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Attachment(s) from jatin furia
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Morgan Stanley The Roar Of The Tiger
In our second report comparing India and China in 2006 ( India and China: New Tigers of Asia, Part II dated May 29, 2006), we made a call that India had the potential to catch up with China in terms of GDP growth rates. That time has come, in our view. We believe that, over the next two years, India should start matching China's GDP growth of around 8.5-9.5%, barring another global financial crisis. More importantly, we think that, by 2013-15, India will start outpacing China's GDP growth notably. India to Start Outpacing China From 2013-15 We believe that, by 2012, India and China will likely achieve similar growth rates of closer to 9% and from 2013-15 India will start outpacing China's GDP growth notably. The demographic trend is likely to diverge in the two countries. China is expected to reach an inflexion point in its age-dependency ratio around 2015. The UN estimates China's age-dependency ratio will rise from 39.1% in 2010 to 40% in 2015 and 45.8% in 2025 whereas India's will continue to improve from 55.6% in 2010 to demographic trends should improve further as age dependency declines. India will account for almost 26% of the increase in global working-age population over the next 10 years, according to UN estimates. The large surplus in India's working population is forcing recognition in the world economy of the country's role in global competition and output dynamics. As mentioned, UN data show that, by 2020, India will contribute an additional 136mn people to the global labor pool. In comparison, China and the US will contribute 23mn and 11mn respectively while Japan's and Europe's working populations are estimated to decline by 8mn and 21mn. Demographics alone are not sufficient for acceleration in GDP growth and it is important that the working population is educated. Over the past few years, the trend in education in India has improved significantly. We believe the quality mix of the fresh additions to the workforce over the next 10 years is likely to change dramatically. We estimate only 7-9% of India's population moving into the 15-plus age bracket is illiterate and that this could dip well below 5% over the next 2-3 years. Chinese Growth To Moderate
Morgan Stanley's Chief Economist for China, Qing Wang, believes that China's growth will move towards a more sustainable rate of 8% by 2015, following the remarkable 10% average over the past 30 years. We believe India's growth will accelerate to a sustainable 9-10% by 2013-15, after an average of 7.3% over the past 10 years. In other words, over the next 10 years, we expect India's growth to outpace China's.
Indeed, we expect India's per-capita income to reach China's 2009 levels of US$3,750 over the next 10-11 years. We believe India will see further rise in investments to GDP, particularly infrastructure, and China will see a gradual rise in consumption GDP. India Is Transitioning to Higher Sustainable Growth Rates India's GDP growth has moved from a range of 6% in the early 2000s to 8-8.5% currently. We believe this shift has been premised on three key factors. First, the improvement in demographics
The ratio of the number of elderly people and children to the working-age (aged 15-64 years) population has declined from 68.6% in 1995 to 55.6% in 2010, according to United Nations (UN) estimates. In other words, the working-age population has been growing faster than has the dependent population. This has helped support a structural rise in domestic savings. Second
A critical step in this process is the opening up of productive job opportunities through reforms. Over the years, India's government has been initiating reforms to encourage private sector investment, which helps create the platform of employment for the working-age population. In this context, one of the long-standing challenges for India was acceleration in infrastructure spending. The government has finally been able to address this. We expect infrastructure spending to rise to 8% of GDP in 2010 from 7.5% of GDP in 2009 and 5.4% of GDP in 2005. Similarly, business capex has been accelerating, except for during the recent period following the global credit crisis. The corporate sector has evolved from infancy to be ready to grow in an open global competitive environment. This rise in investment has indeed created the employment platform for the growing working age population. These reforms have played a critical role in boosting productivity growth. For an exhaustive list of reforms, please see Appendix 1. Third, globalization impact on the rise in savings rate. India's share in global services exports increased to 2.6% in 2009 from 1.1% in 2000. Also, we believe India has benefited significantly from a rise in capital inflows. A combination of structural reforms (including reduction in import tariffs and other protection), an increase in private corporate and infrastructure investments, and financial deepening, and changing corporate sector efficiency, has resulted in a steady increase in total factor productivity (TFP) growth. Our estimates indicate that India's TFP growth accelerated from an average of 2.4% in the 1990s to 4% in 2005-09. This interplay of demographics, reforms, and globalization is crucial for the virtuous cycle of faster growth in productive job creation – income growth – savings – investments – higher growth. Over the past 10 years, India's savings to GDP has risen from 24-25% to 33-36%. Similarly, investment to GDP has risen from 24-25% to 35-38% and GDP growth has accelerated to a trailing five-year average of 8.5% in 2009 from 5.9% in 2000. China has managed to convert its advantage of a growing working population into a virtuous loop of creating productive jobs for its expanding workforce and translate this to higher savings, investment, and growth since the early 1980s. China's age dependency peaked in 1965 at 80.4%. Since then, the country's working population has been rising sharply. Its age 2010. Concurrently, China's government has been able to increase productive employment opportunities and, in turn, generate higher savings. China's savings rate increased from about 25% in the mid-1960s to 35% in 1980, 37.5% in 1990, and 51.4% in 2009, supporting a major rise in investments to GDP. Real GDP growth in China has averaged 10% annually over the past 30 years, compared with 6.2% in India. During this period, China's GDP grew 16 times to US$5trn whereas India's rose seven times to US$1.2trn. China's exports (including services) surged 65 times over this period to US$1,330bn while India's exports increased 22 times to US$250bn. The lag in India's performance, in our view, was due to the lower level of support from demographic, reform, and globalization factors. India's demographic cycle is trailing China's. Although the two had similar age-dependency ratios in the late 1970s, China has far outpaced India in the past 20 years. China was also well ahead of India in initiating structural reforms, introducing them in the late 1970s versus in the 1990s in India. One could argue that the pressure on policy makers to create jobs emerged earlier in China because of the way the change in the working-age population progressed there. India was also late in deciding to participate in globalization, as reflected in the import tariff trend. India's integration with the global economy started to accelerate in the early 1990s while China's integration began in the early 1980s. For example, India had import tariffs above 30% until the early 1990s. Indeed, we believe India is following the same path as China when we compare their export to-GDP ratios, keeping the starting points for both as the years in which the countries initiated the liberalization that allowed their resources to interact with those of the rest of the world. However, India's GDP growth is now inching closer to China's. Over the past three years, India has been narrowing the gap with China in terms of GDP growth. In 2010, we estimate India's GDP growth at 8.5% and China's at 10%. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
Attachment(s) from Maverick
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Karur Vysya-Solid Underpinnings In Q4FY10, Karur Vysya Bank (KVB) reported financial performance in-line with our estimates on core income level and better than expectation on bottomline level. KVB's net interest income grew by 44% (Y/Y) to Rs1.64 bn (in-line with our estimates) and bottomline increased by 18% (Y/Y) to Rs989 mn compared to our estimate of Rs861 mn.
We maintain our earning estimates and price target; we rate the stock as a BUY with a target price of Rs749 at 1.92x adjusted book value FY12.
Some of key positives of the quarterly results were robust growth of 37% (Y/Y) in CASA deposits to Rs45 bn and improvement in margin to 3.37% from 3.32% in Q4FY09. On account of wage revision, the bank made provisions of Rs75 mn; out of total estimated wage revision provision requirements of Rs320 mn, the bank made Rs180 mn in FY10 apart from adhoc provision of Rs60.7 mn in FY10 compared to Rs57 mn in FY09 and Rs23 mn in FY08.
Negative surprises of the result were increase of 14.3% (Y/Y) and 10.4% (Q/Q) in gross NPAs to Rs2.35 bn due to one big-ticket corporate account slippages from restructured loan book; the bank's management expects that by end-September 2010 the account would be upgraded. Increased composition (of 17%) of infrastructure sector in the bank's advances is also a matter of concern.
Robust growth in business: In Q4FY10, the bank reported 29% (Y/Y) growth in totalbusiness on the back of 31.4% (Y/Y) growth in net advances and 27.6% (Y/Y) in deposits. In deposits, growth mainly came from CASA deposits; current and saving deposits grew by 36.6% and 37% (Y/Y) respectively.
As on end-March 10, current and saving deposits contribute 10.6% and 12.9% to total deposits; whole-sale deposits (including certificate of deposits) were almost 25% of total deposits with average cost much below the bank's retail term deposit card rate. Under the gross advances, major sectors contributing growth were infrastructure and SME. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
Attachment(s) from Maverick
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We remain positive on India financials against a macro backdrop of rising rates and accelerating growth. All-round quality is likely to do better than lopsided deposit or loan franchises, with credit growth and falling NPL provisions being key earnings drivers. We reshuffle our ratings and our top picks are HDFC Bank/HDFC, Kotak and IndusInd. • Rising rates are not a worry, yet, because they are unlikely to affect growth. Rates are definitely rising, though, across all segments. Continuing tightness in short term liquidity should put upward pressure on deposit costs. Bond yields should also harden, given the fiscal weakness. Lending yields have gone up only in segments, but we expect a more general hardening with a lag. • Loan growth and provisions are key earnings drivers, against a backdrop of the improving economy. NIM expansion is largely done and the outlook is flat. Fee income is a challenge, as flow businesses are under pressure all round. This is different from the previous cycle where non-interest income played a strong role. • We reshuffle our ratings: a) upgrade HDFC to OW given the strong loan growth tailwinds, b) BOI to OW because of the asset quality turnaround, c) cut IDFC to UW on concerns around the flow business and c) SBI to UW because of high valuations and relative absence of positive triggers. • All-rounders in focus. At this phase of the cycle, balance between loan origination and deposits is important, given liquidity is neither excessive nor short. We recommend exiting the "origination" shops like IDFC. Our top picks are a) quality names like HDFC and HDFC Bank and b) Kotak and IndusInd which are addressing legacy weaknesses in funding franchises.Our least preferred is SBI, which we think is too richly valued. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
Wesbury & Stein: Is The Famed Grey Economy Already At Work? The buoyancy in financials and real estate suggests so. Low interest rates make borrowings affordable for individuals, low construction activity implies realtors can easily raise price of inventory up for delivery. Politics and economics don't mix well. When unemployment is high, no politician in their right mind would say "things are getting better"--even if they are. And when your party is out of power, no matter what the economy is doing, it's always good to point out some data, or forecast, or sector that is not doing well. As a result, there is no political constituency for economic optimism and this has created an awfully pessimistic environment. Add to this political quagmire the largest pool of assets and asset managers ever to be deployed on the side of short-selling and what you get is at least a serious case of denial, or at most a willingness to ignore or obfuscate anything that might be positive about the economy. Don't take this in the wrong way. The U.S. economy has its problems--we don't deny that. But, the recession has ended, growth has returned and signs point to an acceleration in the growth rate ahead. For example, the pessimists are all talking about the fact that real GDP will be revised downwardly to an annualized growth rate of about 1% in the second quarter. What they don't tell you is that this low number was caused by a 35% surge in imports. That's right, consumers and businesses bought more from overseas (lots more), and since imports are a negative in the GDP accounts, it made the economy look worse. When we adjust for this, American households and businesses increased their spending at a 4% annual rate in the second quarter--over and above inflation. In the last 20 years this measure, which looks at just spending by domestic purchasers, increased at an average 2.8% annual rate. In other words, despite high unemployment and low consumer confidence, spending grew rapidly in the spring. So, what about the future? First, consumers are in a better position to spend today than at the start of the year. The personal saving rate is now at 6.4%. Excluding spikes due to special temporary government transfers, this is the highest level since 1992. Meanwhile, due to longer hours and higher pay per hour, private sector earnings are rising. So far this year, real (inflation-adjusted) cash wages are up at a 3.4% annual rate. Second, business balance sheets are chock full of cash, earning essentially zero return, that can and will be put to work enhancing productivity. Although some analysts bemoan lingering excess capacity, they need to look more closely at the data. In the past year the real economy has grown 3%. During that time, the utilization of industrial capacity has climbed from 68% to 74%. That climb, in part, is due to falling capacity as the capital stock depreciates. One more year of 3% growth, and capacity use could be at 80%, which is higher than the average in the past 30 years. Forward-looking companies can see this already and have already started investing, which is why investment in equipment and software is up at more than a 20% annual rate so far this year. Third, home building remains at such unsustainably low levels that it can support both a rebound in construction and a continued rapid drawdown in excess inventories. In the end, the underlying forces of economic growth have turned the corner. At the same time, the Fed is accommodative and unlikely to change its stance. These two factors alone will prove the pessimists wrong. Finally, the political winds are howling toward a divided government. The odds of putting off a tax hike in 2011, and possibly reversing health care legislation cannot be ruled out. Add this to the mix, and the future could get a sharp boost to the upside that makes short-sellers very uncomfortable. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. --- On Wed, 8/18/10, Suresh Mittal <mittalsecurities@yahoo.com> wrote:
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