Showing posts with label India economy. Show all posts
Showing posts with label India economy. Show all posts

Monday 13 May 2013

Government inaction causes investment to flee Indian infrastructure: Indian stock markets to implode in the near term


Silently Foreign Institutional Investor money is fleeing from investments in Indian infrastructure. The latest to exit from all India Infrastructure investments was the world's largest India dedicated infrastructure fund, UK based 3i India Infrastructure Fund."While the case for infrastructure development in India remains unaltered, private infrastructure investment in India has faced more political, market and macroeconomic challenges than we expected when we initially made our commitment to the India Fund in 2007," 3i said in a statement issued last Thursday. As of March 2013, the fund's India investments were valued at about 80% of their cost in dollar terms, 3i said.



This is the latest in a continuing saga of enthusiastic FIIs investing in India and then pulling out after facing bureaucracy and intransigence from government officials. As I have blogged before, near term outlook for the Indian economy continues to deteriorate and it is only a matter of time before the bubbly Indian stock market implodes.


Saturday 4 May 2013

India IT outsourcing industry may be spiraling downwards hurting India's GDP further



Changing US immigration legislation landscape, slowdown in capital spending on IT and competition from newer, cheaper sources of IT labor pool such as the Philippines and China is forcing the Indian IT outsourcing industry to metamorphosize into providing alternative models of outsourced services (see video). IT outsourcing has created more than 2 million jobs and in 2012 contributed 6.4% of India's GDP according to the National Association of Software and Services Companies, based in New Delhi. Already, IT outsourcing behemoths such as Infosys are being squeezed by revenue pressures and forced to try new strategies in an increasingly commoditised  market. Unless a new paradigm shift in IT outsourcing occurs, Indian IT outsources may spiral downwards further hurting India's weak growth prospects. Investors are strongly cautioned to diversify away from IT outsourcing linked equities and increase their exposure to US dollar denominated assets.

Friday 3 May 2013

Long term prognosis for the Indian Rupee is abysmal - time to increase exposure to US dollar denominated assets


The Reserve Bank of India (RBI) clearly fears inflationary pressures in India to the extent that it cut the repo rate only by 25 basis points today disappointing markets. RBI governor is quoted in the Economic Times as saying that "Conditional upon a normal monsoon, agricultural growth could return to trend levels. The outlook for industrial activity remains subdued, with the pipeline of new investment drying up and existing projects stalled by bottlenecks and implementation gaps." Persistently high current account deficit, credit growth falling to the lowest growth rate in over a decade, and now the RBI's own admittedly hawkish stance on inflation only add to an abysmal prognosis for the fate of the Indian rupee. Expectations that the Rupee will hit 60 to the US dollar are steadily rising. Government Pollyannas still try to come up with creative explanations to invent a growth story (see video).



As long as the RBI's Liberalised Remittance Scheme is still available to Indian residents, Indian or NRI investors are strongly urged to increase their portfolio exposure to US dollar denominated investments. You only have yourself to blame if your net worth significantly falls due to a sliding Indian rupee.

Tuesday 30 April 2013

Comparing FDI into India with inward migrant remittances paints a truer picture of where Indian economy is headed


India received a total of US$69 Billion in remittances from NRIs and other overseas Indians in 2012 making India the leading recepient of remittances from overseas. This covered almost 40% of the merchandise trade deficit in 2012. During the April-February period of 2012-13, FDI into India declined 38% to $20.89 billion as compared to $33.49 billion during the same period of the previous fiscal year. Sectors which received large FDI inflows during the 11 months of 2012-13 include services ($4.74 billion), hotel and tourism ($3.21 billion), metallurgical ($1.39 billion), construction ($1.26 billion) and Pharmaceuticals ($1.11 billion). India received maximum FDI from Mauritius ($8.97 billion), followed by Japan ($2.11 billion), Singapore ($1.98 billion), the Netherlands ($1.67 billion) and the UK ($1.06 billion). These figures paint a completely different picture of the Indian economy and where it is headed. Thank God for the migrant remittances, it is essentially helping reduce the Indian current account deficit (CAD).



Also, the fact that Mauritius is the leading FDI investor into India (which is essentially laundered money moving out of India and back into India through the Mauritius channel) tells us that the media hype we usually hear about all the FDI interest in India is essentially bogus. The falling FDI rate into India tells us that investor confidence in India still remains very low. Thus, it is essentially the migrant remittances that is keeping the Indian rupee afloat. If one day the migrant remittances start falling, India's CAD will balloon beyond repair and send the rupee into a free fall. For the next few months leading to Indian general election scheduled for 2014 very strong caution is advised.

Sunday 28 April 2013

Jim Rogers, famous commodities investors cautions on investing in India and points to upcoming war due to water


UR6ZR6UN9U9W Legendary Quantum Fund manager (along with George Soros) and commodities investor Jim Rogers is short Indian equities and has categorically declared that India while an exciting place to visit is not a place for him to invest in. In an interview with Bloomberg last week, Mr. Rogers proceeded to urge the Indian Government to figure out somehow how to run a country pointing to the non-convertibility of the Indian currency, the Rupee on the international markets. He has also blamed the restrictions on foreign investors as another reason why he feels the Indian government does not know how to run an economy.



As posted in an earlier blog post, this view on the Indian macroeconomic environment is reflected in investors moving their capital out of India and I believe it is only a matter of time before the current bubble in Indian equities which has built up again since the last pop in 2007 will burst again in the near future perhaps quite dramatically. Mr. Rogers also pointed out about the possibility of an upcoming war due to shortages of water resources in India and Pakistan. I have previously blogged about this possibility of a war between India and Pakistan in the near future as well.

Tuesday 23 April 2013

Inflation is the growth killer - and the RBI stifles it further through monetary policy


Last month, the Governor of the RBI, delivered a lecture at the London School of Economics on India's macroeconomic challenges in which he more or less admitted that RBI's monetary policy was largely to blame for declining growth in India. A large portion of the lecture focused on the huge inflation problem in India which as measured by the wholesale price index(WPI) was 9.6% in 2010/11, 8.9% in 2011/12 and 7.5% 2012/13. According to the RBI the major driver from the supply side has been food inflation, arising from rising incomes, especially in rural areas, which is leading to a shift in dietary habits from cereals to protein foods, the monsoon related spike in prices of food items such as vegetables and global commodity prices, especially the price of crude oil. The price of crude especially affects Indian inflation very badly since India imports 80% of its oil demand.



This commodity inflation is further compounded by the depreciation of the rupee and lack of demand adjustment due to the Indian governments subsidized pricing regime of petroleum products. But the worst growth killer of all has been RBI's response in the form of monetary policy as the Governor himself admits in his speech.

Monday 22 April 2013

End of the IT Outsourcing era approaching - Indian IT industry risks collapsing



One after another IT outsourcing industry bellwethers like Infosys and today Wipro have posted lower than expected revenues. Cognizant and HCL seem to be battling this downturn by firing employees to contain costs. As the Economic Times has opined, the industry needs to look for a new revenue model or risk dying out (also see graphic from the article). I will add that there is a fundamental shift in technology taking place such as the move towards cloud computing with the evolution of software as a service.



The long term trend for the IT Outsources if they do not change their model (and perhaps its too late now for them) seems to be on a slippery slope downwards towards irrelevance. Shorting these companies are more safely - staying away from them completely in your portfolios is highly recommended over the medium to long term.

Sunday 21 April 2013

Slowdown in Foreign Institutional fund flows into Indian equities may tell a story


A close look at Foreign Institutional Investors (FIIs) fund flows into and out of Indian equities may provide some clues on where the smart money is placing its bet. FIIs made a net investment of Rs 1,39,408 crore into Indian equities during the fiscal year ended March 31, 2013, according to SEBI. This was reportedly the highest net inflow by FIIs in a single fiscal year since their entry into Indian capital markets in 1992-93. Since the beginning of 2013, FIIs have invested Rs 56,218 crore, last week (April 15-18)the net inflow of FII funds of Rs 638 crore into India last week came after a net outflow of Rs 681 crore in the preceding week (April 7-11).



Masha Gordon of PIMCO (see video) has hinted why PIMCO is underweight on Indian equities. Funds have clearly  slowed also due to profit- booking, concerns over high current account deficit and political uncertainty.