India: Elephants can dance

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India Elephants can dance

• Ranjan Ghosh

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You just heard how China is leading the
BRICSGDP, USD bn, current
Sources Bloomberg, SCB Global Research
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India and China as investment destinations
Despite its size and growing profile India is
still amongst the smallest receivers of FDI
inflows China outstrips it easily of GDP
Most attractive global business
locations Responses of Transnational Corporations
Prospects for 2005-06 ( of TNCS)
Source Fitch, SCB Global Research
Though India does not lag much behind China in
the most attractive prospective RD location,
UNCTAD survey (2005-09) Percent of responses
Countries are ranked according to the number of
responses that rated each as the most attractive
location
Source UNCTAD, World Investment Report 2005
Transnational Corporations
Source UNCTAD, World Investment Report 2005
Transnational Corporations
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• NOW THE INDIA VERSION

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. . . as Indias services success story continues
more positives are building in . . .
GDP by sector Percent of GDP
Dependence on agriculture to sustain growth is
less GDP by sector ( y/y)
Source Economic Survey of India 05/06, Central
Statistical Organisation, SCB Global Research
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Economic activity is concentrated in the West,
South and pockets of the North India, services
sector adding fuel to manufacturing too

• Industry
• Textiles
• Steel
• Automobiles
• Cement

Production, 04/05 45bn sq. mtrs 40 mn
tonnes 8.5 mn units 123.5 mn tonnes
Source Economic Survey 2004/05, SCB Global
Research
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India developments are being supported by deep,
liquid and buoyant financial markets . . .
Stock market turnover up particularly
derivatives USD billion
Market capitalisation (National Stock
Exchange) USD billion
Biggest exchanges by number of transactions in
2005
Source Economic Survey of India 205/06, RBI
turnover ratio annual trading volume / market
capitalisation
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Favorable income and demographic profile in India
, coupled with low banking sector penetration
present opportunities
Credit to GDP ratio is amongst the lowest,
significant potential for financial services
Percent
Source World Bank, RBI
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. . . on the prognosis of a favourable economic
environment in India

• Key Market Trends
• Financial sector reforms will open up II segment
  real money / hedge funds, cross border
  investments
• Significant step up in infrastructure spends
  civil aviation, road transport, port
  infrastructure, railways, irrigation works are
  top priority government relaxing controls on
  foreign investments
• Increase in commodity flows, government focus on
  agriculture sector job creation and
  infrastructure creation in rural areas to get a
  fillip agro based, water management, consumer
  centric and fertilizer industries to benefit
• Lifestyle changes new opportunities in
  retailing, CRE
• Social infrastructure to get priority health,
  education, water supplies

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Indias party continues there are risks, but
overall very positive

• India is still among the fastest growing
  economies growth is currently 8 y/y, and
  analysts are raising forecasts.
• Growth will be supported by rising investment.
  Significant step up in spending on civil
  aviation, roads, ports, railways, irrigation as
  well as health and education. Consumer demand in
  India should remain buoyant.
• But there are risks a rising current account
  deficit and inflationary pressures. And
  infrastructural development still burdened
  constrained by limited government resources
• Rupee to stay steady at USD/INR44-45, after
  falling 3.7 against USD in past year. Rising C/A
  deficit (2.5 of GDP) causing concern, despite
  USD5bn in portfolio inflows from foreign
  investors so far in 2006.
• The short-term repo reverse rate rising from 5.5
  to 5.75 to constrain inflationary pressures
  (e.g. imported energy costs).

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Indias GDP growth has accelerated over the past
couple of years, and should stay above trend
Real GDP (y/y)
Source Central Statistical Organization (CSO),
SCB Global Research
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India - Industrial production has picked up,
driving equity markets
Manufacturing sector is driving industrial
growth Percent
Stock market turnover up including
derivatives USD billion
Foreign investment flows are up particularly
portfolio USD billion
Source Economic Survey of India 205/06, RBI
turnover ratio annual trading volume / market
capitalisation
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SO WHATS THE OPPORTUNITY FOR FINANCIAL
INSTITUTIONS ?
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Business its easier in China But the Indian
financial markets are more open and offer lots of
opportunities for you
Indicator India China Difficulty of Hiring
Index 33 11 Difficulty of Firing
Index 90 40 Number of procedures 6 3 Cost ( of
property per capita) 12.9 3.1 Disclosure
Index 4 4 Number of procedures 40 25 Cost ( of
debt) 43.1 25.5
Hiring and Firing Workers
Registering Property
Protecting Investors
Enforcing Contracts
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Market access - a snapshot
Source Based on Standard and Poors research
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My top picks

• Investment Banking, Equities, Commodities
• Foreign Exchange, Derivatives
• Asset Management, Private equity
• Offshoring
• Wealth Management / Private Banking
• Pick reliable partners for clearing trade

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Coming soon .

• Pensions
• Project Finance
• Distressed Debt
• Real Estate
• But stay away..
• Corporate Loans
• Mortgages / Personal loans
• Credit Cards