India Stock Market and Global Economy

A commentary by Lee Kachroo

China and India, Hard times Ahead

Posted by lpkachroo on November 9, 2008

China, India: Hard times Ahead

These tables are courtesy Mish.

Nine out of the top ten economies are in recession.
All of the developed countries are contracting.

China and India are desperately opening the liquidity spigots and lowering interest rates. For China it is all to no avail…their customers (US and other developed countries) are contracting and over-capacity in China will lead to a Hard landing. There is no replacement for the export sector which by all estimates affects 80% of China’s GDP. Manufacturing is already contracting..this is a foretaste, expect worse numbers ahead. To contemplate the effect of a prolonged slump in developed nations will require a full disclosure of the leverage position of the Banking sector to the developers. That scenario is gaining weighting in any forward looking projection.

For India, we are have over-capacity in Realty and we are NOT an export driven economy except for IT. Expect the darwinian struggle in the IT sector to start soon. Our officials seem to think they are in charge of everything….no lay-offs, no retrenchment etc…These are the pronouncements of a government looking for votes not solutions. Expect reality to pound everyone not willing to face up to reality.
There is clear evidence in India that lending standards are being tightened which should nicely offset the effect of lower rates and lower reserve requirements.
Let the euphoria of the recent stock market rally pass; conserve your cash…time to invest will come.

At the G-20 meeting, hedge funds will be brought to heel…but I wonder if reality will be faced and articulated.


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USA and China, the two poles?

Posted by lpkachroo on November 9, 2008

Global: USA and China, the two poles?

Saturday, November 8, 2008

#fullpost{display:inline;}So much talk about the severity of this financial crisis and potential duration focuses on US and China.  If the near term future of the global economy is tied to these two poles then we are going nowhere fast.  Our public officials in India continue to try and paint a rosy picture.  I think the following quote sums up my view:

Former (and perhaps future) Treasury Secretary Summers has argued that “You can usually date the end of the crisis to the first moment when a public official makes a forecast that proves too pessimistic.” I don’t think we are there yet. The IMF’s latest forecast still strikes me as rather optimistic. I increasingly suspect that one indicator that the financial crisis has truly turned a corner will come when the Fed’s balance sheet starts to shrink …

This quote is taken from the excellent post Central bank reserve managers still are running away from risk and echoes my post  Central banks pushing on a string.

With respect to China, the debate is getting heated up.  Projections are all pointing down as in the article How severe a slump in China?

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Posted by lpkachroo on November 9, 2008

India: 2009 GDP growth, who to believe?

We have the following conflicting stories thanks to

From Business Standard: Indian economy to grow 7-7.5% next year: PM

From Financial Express: Realty prices to fall 50 says SBI chief
OP Bhatt, chairman of State Bank of India (SBI), the country’s largest bank, expects 50% correction in the housing sector prices in the country. “In India we may witness up to 50% correction in pricing in the mortgage markets. If that happens, it’s good news for the Indian banking system as NPAs would reduce and new business would fall-in,’’. Joydeep Sengupta, director, McKinsey & Compan said the overall impact of the global volatility would enhance the capital requirement of the Indian banking system, which will need $70-80 billion in the next four years to sustain the India growth story. (Where will this come from? Retained earnings- NOT…Lee)

From Economic Times: Slowdown is here: Morgan Stanley The investment bank’s sample of 105 companies reported a 29% fall in net earnings for the quarter ended September 2008, an all time low. This compares with a trailing five-year quarterly average growth of 28%.. . . at the sector level, the best performances came from Utilities and Technology. The laggards versus the aggregate numbers were Consumer Discretionary, Energy, and Healthcare. Save for Technology and Financials, all sectors reported a slippage in operating margins YoY.  (Falling earnings, where will the investment monies come from for growth? – Lee)

From Hindu Business Line: Slowdown effect: Container train operators start ‘parking’ Many operators now prefer to park their rolling stock assets in their own terminals or the Indian Railways’ yards — rather than running empty rakes (since cargo availability has gone down).. . . while companies such as Concor, Gatewayrail (a subsidiary of Gateway Distriparks) and Adanis have their own terminals where they can park their rakes, others have to depend on the Railways infrastructure.. . . two container train operators whom Business Line spoke to pointed out that compared to the cargo availability in September, in October it has decreased by about 20 per cent for their companies.  (Cargo availability declining..growth?-Lee)

For the fiscal year 2010, the GDP growth would come down to 6.5% – CLSA
The next nine-months is going to be a white-knuckle ride for the Indian economy.  However, the Indian business cycle will be the first to trough in the region and we are expecting this to happen in mid-2009.

Either the  PM is aware of something that industry is ignoring, or the PM is talking his book and campaigning for votes.

With Congress politicians you have to embrace the adage: ‘Fool me once shame on thee, fool me twice shame on me‘.  Sorry Mr. PM, in four years you have taught me to be cynical of everything you and cronies espouse.

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