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GDP Growth
Presentation Overview
1. 2. 3. 4. 5. 6. 7. A Retrospective The India Advantage Currency Global Cues What Can go Wrong? Investment Strategy & Concerns Recommended Funds
World GDP Growth Rates- IMF Estimates
16 14 12 10 8 6 4 2 0 -2 -4
1995 2013
1980 1983 1986 1989 1992 1998 2001 2004 2007 2010 2016
China
India
World
Advanced economies
Indian Markets:
Indias GDP growth during Q1 FY12 slowed to 7.7% against 7.8% in the earlier quarter. The moderation was within expected lines reflecting the affects of a fragile global economic scenario and aggressive monetary policy actions taken by RBI. While construction sector observed the slowest growth of 1.2% (8.2% last qtr), trade-hotels-transport & communication sector posted the highest growth of 12.8% (9.3% in last qtr). Indian markets seem not to be spared of the global turmoil as reflected by the performance of the broader indices over the past quarter. Both Sensex & Nifty has shed 14.83% & 14.38% respectively over the last quarter. All other sectoral indices also closed the month in red with Metals shedding the most @ 25.75%. Comparatively, amongst major global indices- Hangseng (-21.11%), FTSE (-14.78%), Nikkei (-12.79%) & Dow (-11.04%) also had suffered losses over the past quarter. This reflects the weakened investor confidence globally. Macro economic factors in India continue to present a mixed picture. Trade statistics and FDI flows reflect robust y-o-y growth while industrial production and inflation figures are showing no signs of improvement. Over these, keeping fiscal deficit within target levels seems tough in light of the unexpected shortfall in small savings so far in this fiscal (NSSF). Government borrowing plan for 2nd half have been raised by INR 53000 cr to cover the same. Against these odds, monsoon rainfall till now has been fairly widespread and above the long period average. Accordingly the agriculture ministry is expecting a bumper food crop production this season. Total food grain production in kharif season is expected to be ~123.88 mt (120.20 mt last yr) as per the 1st advance estimate on crop production.
0.104
0
Q1 Q2 FY11 Q3 Q4 Q1 FY10 FY12 FY11 FY12 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
0%
GDP
Agri
Ind
Manuf
Service
Indias GDP grew @ 7.7% during Q1FY12 against 7.8% in Q4FY11 and 8.8% in Q1FY10. The growth was within expected lines as both Nifty & Sensex responded with a 5.33% jump post announcement of GDP numbers. The series of rate hikes by RBI was likely to affect GDP numbers and was accordingly discounted by markets. However policy makers are still optimistic on achieving an 8-8.5% growth in this fiscal and over 9% during the 12th 5Yr plan (2012-17). Over the past quarter, private consumption has increased while government expenditure has moderated. The reduced pace in government expenditure is in line with GOIs target to keep fiscal deficit within 4.6% of GDP. Policy reforms towards augmenting total tax revenue and reducing subsidy burden may aid in achieving the fiscal targets.
Source: MOSPI; SPA Research
150
Industrial Production
FY08 FY09
60
100
FY10
59.2 58.0 57.5 57.5
FY11
FY12
Manufacturing
58.2
Services
While manufacturing segment has shown some signs of moderation in growth rates over the past quarter, the affect of rate hikes and a slowdown in western economies is also being reflected in the services segment. Services PMI contracted heavily to 53.8 in Aug11 against 58.2 in Jul11. Against these, exports continue to grow strongly even on a higher base of last year. During Aug11 exports grew by 45.5% and imports grew by 28.9%. In light of the rising interest rates and a slowdown in western economy the finance ministry is planning to introduce interest rate subsidy for exporters by 1st week of Nov11. The subsidy is expected to be ~23%.
Source: MOSPI, HSBC, PIB,
59 58 57
56
55 54 53 52 Apr-11 May-11
53.8 52.6
HSBC-PMI
Jun-11 Jul-11
Aug-11
Imports
Trade Deficit
-672.82 -398.67
Apr-11 May-11
-653.79
-386.78
Jun-11
-492.22
Jul-11 Aug-11
Investment Snapshots
300 200 100 0 -100 -200
DII
FII
Apr-09
290 240 190 140
90
40
Net investments by FIIs & DIIs over the past quarter stood at INR -186.34 bn & INR 97.15 bn respectively. The increased volatility and global uncertainty has caused FIIs to decrease their exposure into emerging markets. However, Indian fund managers are making the most out of these corrections and are piling up their equity portfolio. MFs invested INR 24.45 bn over the past quarter.
FY12
25.24
FY11
Insurance companies which used to make up a major share of the DIIs are now falling behind because of the absence of robust revenue from ULIPs which was encountered last year.
Overall impact on the markets is negative because the domestic institutions are not able to absorb the selling by FIIs fully.
*Life insurance premium during March are high because of year end tax saving investments.
-7.31
Apr
May
Jun
Jul
Aug
Sep
Central
South Peninsula
704.6
1158.1
661.9
1359.9
6
-15
In area-wise distribution, 92% area of the country received excess/normal rainfall. 476 (79%) out of 603 districts of the country have received normal to excess rainfall.
On the back of a fairly widespread monsoon in this season, the total food grain production is expected to be ~123.88 mt in the kharif season. The department has also reported increase in acreage in several crops. As of 23rd Sep11, total area for rice and oil seeds have increased by 33.54 & 5.58 lakh hectares respectively over the last yr. Ahead of the rabi season, the ministry has set total rabi crop production target for this yr at 245 mt.
Crops
Rice Maize Coarse cereals Cereals Pulses Total Food grains (cereals + pulses) Total oil seeds Sugarcane Cotton (m.bales)
120.20
20.85 339.17 33.43
123.88
20.89 342.20 36.10
Source: IMD, PIB
3. Currency
Currency and Foreign Exchange Reserves
53
51
49 47 45 43
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
The Indian rupee has depreciated heavily against the dollar over the past quarter from 45.00 to 49.93 currently i.e., 10.96%. Accordingly the 6 currency trade weight based real effective exchange rate of rupee has also depreciated to 111.66 in Aug11 against 115.13 I Jun11, as per the data released by RBI. The depreciation in rupee is in line with other emerging market currencies like Brazilian Real and Russian Rouble which has also depreciated by 17.69% and 15.21% since Jun11 end. The depreciation in rupee is more of a global phenomenon currently than India specific lead by the Euro debt crisis and geopolitical uncertainty.
Forex Reserves-INR Bn
14995.68
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
India's forex reserves stood at INR 14995 bn ($316.76 bn) as of 16th Sep11. During Aug11 reserves have also touched $319.18 bn. Huge forex reserves provides confidence to the markets especially credit rating agencies and helps in maintaining stable exchange rates by limiting external vulnerability during times of crisis.
4. Global Cues
Major Global Indices: Trailing 6 months trend and point to point returns
110 105 100
1 mth
Hang Seng Sensex FTSE 100 Dow
5%
trailing 12 mth
1.62% -1.36% -6.31%
0.13%
0%
95
90 85 80 75 70 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11
-5%
-10% -15%
-3.51%
-10.85% -17.59%
Sensex
FTSE
Dow
Over the past month all major global indices suffered losses but Sensex. While hang seng shed the most @ 10.85%, Sensex remained stable by gaining a marginal 0.13%. Dow Jones made a decent recovery of 1.3% over the last trading session in light of an upward revision in US GDP growth numbers. US GDP growth for Q2CY11 was revised upwards to 1.3% from 1.0% announced earlier and 0.4% in Q1CY11. The acceleration in GDP growth primarily reflected positive contributions from personal consumption expenditure, exports and government spending. Over the past 6 months, all four major global indices have suffered losses. A sharp fall was observed during the 1st week of Aug11, post announcement of the US debt restructuring plan. The US government debt ceiling was raised from $14.3 tn to $16.4 tn and a cut in Federal spending of ~$ 2.1tn over the next decade has been planned. Given the fragile economic conditions and persisting high unemployment rates, this cut in government spending may affect the US recovery process negatively.
Source: ICRA, SPA Research
International Challenges The global economy currently faces challenges from a slower than expected recovery in the advanced countries and fiscal and financial uncertainty, which has been particularly pronounced since August. Strong policy initiatives are urgently needed to counter these risks and improve the outlook Euro bailout: After remaining in plan for months, German policy makers have approved the expansion plan of EFSF (European Financial Stability Facility) fund to Euro 440 bn from Euro 250 bn as a conducive effort to tackle the European financial crisis. However, this concerns as a potential trigger towards rating downgrade, as mentioned by S&P earlier this month. Domestic Challenges Inflation has continued to be the biggest concern for GOI. While RBI has been continuing with its anti inflationary stance, the negative affects of the same is being visible on other macroeconomic factors. Any further rate hike may have a vital affect on corporate profitability and long term growth rates. Fiscal Deficit- The finance ministry has targeted to maintain fiscal deficit within 4.6% of GDP, which seems difficult to be achieved in absence of adequate disinvestment programs so far in this fiscal. Over that the government has raised the borrowing target for 2nd half by INR 53000 cr to cover the unexpected short fall from small savings collection (NSSF- national small savings fund).
Interest rates across all emerging markets are rising but interest rates in India continue to remain substantially higher than the neighboring countries. On the other hand, fed has maintained to keep their interest rates at lower levels. Volatile capital flows- Inspite the interest rate differential, were viewing highly volatile capital flows because of the tattered investor confidence globally. Investors are turning back to safer horizons of US securities and withdrawing fund from emerging markets which led to the jump in dollar index over the last month. Volatile capital flows are concern for India specifically in light of the widening current account deficit. Indian markets are in consolidation phase now and may remain jittery in the short term, yet long term potential of India continues to remain strong. Indias star positioning remains as it is, with growth rates receding across the globe, India seems the only viable long term option for growth. We recommend investors to continue accumulating in a staggered manner through structured products like SIP until some positive indication is there from the western world. We recommend holding 10-15% cash / liquid funds in the medium term due to global hiccups and invest ~5-7% on every 5% dip since the long term picture remains firmly in favor of India attracting a major chunk of international flows on both routes i.e.. FII & FDI
Thematic Funds
Birla Sun Life India GenNext Fund DSP BlackRock Natural Resources & New Energy Fund Tata Service Industries Fund UTI India Lifestyle Fund
Scheme Performance
As on Sep 30th, 2011
Simple Annualised % (Point to Point) Compounded Annualised % (Point to Point)
1 Year 3 Years 5 Years
Scheme Name
1 Month
3 Months
6 Months
Scheme Performance
As on Sep 30th, 2011
Simple Annualised% (Point to Point) Compounded Annualised % (Point to Point)
1 Year 3 Years 5 Years
Scheme Name
1 Month
3 Months
6 Months
3031.93
43.81
-31.84
-6.46
-13.96
22.37
12.46
Thematic Funds
Birla Sun Life India GenNext Fund DSP BlackRock Natural Resources & New Energy Fund Tata Service Industries Fund UTI India Lifestyle Fund 87.68 147.49 -2.35 13.52 -28.95 -5.77 3.35 1.18 -10.34 -8.8 15.53 18.76 11.18 --
100.69
519.48
13.23
18.53
-37.16
-17.12
-15.46
3.68
-21.96
-7.98
11.49
15.49
5.36
--
Scheme Performance
As on Sep 30th, 2011
Simple Annualized% (Point to Point) Compounded Annualised % (Point to Point)
1 Year 3 Years 5 Years
Scheme Name
1 Month
3 Months
6 Months
3113.95 107.99
1240.18
INDICES
S&P Nifty BSE Sensex -13.7 -2.81 -15.1 5.6 6.42 15.43
-9.1
-2.22
-14.97
5.83
6.78
15.87
Thank You
Disclaimer: The information contained in this report is obtained from reliable sources. In no circumstances should it be considered as an offer to sell/buy or, a solicitation of any offer to, buy or sell the securities or commodities mentioned in this report. No representation is made that the transactions undertaken based on the information contained in the report will be profitable, or that they will not result in losses. SPA and/or its representatives will not be liable for the recipients investment decision based on this report.