INDIAN EQUITIES - LOOKING BACK AT 2011

Here are some articles from last year that I think are worth a read.

Indian Equities have been faced with a toxic combination of Policy inaction, high interest rates, a very weak Indian Rupee and waves of instability from western markets, primarily the EU.

The articles below provide some interesting views on the Outlook for 2011. Mukul Pal's contrarian outlook, highlights the point that beaten down sectors that have been written off by Mr. Market could surprise us in 2012!

INDIAN EQUITIES - AN UPDATE

Here's an article titled - 'A Two - Tier Market' by Akash Prakash from the Business Standard Newspaper dated 8th of July 2011 - Mumbai edition..

He addresses the issue overvaluation of the consumer-staples sector and highlights the difficulties of buying high-quality companies at a reasonable price in the Indian Stock Market.

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Currently, many consumer staple stock trade with PE ratios of 30-35!

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On the other hand, investors continue to shy away from industries that are in need of capital, mainly due to concerns of poor earning visibility. Many infrastructure companies are facing great difficulty in raising capital.

The article is a fantastic read.

INDIAN MONSOONS 2010

The monsoon rainfall last year was well below average.
As India waits for the arrival of the south west monsoon, everyone's hoping for a normal monsoon this year.

Insufficient rainfall resulted in rising food prices, as the prices of vegetables and food grains soared.

Last year, consumer demand in rural areas held up pretty well despite a poor monsoon. Continuing inflation, especially ''food price'' inflation will have a dampening effect on consumer consumption in the auto, FMCG & durable goods sectors.

Thus, a back to back season of insufficient rainfall will have serious repercussions for the Indian economy.

In the meantime, the India Meteorological Department (IMD) has forecast a normal monsoon across the country this year.

'''Lending a quantitative perspective to the available indications, IMD said the total rainfall during the June-September monsoon season would be 98 per cent of the long period average. This assessment is subject to a model error of ± 5 per cent.'''

Lastly, just a warning for those who may blindly follow the forecasts of the IMD!!

''''Last year too IMD had predicted a near-normal rainfall of 96 per cent. Two months later, in June, it issued an update scaling down its assessment to 93 per cent of normal. Both these predictions went awry. IMD then revised its forecast for a third time in August, this time predicting 87 per cent of normal rains.

These predictions, however, turned out wrong and the country received only 77 per cent of normal rainfall. This led to a drought in large parts of the country.'''''

Links:

TAKE A LOOK-India forecasts normal monsoon rainfall‎

Monsoon to dispel clouds over sugar, grain‎

MD predicts normal monsoon‎

RISING FOOD PRICES IN INDIA

The monsoon this year was erratic and insufficient. Then came some unseasonal rainfall in late September.
Below is a news clipping from the Economic Times newspaper - 18 Dec, 2009.
Retail Prices are in Rs/Kg. ( 1 USD = INR 47 approx)

Rising food prices are always a concern in a developing country where a large percentage of the population spends over 50% of their daily income on food.

Insufficient rainfall has also resulted in severe water cuts in the city of Mumbai this year. It's going to be a long wait till the monsoon returns by June 2010.

INDIAN EQUITIES : P/E RATIO ANALYSIS ! !

The Indian Stock markets have been rising steadily as the global 'stock market ' recovery continues.

Since markets hit their panic lows in March this year (yes, we can say so now, with the benefit of hindsight!!!!), the rally has been spectacular.

The world economy may not have recovered, but markets have clearly run ahead of themselves.
Below is some P/E ratio data from a recent article in the Business Standard newspaper (Thurs 29, September 2009).
Source: Current market valuations leave little scope for profit-making

It's worth remembering that markets usually overshoot both on the upside and the downside.

A quick glance at some sector P/E Ratios, and you could well think that we are back to the days of an invincible bull market.

P/E Ratios in the 25-30 x range leave no scope for disappointment.

If you exclude commodity sectors like cement and non-ferrous metals, the average P/E is even more expensive.

Risks to the economy still remain:

The monsoons this year have been rather unsatisfactory.
As stimulus packages are gradually withdrawn, sectors like autos and textiles could face head winds.

A global rally built on foundations of '''ginormous''' government money printing, stimulus packages, bailout packages and debt -----> can last longer than some bears can stay solvent.

...and when bears start to reluctantly convert to the bullish camp, it's time to take a step back and analyse your investment profile.

While you don't want to miss out on the party, it's probably more advisable to sell into the strength than buy anything now.
The risk -reward ratio is clearly not in favour of the long only investor.

Improving Indian Infrastructure: A long long way to go!

Here are some interesting (or shocking) statistics that I came across, while reading the Sept 6, 2009 issue of the 'Business India' Magazine.

Every successive Indian government claims to have made giant strides in India's infrastructure development. Here's some data on the Power sector and the Road Sector.

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Indian Power Sector:

''Ageing thermal units that generate almost a fifth of India's power are slated for a revamp.

Old, inefficient and polluting coal fired power plants have been earmarked for the government's R&M/LE (renovation and modernisation/life extention ) programme. These mainly 210MW and some 110MW units built 20 to 30 years ago have a cumulative capacity of 27,000 MW, almost a fifth (18.21%) of India's installed power capacity.''


India's Road Sector:

''With 3.314 million km of roads, the country has the second largest such network in the world. But much of this is of abysmal and degraded quality and overburdened. This is especially true for highways - which are the lifeline of any modern economy anywhere in the world.

Highways account for some 65,000 km, or about 2%, of the total road network in the country. 90% of these highways are single - lane or two -lane affairs. Overall, roads support 80% of the passenger traffic and 65% of the freight traffic in the country. 40% of this overall traffic occurs on highways. They are overcrowded for the most part, which implies slow moving wheels of transport and of the economy, as well as poor upkeep.''

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Source: September 6, 2009 Business India Magazine

Well, there's not much that I can add to the above statistics. What I can tell you, is that India is way behind schedule as far as infrastructure development goes!

Economic development and subsequent GDP growth over the past 5 years, has put further stress on an already 'stressed out' infrastructure system.
(Think of congested airports and seaports, crazy traffic jams in Mumbai, and the pending 'rail freight corridor' project)

I hope that the government realises that sustained GDP growth is impossible without improving infrastructure.

India has great potential to emerge as one of the world's largest - diversified economies.
Unlike some BRIC nations, GDP growth is well balanced, & not dependent solely on commodities. (Think Russia & Brazil)
The economy is not export dependent and domestic consumption continues to support industrial production through this economic downturn.

Before India can take its next leap forward, its infrastructure issues will have to be sorted out!

I will end with some links on the Indian Monsoon, by Business Standard columnist Shreekant Sambrani.
(While I'm not a weather/ monsoon expert, the temperatures in Mumbai this year in the months of July and August have been extremely warm, and the monsoons seem to have vanished!)

July 5, 2009 : Follies & IMD - Siamese twins
July 16, 2009 : Shreekant Sambrani: No doubt, it's a drought
August 8, 2009 :Shreekant Sambrani: Talking down the drought
August 29, 2009 :Shreekant Sambrani: Drought of agricultural policies

INDIAN EQUITIES : A VOLATILE WEEK

Last week's trading at the BSE Sensex (India) would surely test the nerves of expert traders. Take a closer look at the chart below.

The Chinese stock markets and the Indian Monsoons continue to dictate market direction in the near term.

According to the MET Dept, the monsoons are staging a late comback. Given how wrong these guys have been so far, I'm still waiting for more clarity on their call for a 'late monsoon revival'.

As for the Chinese Markets; every time liquidity concerns arise - we see a sell off.

Week on week both markets appear relatively unchanged. Let's wait and see how Asian equities respond to the overnight rise in the US markets.

INDIAN MONSOON : NO RAIN YET !!

With each passing week, the number of drought affected districts goes up.

July and August are 'crucial' months as far as the 'southwest monsoons' are concerned.

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There's going to be a lot of drought relief work needed in the rural areas and water cuts in cities, if the monsoons fail to return.

Food crop failures will mean rising food prices and the need for 'loan waivers' in rural India.

The governments deficit is growing, and the stress of a 'failing' monsoon will add to the governments' burden.

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As the map below shows; highly populated states like Uttar Pradesh and Bihar have been badly affected. This not only means a food shortage (as these are agricultural regions), but it also means that many many families (especially farmers) will be badly affected.

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With many state level elections coming up, local governmnets will face an uphill struggle, as the 'opposition' seeks to highlight the governments' inadequate response to the failing monsoon!

Yes unfortunately; its election politics again!!!!!

Link: No rain: India's food bowl empty, cup of woes full - India - NEWS ...

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EDIT: 21August 2009: Here's a great link on the monsoons so far:
Shreekant Sambrani: Talking down the drought

Source: Indian Met Dept:Monsoon-2009: Current status