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8/9/2019 Economy Update - 2010
1/15
Indian Economic & Investment
Scenario
May 2010
8/9/2019 Economy Update - 2010
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Economic Snapshot
Indias GDP witnessed
high growth and was
the second fastestgrowing GDP after
China
The sound performance
of each industry
segment is leading to
the overall robust
performance of the
Indian economy
Indian economy is the
4th largest in terms ofPPP USD 3.5 trillion
in 2009
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India: Astounding Demographics
2
9
48
221
726
9
17
74
285
710
20
33
120
404
613
2001-02 2005-06 2009-10(E)
Rich (Above 115,000)
High Income (57,000 115,000)
Consuming class (23,000 57,000)
Working class (10,200 23,000)
Needy (Below 10,200)
Annual Household Income
(in USD)
*
Population(milli
on)
Growth in the higher
income categories of
Indias population has
created an affluent
section of society,which has significant
level of purchasing
power
DEMOGRAPHIC TRANSFORMATION OF INDIA
Increasing per capita income coupled
with an emerging middle class has
provided the necessary impetus to
consumerism in India
Increasing per capita
income and large
population moving into
middle class has led to
high level of
consumerism in India
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India: Pacing Ahead to Emerge as a Major Economy in the World
India has been ranked
superior to other major
countries by many
prominent surveys
AT Kearney placed India
among the top three in
its FDI confidence
index
the retail market
Based on Financial Attractiveness, Business
Environment, people skills and availability
Projected GDP Growth Rates for Select Upcoming Economies
0
2
4
6
8
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50
GDPGrowthRate(%)
Brazil China India Russ ia
along with the services
sector has beenattracting the interest of
major players
India is expected to
outperform its rivals in
the BRIC, in terms of
GDP growth rates,
from 2015 onwards
4
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India: Vibrant Capital Market
India is among the
major destinations
across the globe for
inflow of US Dollar i.e.
FIIs
Market Capitalization (Free Float) of Sensex is 1,278,490 Crores
FIIs augmented support
by infusing large
investments in Indian
stock market
Crossed 14,000 mark
Crossed 10,000 mark2/7/2006
1/12/2007
Resilient Industry
performance
Increased local
investors confidence
Emergence of industry
and confidence of local
investors along with the
FIIs has led to increased
movement of sensex
Crossed 5,000 mark12/30/1999
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Sectoral deployment of bank credit
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India: Attractive Investment Destination
India is ranked third
in AT Kearney FDI
confidence index.
China and USA
being ranked first
and second
respectively.
With improved performance, Indian markets have attracted large investments
erv ces computer
hardware & softwaretopped the list of
inward FDI
Mauritius has been the
largest contributor
towards FDI into
India..
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Road to Recovery India appears to be on the path to recovery evidenced by surprisingly strong Q2 GDP numbers of 7.9% and 16.7% y-o-y IIP growth in
January. Q3 GDP dropped to 6% given the impact of the drought but we expect Q4 GDP to rebound strongly.
The industrial sector as a whole accounts for 25% of the economy and was the main factor in driving GDP growth lower in 2008 and
2009. We believe, the reverse to be true for 2010.
The services purchasing managers index (PMI) continues to show improvement and paints a very encouraging picture of economic
activity. The 60.9 PMI figure for February, is up more than 5 points since November 2009, 20 points since the low in February 2009 and
above the average of 57.9 since it began in December 2005. This supports the strong manufacturing PMI figure for February and is the
main reason for our expectation of a rebound in Q4 GDP.
The following indicators continue to point to an economic recovery already underway:
Motor vehicle sales continue to show a strong growth.
Cement production continues to show improvement in its 3 month moving average growth rate.
Manufacturing Purchasing Managers Index (PMI) has also shown a significant improvement over the last few
months. Since a January 2009 low of 44.4 it has bounced to cycle high of 58.5 in February. PMI modestly dropped to 57.8 in March,
although it was encouraging to see a renewed bounce in export orders to 57.1 from 56.6.
Industrial Production growth has eased slightly, but still registered a very strong 16.7% y-o-y in January 2010.
Capital goods production, in particular, rose by an extraordinary 56% y-o-y, pointing towards strong fixed capital formation and a
vigorous recovery in real investment growth. December 2009 growth was revised up 80bps from 16.8%. The indices of industrial
production for mining, manufacturing and electricity sectors grew 14.6%, 17.9% and 5.6% y-o-y respectively.
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RBI - Macro Economic OutlookThe growth outlook for the Indian economy in the near term remains positive on account of the following factors:
(a) Expectations of satisfactory rabi output, which may offset, partially, the decline in kharif output;(b) Expectations that the industrial sector would remain buoyant;(c) Increase in corporate sales and profitability;
(d) Pick-up in order books and capacity utilization as per different survey results;
(e) Turnaround in exports with improving global conditions;
(f) Pick-up in lead services indicators for transportation, Telecommunication and construction, and Revival in credit demand from
the private sector.
Notwithstanding the overwhelming positive sentiments about stronger growth in the near term, certain downside risks remain:
a) The revival in growth of agriculture during 2010-11 hinges on the assumption of normal monsoon, which entails the usual
uncertainties;
b) While investment demand is showing signs of picking up, it is still much below the rate of growth in the pre-global crisis period;c) the private consumption demand, which accounts for about 60 per cent of aggregate demand, needs to gain significant
momentum;
d) Decline in saving rate last year, led by sharp decline in public sector savings;
e) global economic recovery, though clearly visible, is still weak and thus has implications for sustaining the growth in Indian
exports; and
f) The rising inflation, which may push costs through demand for higher wages and increase in input costs.
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Potential Sectors for investmentBanking and financial sector:
Several factors favor high growth
Demographic profile favors higher retail offtake - 54% of the population is in the 15-35 years age group Capital expenditure by the government and private industry expected to grow at a high rate
Economic growth of about 14% p.a. in nominal terms
SME lending, a largely untapped market, presents a significant opportunity SMEs account for 40% of the industrial output and 35% of direct exports
Regulatory and technological enablers leading to high growth
The banking system is technologically enabled with RTGS and check truncation in place
Improved asset management practices - Gross NPAs to Advances ratio reduced from 24-25% in 1993 to 2.5% in 2006-07
Investment opportunity across all segments in the banking and financial
services sector
Low penetration in the pension market makes it a lucrative business segment
Foreign banks likely to be allowed to acquire local banks after March 2009 when the next stage of banking reforms is propose
Policy:
Reserve Bank of India (RBI), Indias central bank, is the regulator for the banking and financial services industry
RBI approval is required for all foreign investment in this sector
Foreign banks can do business in India either by setting up branches or through a wholly owned subsidiary, after approval by RBI
Indian private banks can be 74% foreign owned, with a 5% cap on ownership by any one entity
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Real Estate and ConstructionPotential
Several factors are expected to contribute to the rapid growth in real estate
Large demand-supply gap in affordable housing, with demand being fuelled by tax incentives and a growing middle class with highersavings
Increasing demand for commercial and office space especially from the rapidly growing retail, IT/ITeS, and hospitality sectors
The recently announced JNNURM expected to provide further impetus
Investment opportunities exist in almost every segment of the business
Office space for IT/ITES: 150 million sq. ft. across urban India by 2010
Commercial space for organized retailing: 220 million sq. ft. by 2010
Hotels and Hospitality: Over 100,000 new rooms in the next 5 years
Investment opportunity of over US$75 billion in the next 5 years
Policy
100% FDI is allowed in real estate development subject to minimum scale norms of either: 25 acres in case of serviced plots or integrated townships; or
50,000 square meters of built-up area for construction development projects
Initial investment is locked-in for a 3 year period
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Power SectorPotential
Large demand-supply gap -All India average energy shortfall of 9% and peak demand shortfall of 14%
The implementation of key reforms is likely to foster growth in all segments Unbundling of vertically integrated SEBs
Open Access to Transmission and Distribution networks
Select distribution circles to be franchised/privatized
Tariff reforms by regulatory authorities
Opportunities in Generation for:
ra ega ower an s pro ec s o eac
Coal-based plants at pithead or coastal locations (imported coal) Natural gas/CNG-based turbines at load centers or near gas terminals
Hydel power potential of 150,000 MW is untapped as assessed by the Government of India
Renovation, modernization, up-rating and life extension of old thermal and hydro power plants
Opportunities in Transmission network ventures - additional 60,000 circuit km of Transmission network expected by 2012
Private sector participation possible through JV and 100% equity mode
Total investment opportunity of about US$ 150 billion over a 5 year horizon
Policy
100% FDI permitted in Generation, Transmission & Distribution the Government is keen to draw private investment into the sector.
Policy framework: Electricity Act 2003 and National Electricity Policy 2005Incentives: Income tax holiday for a block of 10 years in the
first 15 years of operation; waiver of capital goods import duties on mega power projects (above 1,000 MW generation capacity)
Independent Regulators: Central Electricity Regulatory Commission for central PSUs and inter-state issues. Each state has its own
Electricity Regulatory Commission.12
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Auto ComponentsPotential
India amongst the most competitive manufacturers of auto components, especially:
Metal intensive components: forgings, stampings, castings
Skilled labor-intensive components: machining, wiring-harness, other electrical components
Hi-tech components: electronic fuel injectors
Opportunity to address the global auto components market while leveraging Indias large and
rowin domestic market
Opportunity to set up R&D centers in India Indian technical skills acknowledged as among the best in the world
High level of sourcing of auto components from low cost countries (LCCs) to act as a driver
for growth
Potential of over US$5 billion for investment in India
Policy
100% FDI allowed through the automatic route
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IT & IT Enabled ServicesPotential
Indias inherent IT capabilities - talented workforce and world-class companies
Availability of technically skilled and English-speaking labor force at a fraction of the cost compared to US and Europe
Quality orientation, project and process management expertise
Enhanced global service delivery capabilities of Indian companies through a combination of greenfield initiatives, M&A, alliances and partnerships with local
players
International recognition of Indias strengths
Increasing awareness among global companies about Indias capabilities in higher, value added activities and in the global delivery model
Leadin international com anies have identified custom a lication develo ment and maintenance as riorit areas due to a hi h offshoreable com onent
High growth of domestic IT & ITeS market due to several regulatory and technological factors: Increased investments by enterprises in IT infrastructure, applications and IT outsourcing
Demand for domestic BPOs has been largely driven by faster GDP growth and by sectors such as telecom, banking, insurance, retail, healthcare, tourism and
automobiles.
Opportunity to supply to the global market in addition to serving the growing domestic demand
Policy
100% FDI is permitted in this sector under the automatic route
SEZs, EOUs and Software Technology Parks have been set up across India income tax exemptions are available for units in
these designated areas/zones
IT Act, 2000 legalizes the acceptance of electronic records and digital signatures providing a legal backbone to e-commerce
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Thank you
15