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Scanning World & Indian Macro Environment

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Manish Bhandari, CIIA CEO and Managing Partner Vallum Capital Advisors Pvt Ltd. Mumbai, India

Private and Confidential

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Agenda
A ) Global Economic Environment & Outlook
B) China Growth model C) Indian Economic Scenario D) Key Investment Themes
Vallum Capital Advisors Pvt. Ltd. 2

0% -1. . but their output has slowed compared with the pre-crisis period • While headwinds from restructuring and fiscal consolidation will persist in high-income countries. they should become less intense allowing for a slow acceleration in growth over the next several years Real GDP growth rate (%) 11.0% USA Source: World Bank Data 2005 2006 2007 2008 2009 2010 2011 2012 China Euro Union World 3 Vallum Capital Advisors Pvt.0% 9.Developed markets GDP have been on a declining trend • Developing economies are still the main driver of global growth.0% 5.0% 3.0% -5.0% 1.0% 7. Ltd.0% -3.

0 5.0 0. position (US $ Bn) 600 • Medium-term prospects for the region will critically depend on progress in addressing external constraints (large current account deficits) • Domestic constraints (large fiscal deficit.0 10. Ltd. lack of competitiveness.0 -10. and structural constraints.0 -5. unemployment.0 -15.Current Account Deficit : Impact on policy decisions of countries around the world Current Acc. • Falling international reserves and high current account deficits may constrain monetary policy in some middle-income countries 400 200 0 Greece Germany France Brazil India Portugal Japan China Russia USA 2004 -200 -400 -600 -800 2007 2008 2009 2010 2011 Source: IMF Data CA as % of GDP 15.0 Portugal USA India Brazil 2005 2006 2007 2008 2009 2010 2011 Japan China Russia Germany Vallum Capital Advisors Pvt. and inflation) imbalances. 4 .

Substantial progress has been made in reducing fiscal deficits. so as to ensure that their economies can respond as resiliently as they did during the 2008/09 crisis should a further significant external shock arise. 5 . Vallum Capital Advisors Pvt. Ltd. but debt levels continue to rise • Many developing countries would be well advised to gradually restore depleted fiscal and monetary buffers.

Ltd. the commodity prices are highly sensitive to any kind of supply side shock Vallum Capital Advisors Pvt. 6 .Declining commodity prices are a further indication of the real-side effects of recent turmoil • Commodity prices should stabilize or decline in this moderate growth environment • Looking at the current macro environment.

7 . Ltd.Agenda A ) Global Economic Environment & Outlook B) China Growth model C) Indian Economic Scenario D) Key Investment Themes Vallum Capital Advisors Pvt.

rapid capital formation & strong productivity growth for last 10 yrs • As seen below. 8 . over the last decade contribution made by investments towards the GDP growth of china has been steadily increasing due to fiscal & monetary plans introduced Vallum Capital Advisors Pvt. Ltd.China : combination of high investment rates.

0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012* 2014* 2016* Source: World Economic Outlook Vallum Capital Advisors Pvt.Investments Rate & growth in China • As China’s investment rate increased.0 40. the contribution of investment to growth rose to about 50 percent of 10 percent annual growth in the 2000s Investments as % of GDP 60. 9 .0 20.0 Average Real Wages (% change) 10.0 0. Ltd.0 30.0 50.

10 . Ltd. either investment rates will have to decline or consumption growth will have to expand very rapidly Vallum Capital Advisors Pvt.China Growth Model : the risk of stronger-than expected deceleration • Neither Japan nor Korea – two countries that have also enjoyed lengthy periods of rapid growth – ever saw investment rates exceed 40 percent • China’s capital/output ratio. increased by almost 25 percent over the past 15 years and is still rising rapidly • China's authorities have identified the need for a more balanced pattern of investments & savings • Shift toward investments and expenditures in the service sector and in intangible assets like human capital combined with a lower investment rate • If China is to avoid opening up a large output gap. which in an economy on a stable growth path will be broadly stable.

11 . Ltd.Agenda A ) Global Economic Environment & Outlook B) China Growth model C) Indian Economic Scenario D) Key Investment Themes Vallum Capital Advisors Pvt.

Ltd. policy uncertainties. from 8.India : GDP & its components • Real GDP growth has slowed to a nine year low of 6.4 percent in the two previous years. 12 .5 percent for FY2011-12. •The slowdown can be attributed to various factors ranging from structural problems. corruption scandals. financial difficulties & global slowdown Source: RBI Annual Report Vallum Capital Advisors Pvt.

Balance of Payments hugely affected by the current account position • Decelerating export growth and high crude prices have pushed the current account deficit to 4. Ltd.2 percent of GDP in FY2011-12 Vallum Capital Advisors Pvt. 13 .

5% -1.8% -3.8% 3yr -18.5% -1. Ltd.9% -16.5% -9.1% 3m 7.1 USA US Dollar 54.9% -20.7% -6.7 Brazil Real 26.In real terms. Returns of Currency against Indian Rupee (INR) Country Name Currency Latest Value Japan Yen 0.9 HOW TO READ : (-)INR Depriciated/ (+) INR Appriciated 1m 5.7% -0.7% -5.0% 0.0% -1.0% 1yr 9.6% 6m 11. •To arrest the rupee’s depreciation.9% -4.8 Euro Area Euro 72. .8% -4.2% -5.7% -3.7% -3.7% -16.8 Hong Kong HK Dollar 7.6% -28.9% 0.3% -28.6% -23.9% 14 Vallum Capital Advisors Pvt. foreign exchange reserves were depleted by 3.8% -38.8% -3.9% -9.9% -1.2% -7.6 China Yuan 8.7% -0.1% -27.6% -10.4% 0.8% 5yr -40.9% -4. the value of the rupee is now below its long term average.7% -2.5% -16.4% -22.0% -5.7 Thailand Thai Baht 1.4 % (of the total) during FY2011-12.1% 8.

has slowed down substantially.9 % in July 2012. • According to this new index. mostly on account of a surge in food prices.Core inflation. which was first presented in January 2011. inflation increased from 7. especially vegetables • India’s CPI inflation trajectory shows little correlation with that in other important emerging markets Vallum Capital Advisors Pvt. which has been the main component of overall inflation since September 2010. Ltd. 15 .7 % in January to 9.

Ltd. 16 .Agenda A ) Global Economic Environment & Outlook B) China Growth model C) Indian Economic Scenario D) Key Investment Themes Vallum Capital Advisors Pvt.

17 . Ltd.Key Investment Themes • Shale Gas Boom : US independence of energy • Manufacturing returns to the United States • Disintegration of the European union •Booming E-commerce industry •Softening commodity prices & impact on India •Demographic Dividend of Indian population Vallum Capital Advisors Pvt.

Demographics comparison : India outshines the developed markets •India stands favorably to developed world in dependency ratio Germany 110 100 90 80 70 60 50 40 30 20 10 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Italy Japan France India United States of America INDIA Source: UNPP (population department) Vallum Capital Advisors Pvt. 18 . Ltd.

19 . Ltd.Demographics comparison : India set for high growth from demographic dividend •The adverse dependency ratio has started showing up in higher wages cost in China Brazil 100 90 80 70 60 50 40 30 20 10 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 China Russia India China rapid growth in 1990-00s India seems to be poised for an accelerated growth period Source: UNPP (population department) Vallum Capital Advisors Pvt.

Founder and VALLUM CAPITAL ADVISORS in Media Vallum Capital Advisors Pvt. 20 . Ltd.

Mumbai -51 Phone : +91 22 64539772/74 Cell : +91 9820326393 Email :manish. India B8/58.bhandari@vallum. Near MHADA Office. MIG Society.Contact Vallum Capital Team Mumbai. Ltd. Bandra (East). 21 .in Thank You Vallum Capital Advisors Pvt.