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Sunday, April 26, 2015

Chinese Hard Landing Amidst Overstated Growth Nos?

China's worse than expected Trade data shows the struggle that the party faces in ensuing a soft landing for an economy that looks increasingly troubled.

Post 2008 and the rise of China as  a manufacturing powerhouse shipping everything from smartphones to tuna fish across the world seemed like a modern miracle of millions turning their toil and tears into golddust.

Seven years later with the Chinese contemplating an american style Quantitative Easing(QE) program,its clear that the strategy of cut price goods,shoddy workmanship combined with a recessionist Eurozone and still 'zero interest' US put together are not working out for the economy.

What many do not realise is the fundamental shift in policy envisaged by the top party bosses.From a fiscal stimulus driven investment led style to a consumption led model.

After pumping in billions into infrastructure development,cheap credit to expand manufacturing,degrading the environment has led to an unsustainable situation viz.pollution and also a sharp decline in exports.

Those in the know believe that GDP growth in China is currently around 3% and not the 7% as officially stated.Global trade is still down from pre 2008 levels,wages are rising,overcapacity,fall in housing prices by 6% compared to double digit growth a year ago,rising non performing assets-plenty of stories.


So will the next big crash come out of China?

Sometime in the next couple of years China will have to depreciate the renmimbi quite sharply(20-25%)to stay competitive,A warchest comprising $3.7 trn foreign exchange reserves gives them the headroom to take appreciable measures without panic.

However its open to conjecture if it will curb Chinese companies from chasing energy assets all over the world,something that has had Indian companies worried.The iron ore suppliers will face lower prices which mean a good time for Indian users.

Despite all the pessimism,this is the basic reason why India should outperform in emerging markets.We have always been a consumption led economy and even a miniscule success for 'Make in India' will add an additional 1-1.5% to the GDP,which if added to the current 5% will easily make it one of the fastest growers globally.

Saturday, April 11, 2015

India IIP:Of Troughs and Crests

IIP for February 2015 is 5% against survey prediction of 3% and prior fig of 2.6%(revised to 2.8%).Capital Goods up 8.8% holding out some hope for the capital goods sector.

As seen on the right its been an up and down ride this past year despite the stockmarkets having one of their best periods with the Nifty returning 27% annualized.The midcaps and smallcaps having gone over the top.
TOI 11th April

Would you like to buy Bosch(an auto component company) at a 
 of 80...?A profit of 1100 Cr on a market cap of approximately
77,000 Cr...?

We have many such examples in the market ever since the new
dispensation came to power and despite a few desultory tweets
expressing impatience at the current government's apparent
slow progress on the pre poll agenda the general positive
sentiment remains.

Strange to talk of 'green shoots'when in one year the 'shoots'
should have become 'green stalks'...!

For all the talk of 'Make in India',there has been no coherent
push in terms of on the ground reforms.

I remember talking to clients about this great push coming in
infrastructure development-roads,highways,ports,SEZs etc

In two decades,Haldia,the premier port in the East is but a
shadow of itself with only 3 slots handling goods with tonnage
handled down by 55%.Labour issues,shallow draft at the
Sandheads not allowing ULCs through and the business
moving further south and onto the western seaboard are
but mere excuses.

The much touted flow of Chinese merchandise flowing through Nathula has not materialized.Calcutta Port is in much worse shape and there is no escape in sight.Other than Gujarat I do not think any state has made any appreciable progress in terms of industrialization in the past five years.

We continue to live on hope and rhetoric!!


Wednesday, April 1, 2015

The Summer is Back And it Promises To Be Long

After a dramatic and at times fairytalish equity run on Indian bourses,not that the Dow and S&P were far behind,in which Nifty gained 27%,the CNCMIDCAP gained 51% and the CNX500 was up 34%,its time to wind down the expectations somewhat.

The markets are likely to pause and reflect...On the reforms yet to be undertaken.
On the expected hike in interest rates by the Fed.
On all this qausi religious mix in politics,beef ban etc
On the spreading conflagration in the Middle East

The biggest expectation of 'bigbang' reforms not being met has been mitigated to some respect by the micro vision laid out in this year's budget.Hence the first hald of FY15-16 is likely to be dominated by Power,Infrastructure,Defence and Construction stocks


The second half of FY15-16 will probably belong to Bank and metal stocks.If I were to make a tentative portfolio that could be bought on corrections,it would be as follows:-

BEL
IL&FS Transport
IDFC
HCC
Max India
BlueStar
Whirlpool
Thermax
Dredging Corporation
Tata Power

I am however uncertain as to the events unfolding in the Middle East and the expected repercussion on the Indian economy.Its a difficult subject to quantify but clearly states like Kerala,Andhra that recieve inward remittances from their residents working across Iraq,Saudi Arabia,Libya,Qatar and also Yemen face uncertaintly.As I write,evacuation flights are being organised by Indian authorities to rescue the citizens trapped in Yemen civil war.

Globally the 'lone wolf' attacks are not helping Europe recover from dismal growth and the chances of more political turmoil and war fears is an unsettling thought to take into the new financial year.