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India’s inflation deters foreign investors

Discussion in 'World Affairs' started by Molawchai, Feb 26, 2011.

  1. Molawchai

    Molawchai BANNED

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    India’s inflation deters foreign investors

    By James Fontanella-Khan in Mumbai Published: January 25 2011

    Few would have guessed a year ago that a rise in the price of onions would put a brake on the stellar growth of India’s stock market and force investors to rethink exposure to Asia’s third-largest economy.

    That, though, is what has happened. A sharp jump in food prices has revived fears that high inflation in India could threaten its economy, which last year attracted billions of dollars from overseas.

    Duvvuri Subbarao, the RBI’s governor, has warned that “should global recovery be faster than expected, it may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India”.

    Goldman Sachs, Credit Suisse, Morgan Stanley and Nomura are among a number of banks to have recently warned clients of the risk of slower growth.

    After a deluge of foreign investment last year, when inflows into India’s equity market hit a record $29.4bn, many investors have been advised to cash in their gains and take a “detox” period from Indian stocks. Since the start of this year, foreign institutional investors, the main drivers of Indian equities, have sold more shares than they have bought, leading to a net capital outflow of $711.5m, according to data released by India’s market regulator.

    The effect on India’s stock market has been sizeable. Bombay’s benchmark Sensex index, which hit an all-time high in November, has since tumbled nearly 8 per cent.

    India’s wholesale price index, the country’s main inflation indicator, rose to 8.43 per cent year on year in December.

    The more politically sensitive food inflation measure rose to about 16 per cent, as vegetable prices, in particular for onions and garlic, spiked 70.7 per cent year on year in January. At the same time, state-run fuel retailers have been increasing petrol prices – by as much as 22 per cent since the government deregulated the market in June. This has added to pressure on manufacturers struggling to keep costs down.

    A recent rise of between 17 per cent and 30 per cent in minimum wages across different Indian states has benefited rural incomes, but is also likely to add to inflationary pressure, economists believe.

    Optimism, therefore, is limited, at least in the short term. Ridham Desai, chief India strategist at Morgan Stanley, says: “Our recent investor interactions and investor survey underpin a rather bearish sentiment for India in 2011. Only one-fourth of the buyside investors believe that India will outperform emerging markets in 2011.”

    Rohini Malkani, economist at Citigroup, says last year’s benign domestic macroeconomic environment has been jolted by the rise in inflation and a widening current account deficit, at a record 4.1 per cent of gross domestic product.

    ..Abby Joseph Cohen, investment strategist at Goldman Sachs, said recently the group had an optimistic view of developed markets this year, as their economies recovered and valuations looked attractive. “From the valuation perspective, the developed markets look more attractive than the developing market at least from the six to 12 months perspective,” she told the ET, an Indian business daily. “This is not necessarily our long-term view.”

    Indian stocks have been trading for more than a year on a price-to-earnings ratio well above their long-term average for forward earnings of 13.8 times.

    Even after the latest correction, the ratio is between 19 and 22 times. This is substantially above the ratio for the MSCI Emerging Market index, which is 12, and for the developed world, which is about 12.5 times. On a price-to-book ratio, Indian shares do not look that expensive in historic terms, but look pricey compared with emerging market peers, at 2.7 times versus 1.8 times.

    Last year, many investors were content to keep investing in Indian stocks on the grounds that they could look forward to double-digit growth. That was the case for most of 2010 as the MSCI India index outperformed the MSCI EM index in nine out of 12 months. However, as economists revise their overall growth outlooks downward, few investors see value in buying assets that look to be overpriced.

    Assuming India’s inflation is dealt with, however, economists’ long-term view is far from pessimistic.

    “India has, in the last decade, seen both near-term and long-term obstacles pop up. However, these have been consistently overshadowed by larger and broader opportunities. We believe this tussle will persist through 2011, but opportunities will continue to overwhelm these obstacles,” says Ms Malkani.
    .FT.com / Markets / Asia-Pacific - India
     
  2. RollingStones

    RollingStones FULL MEMBER

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    India needs to start issuing treasuries at the state level, so we can know the credit ratings of different states. I think Indian states have huge disparities and southern and western states maybe attractive for investments. I think India needs to present India at the States level to the investor community. Inflation in certain states might not be all that high and the markets maybe better developed in such states to handle inflation. By presenting federal level stats, India is not doing justice to these better managed states. And actually may end up deterring investments as everyone will think that Indian states are uniform in their economy, which they are not. If the southern and western states were a separate financial entity, India would see two times the FDI go to these states alone from the current levels. They have a good growth story. And because of culture, language, food etc, people's movement between Indian states is minimal. So, India must be considered at the States' level for investment. Your federal government maybe holding everyone back. And, that is unfortunate for these better developing states and their peoples.
     
  3. below_freezing

    below_freezing ELITE MEMBER

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    The solution therefore is to divide India into 2 entities: the western high development states, and the African level other states. Only by separating the market in India can it develop.
     
  4. CardSharp

    CardSharp ELITE MEMBER

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    There are a lot of things that could be done to increasing FDI (raising the cap on foreign ownership of company from 29% would a huge one) but it's a matter of IF the government can do it. The vote-bank of poor and entrenched interests make some of these sensible options an impossibility.
     
  5. SpArK

    SpArK PDF THINK TANK: ANALYST

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    Epic lol for an epic dreamy post.. You seems to be an India expert with 'expert" comments on everything about India..
     
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  6. CardSharp

    CardSharp ELITE MEMBER

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    Indian economist once wrote that India cannot survive as a country if it is part sub-saharan African and part silicon valley.
     
  7. below_freezing

    below_freezing ELITE MEMBER

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    Which part is silicon valley? Does India have a single indigenous software product?
     
  8. CardSharp

    CardSharp ELITE MEMBER

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    His point ultimately was that while India's numbers look great for the part of the economy that is formalized and tracked, the masses of people who carry out cash to hand trades are missed by the economic statistics.
     
  9. ares

    ares BANNED

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    Same can be done for China too .. separate country can made for well developed Chinese Eastern coast ..while not so developed western part(Tibet) can be separated into another entity?...what say??
     
  10. CardSharp

    CardSharp ELITE MEMBER

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    Sure as soon as India formally recognizes Tibet. We'll be sure to send it on it's way.

    til then.
     
  11. tallboy123

    tallboy123 SENIOR MEMBER

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    :rofl:
    We have exported software worth $64 billion in 2010 and this year it will reach $75 billion...


    Particulars FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
    IT Services 10.4 13.5 17.8 23.5 31.0
    - Exports 7.3 10.0 13.13 18.0 23.1
    - Domestic 3.1 3.5 4.5 5.5 7.9
    ITES-BPO 3.4 5.2 7.2 9.5 12.5
    - Exports 3.1 4.6 6.3 8.4 10.9
    - Domestic 0.3 0.6 0.9 1.1 1.6
    Engineering services, R&D and Software products 2.9 3.9 5.3 6.5 8.6
    - Exports 2.5 3.1 4.0 4.9 6.4
    - Domestic 0.4 0.7 1.3 1.6 2.4
    Hardware 5.0 5.9 7.0 8.5 12.0
    - Exports 0.5 0.5 0.6 0.5 0.5
    - Domestic 4.4 5.1 6.5 8.0 11.5
    Total IT industry (including hardware) 21.6 28.4 37.4 48.0 64.


    Information technology in India - Wikipedia, the free encyclopedia


    Dont make a Foool out of urself...BF...
     
  12. Syama Ayas

    Syama Ayas ELITE MEMBER

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    The question you should be asking is which companies do not make software products,and are entirely into seervices
     
  13. below_freezing

    below_freezing ELITE MEMBER

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    They are making parts of software products for others. Can you simply name 1 completely indigenous functional Indian software product, such as a search engine, antivirus, game, messenger system, video sharing site? or scientific software such as aerospace simulators, molecular modeling, CAD, control systems?
     
  14. Syama Ayas

    Syama Ayas ELITE MEMBER

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    First of all search engine is not a 'software product' its a service.
    We have a couple of Indian ones , ex:Guruji

    indiaantivirus
    There are a couple of more,feel free to check.

    ghajini

    Rediff bol.


    Again! This is a service

    IndianPad.in - Indian Video Sharing

    Movie Videos, Cricket Videos, Funny Videos, Hot Videos, Free Videos - dekhona.com

    There were more you can check on google.

    From knowledge its not a single compact product rather combination of modules from various vendors.
    List of Indian suppliers for Aerospace simulators
    http://companies.kompass.in/en/g56019901w4464008/simulators/simulators-aerospace-applications-1.html

    That comes under CAD,I"ll see if i can find anything specific.

    List
    You can browse each companies website and check their individual product you seek.

    That usually comes as project(product tailored for customer's needs) rather than a product.
    Or comes with the Hardware.

    PS:The above mentioned are not even remotely considering when discussing 'software products' In India ,The software products mostly developed are the enterprise level ones.
     
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  15. Punjabbi Munda

    Punjabbi Munda FULL MEMBER

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    Just as SpArK described...below_freezing.EPIC!,i guess even this word is too weak to describe you,your trolls and your logic.
     
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