also continuously assessing the matter, he added.

The Bombay Stock Exchange's Sensitive Index rose 0.8% to end at 16,002.51, recovering from its intraday low of 15,771.59.

Meanwhile, Indian government bonds rose on investors' expectation that moderating economic growth will allow the central bank to take a dovish stance and ease policy rates sooner than expected.

The 8.79% 2021 bond ended at INR102.55, up from INR102.26 Monday.

The Reserve Bank of India is likely to pause tightening interest rates at its rate-setting meeting Friday, after 13 increases since March 2010.

"But a fast depreciating rupee may add to some imported inflation as India buys about 80% of its crude oil need," said a senior dealer at a state-run bank.

The market is awaiting November's inflation data, due Wednesday.

According to the median estimate in a Dow Jones Newswires poll of 15 economists, the wholesale price index likely rose 9.04% in November from a year earlier, compared with a 9.73% increase in October.


http://online.wsj.com/article/BT-CO-20111213-705115.html

satwa gunam said...

i agree. India fiscal deficit and balance of payment deficit in the current account is the main reason for the ruppee falling suddenly as the capital inflow has stopped for whatever reason.

this gives an opportunity for the country to understand that current account deficit is something which is dangerous and it requires to be kept under control.

Riaz Haq said...

http://www.economist.com/blogs/freeexchange/2011/12/india%E2%80%99s-economy
India’s economy
Slip-sliding away

EXPECTATIONS for India’s economic growth rate have been sliding inexorably. In the early spring there was still heady talk about 9-10% being the new natural rate of expansion, a trajectory which if maintained would make the country an economic superpower in a couple of decades. Now things look very different. The latest GDP growth figure slipped to 6.9% and industrial production numbers just released, on December 12th, showed a decline of 5.1% compared with the previous period, a miserable state of affairs. The slump looks broadly based, from mining to capital goods, and in severity compares with that experienced at the height of the financial crisis, in February 2009, when a drop of 7.2% took place. Bombast is turning to panic.

Riaz Haq said...

Here's a mid-year economic performance summary by Finance Minister Dr. Hafeez Shaikh as reported by APP:

ISLAMABAD, Dec 19 (APP): Federal Minister for Finance, Dr Abdul Hafeez Shaikh here on Monday said economic indicators were showing positive results due to prudent economic policies initiated by the government.Briefing a newsmen, here at the Ministry of Finance, the Minister said the government wanted to improve the workings, efficiency and performance of State Owned Enterprises like Pakistan International Airlines (PIA), Pakistan Steel Mills (PSM) and Pakistan Railways through introducing efficient management and operating through the professionals in order to make them profitable entities for the economic development of the country.
He added that government has fulfilled the minimum financial requirements of the PSM in order to help the organization improve its working capacity.
He informed the media that large scale manufacturing sector has registered growth of 3.6 percent during the first quarter of current financial year which was a health sign for national economy.
He added that revenue collection up to December 16 stood at Rs. 715 billion which was realized at Rs. 555 billion during the same period of last financial year.
Besides, the governmental expenditures were fixed at 42.5 percent during first five months of current financial year which was recorded at 38 percent, he added.
He further informed that government expenditure had targeted to 50 percent of the total expenditures by December this year which would reach up to 42 percent.
However , he said that it would spent about 40 percent of (PSDP) by December.Secretary Finance, Dr Waqar Masood said that export grew by 11.5 percent against the expected targets of 5 percent,while imports grew by 20 percent as against the expected targets of 10 percent.
He informed that inflation rate was recorded at 10.2 percent during the period under review which was recorded at 14 percent during the last year.
Foreign remittances in the country were increased by 18 percent which crossed US $ 5 billion mark during last five months of current financial year.
Secretary Finance said that Federal Board of Revenue (FBR) was determined to achieve its revenue targets of Rs. 1952 billion as revenue collection has registered 28 percent growth as compared to same period last year.


http://app.com.pk/en_/index.php?option=com_content&task=view&id=171141&Itemid=1

Riaz Haq said...

The Indian stock market today lost its trillion-dollar status, as a decline in the rupee and share valuations led to its size slipping below this mark to $994.97 billion, according to India's Economic Times:

India had managed to hold onto the select league of the countries with a trillion-dollar stock market by a whisker for past few days, but finally gave in today after the market barometer Sensex fell to a fresh 28-month low and the rupee lost further value against the US dollar.

At the end of today's trade, the total size of the Indian market, measured in terms of cumulative valuation of all listed stocks, stood at Rs 52,60,440.78 crore.

As the rupee ended the day at Rs 52.87 level, the stock market's size in the American currency was USD 994.97 billion -- just a shade below the trillion-dollar mark.

The Indian market had a size of USD 1.0116 trillion (Rs 53,48,352.02 crore) at the end of yesterday's trade.

A total of 13 countries are now estimated to be left in the trillion-dollar stock market club, including the US, the UK, Canada, Brazil, Australia, Hong Kong, South Korea, China, Japan, Spain, Germany, Switzerland and France.

The Indian market had first achieved a trillion-dollar size about four and half years ago on May 28, 2007, but moved out of this coveted league about a year later on July 1, 2008.

India again joined this elite club of markets with trillion-dollar valuation about a year later on June 3, 2009.

The Indian market was, in fact, seen inching towards the two-trillion dollar mark at least twice in the past -- first in early 2008 and then at the beginning of 2011 with a size as high as USD 1.9 trillion.

A sharp plunge in the market this year has led to the Indian market valuation falling by close to Rs 20 lakh crore (over USD 500 billion), from about Rs 73 lakh crore (USD 1.7 trillion) at the beginning of 2011.

The rupee has been a declining trend for many months now and had hit its record low level below Rs 54-level last week, but the fall was somewhat arrested since then on the back of an intervention by the Reserve Bank.

The market size has been hovering above the trillion- dollar mark for last few days and an eminent miss was averted on Thursday last week, when the RBI managed to reverse the downfall of rupee after a record fall to Rs 54.30 level.

On Friday, the market size stood at Rs 54,11,301 crore or USD 1.026 trillion, based on that day's currency rate of Rs 52.30, as the market tanked sharply. The trillion-dollar tag had been lost that day itself, if the rupee had managed to hold onto its record high levels.

In terms of individual exchanges, the total size of stocks listed on the NSE yesterday itself slipped below trillion-dollar mark to USD 989 billion (Rs 52,30,333 crore).

At the end of today's trade, NSE-listed market valuation stood at Rs 51,42,566 crore (USD 972.68 billion).

However, the market valuation of NSE-listed companies is not considered as the country's stock market size, as not all the companies are listed on this exchange.

Indian stocks are mainly listed on two national bourses, the BSE and the NSE, but the numbers of listed companies on the two stock exchanges differ sharply.

While about 1,600 stocks are actively traded on the NSE, the number is almost double at over 2,900 at the BSE.

Almost all the stocks listed on the NSE are also listed on the BSE and therefore the cumulative valuation of companies listed on the BSE is treated as the total market size.

http://economictimes.indiatimes.com/markets/analysis/india-moves-out-of-trillion-dollar-stock-market-club/articleshow/11181756.cms

Mayraj said...

Businessweek report on infrastructure and power deficits hurting India:

Dec. 19 (Bloomberg) -- Truck driver Sujan Singh should be delivering cars to Mumbai from Maruti Suzuki India Ltd.’s plant near New Delhi. Instead, he’s sitting at a roadside cafe by one of India’s busiest highways, waiting for the traffic to ease.

“I’ll start again in the evening and travel through the night as you face huge congestion during the daytime,” he said, enjoying the warmth of a burning pile of trash in the New Delhi winter air. “Most of the highways are just single lanes and the roads are so uneven and bad that that it causes accidents.”

India’s failure to upgrade its 4.2 million kilometers (2.6 million miles) of roads, close a 10 percent power deficit and ease congestion at ports is hobbling the central bank’s efforts to beat inflation. Even after raising interest rates by a record 375 basis points in 1 1/2 years, wholesale prices have risen more than 9 percent for 12 straight months. The bank says supply bottlenecks that push up costs must be tackled.

The country of 1.2 billion people is paying for two decades of neglect. While China 20 years ago went on a multitrillion dollar spending spree for roads, railways, ports and power stations, its South Asian neighbor concentrated on services. Now, as China reins in prices and expands industry inland to restrain wages, India’s near record-low rupee and price gains are damping consumer spending and choking off company earnings.

“India has allowed a large number of cars without creating enough roads; a large number of industries without enough power to run them,” said Sunil Sikka, president of Havells India Ltd., the nation’s second-largest electrical components maker by value. “It’s like trying to wear shoes without socks -- very, very irritating and difficult.”

Cars and Soap

Sikka said Havells has to pay higher packaging costs to protect lamps and switchgears from India’s bumpy roads, where average speeds are 20 kilometers per hour (12 mph). Businesses from Maruti to soap and food maker Hindustan Unilever Ltd. also suffer, said Jagannadham Thunuguntla, chief strategist at SMC Wealth Management Services Ltd. in New Delhi.

“All companies where there is movement of goods and services and distribution are getting hit,” said Thunuguntla. “It adds to their costs and affects productivity.”

http://www.businessweek.com/news/2011-12-20/india-inflation-hurting-as-bad-roads-conspire-with-power-deficit.html

Riaz Haq said...

In a tough message to India Inc, Prime Minister Manmohan Singh urged industry leaders to stop negative comments, and pitch in to help India grow.

"I must confess that it is a little disappointing to sometimes hear negative comments emanating from our business leadership or be told that government's policies are causing slowdown and pessimism in the industrial sector. Such comments have added to uncertainty and have emboldened those who have no stake in our economic growth.

It is true that our country faces a large number of issues which need urgent resolution. The energy sector, the port sector, the transport sector, the supply of gas and coal, all need greater attention. Corruption and better governance also require firm handling. I wish to assure you that our Government is serious about tackling these issues. We are also committed to ensuring the predictability and transparency of our policy and regulatory environment," the Prime Minister said.

These comments were a part of PM's remarks at a meeting of the Council on Trade and Industry held yesterday evening. India Inc met the PM to discuss concerns over economic slowdown, high interest rates and lack of reforms.

We had a very good interaction with the PM. He listened to all the different challenges faced by the Industry. The PM is very determined to get back on the growth path, Swati Piramal, Member of the PM Council on Trade told NDTV Profit.[RELATED-STORIES]

Those present at the meeting included Tata Sons Chairman Ratan Tata, Bajaj Auto Chairman Rahul Bajaj, Reliance Industries’ Mukesh Ambani, former Chairman of Infosys NR Narayana Murthy, Bharti Airtel's Sunil Mittal and ICICI Bank's Chanda Kochhar. Commerce and Industry Minister Anand Sharma and Deputy Chairman of the Planning Commission Montek Singh Ahluwalia also attended the meeting.


Read more at: http://www.ndtv.com/article/profit/pm-to-india-inc-negative-comments-disappointing-294636&cp

Riaz Haq said...

Pakistan is turning away from the West and looking East, reports RT.com:

...
(Dai Bingguo) visit came shortly after Beijing and Islamabad finalized a $1.6 billion currency swap agreement which will allow the two countries to boost their trade relations and decrease the involvement of the dollar. Currently China-Pakistan trade stands at $10 billion a year, but Dai has called for that figure to be increased to $15 billion over the next three to four years.

China is strengthening its role as a regional leader, and Pakistan is among key targets for Beijing’s influence building strategy. It is investing in a number of big construction projects in the country, including the Karakorum Highway and Gwadar Port, both of which will improve China’s transport links with energy-rich Gulf nations. It will also help Pakistan develop its nuclear power industry.

The Chinese army also regularly performs joint war games with Pakistani forces. Islamabad is seeking China’s military support against its long-time rival, India, while China needs a stable and well-defended Pakistan to stop any future incursion into its territory of extremists from volatile Afghanistan.

The visit comes as Pakistan distances itself from its long-time strategic ally, the US. The year 2011 was a difficult one for relations between Islamabad and Washington, with a number of incidents contributing to the deterioration. The downward spiral started in January when a CIA contractor killed two men but later evaded punishment because families of the victims were paid blood money. The case caused anger in Pakistan when the US said the perpetrator had diplomatic immunity and demanded his release.

In May, US commandos raided Pakistan’s territory and killed Osama bin Laden, who had been living in the country for several years. Islamabad was given no warning of the operation, which angered the Pakistani military. Washington said if it had informed Pakistan’s government in advance, the Al-Qaeda leader would have been alerted, enabling him to escape.

In November, a US air strike on a Pakistani border post killed 24 troops who were mistaken for Taliban militants. It took the Pentagon a month to reluctantly admit their part of the blame for the deadly mistake and offer apologies. However, the Pakistani military do not appear to consider the case closed.

The Americans also have their share of grudges against Pakistan, from the alleged embezzlement of military aid to alleged support for Taliban attacks in Afghanistan, to harboring bin Laden. With relations between the allies deteriorating, Pakistan has more and more incentive to turn away from the US as its key partner and side with China, which challenges American influence in the region.

Joseph Chang, a professor of political science at Hong Kong City University, believes the alliance is beneficial to both sides. China, an ally of Pakistan against India and Soviet Union during the Cold War, now sees the benefits of a partnership with Pakistan as primarily economic.

“Pakistan has been Beijing’s best ally throughout the history of the People’s Republic of China,” he told RT. “Increasingly, Pakistan has a certain strategic value to China because of the completion of the Karakorum Highway, as well as the almost-completion of the Gwadar port. China certainly hopes that it can, through land links to Pakistan, then open up sea links to the Indian Ocean and bring oil through this route, avoiding the overcrowded Straits of Malacca.”

Chang believes Pakistan could also profit from the alliance: “China is always very helpful in terms of trade, investment as well as military and economic aid. So having an ally like China will help to much strengthen Pakistan’s bargaining power with Washington DC.”


http://rt.com/news/pakistan-china-ties-us-647/

Riaz Haq said...

Here's investment strategist Stephen Roach (Morgan Stanley) on why India is riskier than China:

India is more problematic. As the only economy in Asia with a current-account deficit, its external funding problems can hardly be taken lightly. Like China, India’s economic-growth momentum is ebbing. But unlike China, the downshift is more pronounced – GDP growth fell through the 7% threshold in the third calendar-year quarter of 2011, and annual industrial output actually fell by 5.1% in October.

But the real problem is that, in contrast to China, Indian authorities have far less policy leeway. For starters, the rupee is in near free-fall. That means that the Reserve Bank of India – which has hiked its benchmark policy rate 13 times since the start of 2010 to deal with a still-serious inflation problem – can ill afford to ease monetary policy. Moreover, an outsize consolidated government budget deficit of around 9% of GDP limits India’s fiscal-policy discretion.

While China is in better shape than India, neither economy is likely to implode on its own. It would take another shock to trigger a hard landing in Asia.

One obvious possibility today would be a disruptive breakup of the European Monetary Union. In that case, both China and India, like most of the world’s economies, could find themselves in serious difficulty – with an outright contraction of Chinese exports, as in late 2008 and early 2009, and heightened external funding pressures for India.

While I remain a euro-skeptic, I believe that the political will to advance European integration will prevail. Consequently, I attach a low probability to the currency union’s disintegration. Barring such a worst-case outcome for Europe, the odds of a hard landing in either India or China should remain low.

Seduced by the political economy of false prosperity, the West has squandered its might. Driven by strategy and stability, Asia has built on its newfound strength. But now it must reinvent itself. Japanese-like stagnation in the developed world is challenging externally dependent Asia to shift its focus to internal demand. Downside pressures currently squeezing China and India underscore that challenge. Asia’s defining moment could be hand.


http://www.project-syndicate.org/commentary/roach12/English

Riaz Haq said...

Results of PISA international test released by OECD in Dec, 2011, show that Indian students came in at the bottom of the list along with students from Kyrgyzstan:

Students in Tamil Nadu-India attained an average score on the PISA reading literacy scale that is significantly higher than those for Himachal Pradesh-India and Kyrgyzstan, but lower than all other participants in PISA 2009 and PISA 2009+.
In Tamil Nadu-India, 17% of students are estimated to have a proficiency in reading literacy that is at or above the baseline needed to participate effectively and productively in life. This means that 83% of students in Tamil Nadu-India are estimated to be below this baseline level. This compares to 81% of student performing at or above the baseline level in reading in the OECD countries, on average.
Students in the Tamil Nadu-India attained a mean score on the PISA mathematical literacy scale as the same observed in Himachal Pradesh-India, Panama and Peru. This was significantly higher than the mean observed in Kyrgyzstan but lower than those of other participants in PISA 2009 and PISA 2009+.
In Tamil Nadu-India, 15% of students are proficient in mathematics at least to the baseline level at which they begin to demonstrate the kind of skills that enable them to use mathematics in ways that are considered fundamental for their future development. This compares to 75% in the OECD countries, on average. In Tamil Nadu-India, there was no statistically significant difference in the performance of boys and girls in mathematical literacy.
Students in Tamil Nadu-India were estimated to have a mean score on the scientific literacy scale, which is below the means of all OECD countries, but significantly above the mean observed in the other Indian state, Himachal Pradesh. In Tamil Nadu-India, 16% of students are proficient in science at least to the baseline level at which they begin to demonstrate the science competencies that will enable them to participate actively in life situations related to science and technology. This compares to 82% in the OECD countries, on average. In Tamil Nadu-India, there was a statistically significant gender difference in scientific literacy, favouring girls.


http://www.acer.edu.au/media/acer-releases-results-of-pisa-2009-participant-economies/

Riaz Haq said...

Here's Economist magazine on the travails of Indian infrastructure development:

ONE recent evening in Mumbai a tangerine Lamborghini could be seen taxiing past a sign prohibiting bullock carts, wheeling left and then letting rip on the Sea Link toll-bridge, one of the city’s few bits of decent infrastructure. For three miles all the driver’s Michael Schumacher fantasies must have came true. But by the fourth he drove off the bridge back into reality: roads whose surfaces often wash away during the monsoon and whose repair is said to be in the hands of mafias. The supercar returned to rickshaw speed.

For the past half decade India’s infrastructure industry has enjoyed a Sea Link moment; a blast of growth when one could imagine that the private sector could deliver all the new roads, bridges, power stations and airports that the country needs so badly. The government says the boom will continue. Over the next five years it predicts that infrastructure investment will reach a new high relative to GDP, with some $1 trillion spent, half of it by the private sector. The trouble with this rosy prediction is that the balance-sheets of many Indian infrastructure firms are as potholed as the roads they resurface.
-----------------
Exclude state-owned and telecoms firms and leverage is worse (see table). From public disclosures it is impossible to work out the liquidity position of these firms, but it is likely that most will have to refinance existing credit lines in today’s far less forgiving world, a process not helped by high local rates and a weak rupee.

It looks like a mess. Shareholders have taken a beating, with the market value of those 70-odd stocks having fallen by some two-fifths since March 2011. India’s banks may be next in line for a thrashing. The Reserve Bank of India (RBI), the regulator, reckons they have 13% of their loan book in infrastructure (vaguely reassuringly, the RBI’s implied absolute debt figure roughly matches the $130 billion of gross debt of the 70 listed firms). Thus far non-performing loans are low—so low it suggests banks are fibbing. But the RBI is probably right that a rickety infrastructure sector does not endanger the banking system.
--------------
What it does endanger is India’s growth prospects. Those new airports, roads and bridges are essential. And the country does not need financial zombies, slashing their investment in order to shore up dodgy balance-sheets.

Some reckon the solution is to develop a bond market, so that more debt can be raised. But while a more sophisticated capital market might mean more funds available and might even reduce the amount of financial engineering going on, it is not the solution to today’s predicament.

Instead, two things need to happen. The government needs to unsnarl stalled projects. And infrastructure firms need to raise lots more equity—not debt. That might dilute the stakes which are held by some of the magnates who control these businesses, but would be a fair price to pay to resuscitate the balance-sheet of a vital industry. Even on selfish grounds it makes sense, hastening the day when an honest Indian oligarch can at last put the pedal to metal in his supercar for more than three miles in a row.


http://www.economist.com/node/21542184

Riaz Haq said...

Pakistan's key share index KSE-100 dropped about 5% in 2011, significantly less than most the emerging markets around the world. Mumbai's Sensex, by contrast, lost about 25% of its value, putting it among the worst performing markets in the world.

http://www.riazhaq.com/2011/12/pakistans-year-2011-in-review.html

Riaz Haq said...

Chinese banks bail out India's Reliance, according to International Financing Review:

Anil Ambani’s Reliance Communications has been saved from a potential financing crunch by a surprise US$1.1bn loan from a group of Chinese state-owned banks. RComm will use the new funds to repay a US$1.2bn convertible bond issue due for redemption on March 1, putting an end to fears of a potentially devastating default.

The loan has raised eyebrows as a rare instance of Chinese support for one of India’s biggest business groups. China Development Bank, Export-Import Bank of China, Industrial and Commercial Bank of China and other Chinese lenders provided the entire refinancing, according to an announcement from RComm on January 17.

RComm “will benefit from an extended loan maturity of seven years and attractive interest cost of about 5%”, said a company press release.

The new loan comes as European banks – RComm’s traditional relationship lenders – are scaling back exposure to Indian borrowers. RComm has taken a hit from India’s ongoing telecoms corruption scandal, with police questioning chairman Anil Ambani last year, and its existing syndicated loans feature prominently on axe sheets in circulation from European banks.

However, bankers with direct knowledge of the matter said that, in return for the loan from the Chinese policy banks, RComm was expected to purchase equipment from the country’s PC companies, such as Huawei and ZTE Corp.

“Chinese banks have a lot of cash and they tend to throw it around, but they only do so when there is something packaged with it,” said a veteran loans banker in Singapore. “It is a great deal for Reliance Communications as it provides another source of liquidity when traditional ones are drying up. However, there was more in it than just pure returns that incentivised the Chinese lenders.”

This is not the first instance of such an arrangement. Late last November, Sasan Power, the project company for the Sasan ultra mega power plant and a subsidiary of RComm affiliate Reliance Power, completed a US$2.2bn refinancing, including a US$1.114bn 13-year tranche. Bank of China, CDB and Chexim took US$1.06bn of that tranche, for which Chinese export credit agency Sinosure provided cover.

That was the first Indian loan to which Chinese lenders had committed such large amounts, after they began to take lead roles on Indian deals in 2007. Prior to Sasan Power, the take of Chinese lenders as MLAs on Indian deals amounted to just US$218.26m from six transactions in three years.
More redemptions looming

Bankers warned, however, that the Chinese loan was unlikely to provide a template for other Indian companies to follow.

“The names that have trade links with the PRC will appeal more to the Chinese banks. Those that think they can meet the criteria are being marketed to the Chinese banks,” said a banker with a foreign bank in Mumbai.

More than two dozen Indian companies in the BSE-500 index face redemptions on foreign currency convertible bonds worth a combined Rs330bn (US$6.5bn) at end-March 2013, according to brokerage Edelweiss. These include RComm’s US$925m outstanding CB, which the loan will repay.

Entities without ties to China must look elsewhere and may have to rely on Indian banks to overcome their refinancing pressure.

For example, Orchid Chemicals & Pharmaceuticals is in the market, through sole bookrunner Axis Bank, for a US$100m 6.5-year loan that will partly refinance a CB issue of US$170m coming due in mid-February. The facility, marking Orchid’s debut in the offshore loan markets, pays a top-level all-in of 490bp over Libor, based on an average life of five years....


http://www.ifre.com/chinese-lenders-bail-out-rcomm/20044964.article

Riaz Haq said...

Here's a FirstPost story on India at Davos WEF 2012:

Barely a few years ago, India was the flavour of the season at the World Economic Forum talk-fest in the Swiss Alpine resort of Davos as international moneybags and businesses, looking for the Next Big Thing after China, latched onto the India Story.

They came by the India Adda pavilion, chomped on curry offerings, got a earful of Bollywood beats – and pronounced that India was Everywhere.

This year, after a bruising 12 months of economic mismanagement that saw inflation soar and growth slow down and a whole lot of other things go wrong, the moneybags’ starry-eyed vision of India has faded. India is Nowhere at this year’s Davos gabfest. Indian TV personalities who have made Davos something of an annual pitstop say that the mood among the Indian contingent this year is downbeat, “almost depressed.”

NDTV’s Vikram Chandra reports that a top industrialist told him: “We are back to being on the sidelines, back to watching others take the limelight. Back to the bad old days. It’s feeling as if the India story is over.”

The unnamed Indian industrialist may not be ready to acknowledge it, but the fact that Davos has gone cold on India is perhaps a good thing, given its horrendous record at predicting the future and reading economic ups and downs.

As Clyde Prestowitz, president of the Economic Strategic Institute, notes, Davos has become the platform for an intellectual form of name-dropping and a chance for the select few to gloat that they have been invited to the meeting.

“It’s a combination of competitive vanity and convenience that makes it all work. Glitteratus A begs for an invitation because he/she can’t stand the thought of not being there if Glitteratus B is there. The fact that many are there then makes it easy to do in a few days a lot of business with each other that without the meeting would take weeks or months. So, for organizing a nice party for them, the glitterati each pay… anywhere from $50,000 to several hundred thousand dollars.”

But far from being a forum that sets the economic and business agenda for the world, Davos has been horribly – and embarrassingly – behind the curve in seeing the future. Prestowitz points out that the Davos meeting in 2008, for instance, foresaw none of the cataclysm in the financial markets and the collapse of real estate markets that would define much of that year and the succeeding years.

Just as glaringly, in 1997, these Masters of the Universe labelled Southeast Asia as the world’s most dynamic region, only to see the whole house of cards collapse barely three months later.

The Davos man, writes Prestowitz, “has consistently proven clueless and unable to set an agenda with regard to the global developments on which he is supposed to be the expert.” This is largely because Davos represents the “global establishment”, which by its very nature cannot see anything that doesn’t fit into its orthodox framework, and has a dogmatic faith in the enriching power of unfettered globalisation.…


http://www.firstpost.com/world/india-nowhere-at-davos-thank-god-for-that-195985.html

Riaz Haq said...

India’s total external debt has risen to $326 billion while forex reserves have dipped to $293 billion, according to a report in the Indian Express:

...The composition of capital inflows shifted in favour of debt, with a rise in the proportion of short-term flows. If the pace of FDI inflows does not pick up once again and FII equity inflows revert to the decelerating trend, CAD may have to be largely financed through debt creating flows in the coming quarters. Recent pick up in FII flows has been mainly on account of investment in debt instruments.
-------------
On the capital account, recent policy measures have stimulated debt capital flows in the form of investments by FIIs in debt instruments and NRI deposits. Going forward, however, it would be necessary to reduce dependence on debt inflows and accelerate the reform process in order to ensure revival of equity flows as investors look for strong growth opportunities in an otherwise gloomy global environment, the RBI says.

Widening current account deficit (CAD), diminishing capital flows and moderately deteriorating vulnerability indicators, notwithstanding improved net international investment position, warrant acceleration of the domestic reform process. The RBI feels this will encourage renewed equity flows.

Subbarao made it clear that close monitoring of the short-term external debt will be required in 2012-13. Given that both global and domestic scenario remains bleak, investors would generally tend to prefer shorter-dated government securities.

Capital flows

* In 2011, out of $8.65 billion foreign debt inflows, as much as $4.18 billion came in December while there was an outflow of $357 million from equity

* India’s total external debt has risen to $326 billion while forex reserves have dipped to $293 billion

* If the pace of FDI inflows does not pick up and FII equity inflows decelerate, CAD may have to be largely financed through debt creating flows in the coming quarters.


http://www.indianexpress.com/news/rbi-not-comfortable-with-rise-in-debt-inflows/905389/2

Riaz Haq said...

Here are "Ten Things for India to Achieve its 2050 Potential", brought out by Jim O'Neill, Head Global Research at Goldman Sachs, and Tushar Poddar, V-P Research, Asia Economic Research Team at Goldman Sachs India, as reported by India's Economic Times:

1. Improve governance

2. Raise educational achievement

3. Increase quality & quantity of universities

4. Control inflation

5. Introduce credible fiscal policy

6. Liberalize financial markets

7. Increase trade with neighbors

8. Increase agricultural productivity

9. Improve infrastructure

10. Improve environmental quality

http://economictimes.indiatimes.com/quickiearticleshow/3137357.cms

Riaz Haq said...

Here's a Daily Times report on some of the German multinational companies in Pakistan:

ISLAMABAD: The German embassy in cooperation with the Pakistan German Business Forum (PGBF) and German-linked companies and institutions active in Pakistan held an exhibition titled ‘Germany on the Road’ in Multan. Germany on the Road has been designed to present the multitude of linkages between Germany and Pakistan by giving German companies, Germany-linked companies and German institutions the opportunity to display their activities in Pakistan in a concise and vivid manner. During the exhibition up-to-date information about Germany as well as appealing give-away were handed out and a buffet dinner was offered. The event was sponsored by BASF Pakistan, CEI Logistics, EXCEL Group/PrintSol, GWE German Water and Energy, KSB Pumps, Küppersbusch/Teka Pakistan, MAN Diesel Pakistan, METRO Cash and Carry Pakistan, Nordex SE Germany, SAAS Synergie/Alno and SAP Pakistan.

I am surprised that Siemens Pakistan is not at the event.

http://www.dailytimes.com.pk/default.asp?page=2012\04\01\story_1-4-2012_pg5_15

Riaz Haq said...

Here are excepts of an interview of Elliot Theorist Mark Galasiewski who's bullish on Pakistan:

To answer your question, there are various ways to make long-term investment decisions. For example, Warren Buffett has shown that picking individual stocks can provide good returns over time. But it's a very labor-intensive and time-consuming process, to research companies thoroughly enough to have the kind of conviction that he does. And his “buy and hold” strategy means that he suffers significant drawdowns in his portfolio at times -- like during the 2007-2009 crash.

Elliott wave analysis gives you the opportunity to make long-term bets with a similar conviction -- but with a fraction of the elbow grease. Instead of pouring over hundreds of quarterly reports and legal documents, you look for Elliott wave patterns in the charts of market indexes. Those patterns reflect investors' collective bias, bullish or bearish. (I won't go into details of why this is so; our Club EWI has tons of free reports explaining the mechanics of the Elliott Wave Principle.)

So, knowing what part of the Elliott wave pattern your market is in, you know how the pattern should progress from there, ideally. And that gives you a probabilistic forecast for the trend. It doesn't work 100% of the time (what does), but our subscribers remember more than one successful forecast we've made using Elliott waves.

For example, on March 23, 2009 -- at the time when almost no one felt bullish -- we issued a special report to our subscribers forecasting a multi-year bull market in Indian stocks. Two weeks later, we identified three more markets in the region -- Pakistan, Sri Lanka, and Indonesia -- that we believed were also likely to enjoy an "Indian Ocean Renaissance."

India, Pakistan, Sri Lanka, Indonesia have all since generated some of the best returns among global stock markets. Without knowledge of the Elliott Wave Principle, it would have been difficult to forecast the boom -- especially given the dismal news events at the time. Do you remember the headlines in early 2009?

The world was engulfed by the global financial crisis, and most people believed the worst was still ahead. The currencies of India, Pakistan, Sri Lanka, and Indonesia had collapsed. Pakistan and India were on the brink of conflict over the Mumbai terrorist attacks of late 2008. A civil war was still raging in Sri Lanka. Who would turn bullish on stock under those "fundamental" conditions? We did, and only because Elliott wave patterns in the price charts of those four markets told us to "buy."

And by the way, the terrible conditions in India, Pakistan and Sri Lanka mostly reversed along with the market rally over the next year.
---------
The Wave Principle is how the market works. Financial markets are non-rational and counter-intuitive. Investing according to conventional assumptions eventually leads to financial ruin, since the market too often does the opposite of what most people expect.

Even thinking contrarily is insufficient, because sometimes it’s necessary to run with the herd. But Elliott wave analysis helps you to determine which psychological stance is most appropriate at any given time. Often, the news at the time would be suggesting you do the opposite.


http://www.elliottwave.com/freeupdates/archives/printer/2012/04/26/India,-Pakistan,-Sri-Lanka,-Indonesia-How-Elliott-Wave-Analysis-Turned-BULLISH-When-Few-Dared.-Part-.aspx

Riaz Haq said...

Here's Times of India on declining capital inflows:

Southeast Asian nations are swallowing an outflow of money from India, as foreign investors lose patience with its policy paralysis and slowing growth and aim instead for more promising emerging markets such as Indonesia.

Corruption scandals and high inflation have added to India's woes, which have seen growth slow to a three-year low while the fiscal deficit widened to 5.9 per cent of GDP in the last financial year.

"India was sold on the promise of high growth which simply hasn't panned out over the past four years," said Gautam Prakash, founder of US based hedge fund Monsoon Capital.

Foreign investors pulled a net $540 million out from India in March and April, compared with $13 billion in inflows in January-February.

Foreign portfolio flows into Indian stocks have dropped 99 percent to just 5.17 billion rupees since a March budget that largely disappointed investors, compared with 427.36 billion rupees in 2012 before the budget.

Among the most significant developments from the shift has been the direction in which money is headed - with a big chunk flowing to Jakarta and other Southeast Asian capitals.

Two provisions put forward in the budget to tax indirect investments and combat tax evasion were the last straw for some global mutual funds, prompting an acceleration of money leaving India.

While the provisions were later put on ice, the prospect that such a tax could be proposed in India was enough for some investors to send their Asia-allocated money further east.

"You're seeing a situation where the 'I' in BRIC is being replaced by Indonesia," said Tim Condon, head of research and strategy for Asia at ING.

Left out

An emerging market brochure distributed by Franklin Templeton last month had data on India missing from a world map. From a global leader in emerging market investing, led by omnipresent guru Mark Mobius, that omission was telling.

India exposure in Asia's biggest equity fund, the $18 billion Templeton Asian Growth fund, dropped to 16 percent of its assets at the end of March from nearly 20 percent a year ago, while exposure to Association of Southeast Asian Nations countries rose to 35 percent from 31 percent during the period.

An ASEAN-focused equity fund launched by Daiwa Asset Management started with about $366 million in February and has since grown to manage about $430 million, while Fidelity Funds-ASEAN has seen a net inflow of nearly $250 million in the last year.

The bigger ASEAN markets do not necessarily offer a compelling case on valuation grounds.

"Generally we are more negative on India than we are positive on the alternatives, such as Indonesia and the Philippines where we feel the markets have perhaps run ahead of themselves," said David Baran, co-founder of Tokyo-based hedge fund Symphony Financial Partners.

"However, the ASEAN alternatives do have more positives and less negatives than India and we think that foreign investment outflows from India into the ASEAN alternatives are highly likely to increase if anything."

Indian shares trade at price to book value of 1.9 times, higher than 1.4 times for Asia Pacific shares as a whole but less than 3.1 times for Indonesia, 2.2 times for Thailand and 2.5 times for Philippines, according to data from Thomson Reuters StarMine.

The trend, nonetheless, is clear as money managers shift away from India, at least for the short-term, towards markets that offer the same favourable demographics and growth potential that had previously drawn investors to Delhi and Mumbai..


http://timesofindia.indiatimes.com/business/international-business/As-funds-flee-Indias-pain-is-Southeast-Asias-gain/articleshow/13317960.cms

Riaz Haq said...

Here's a Reuters' report raining the specter of Greek style debt crisis in India:

India's mounting economic and political woes are prompting market players to raise the specter of a Greek-style crisis in Asia's third largest economy.

This is not simply idle speculation. Last Friday, the rupee crashed to an all-time low against the dollar of 54.9 and it was stuck most of Tuesday at the psychologically significant Rs55/USD level, where the currency is seen as having no obvious technical support. And the implications of a rupee collapse would be immense.

"It could go to stratospheric levels against the dollar and it looks to me as if the Indian government is aiming at a de facto devaluation in an effort to prop up flagging economic growth. And you then have to worry about all the unpleasant boxes such an action would inevitably tick, such as straining further the country's already strained balance of payments as well as bringing on an almighty wave of inflationary pressure," said a credit analyst at a ratings agency in Singapore.

He added that a spike in the rupee would strain the cashflow of corporates and banks as they struggled to service dollar-denominated debt and that the odds of a widespread Indian debt restructuring would be low.

In his opinion the market will determine the rupee's level, with a formal devaluation seen as unlikely given the consequent need for interest rates to be pushed significantly higher to contain capital flight and counter toxic inflation levels.

This scenario was seen in the UK in 1992 when the country exited the ERM and the government pushed short term interest rates up to 15% from 10%, spending billions of pounds of reserves to defend the currency in the process.

Should something similar occur to India, it would almost certainly lose its coveted investment-grade rating, with a one-notch demotion required for that to occur. S&P has India on negative watch for its Baa3 foreign currency rating while Moody's and Fitch retain a stable outlook on the country.

As the country's government faces political impasse amid infighting, principally between prime minister Manmohan Singh and finance minister Pranab Mukherjee on the subject of tax reform, and India limps from one corruption scandal to the next, the sense of decay is palpable.

Surprisingly, India's deteriorating economic fundamentals and toxic politics have not yet impacted the relative value of its issuers offshore debt. In fact, on Tuesday India's dollar offshore curve recovered the 10bp it had widened on Monday. But that situation is unlikely to hold much longer.

"As market players start to fret about the possibility of a full-blown rupee devaluation, you will see this start to impact spreads on the country's offshore curve. If the currency goes in a big way, you will have a unilateral replaying in India of the Asian financial crisis, which involved default on short-dated offshore debt and a mass round of debt restructuring. India is hanging in the balance right now, and the worst case scenario seems increasingly likely to play out," said a Hong Kong-based syndicate head.

Just as the tide moves against them, though, Indian corporates are seeing the need for offshore funding increase. According to the credit analyst, many Indian corporates have reached borrowing ceilings with local banks and are sizing up offshore bond issuance as a result. That would be a tall order and an expensive trip, though.

With massive convertible maturities coming up, some in dollars, a local market that is increasingly saturated and has less support from foreign investors and a closed dollar market, it seems inevitable that restructuring will soon become the main activity for Mumbai-based investment-bankers.


http://www.reuters.com/article/2012/05/22/us-india-devaluation-idUSBRE84L0N920120522

Riaz Haq said...

Here's an interesting excerpt from NY Times review of Ed Luce's book “In Spite of the Gods: The Strange Rise of Modern India”:

Despite its robust democracy and honest elections, India faces the future saddled with one of the most corrupt government bureaucracies on earth. Mr. Luce encounters a woman in Sunder Nagri, a New Delhi slum, whose quest for a ration card entitling her to subsidized wheat and other staples involved bribing an official to get an application form. The form was in English, which she could not read, so she had to pay a second official to fill it out. When she turned up to claim her wheat, it was moldy and crawling with insects. The store owner had evidently sold his good government wheat on the black market.

In the northern state of Bihar, Mr. Luce writes, more than 80 percent of subsidized government food is stolen. Most ration cards are obtained through bribery, by Indians who are not poor. It’s the same story in nearly every area of an economy touched by the groping tentacles of a government that “is never absent from your life, except when you actually need it.”

As a former cabinet official tells Mr. Luce, corruption is not simply a nuisance or an added burden on the system. Rather, he says, “in many respects and in many parts of India it is the system.”

Mr. Luce, traveling the country’s rickety rail system, covers an enormous amount of ground. He inquires into the Kashmir dispute while dissecting India’s fraught relationship with Pakistan; marvels over New Delhi’s spanking-new subway system; describes the middle class rage for megaweddings; pays a visit to Bollywood and, in some of his most absorbing chapters, analyzes the changing caste system, the status of India’s Muslims and the alarming rise of Hindu nationalism.

All this and a visit to C2W.com, a Mumbai company that markets brands through the Internet, cellphones and interactive television shows. Its founder, Alok Kejriwal, is still in his 30s, and to Mr. Luce represents the new India.

“I am greedy,” he tells the author. “I have no trouble admitting to that.”

At one point, Mr. Luce ponders India’s constant state of chaos and compares it to a swarm of bees. From inside the swarm, things look random, but from the outside, the bees hold formation and move forward coherently.

Sometime in the 2020s, at current growth rates, India will overtake Japan to become the world’s third-largest economy. Greatness lies within its grasp, Mr. Luce argues, if it can figure out a way to restructure its inefficient agriculture, put millions of desperately poor people in jobs that pay more than a pittance, wake up to a potential H.I.V.-AIDS crisis and root out government corruption.

Mr. Luce takes a cautiously optimistic view. “India is not on an autopilot to greatness,” he writes. “But it would take an incompetent pilot to crash the plane.”


http://www.nytimes.com/2007/01/17/books/17grim.html

Riaz Haq said...

Here's an Economist story "A Bric hits the wall":

INDIA’S economy has had some bad economic ideas inflicted on it over the past century, from imperial neglect to the cult of the village and big-ticket socialism. Maybe the concept of BRICs—a handful of emerging economies including India that were destined for fast growth—should be added to the list. It led to a bubble of complacency that is now being popped rather brutally. Growth in India was 5.3% in the three months to March—worse than the 6% expected, below the prior quarter and way below the close-to-double digit rates that were meant to be preordained and propel India to economic super-power status.

Other BRICs have slowed too, including China and Brazil. But India's GDP figures, the worst for at least nine years, will have a deep impact on the sub-continent. The country was meant to grow in its sleep—regardless of what happens in the rest of the world. A quick bounce back looks unlikely. The central bank has cut interest rates a little this year, but will struggle to loosen policy further given high inflation. The ruling coalition keeps on promising a bout of reforms to boost confidence, but it is so divided, its behaviour so erratic and its record of delivery so poor that few believe this will actually happen. Expectations for growth over the next couple of years will probably slip further, to 6%.

A 6%-growth-India raises three issues. For one, the old orthodoxy was that after liberalisation India had been on an accelerating path, driven by demographics and its high rate of savings and investment. A rival view is now likely to take hold. It notes that India has grown pretty consistently at 6% since the mid 1980s, with the exception of a faster period in 2004-2007. What looked like a step up in trajectory now looks like a one-off blip driven by a global boom, an uncharacteristic bout of tight fiscal policy and an unsustainable burst of corporate optimism. Political history may have to be rewritten too. The reformers of 1991, who include the present prime minister, have turned out to be not visionaries, but pragmatists without a deep commitment to liberalisation who have been unable to build a lasting consensus among voters and the political class in favour or reform.

Second, financial stability will become trickier. Nominal GDP growth (including inflation) has slipped to the low teens. This is still above the rate of interest India's government pays on its debt and thus in theory enough to avoid a debt spiral—despite high fiscal deficits running at almost a tenth of GDP. Government bond yields are artificially depressed because banks are forced to buy government paper and because the central bank has been buying bonds actively in the last six months. Although this can go on for a while, the stress is showing up in two different areas. One is the banking system where gross bad debts plus "restructured" loans have risen to over 8% of the total—a figure high even by western banks' standards. Bankers and the central bank argue that "restructured" loans are unlikely to result in large losses. But with lower growth more corporate borrowers will come under strain, as will the credibility of those reassurances.
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Perhaps growth will bounce back. And if it doesn't, perhaps public frustration will be expressed at the ballot box, creating a new, less complacent political climate. The view that India's democracy is a self correcting mechanism that steers the country back onto the right course when things go wrong, was an integral part of the bulls' view of India. Hopefully it is one idea from the boom that proves to be correct.


http://www.economist.com/blogs/newsbook/2012/05/indias-economy

Riaz Haq said...

Here are a few excerpts from Wall Street Journal story titled "India Fades":

India's growth prospects have been fading for some time. Multinationals are walking away from the country, withdrawing some $10.7 billion worth of investments in 2011 alone, according to Nomura. Manufacturing contracted by 0.3% for the year that ended March 31. Agriculture and services faltered as well.
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Delhi managed to keep the party going after the 2008 financial crisis with more government spending and easier credit. But that only postponed the reckoning—while sending the inflation rate north of 8% for the better part of the last two years.

After growth dipped below 7% late last year, Prime Minister Manmohan Singh turned to gimmicks, like having state-owned Coal India boost coal supply to power producers in a one-off manner or proposing to set up special manufacturing zones where factories would get tax breaks. But businesses want less red tape permanently, especially when it comes to energy investments, as well as labor reform to make hiring and firing easier. On both fronts, the Prime Minister has done nothing.

Then there was his one serious attempt at reform. In late November he announced plans to allow foreign investment in big-box retail stores. The reform would have been a boon for consumers, and would have helped import some crucial supply-chain know how. But the reform met the usual combination of populist and special-interest resistance, and the government folded in 10 short days.

Indians are increasingly disenchanted with Congress's failure to push for pro-market reforms, and have voted accordingly in recent state elections. That's the good news. There's been a lot of talk about India's emergence as a new economic superpower. An India with the ambition to rise in the world will not treat a high-growth economy as a national birthright.


http://online.wsj.com/article/SB10001424052702303640104577440103460087194.html

HopeWins Junior said...

Sep 8th 2012

http://www.economist.com/node/21562227

Riaz Haq said...

Here's an Atlantic Mag piece arguing that China is much bigger than the rest of BRICs:

In 2001, China's GDP was equal to the GDP of all the RIBS combined. In the five years since the global financial crisis, just the increment of growth in China's economy is larger than the entire economies of Russia and India combined. Indeed, in the half decade since the financial crisis, 40 percent of all growth in the global economy has occurred in China.

Last year, the economy of China expanded by $1 trillion; Russia and India grew by $100 billion; Brazil and South Africa shrank. In 2001, China ranked sixth among the world's economies. Today it stands at number two, on track to overtake the U.S. and become the world's largest economy in the next decade.

In trade, China accounts for 11 percent of global merchandise exports, roughly double that of the RIBS combined. Moreover, the markets to whom China and the RIBS export and from whom they buy are the U.S., the EU, and Japan. Merchandise trade among China and the RIBS barely registers in world trade statistics.

In foreign reserves, China held twice as much as the RIBS combined in 2001 (with $220 billion), and now holds three times as much as the others (with $3.3 trillion). In greenhouse gas emissions, China accounts for 30 percent of the global total, more than twice the amount of the RIBS combined.

Goldman Sachs continues trumpeting the rise of the BRICS (though it refuses to include South Africa, which was pulled into group by China in 2010). Its latest "BRIC Fund" prospectus forecasts that by 2030, the BRIC nations will have a combined economy larger than that of the G7. If this happens, the most important part of the story will be that China added $17 trillion to the global economy, effectively creating another United States in less than 20 years.

Concepts that jumble together elements with more differences than similarities sow confusion. While it may have played a useful purpose at the beginning of the century to highlight faster-growing emerging economies, BRICS has become an analytic liability. Like generalizations about per-capita growth in countries where wealth disparities are widening (as the rich get richer while the income of the poor declines), submerging China in this acronym misses more than it captures. If a banner is required for a meeting of these five nations, or for a forecast about their economic and political weight in the world ahead, RIBS is much closer to the reality. Even if governments, investment banks, and newspapers keep using BRICS, thoughtful readers will think China and the rest.


http://www.theatlantic.com/china/archive/2013/03/china-doesnt-belong-in-the-brics/274363/

Riaz Haq said...

India on verge of financial crisis, says The Guardian:

The Reserve Bank of India (RBI) in Mumbai. The country is facing its own financial crisis. Photograph: Vivek Prakash/REUTERS
India's financial woes are rapidly approaching the critical stage. The rupee has depreciated by 44% in the past two years and hit a record low against the US dollar on Monday. The stock market is plunging, bond yields are nudging 10% and capital is flooding out of the country.

In a sense, this is a classic case of deja vu, a revisiting of the Asian crisis of 1997-98 that acted as an unheeded warning sign of what was in store for the global economy a decade later. An emerging economy exhibiting strong growth attracts the attention of foreign investors. Inward investment comes in together with hot money flows that circumvent capital controls. Capital inflows push up the exchange rate, making imports cheaper and exports dearer. The trade deficit balloons, growth slows, deep-seated structural flaws become more prominent and the hot money leaves.

The trigger for the run on the rupee has been the news from Washington that the Federal Reserve is considering scaling back - "tapering" - its bond-buying stimulus programme from next month. This has consequences for all emerging market economies: firstly, there is the fear that a reduced stimulus will mean weaker growth in the US, with a knock-on impact on exports from the developing world. Secondly, high-yielding currencies such as the rupee have benefited from a search for yield on the part of global investors. If policy is going to be tightened in the US, then the dollar becomes more attractive and the rupee less so.

But while the Indonesian rupee and the South African rand are also feeling the heat, it is India – with its large trade and budget deficits – that looks like the accident most likely to happen. On past form, emerging market crises go through three stages: in stage one, policymakers do nothing in the hope that the problem goes away. In stage two, they cobble together some panic measures, normally involving half-baked capital controls and selling of dollars in an attempt to underpin their currencies. In stage three, they either come up with a workable plan themselves or call in the IMF. India is on the cusp of stage three.

http://www.theguardian.com/business/economics-blog/2013/aug/19/india-financial-crisis-rupee-stock-markets

Riaz Haq said...

Here's The Economist on India's reckoning:

.... They were there to launch an official economic history of 1981-97, a period which included the balance-of-payments crisis of 1991. The mood was tense. India, said Manmohan Singh, the prime minister, faced “very difficult circumstances”. “Does history repeat itself?” asked Duvvuri Subbarao, the outgoing head of the Reserve Bank of India (RBI). “As if we learn nothing from one crisis to another?”

The day before Indian financial markets had had their rockiest session for many years. The rupee sank and stockmarkets tumbled. Money-market rates rose. The shares of banks thought to be either full of bad debts or short of deposit funding fell sharply. The sell-off had been made worse by new capital controls introduced on August 14th in response to incipient signs of capital flight. They reduce the amount Indian residents and firms can take out of the country. Foreign investors took fright, fearful that India might freeze their funds too, much as Malaysia did during its crisis in 1998.

India’s authorities have since ruled that out. But markets keep sliding. On August 20th the RBI said it would intervene to try to calm bond yields. The rupee has dropped to over 64 to the dollar, an all-time low and 13% below its level three months ago. It is widely agreed the country is in its worst economic bind since 1991.

India is not being singled out. Since May, when the Federal Reserve first said it might slow the pace of its asset purchases, investors have begun adjusting to a world without ultra-cheap money. There has been a great withdrawal of funds from emerging markets, where most currencies have fallen by 5-15% against the dollar in the past three months. Bond yields have risen from Brazil to Thailand. Some governments have intervened. On July 11th Indonesia raised its benchmark interest rate to bolster its currency. On August 21st its president said he would soon announce further measures to ensure stability.

India, Asia’s third-biggest economy, is more vulnerable than most, however. Economic news has disappointed for two years, with growth falling to 4-5%, half the rate seen during the 2003-08 boom. It may fall further. Consumer-price inflation remains stubborn at 10%. A drive by Palaniappan Chidambaram, the finance minister, to push through a package of reforms and free big industrial projects from red tape has not worked. An election is due by May 2014, adding to uncertainty.

India’s dependence on foreign capital is also high and has risen sharply. The current-account deficit soared to almost 7% of GDP at the end of 2012, although it is expected to be 4-5% this year. External borrowing has not risen by much relative to GDP—the ratio stands at 21% today—but debt has become more short-term, and therefore riskier. Total financing needs (defined as the current-account deficit plus debt that needs rolling over) are $250 billion over the next year. India’s reserves are $279 billion, giving a coverage ratio of 1.1 times. That has fallen sharply from over three times in 2007-08 (see chart 1) and leaves India looking weaker than many of its peers (see chart 2)...
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India’s position could still get worse. But assuming things stabilise, when the official histories come to be written about 2013, what might they say? Most likely that the rupee’s slump caused a severe shock to the economy that made a recovery in growth rates even harder. But perhaps, also, that it prompted a more serious debate about the policies that India needs to become less vulnerable to the whims of an unforgiving world.


http://www.economist.com/news/finance-and-economics/21584010-why-india-particularly-vulnerable-turbulence-rattling-emerging