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India in changing world dynamics
4. 3.Presentation Overview 1. 7. 6. A Retrospective The India Advantage Currency Global Cues What Can go Wrong? Investment Strategy & Concerns Recommended Funds World GDP Growth Rates. 2.IMF Estimates 16 14 12 10 8 6 4 2 0 -2 -4 1995 2013 1980 1983 1986 1989 1992 1998 2001 2004 2007 2010 2016 China India Emerging and developing economies World Advanced economies . 5.
6% last year) driven primarily by food prices. High inflation is affecting the long term capital formation as consumers are cutting a part their investment spending to fund consumption needs. China’s GDP growth during Q2 CY11 slowed to 9. Along with this Portugal’s has also been assigned a negative outlook.What happened… Global Markets: • Global economic situation has not improved over the past quarter due to the uncertainty over European and US debt issues. as mentioned earlier by S&P. A Retrospective.s • During the past quarter rating agency Moody’s had downgraded Ireland’s sovereign ratings for the 2nd time in 2011 to Ba1 from Baa3 and has put Italy’s Aa2 rating under a possible downgrade option.4 tn. decided to extend the average maturity of its securities to support a stronger recovery and control inflation.1 tn over the next decade. Investments in fixed assets grow at 1. . In response to a further financing need recommended by IMF & G20.1.5% from 9.16% (m-o-m) during Aug’11 against 1. This may adversely impact the consumer spending pattern which have gained some momentum over the past quarter. German policy makers have approved the expansion plan of EFSF (European Financial Stability Facility) fund to Euro 440 bn from Euro 250 bn as a conducive effort to tackle the current situation.2% (5. On the other hand inflation and unemployment rates have shown no signs of easing during the same period.7% in Q1. this concerns as a potential trigger towards rating downgrade. • Amongst the major emerging economies. • Major world economies are now mulling for an aggressive response from European authorities over their debt issues.38% in Jul’11. The economic instability has resulted into weak investor sentiments across the world. during the last week of Sep’11. However. Along with that there are plans to cut government spending to the extent of ~$2.3 tn to $16. • US debt ceiling has been raised from $14. Inflation during the Aug’11 went up to 6. The federal committee.
Hangseng (-21. amongst major global indices.Indian Markets: • India’s GDP growth during Q1 FY12 slowed to 7. This reflects the weakened investor confidence globally.78%).2% last qtr).8% (9. • Comparatively.75%.3% in last qtr). All other sectoral indices also closed the month in red with Metals shedding the most @ 25. Trade statistics and FDI flows reflect robust y-o-y growth while industrial production and inflation figures are showing no signs of improvement. .83% & 14.79%) & Dow (-11. Total food grain production in kharif season is expected to be ~123. Over these.04%) also had suffered losses over the past quarter. • Macro economic factors in India continue to present a mixed picture. Accordingly the agriculture ministry is expecting a bumper food crop production this season.7% against 7. FTSE (-14. The moderation was within expected lines reflecting the affects of a fragile global economic scenario and aggressive monetary policy actions taken by RBI. • Against these odds.20 mt last yr) as per the 1st advance estimate on crop production.2% (8.8% in the earlier quarter. monsoon rainfall till now has been fairly widespread and above the long period average.38% respectively over the last quarter. While construction sector observed the slowest growth of 1. Nikkei (-12. trade-hotels-transport & communication sector posted the highest growth of 12. Both Sensex & Nifty has shed 14.88 mt (120. keeping fiscal deficit within target levels seems tough in light of the unexpected shortfall in small savings so far in this fiscal (NSSF). Government borrowing plan for 2nd half have been raised by INR 53000 cr to cover the same.11%). • Indian markets seem not to be spared of the global turmoil as reflected by the performance of the broader indices over the past quarter.
2. The growth was within expected lines as both Nifty & Sensex responded with a 5.7% during Q1FY12 against 7.Investment Perspective GDP Growth and Consumption Expenditure 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% Q1 Q2 FY10 Q3 Q4 Q1 GDP Growth.5% growth in this fiscal and over 9% during the 12th 5Yr plan (2012-17). Source: MOSPI.6% of GDP. • Over the past quarter. The reduced pace in government expenditure is in line with GOI’s target to keep fiscal deficit within 4. The series of rate hikes by RBI was likely to affect GDP numbers and was accordingly discounted by markets. The India Advantage .8% in Q1FY10.Sector-wise 10000 8000 6000 4000 2000 Government & Private Final Consumption Expenditure 70% 60. private consumption has increased while government expenditure has moderated. SPA Research .8% in Q4FY11 and 8.104 0 Q1 Q2 FY11 Q3 Q4 Q1 FY10 FY12 FY11 FY12 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 0% GDP Agri Ind Manuf Service PFCE (Actual-INR bn) PFCE (% of GDP) GFCE (Actual-INR bn) GFCE (% of GDP) • India’s GDP grew @ 7.33% jump post announcement of GDP numbers. Policy reforms towards augmenting total tax revenue and reducing subsidy burden may aid in achieving the fiscal targets.50% 60% 50% 40% 30% 20% 10% 0. However policy makers are still optimistic on achieving an 8-8.
2 Services • While manufacturing segment has shown some signs of moderation in growth rates over the past quarter.82 -398. During Aug’11 exports grew by 45.5 57.5 FY11 FY12 Manufacturing 58.2 58.Manufacturing Growth & Foreign Trade IIP 24% 18% 12% 6% 0% -6% -12% FY07 IIP Growth 200 150 Industrial Production FY08 FY09 60 100 FY10 59. The subsidy is expected to be ~23%. PIB. 59 58 57 56.1 55.79 -386.0 57.6 HSBC-PMI Jun-11 Jul-11 Aug-11 Exports 2100 1750 1400 1050 700 350 0 -350 -700 Imports Trade Deficit Foreign Trade (INR Bn) -252. HSBC. exports continue to grow strongly even on a higher base of last year.8 in Aug’11 against 58. the affect of rate hikes and a slowdown in western economies is also being reflected in the services segment. Source: MOSPI.9%.2 in Jul’11. Services PMI contracted heavily to 53.32 Mar-11 -672.8 52. • Against these.5% and imports grew by 28.78 Jun-11 -492.22 Jul-11 Aug-11 .6 56 55 54 53 52 Apr-11 May-11 53. • In light of the rising interest rates and a slowdown in western economy the finance ministry is planning to introduce interest rate subsidy for exporters by 1st week of Nov’11.3 53.67 Apr-11 May-11 -653.
Indian fund managers are making the most out of these corrections and are piling up their equity portfolio.45 bn over the past quarter. • Overall impact on the markets is negative because the domestic institutions are not able to absorb the selling by FII’s fully. -7.35 -4.15 bn respectively.24 FY11 • Insurance companies which used to make up a major share of the DII’s are now falling behind because of the absence of robust revenue from ULIPs which was encountered last year.01 6.52 FY12 25.Institutional Investors (INR Bn) Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Apr-09 290 240 190 140 1stYr Life Insurance Premia (INR bn) FY11 FY10 90 40 • Net investments by FII’s & DII’s over the past quarter stood at INR -186.31 Apr May Jun Jul Aug Sep Source: SEBI. MF Equity Investments (INR Bn) 40 20 0 -20 -40 -60 -80 4. • The increased volatility and global uncertainty has caused FII’s to decrease their exposure into emerging markets. *Life insurance premium during March are high because of year end tax saving investments.34 bn & INR 97. NSE . However.64 12.Investment Snapshots 300 200 100 0 -100 -200 DII FII Monthly Equity Flows. IRDA. MF’s invested INR 24.
43 123.0 4 8 13 Central South Peninsula 704.88 mt in the kharif season.1 592. 4 % above the Long Period Average.17 33. Seasonal rainfall scenario (1st Jun.88 20.. normal over 24 and deficient in 03 (over east & northeast India) sub-divisions.) 87.12 2011-12 (1st adv est. As of 23rd Sep’11.89 342.65 16.1 661.58 lakh hectares respectively over the last yr. 476 (79%) out of 603 districts of the country have received normal to excess rainfall.86 30.85 339.9 6 -15 • In area-wise distribution. total area for rice and oil seeds have increased by 33.10 Source: IMD. • Ahead of the rabi season.52 6. the ministry has set total rabi crop production target for this yr at 245 mt.42 117.9 1359.10 15.20 36.21st Sep 2011) Actual Normal % Departure Regions (mm) (mm) from LPA All India Northwest 875. • The department has also reported increase in acreage in several crops. East & Northeast Major Kharif Crops Production Estimates Crops Rice Maize Coarse cereals Cereals Pulses Total Food grains (cereals + pulses) Total oil seeds Sugarcane Cotton (m. the total food grain production is expected to be ~123.54 & 5.43 113. • Out of total 36 meteorological subdivisions.6 1158.0 641.43 120.08 7.0 934.e. rainfall has been excess over 09.20 20. PIB . • On the back of a fairly widespread monsoon in this season.Southwest Monsoon 2011 • Seasonal rainfall so far for this season has been 104% of LPA i.32 32.8 1053.4 843.) 80.bales) 2010-11 (4th adv est. 92% area of the country received excess/normal rainfall.
e.93 currently i.. 120 115 110 105 100 95 90 Apr-09 Jul-09 Oct-09 Jan-10 6 currency trade weight based REER (2009-10=100) Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 A fall in REER indicates depreciation of INR and vice versa 15250 15000 14750 14500 14250 14000 13750 Forex Reserves-INR Bn 14995. • The depreciation in rupee is more of a global phenomenon currently than India specific lead by the Euro debt crisis and geopolitical uncertainty.13 I Jun’11. Huge forex reserves provides confidence to the markets especially credit rating agencies and helps in maintaining stable exchange rates by limiting external vulnerability during times of crisis. • The depreciation in rupee is in line with other emerging market currencies like Brazilian Real and Russian Rouble which has also depreciated by 17.76 bn) as of 16th Sep’11. as per the data released by RBI.00 to 49.18 bn. Currency Currency and Foreign Exchange Reserves 53 51 49 47 45 43 Apr-09 INR-USD Exchange Rate Oct-09 Apr-10 Oct-10 Apr-11 • The Indian rupee has depreciated heavily against the dollar over the past quarter from 45.96%.66 in Aug’11 against 115. SPA Research .69% and 15. Accordingly the 6 currency trade weight based real effective exchange rate of rupee has also depreciated to 111. 10. Source: RBI.3. During Aug’11 reserves have also touched $319.21% since Jun’11 end.68 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 • India's forex reserves stood at INR 14995 bn ($316.
13%. this cut in government spending may affect the US recovery process negatively. While hang seng shed the most @ 10.3 tn to $16. • Over the past 6 months. SPA Research .trailing 6 mth -20% -25% -19.52% Hang Seng Sensex FTSE Dow • Over the past month all major global indices suffered losses but Sensex.85% -17. The acceleration in GDP growth primarily reflected positive contributions from personal consumption expenditure.51% -10.4% in Q1CY11.85%. Source: ICRA.3% over the last trading session in light of an upward revision in US GDP growth numbers.31% 0. exports and government spending. A sharp fall was observed during the 1st week of Aug’11.4. Dow Jones made a decent recovery of 1. post announcement of the US debt restructuring plan. • US GDP growth for Q2CY11 was revised upwards to 1. The US government debt ceiling was raised from $14. Sensex remained stable by gaining a marginal 0. all four major global indices have suffered losses.3% from 1.59% Major world indices (rebased).36% -6. Global Cues Major Global Indices: Trailing 6 months trend and point to point returns 110 105 100 1 mth Hang Seng Sensex FTSE 100 Dow 5% trailing 12 mth 1.4 tn and a cut in Federal spending of ~$ 2.0% announced earlier and 0.13% 0% 95 90 85 80 75 70 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 -5% -10% -15% -3.62% -1. Given the fragile economic conditions and persisting high unemployment rates.1tn over the next decade has been planned.
While RBI has been continuing with its anti inflationary stance. What can go wrong ? International Challenges The global economy currently faces challenges from a slower than expected recovery in the advanced countries and fiscal and financial uncertainty. However.5. this concerns as a potential trigger towards rating downgrade.The finance ministry has targeted to maintain fiscal deficit within 4. Over that the government has raised the borrowing target for 2nd half by INR 53000 cr to cover the unexpected short fall from small savings collection (NSSF. Domestic Challenges Inflation has continued to be the biggest concern for GOI. German policy makers have approved the expansion plan of EFSF (European Financial Stability Facility) fund to Euro 440 bn from Euro 250 bn as a conducive effort to tackle the European financial crisis.national small savings fund). the negative affects of the same is being visible on other macroeconomic factors. Any further rate hike may have a vital affect on corporate profitability and long term growth rates. Fiscal Deficit.6% of GDP. which seems difficult to be achieved in absence of adequate disinvestment programs so far in this fiscal. . Strong policy initiatives are urgently needed to counter these risks and improve the outlook Euro bailout: After remaining in plan for months. which has been particularly pronounced since August. as mentioned by S&P earlier this month.
. On the other hand. yet long term potential of India continues to remain strong. FII & FDI .Inspite the interest rate differential. Indian markets are in consolidation phase now and may remain jittery in the short term.6. India’s star positioning remains as it is. Volatile capital flows are concern for India specifically in light of the widening current account deficit. Investors are turning back to safer horizons of US securities and withdrawing fund from emerging markets which led to the jump in dollar index over the last month. fed has maintained to keep their interest rates at lower levels.e. Volatile capital flows. we’re viewing highly volatile capital flows because of the tattered investor confidence globally. with growth rates receding across the globe. Investment Strategy & Concerns Interest rates across all emerging markets are rising but interest rates in India continue to remain substantially higher than the neighboring countries. We recommend investors to continue accumulating in a staggered manner through structured products like SIP until some positive indication is there from the western world. We recommend holding 10-15% cash / liquid funds in the medium term due to global hiccups and invest ~5-7% on every 5% dip since the long term picture remains firmly in favor of India attracting a major chunk of international flows on both routes i. India seems the only viable long term option for growth.
Recommended Funds Large Cap Funds Birla Sun Life Top 100 Fund DSP BlackRock Top 100 Equity Fund Mid & Small Cap Funds HDFC Mid-Cap Opportunities Fund IDFC Premier Equity Fund Religare Mid and Small Cap Fund SBI Magnum Sector Funds Umbrella .7.Emerg Buss Fund Franklin India Bluechip ICICI Prudential Focused Bluechip Equity Fund Reliance Quant Plus Fund UTI Mid Cap Fund Flexi cap Funds Canara Robeco Equity Diversified Thematic Funds Birla Sun Life India GenNext Fund DSP BlackRock Natural Resources & New Energy Fund Tata Service Industries Fund UTI India Lifestyle Fund DSP BlackRock Equity Fund HDFC Growth Fund ICICI Prudential Dynamic Plan Reliance Equity Opportunities Fund Tax Saving Funds (ELSS) Franklin India Taxshield HDFC Taxsaver Franklin India Taxshield HDFC Taxsaver .
27 13.22 -21.68 22.3 --- Mid & Small Cap Funds HDFC Mid-Cap Opportunities Fund IDFC Premier Equity Fund Religare Mid and Small Cap Fund SBI Magnum Sector Funds Umbrella .96 44.59 20.43 16.86 -37.33 24.53 7.3 2977.72 17.37 -10.55 21.Emerg Buss Fund UTI Mid Cap Fund 1296.27 -1.68 -17.55 322. 2011 Simple Annualised % (Point to Point) Compounded Annualised % (Point to Point) 1 Year 3 Years 5 Years Scheme Name Corpus (in Crs) 1 Month 3 Months 6 Months Large Cap Funds Birla Sun Life Top 100 Fund DSP BlackRock Top 100 Equity Fund Franklin India Bluechip ICICI Prudential Focused Bluechip Equity Fund Reliance Quant Plus Fund 323.78 9.23 142.47 -0.11 -15.Scheme Performance As on Sep 30th.38 -11.17 -9.32 -13.35 -48.32 11.1 -10.14 -15.4 47.14 6.34 3841.39 -13.74 20.48 12.84 -31.64 -1.89 8.34 54.38 -7.08 30.86 22.97 6.92 -15 -15.55 -17.81 14.27 -9.82 .33 15.24 7.23 37.72 -12.31 -14.93 13.2 2545.58 45.92 -0.13 -23.98 2144.51 -13.94 -34.05 354.58 17.46 -27.21 -28.
36 -- .06 2515.45 3814.37 -10.97 -38.06 13.48 13.93 -26.77 3.49 15.69 519.18 -10.53 18.93 43.76 -19.98 11.8 15.34 -8.4 22.49 -2.Scheme Performance As on Sep 30th.42 15.92 18.85 -13.46 Thematic Funds Birla Sun Life India GenNext Fund DSP BlackRock Natural Resources & New Energy Fund Tata Service Industries Fund UTI India Lifestyle Fund 87.22 -13.02 44.95 -5.68 -21.47 -12.96 22.16 -17.18 -- 100.12 -15.68 147.19 -15.81 -31.35 13.37 -8.96 -7.53 -37.49 5.04 -- ICICI Prudential Dynamic Plan Reliance Equity Opportunities Fund 3031.51 12.52 -28.46 -13.35 1.76 11.85 15.37 12.23 18. 2011 Simple Annualised% (Point to Point) Compounded Annualised % (Point to Point) 1 Year 3 Years 5 Years Scheme Name Corpus (in Crs) 1 Month 3 Months 6 Months Flexi cap Funds Canara Robeco Equity Diversified DSP BlackRock Equity Fund HDFC Growth Fund 427.51 -15.94 1303.46 3.76 -14.24 -33.84 -6.9 -30.7 56.32 18.
42 19.92 30.18 INDICES S&P Nifty BSE Sensex -13.78 15.07 -10.69 -4.25 9.17 -7.9 3113.42 15.83 6.58 -41.72 -7.6 6.03 -2.39 -15.08 17.66 11.Scheme Performance As on Sep 30th.89 -16.95 107.22 -14.25 -26.24 -16.7 19.46 -27.1 -2.1 5.7 -2.99 0.81 -12.43 -9. 2011 Simple Annualized% (Point to Point) Compounded Annualised % (Point to Point) 1 Year 3 Years 5 Years Scheme Name Corpus (in Crs) 1 Month 3 Months 6 Months Tax Saving Funds (ELSS) Franklin India Taxshield HDFC Taxsaver Religare Tax Plan Fidelity Tax Advantage Fund 826.81 -15.93 -12.87 .9 18.65 -19.97 5.99 1240.59 18.
In no circumstances should it be considered as an offer to sell/buy or.Thank You Disclaimer: The information contained in this report is obtained from reliable sources. or that they will not result in losses. a solicitation of any offer to. . No representation is made that the transactions undertaken based on the information contained in the report will be profitable. buy or sell the securities or commodities mentioned in this report. SPA and/or its representatives will not be liable for the recipients’ investment decision based on this report.