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Wednesday, November 30, 2011

Acid Test For India Story?

The GDP of 6.9% is the lowest in nine months.With IIP expected at 5% for the full year the slowdown in growth is begining to come home.Inflation is stubbornly high.

A major slump across all sectors lent a hand to this disappointing number. Agriculture growth came in at a meager 3.2% and manufacturing at 2.7% against 5.4% and 7.8% respectively for the same period last year. However, it was de-growth in mining that was the major blow.Services sector too has taken a hit and with manufacturing being down quarter on quarter is adding to the pressure.

The comfort zone for RBI in terms of inflation is 4.5-5% band but I do not think that it will go lower than 7% unless the bottom falls out of the economy and we go into recession.My reason is the food inflation component and with lower production,higher wastage,almost 40-60% in perishable items,the supply chain contraints cannot be wished away neither repaired immediately unless massive investment is undertaken in refrigerated stores and depots and the role of middlemen diminished.

The policy paralysis just adds onto the pressure.I do not see the Eurozone having a more than superficial impact but yes the sentiments have turned negative to a large extent.How will the Indian markets take the 51% FDI in Retail.Is this trigger enough to make the sentiment in equities positive?

An acid test for those who believe in the India story!How can we attract massive investments into the critical infrastucture segment?How to develop services AND provide social security to the organised and unorganised sector.

A funny corollary of development-Bihar.It was India's most underdeveloped state and cheap labour would flock to the rest of the country to,be it daily wagers in real estate,cab drivers or servants in households.A Bihari servant was as ubiquitous a scene as a Nepali watchman in most residences.Now with the NREGA scheme a lot of people are not moving out of Bihar as a result there is a huge shortage of labour for builing roads,bridges and apartments.

Its all leading to rising wages and more inflationary pressure,another vicious circle.It feels like an opportunity for longterm investors as there are plenty of companies trading at less than book value,4% Yield,PEs of 4-5 and RoEs of 20

Time to build or rebuild a portfolio.Consumer focussed,agribusiness stocks.Bharti annouces 50 million users in Africa and those who read my blog regularly will remember how aggressively i have recommended Bharti with an eye on the future.Its one of the stocks  I reiterate a buy on,everytime it declines.