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OPPORTUNITIES - INDIA
3 Prologue
5 India’s Rating
19 Investment news
20 Concluding Remarks
EMERGING MARKETS OPPORTUNITIES l INDIA 3
PROLOGUE
The world’s largest democracy and second most populous nation, India has seen a significant
growth in its economic investment and output since the 1990s. As compared to figure, India’s
economy has shown an average growth rate of more than 7% in the decade since 1997, thereby
decreasing poverty by about 10 percentage points. The country’s diverse economy sees agricul-
ture as the primary dependence, though services now accounts for more than half of India’s output
and one third of its entire labor force. India had shown viable improvement in IT sector, becoming
a major exporter of software services and software/IT workers.
India emerged relatively untouched from the financial crisis of 2007-08 as it reported a strong GDP
growth of 7.4% in the 2009-10 fiscal year, even with a poor rainy season during this period. First
half GDP growth this year has been reported at 8.9 percent over the same period in the previous
year. India has also attracted large amounts of foreign investment in the form of FDI as well as
portfolio investments this year, due to its quick recovery from financial crisis.
The recovery crisis still prevails in nations like Europe and the United States, though India along
with many other emerging markets has seen an increased influx of foreign capital. Capital require-
ments for Indian industry remain high given the rapid expansion of the economy, which means FDI
investments are easily absorbed. Portfolio investment in India this year has broken all previous
records resulting in a steep rise in the equity markets.
This has increased the chances of bubble formation. Between April 1, 2009, and November 8,
2010, the BSE Sensex showed sharp hike from 9,901 points to an all-time closing high of 21,004
points. That index has been hovering around the 20,000 mark ever since.
The table below represents the trend of India’s major economic indicators over years
India is expected to achieve 9 percent economic growth in the current financial year, driven by
strong performance by the agriculture and industria sectors. The economy grew by 8.9 per cent in
the second quarter of the FY2010.
India has emerged as one of the world’s top ten countries in industrial production. The
nation’s industrial production grew at the fastest, India is the world’s largest recipient of
overseas remittances. The remittances grew from $49.6 billion in 2009 to $55 billion in
2010. It is also the country with the second largest number of emigrants after Mexico,
according to the World Bank.
India is one of the fastest growing automobile markets in the world, expanding at 35
per cent on average in the first four months of the FY2010.
The Bombay Stock Exchange has been rated as the world’s best performing stock
market recently. With a 13 per cent gain, Sensex is among the world’s 10 biggest mar-
kets, according to data collected by Bloomberg.
The Indian economy is the eleventh largest in the world by nominal GDP and the fourth largest by
purchasing power parity (PPP).
India is among the top 10 nations in terms of foreign exchange reserves. The country’s foreign
exchange reserves breached the $300-billion mark for the first time since 2008 with an addition of
$2.2 billion on the back of a healthy rise in foreign currency. The nation’s forex reserves currently
stand at $296.40 billion.
India’s services sector, backed by the IT revolution, remains the biggest contributor to the coun-
try’s GDP, with a contribution of 58.4 per cent. The industry sector contributed 24.1 per cent and
the agriculture sector contributed 17.5 per cent to the GDP.
The Indian IT-BPO industry is expected to exceed $70 billion in fiscal 2011. The Indian IT-BPO
exports are projected to grow by 13 per cent to 15 percent while domestic IT-BPO will grow slightly
more by 15 per cent to 17 per cent during fiscal 2010-11.
India owns over 18,000 tonnes of above ground gold stocks worth approximately $800 billion and
representing at least 11 per cent of global stock, according to estimates of World Gold Council.
India ranks 11th in the world with 557.7 tonnes of gold reserves.
India’s civil aviation sector will be among the top five in the world in the next five years. Indian
domestic air traffic is expected to reach 160-180 million passengers per year, while international
traffic will exceed 80 million.
India, China and Brazil are the top three target countries for foreign direct investment until the end
of 2012 with the United States, for years number one, now in fourth place, according to the UN
trade and development agency UNCTAD.
The Indian telecommunications industry is the world’s fastest growing telecommunications indus-
try, 723.28 million telephone (landlines and mobile) subscribers and 687.71 million mobile phone
connections as of September 30, 2010.
EMERGING MARKETS OPPORTUNITIES l INDIA 5
INDIA’S RATING
Standard & Poor’s raised India’s outlook to stable from negative on expectations that
the economy’s fiscal position may recover and the economy would remain on a strong
growth path. The agency also affirmed its rating on the long-term and short-term credit.
Following are key economic issues for Asia’s third-largest economy. India’s wholesale
price index topped expectation and came within touching distance of double digits in
February. Annual wholesale price inflation accelerated to 9.89 percent in February, the
highest since October 2008 and well above the Reserve Bank of India’s (RBI) end-
March projection of 8.5 percent and the 8.56 percent January reading.
Fitch’s Outlook on Long-term ratings for Indian banks remains Stable in 2011, after a
negative bias in 2009 following the credit crisis.
The Stable Outlook reflects easing asset quality concerns, together with an improving
loan loss reserves position and expectations of further infusions of common equity by
the government.
Moody’s Investor Service had upgraded India’s local bond rating to “Ba1”, one notch below in-
vestment grade, citing improving public finances due to recent government reforms. Moody’s also
said it would consider unifying India’s local and foreign currency ratings at Baa3.
Fitch Ratings raised India’s local currency rating outlook to stable from negative forecasting
lower debt ratios on the back of strong economic growth and robust cash flows from telecom
auctions. The agency affirmed India’s BBB-minus local and foreign currency rating and the stable
outlook on its foreign currency rating.
COMPARITIVE SURVEY
Business Conditions
NCEAR Dun and Bradstreet and RBI (Per cent)
Survey: 225 75
A Comparison 70
60
125 55
50
75 45
40
25 35
06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10
e p- ec- ar- un- ep- ec- ar- un- ep- ec- ar- un- ep- ec- ar- un- ep-
S D M J S D M J S D M J S D M J S
Index
110
105
100
95
90
85
80
05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10
20 p 20 20 r 20 20 p 20 c 20 r 20 20 p 20 c 20 r 20 n 20 p 20 c 20 r 20 20 p 20 c 20 r 20 n 20 p 20 c 20
un e ec a un e e a un e e a u e e a un e e a u e e
r -J ul-s t-D n-M r-J ul-s t-D n-M r-J ul-s t-D n-M pr-J ul-s t-D n-M r-J ul-s t-D n-M pr-J ul-s t-D
Ap J Oc Ja Ap J Oc Ja Ap J Oc Ja A J Oc Ja Ap J Oc Ja A J Oc
from financial turmoil, India’s growth rate picked up to 7.4 percent in 2009-10 from 6.7 percent a
year ago. The economy expanded by 8.9 percent in the first half of the current fiscal, making India
one of the fastest growing economies in the world. As per the International Monetary Fund’s (IMF)
forecasts, Indian economy is expected to record a growth rate of 8.8 percent in 2010-11.
The sectors contributing to the India’s GDP is big in numbers and includes food processing,
transportation equipment, petroleum, textiles, software, agriculture, mining, machinery, chemicals,
steel, cement and many others. Agriculture is the major occupation in India, employing more than
50 percent of the population while service sector employs more than 25 percent and the industrial
sector accounts more than 10 percent.
AGRICULTURAL SECTOR
Indian agricultural yields lag the highest yields found elsewhere in the world.
Outlook- The better rainfall this year has lead to far higher agricultural growth. The
Central Statistical Organisation (CSO) has reported that India’s farm sector grew by
2.5% and 4.4% in the first two quarters of this year and with the good rainy season this
year and the expectation of good rains next year too, the outlook for Indian agriculture
in 2011 is good. According to the monsoon forecasts by the Meteorological Depart-
ment, crop output is expected to show a strong rebound in 2010/11.
Ex
INDUSTRIAL SECTOR
The General Index of Industrial Production (IIP) has posted double digit growth rate driven by
similar growth rates in output in the manufacturing and mining sector. Manufacturing output growth
in 2009/10 was strong in all the quarters, especially in the case of capital goods and durable con-
sumer goods while growth in non-durable consumer goods were impacted by poor export growth
and a lower output of sugar.
Outlook- Industrial performance in India in 2011 will be influenced more by external factors than
the domestic circumstances. Domestic consumption and economic recovery in Europe and North
America will play a huge part in industrial growth in India. Industrial growth in 2011 is forecasted
to be between 6-7 percent with significant downside risks. Overall, GDP in the industrial sector is
forecasted to expand 9.6 per cent in 2010/11, rising to 10.3 per cent in 2011/12.
Ex
CONSTRUCTION SECTOR
Services sector grew to 57 percent of GDP by 2009-10. The services industry in India
is well diversified due to which overall growth in the sector has been resilient even
through economic troughs.
Outlook - The outlook for services in 2011 is good to the extent that the Indian financial
system is nowhere nearly as exposed to the financial instruments or the loose lending
that many western banks were involved in. Overall, non-farm sector GDP grew by 8.8
per cent in 2009/10. The expansion in the services sector is expected to approach 9
per cent in 2010/11 and inch up to 9.6 per cent in 2011/12. Over all, the non-farm sec-
tor is expected to grow by 9.2 per cent in 2010/11 and 9.8 per cent in 2011/12.
EMERGING MARKETS OPPORTUNITIES l INDIA 9
SERVICE SECTOR
Services sector grew to 57 percent of GDP by 2009-10. The services industry in India
is well diversified due to which overall growth in the sector has been resilient even
through economic troughs.
Outlook - The outlook for services in 2011 is good to the extent that the Indian financial
system is nowhere nearly as exposed to the financial instruments or the loose lending
that many western banks were involved in. Overall, non-farm sector GDP grew by 8.8
per cent in 2009/10. The expansion in the services sector is expected to approach 9
per cent in 2010/11 and inch up to 9.6 per cent in 2011/12. Over all, the non-farm sec-
tor is expected to grow by 9.2 per cent in 2010/11 and 9.8 per cent in 2011/12.
12%
States’ Fiscal Deficit
Off - Budget Liablities
10% Centre’s Fiscal Deficit
8%
6%
4%
2%
0%
Source : Ministry of Finance 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
EMERGING MARKETS OPPORTUNITIES l INDIA 10
Brazil Brazil
China China
Republic of Korea Republic of Korea
Russian Federation Russian Federation
India India
Mexico Mexico
South America, excl. Brazil South America, excl. Brazil
south Asia, excl. India south Asia, excl. India
south-East Asia south-East Asia
North Africa North Africa
Central Europe Central Europe
CIS, excl. Russian Fed. CIS, excl. Russian Fed.
-1 0 1 2 3 4 5 6 87 -1 0 1 2 3 4 5 6 87
35000
30000
26197 25411
25000 23221
20000 17842
15000 13925
12513
10446
10000
5000
0 s s
or re ns at
e
ies r ry rie Ga ls
ec
t
dw
a io t it we st t l ica
ar at Es tiv Po du us ra
eS i c al Ac In nd t u em
vic &
H un Re n ile lI Na Ch
Se
r
re
m
ct
io ob ica &
wa co
m g& rg
t le sin tru tom lu um
of u ns Au al le
S Te Ho Co et
er M tro
pu
t Pe
m
Co
FDI
India, which was a minor global FDI player in 2000, is presently the world’s thirteenth largest FDI
host country.
Presently services sector accounts for approximately 61% of India’s annual FDI inflows and
manufacturing accounts for 27%, while primary sector activities (primarily mining and petroleum)
accounts for 9% approximately.
Eighty percent of post-2000 FDI inflows have been in the form of Greenfield investments.
The average investment size also quadrupled from US$ 9 million to US$ 34 million over this pe-
riod.
EMERGING MARKETS OPPORTUNITIES l INDIA 12
Sectors attracting FDI While the largest recent greenfield investments span various sectors, the largest recent M&As
inflows (% Share) focus on telecommunications, energy and pharmaceutics/healthcare sector.
In 2010/11 and 2011/12 analysts forecast a continued expansion of net FDI to $30 billion in both
4%
3%
years, portfolio capital inflows of $25 billion and $35 billion and a steady increase in net loan capi-
4%
tal inflows to $17 and $25 billion respectively.
6%
30%
7% Overall, our estimates for capital inflows are $73 billion in 2010/11 and $91 billion in 2011/12.
This would be adequate to finance the large current account deficit in the two years and leave a
10% modest $31 and $41 billion (2.0 and 2.4 per cent of GDP) to be absorbed in the foreign exchange
reserves.
12%
12%
12%
Offshore opportunity
Service Sector
Computer Software & Hardware
Despite India accounting for 51 per cent market share of the off shoring market, there is
Telecommunications still tremendous space for growth as current off shoring market is still a small part of the
Housing & Real Estate
outsourcing industry.
Construction Activities
Power
Automobile Industry Indian companies are expected to focus on mainland Europe to tap growth opportunities
Metallurgical Industries
Petroleum & Natural Gas
in the offshore technology services market worth tens of billions of dollars.
Chemicals
60000
52398
50000
40000
30000
20000
11557
10000 9204
6269 5289 4631 4498
2903
1870 1828
0
s re A s n us y ce E
iu po US UK nd pa pr an an UA
rit la Ja Cy rm
au ng
a
er e Fr
M Si th G
Ne
Exports
India’s exports showed an extraordinary annual growth of 36.4% which was highest in 33
-month with consignments in December 2010 raising prospects of the country exporting
$215-225 billion worth of merchandise in the current fiscal.
Countries attracting
FDI inflows (% Share) In 2010/11, analysts forecast the value of crude oil imports to be high due to increase in
crude prices by almost 15 per cent and an increase in the quantities imported.
2% 2%
4%
3%
The oil import bill is expected to rise to $103 billion in 2010/11 and to $120 billion in
5% 2011/12. Amongst the non oil imports, a comparatively slower growth is expected in the
5% case of gold, silver imports and a stronger growth in the remaining segments.
6% 52% The overall merchandise imports on balance-of-payments basis are expected to rise to
nearly $354 billion (up 18 per cent) in 2010/11 and $414 billion (up 17 per cent) in
9%
2011/12.
12%
On the export side, petroleum products would be slightly higher than that of imports at
24 and 16 per cent in 2010/11 and 2011/12 respectively.
Mauritius Japan
100
Singapore Cyprus
USA Germany
80
UK France
Netherlands UAE
60
Growth (in per cent)
40
20
-20
-40
-60
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Exports Imports
The Indian Securities market remained stable during 2009-10, as the global markets
too witnessed improved stability with an indication of prospects of firm recovery.
However, fiscal concerns remain strong as sovereign risks continue to be a cause of
concern in some European countries.
24000 20000
19000
18000
14000
16000
9000
Rs crore
14000
4000
12000
-1000
-6000 10000
-11000 8000
Aug-10
Dec-09
Feb-10
Jun-09
Jun-10
Aur-09
Apr-09
Apr-10
Oct-09
FII Investment Average BSE Sensex (RHS)
Mutual Fund Investment
regained confidence and the Indian market rallied post announcement of general election results
during May 2009.
Equity Growth
During 2009-10, all the equity markets witnessed uptrend, however, in different mag-
nitude. The Indian benchmark indices namely BSE Sensex and S&P CNX Nifty gave
year on year return of 80.5 percent and 73.8 percent respectively in 2009-10. The BSE
Small-cap index recorded an increase of 161.7 percent in 2009-10. Among the sec-
toral indices, highest increase was recorded by BSE Metal index (210.2 percent), BSE
Consumer Durables (159.7 percent) and BSE Auto index (150.6 percent). While the
metal index reflected the strengthening of metal prices, the general upward trend in the
economy and industrial production got reflected in increase in the capital goods and
auto indices.
The equity market has entered territory that it occupied exactly two years ago and in
similar
fashion the level of the stock market (the Bombay Sensitive Index or SENSEX) is close to 21,000.
Relative valuations are on the richer side and hence analysts expect moderation in index
returns for 2011 (in the 10- 15 percent zone from current levels).
All mutual funds, put together, recorded a net inflow of Rs.830 billion in 2009-10 as compared
to an outflow of Rs.282 billion in 2008-09. The assets under management by all mutual funds
increased by 47.2 percent to Rs.6139 billion at the end of March 2010 from Rs.4173 billion at the
end of March 2009.
EMERGING MARKETS OPPORTUNITIES l INDIA 15
Private equity firms exited a record 121 companies in India during 2010, while investments almost
doubled to $7.97bn from the 2009 figure. Venture capital and private equity investments in India
had witnessed a phenomenal growth both in terms of amount invested (from $1.8 billion in 2004 to
$22 billion in 2007 before tapering off to $8.1 billion in 2008) as well as the number of deals (from
80 in 2004 to 481 in 2007 and then slowing down to 297 in 2008). There were huge PE invest-
ments in technology-led, capital intensive sectors like Telecom, Power and Infrastructure in ad-
dition to those sectors that were traditionally preferred by VCPE investors like IT & ITES, Health-
care, etc. Private Equity firms invested $7,974 million over 325 deals in India during the 12 months
ending December 2010, compared to $4,068 million across 290 deals during the previous year,
according to analysis by Venture Intelligence, a research service focused on Private Equity and
M&A activity. (These figures include VC investments and exclude PE investments in Real Estate).
With 34 investments worth about $2,141 million, Energy companies topped in terms of investment
value during 2010, while Information Technology and IT-Enabled Services (IT & ITES) with 79
investments worth $696 million topped in terms of volume. BFSI with 44 investments worth $1,054
million came second on both parameters.
IPOs in 2010
Indian IPO market has witnessed a strong comeback in 2010 after sluggish performance in 2009
as most of the companies rushed to capital markets to raise funds on encouraging stock markets.
Jubilant FoodWorks, Thangamayil Jeweller, Talwalkars Better Value Fitness emerged as top 3
performers in 2010. Meanwhile, Coal India and MOIL were most successful IPOs which received
overwhelming response from investor community.
IPO 2011 Scenario – India IPO 2011 outlook seems bright with at least 100 public is-
sues in the pipeline, with an indicative size of around Rs 400billion. If the government
maintains its Rs 400 billion target for the next fiscal too, total may be Rs 900 billion, up
27% from 2010. Thirty five
prospectuses have already got the SEBI’s clearance, while the remaining sixty five
are awaiting nod. The country also celebrated its biggest IPO ever this year with the
world’s largest coal producer Coal India, collecting $3.5 billion in October. Big private
companies, like Jindal Power and Sterlite Energy which are planning an initial public of-
fering in 2011, may have to lower valuation expectations as investors turn choosy, after
profiting from state-owned companies’ issues that were priced attractively. IPO outlook
for the year 2011 will see a massive bunch of issues hit the market unlike before and
the issuers will have to price their trade more sensibly to attract investor attention.
JPMorgan India Smaller Companies Fund - Growth -12.92 -16.98 -7.05 12.18 -5.91
Morgan Stanley A.C.E Fund - Growth -11.2 -13.8 -3.17 10.69 N/A
Morgan Stanley Growth Fund - Growth -11.74 -14.64 -1.86 10.35 -0.19
Pramerica Equity Fund - Growth -10.24 N/A N/A N/A N/A
PRINCIPAL Dividend Yield Fund - Growth -10.22 -14.89 -1.39 14.21 4.81
Principal Emerging Bluechip Fund - Growth -13.69 -17.82 -7.6 4.96 N/A
PRINCIPAL Growth Fund - Growth -11.41 -13.79 -4.31 4.28 -8.12
PRINCIPAL Index Fund - Growth -10.29 -10.47 1.24 11.76 0.04
Templeton India Equity Income Fund - Growth -5.56 -4.73 10.21 21.33 10.68
Templeton India Growth Fund - Growth -9.87 -11.89 0.86 12.23 9.19
Note: Performances till date
Asset
Fund Name No. of Under Billion
Schemes* Manage- Rupees
ment
INVESTMENT NEWS
CONCLUDING REMARKS
The overall performance of the Indian economy in 2009/10 was beyond expectations. The farm
sector which was forecasted to contract showed resilience, growing by 0.2 percent despite the
weak South West monsoon. The non- farm sector also followed the same line with strong per-
formance. It is estimated that the Indian economy would grow at 8.5 percent in 2010/11 and 9.0
percent in 2011/12. In the current fiscal year, agriculture will grow at 4.5 percent, industry at 9.7
percent and services at 8.9 per cent.
The beginning of the new decade heralds the slow, but steady end of the worst recession in the
past 60 years. Global GDP, after declining by 1.1 per cent in 2009, is predicted to increase by 3.1
per cent in 2010, and 4.2 per cent in 2011, with developing economies growing thrice as fast as
the developed economies.
Disclaimer - All information used in the publication of this report has been compiled from publicly
available sources that are believed to be reliable, however we do not guarantee the accuracy
or completeness of this report. This is not a solicitation or inducement to buy, sell, subscribe, or
underwrite securities or units. This document is provided for information purposes only and should
not be construed as an offer or solicitation for investment. This document has not been prepared
in accordance with the legal requirements designed to promote the independence of investment
research and is not subject to any prohibition on dealing ahead of the dissemination of investment
research. It may be difficult or not possible to buy, sell or obtain accurate information about the
value of securities mentioned in this report. Past performance is not necessarily a guide to future
performance.