India Economics

India Economics

Macroeconomics

Macroeconomics 

India Economics - Jan 8 2012

India Economics - Jan 8 2012

India Economics

India Economics

India Economics

India Economics

India Economy

India Economy

India Inflation - India Economics; Infosys Technologies, United Breweries

India Inflation - India Economics; Infosys Technologies, United Breweries

India Economics

India Economics

India Economics

India Economics

India Economics

India Economics

India Economics

India Economics

India Economics

India Economics

Global investors remain risk averse amid growth concerns

Global investors continued to be risk averse in late August through early September amid growing trepidation about a discernible slowdown in key regions such as the US, China and the euro-zone, according to the latest funds flow data from EPFR Global. As has largely been the case since mid-June, emerging markets equity funds fared better than their developed markets counterparts while bond funds fared best of all, EPFR said.

Looking beyond borders

The Indian markets have delivered stupendous returns in the past five years, with the BSE Sensex giving compounded returns of 22% per annum compared to the world average of 1%. Having said this, India is not the only market to have performed well. Emerging markets, such as Brazil, Indonesia, China and Latin America, have done even better. Surprisingly, among the developed economies, Japan, a long-time laggard, was the best performing market in March this year. The country posted gains of 9.5% compared with an average growth of 5-6% registered by global markets. Clearly, individual market performances aren't consistent and, hence, diversifying across geographies could reduce the chances of skewed returns.

Here's another compelling argument: India's total market capitalisation stands at around 3% of the world market cap. By sticking solely to Indian stocks, you could miss out on 97.3% of the opportunities that exist elsewhere. To capitalise on these, most Indian fund houses are offering funds that invest globally. You can choose to either invest directly or take the fund of funds route, which is managed by the local country experts. If you are a firsttime global investor, you could opt for funds that make small allocation in foreign markets. Take ICICI Prudential's Indo Asia Equity Fund, a star performer that has more than 65% of its assets in Indian equities. It has invested its global portfolio (~33%) in the IOF Asian Equity Fund, which is managed by Prudential Singapore and has an exposure to various markets, including China, Hong Kong and Korea. As Sankaran Naren, CIO, ICICI Prudential Mutual Fund, who manages the Indian portion of the fund, puts it, "It is a question of expertise in the markets."

A similar story plays out in several other 'global' funds like the Templeton India Equity Income Fund or the Fidelity International Opportunities Fund. Though this offers a tax advantage to investors, think zero long-term capital gains since funds with over 65% exposure to domestic funds are treated as equity funds and you get only a small exposure to the global markets. Defending this strategy, Naren says it works well for the novice investor who wants to get a flavour of the global market before making larger allocations.

On the other hand, global funds like the Tata Growing Economies Infrastructure Fund allow the investor to choose between a fund with a higher proportion of global equities and one with a stronger India focus. The fund's Plan A invests up to 70% of its assets in infrastructure companies outside India, while Plan B invests more than 65% in Indian firms. There is a difference between the fund performances as well. Plan B has generated around 70% returns, while Plan A delivered around 56% in one year. In fact, in the past one year, funds that have predominantly invested in Indian equities have fared better than those with a higher global representation. This is mainly because India has outperformed most economies in the same time frame.

India is the second most expensive market globally, trading at a PE of 17x forward earnings compared to the MSCI World Index PE of 14x. According to Naren, this is probably the best time to be bullish on international funds, especially because they have underperformed significantly. Adds Gaurav Mashruwala, a certified financial planner (CFP): "Though Indian investors are diversified across all asset classes, be it real estate, gold or equities, they are exposed to a single currency, which is a high-risk category. If something were to happen to the rupee, the entire portfolio will get disturbed."

Then there are the thematic funds, be it commodity, agribusiness, precious metal or oil funds. Be warned that these require some amount of research on the relevant theme before investing, say, on the fortunes of the oil companies in Russia. To start with, experts say that one should ideally choose a relatively well-diversified fund, which invests across sectors anywhere in the world. According to Suresh Soni, managing director, Deutsche Asset Management, a retail investor could allocate up to 15% to global funds. He recommends a sub-allocation to focused funds like the DWS Global Agribusiness Offshore Fund. This enables you to gain from the alpha generation by the fund while insulating you against a rise in food prices, claims Soni. Considering that India has limited listed opportunities in the agri sector, such a feeder fund works well. On the flip side, this space attracts activities by hedge funds, which can hurt performance. Also, as is true for any thematic fund, it's better suited to investors willing to make a concentrated bet.

Though most global funds have a limited performance history (except the Principal Global Opportunities fund, which hasn't been encouraging), experts opine that much of the performance is going to be driven by Asian and emerging markets. These include Brazil, Russia, China, India, Korea, Taiwan, Mexico, Hungary, Indonesia and Malaysia, to name a few. Asia, according to fund managers, remains a very promising investment destination due to its strong economic fundamentals, one of the highest savings rate and an increasing global interest, which boosts capital formation. Also, the Asian market is not dependent on any single theme unlike, say, Latin America, which is basically driven by commodities. Asia offers maximum diversity by combining various themes like services, manufacturing and finance. According to a fund manager at Tata Mutual Fund, emerging markets are a good bet since they have better balance sheets, current account surpluses, good foreign exchange reserves and a low debt to GDP. When most of the developed world plunged into recession, many emerging economies saw their GDP ticking upwards. In fact, Tata's Growing Economies Infra Fund has been able to leverage the good performance over the past year-and-a-half due to its exposure to Latin and emerging European markets. Economies like the US and Europe could also offer some value plays since stock prices are far below their historic highs. Citibank, for one, is available at $5 a share compared with its peak of $55.

Investing in the American market will soon become easier as the National Stock Exchange begins trading in futures contracts of the S&P 500 and Dow Jones Industrial Average, two of the world's most influential market indices. Recently, Benchmark has also launched the Hang Seng Exchange Traded Fund (ETF), which invests in a basket of companies listed on the Hong Kong Stock Exchange. Though the ETF could be a cheaper route of investing with no fund manager risk, you could also lose out on the alpha generated by an actively managed fund.

Now for the fine print. Before investing abroad, understand the market risk as well as the country and currency risks involved. So, an exposure to countries like Portugal or Greece, which are mired in financial woes, could significantly affect your returns.

Source: Money Today

India Economic Outlook

India Economic Outlook

India`s July exports fall 28.4% yoy

India's merchandise exports fell 28.4% to US$13.6bn in July and imports declined 37.1% to US$19.6bn, resulting in a trade deficit of US$6bn for the month from US$12.15bn in the same month a year earlier, data released by the Commerce Ministry showed. In Indian Rupee terms, exports in July were down 19% over the year-ago period while imports slid 28.8% in Rupee terms.

Exports for the first four months of the current financial year (April-July 2009-10) were down 34.1% at US$49.65bn as compared to the same period in the previous fiscal year. Cumulative imports for the period were down 32.5% at US$78.56bn. In Rupee terms, exports and imports fell by 23.5% and 21.7%, respectively over the corresponding period of the last fiscal year. The trade deficit for April-July 2009-10 stood at US$28.91bn versus the deficit of US$41.09bn during the same period last year.

Oil imports during July 2009 were down 55.5% at US$5.64bn while non-oil imports during the month fell by 24.5% to US$13.98bn. Oil imports during April-July 2009-10 were down 48% at US$21.96bn while non-oil imports during the first four months of FY10 fell by 23.7% to US$56.6bn.

India Economics

India Economics

Foreign Trade Policy...Govt eyes US$200bn exports by FY11

Union Commerce Minister Anand Sharma announced the Foreign Trade Policy for the period between August 2009 to March 2014. He said that the Government is aiming to achieve an export target of US$200bn by the end of fiscal year 2010-11. This will represent an increase of 15% over the export of fiscal year 2009-10. India's exports reached US$168bn in the fiscal year 2008-09 from US$63bn in FY04 and is expected to remain flat in the year ending March 2010. Sharma also said that the Centre aims to double global merchandize trade in five years and double the share in worldwide trade by 2020. India's share of global merchandise trade was 0.83% in 2003. It rose to 1.45% in 2008 as per WTO estimates. He said that export growth should reach 25% by the end of March 2014. India's share of global commercial services export was 1.4% in 2003. It rose to 2.8% in 2008. India’s total share in goods and services trade was 0.92% in 2003. It increased to 1.64% in 2008.

The Government would extend tax refunds to exporters and explore new markets in Africa and Latin America to bolster overseas trade, Sharma said while unveiling the Foreign Trade Policy in New Delhi. "The immediate objective of this policy is to arrest and reverse the declining trend of exports and to provide additional support, especially to those sectors which have been hit badly by recession in the developed world.," Sharma said.

The policy, coming in the backdrop of a 30% contraction in exports in the last 10 months, identified 26 new markets for trade that would be eligible for sops. These include 16 in Latin America and 10 in Asia and Oceania. At present, India's exports are highly concentrated in Europe (36%) and the US (18%) and Japan (16%) and these are the worst hit by the biggest financial crisis since the 1930s. "We have taken a conscious view to expand and diversify our export markets, especially in the emerging markets of Africa, Latin America, Oceania and CIS countries," the Commerce & Industry Minister said. The Government would offset disadvantages that exporters may face in these new markets, he added.

The policy also sought to help gems and jewellery sector, one of the worst hit, by allowing duty drawback on exports. Handloom and handicrafts would be helped under the Market Development Scheme, while the government also announced the continuation of the DEPB scheme till December 2010. In the short term, the relief measures include providing dollar credit to exporters that will be overseen by a high level committee, comprising Finance Secretary, Commerce Secretary and the Indian Banks Association. To insulate the small and medium scale exporters who are unable to seek expensive legal help for foreign markets, a Directorate of Trade Remedy Measures would be set up. The policy continues with the interest subsidy for exporters of 2% for pre-shipment credit and income tax exemption to 100% Export Oriented Units (EOUs) for till the end of next fiscal.

The Commerce Minister said that infrastructure and industry sectors showed some signs of recovery in exports in June, but added that it was still difficult to take a call on the nature of the recovery in the global economy. The Indian economy has not been affected as badly as many other economies by last year's financial meltdown, Sharma said. Much of the sharp fall in Indian merchandise exports was due to contraction in external demand, especially in the big markets such as the US and Europe, he added. The slew of fiscal as well as monetary measures announced by the Government and the RBI since October 2008 have managed to mitigate the fallout from the global economic downturn, the Commerce Minister said. The global economic downturn had pushed the country’s export growth into the negative territory in October last year. This was followed by imports registering a decline in January.

Indian investors upbeat about economic prospects: JP Morgan survey

Indian investors were upbeat about economic and investment prospects, according to a survey by JP Morgan Asset Management and Valuenotes. The investment confidence index was at 135.9 at the end of July, indicating a high degree of confidence among investors and was calculated by averaging the values of three sub indices.

The index, published on a quarterly basis, aims to measure confidence levels of retail, corporate and financial advisers on the economic and investment environment in India and values are assigned between zero and 200, with zero denoting a very negative outlook and 200 the highest value.

Retail investors are more confident of making additional investments than financial advisers and investors expect the benchmark BSE Sensex to rise to 16,000-17,000 by December. It was down 2.6% at 15,000 on Monday. Half the firms surveyed said the rupee will likely gain in the next six months while 76% of respondents said interest rates will rise.

Govt raises MSP for Rice, other crops to counter drought

To ease the financial pressure on farmers reeling under the drought like situation, the Government on Aug. 20 announced that it was raising the floor prices for Paddy (Rice), Tur, Moong and Sesamum. The Minimum Support Price (MSP) for the common grade of Rice has been raised to Rs950 per 100 kilograms, while the price for Grade A variety of Rice has been increased to Rs980 per quintal. This implies an increase of Rs100 in absolute terms for both the grades of Rice. In percentage terms, the increase in MSP is 11.76% for the common grade and 11.36% for Grade A. An additional incentive bonus of Rs50 per quintal over the MSP was also approved for the Grade A variety of Rice.

This was announced by the Union Home Minister P. Chidambaram after a meeting of the Union Cabinet Committee on Economic Affairs (CCEA). "India has ample stocks of Wheat and Rice and will take every step to mitigate drought," he told reporters. Meanwhile, the MSP for Tur was increased by Rs300 (15%) to Rs2300 per quintal while for Moong it was hiked by Rs240 (9.5%) to Rs2760 per quintal. The MSP for Sesamum was raised by Rs100 (3.64%) to Rs2850 per quintal.