Faltering MS

8/10/2019 Faltering MS

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India Economics – Macro Indicators Chartbook

Is Growth Momentum Faltering?

For important disclosu res, refer to the Disclosures Section, located at the end of this report.

October 27, 2014

INDIA ECONOMICS

M O R G A N S T A N L E Y R E S E A R C H Asia/Paci fic

India Economics Team

Morgan Stanley Asia Limited

Chetan [email protected]+852 2239 7812

Morgan Stanley India Company Private Limited

Upasana [email protected]+91 22 6118 2246



M O R G A N S T A N L E Y R E S E A R C H

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October 27, 2014

Contents

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25

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V. Public Finance Indicato rs

I. Revenue

II. Expenditure III. Deficit

Appendix

I. Sovereign Ratings

II. Equity Market Performance

III. Macro Economic Forecasts

IV. Monetary Indicato rs

II. Money Supply

III. Credit

IV. Deposit V. RBI Intervention

VI. Asset Quality

VII. Rates

VII. Real Rates

VIII. Real Rates Differentials

60

6162

65

66

67

II. External Indicato rs

I. Exports

II. Service Exports / Invisibles

III. Imports

V. Exports – Segment & Destination

VI. Imports – Segment & Destination

VII. Trade Balance

VIII. Commodity Price Sensitivity

IX. Capital Flows

X. External Balance Sheet

XI. Exchange Rate

XII. Balance of Payments

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5253

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55

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I. Growth Indicators

I. Corporate Revenue

II. IP Growth

III. Consumption

IV. Capex

V. Services

VI. Government Finances

Please click on the hyperlinks for easiernavigation

4344

45

46

48

III. Inflation

I. WPI II. CPI

III. Inflation Expectations

IV. Food Inflation

V. Wages

Is Growth Momentum Faltering?

Policy Reform Tracker Recent Research Reports

4

9

17




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October 27, 2014

Key Macro Indicators – What They Are Saying

Positive Negative

• CPI inflation decelerated in September due tomoderation in food and non-food inflation

• Non-oil, non-gold & sil ver import growth rosefor the fifth consecutive month in September

• Medium & heavy commercial vehicles salesregistered double-digit growth for secondconsecutive month in Sept.

• Ratio of c redit rating upgrade to downgradeimproved to 1.6x in 1HF2015, highestsince1HF2012.

• Investment pro jects revived in QE Sep-14 rose

to the highest since QE Mar-12 as per CMIE data

• Industrial production growth for September camein below expectations

• Headline expor t growth remained lackluster for twoconsecutive months

• Trade deficit widened to US$14.25bn in Sept fromUS$10.8bn in Aug due to spike in commodity imports

• Passenger car sales growth declined in Septemberafter remaining in positive zone over past four months

• Real estate sector new launches and new salescontinue to decline on YoY basis in QE Sep




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October 27, 2014

Current Trend: Is Growth Momentum Faltering?

Does weak IP growth reflect growth momentum is faltering? IP growth for last two months has decelerated significantly to

0.4%YoY in both July and August compared to an average growth of 4.4% in three months ending June-14. This has led toconcerns whether the growth momentum has faltered since the recovery in QE Jun. While headline IP growth has deceleratedrecently, we believe that underlying growth momentum continues to imply that the recovery is holding up.

Caveating The IP Data

We believe there are two key aspects of IP growth data which need to be taken on board to appreciate the reading from thedata set:

Data volatility due to incomplete responses: The quality of the IP data is affected due to non-response from a good number ofcompanies in the first release. In the first release of IP, the Central Statistical Organization typically gets feedback from around70% of the respondents. This can increase risk of volatility in growth implied by the first release of IP data.

Issue of shutdown of a large mobile manufacturing plant: Industrial production growth is being depressed by ‘radio, TV &communication equipment’ subcomponent, partly due shutdown of the mobile manufacturing plant in Chennai (of Nokia) dueto factors other than demand. Indeed, IP ex. radio, TV & communication equipment grew by 3.3% YoY in Jul-Aug 2014 vs.overall IP growth of 0.4%YoY.

What Are Indicators o f External and Domestic Demand Say?

In any case, to understand the trend in underlying economic activity better we also closely looked at other corroboratory datafor both external demand and domestic demand indicators:

External demand – headline has slowed but non-oil exports are recovering: Headline export growth has indeed slowedsharply from near-double-digit level in May-Jul 2014 to a range of 2.5-2.7% YoY over the last two months. However, exportsexcluding oil (which has been hit by sharp decline in prices), the trend is less concerning. Non-oil export growth has indeedaccelerated from 0.8% in Jul-14 to 6.3% in Aug-14 and 8% in Sept-14 (compared with an average of 6% in quarter ending

Jun-14).




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October 27, 2014

Current Trend: Is Growth Momentum Faltering?

Core sectors and domestic demand indicators which corroborate that the recovery is growth:

Output growth for some of the core sectors such as electricity, cement and coal is showing recovery and continues togrow at 9 to 13%YoY (see charts on the next slide).

Medium & heavy commercial (MHCV) vehicles sales registered double-digit growth for the second consecutive month, withgrowth in September being highest since Oct-2010. We view MHCV as one of the reliable leading indicator for inflexion inindustrial activity.

Non-oil, non-gold import growth in positive zone for fifth consecutive month in September. Indeed, in September it grew by20.8% YoY though in part this was due to front loading of commodity products with decline in prices. Non-oil imports excludingglobal commodity linked products have also been strong, growing at 15.9% in September, 5.3% in August and 4% in Julycompared with average growth of 1.4% in April-June 2014. Indeed in September capital goods imports finally recordedpositive growth (7.9% YoY) after remaining in negative territory for past 12 consecutive months.

Bottom line: Based on our framework on growth outlook, we believe that the GDP growth trend has bottomed and willcontinue to gradually recover. We believe the policy mix of (a) fiscal consolidation, (b) moderation in rural wages, (c) positivereal rates and (d) acceleration in decision making process in executive branch of the government, is leading to improvement

in productivity dynamic resulting in moderation in CPI inflation and acceleration in GDP. While recent weakness has made usmore alert on the potential faltering of the recovery trend, currently our analysis based on a broad set of growth data pointsdoes not indicate a major cause of concern.

In the next slide we look at indicators of growth that show steady recovery




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October 27, 2014

0.4%

2.9%

-7%

-4%

-1%

2%

5%

8%

11%

A u g - 1

0

N o v - 1

0

F e

b - 1

1

M a y - 1

1

A u g - 1

1

N o v - 1

1

F e

b - 1

2

M a y - 1

2

A u g - 1

2

N o v - 1

2

F e

b - 1

3

M a y - 1

3

A u g - 1

3

N o v - 1

3

F e

b - 1

4

M a y - 1

4

A u g - 1

4

IP

IP ex Radio, TV andcommunication equipment YoY%

Is Growth Momentum Faltering?IP Ex Radio, TV & Communication Shows Healthy

Underlying Trend

Source: CEIC, Morgan Stanley Research

Continued Momentum in Key Core Sectors Output

9.2%

13.4%

13.2%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

A u g - 1

2

O c

t - 1 2

D e c - 1

2

F e

b - 1

3

A p r - 1

3

J u n - 1

3

A u g - 1

3

O c

t - 1 3

D e c - 1

3

F e

b - 1

4

A p r - 1

4

J u n - 1

4

A u g - 1

4

Coal CementElectricity

YoY% 3MMA

Trend in output growth ofsome of the core sectorsshowing recovery androbust growth

20.8%

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

21%

Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14

YoY% 3MMA

YoY%

Non Oil Non Gold Imports

Fifth consecutive month ofpositive growth

…And Non Oil Non Gold Imports

22.4%

-40%

-30%

-20%

-10%

0%

10%

20%

-40%

-30%

-20%

-10%

0%

10%

20%

Sep-11 Sep-12 Sep-13 Sep-14

% YoY

% YoY, 3MMA

Double Digit Growth in Medium & Heavy CommercialVehicles…

Double digit growth forsecond consecuti ve quarter,reaching a high s ince Oct-10




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October 27, 2014

Current Trend: Macro Stability Continues to Improve

Macro stabilit y Indicators

Price stability – positi ve surprise Inflation: Headline CPIinflation decelerated to 6.5% in September from 7.7% YoY in

August, due to moderating food and non-food inflation. Coreinflation moderated to a new low of 5.9% in Sept from 6.8% inthe previous month exhibiting broad-based moderation inprices. Wholesale prices (WPI) decelerated to 2.4% in Septfrom 3.7% in August, mainly due to the high base effect anddeceleration in food prices.

External stability – trade deficit widened as commodityimports rose: The trade deficit for September widened to8.5% of GDP annualized from 6.5% of GDP in August. Themonthly annualized trade deficit at 8.5% of GDP in Sept hasrisen to the highest since Jun-13. Increase in gold andcommodity imports (indicate some front loading of imports tocapitalize on the lower commodity prices) led to a widening ofthe deficit.

Financial stability improving though at a slow pace: Loan-deposit ratio is gradually declining from somewhat stretchedlevels, property prices are gradually moderating and newimpaired loans appear to have peaked. The rating upgrade todowngrade ratio improved to above 1 for first time since April-Sept 2011.

Trend in factors that caused macro stabilit y problem:

The three key factors behind problems of India’s macrostability issues were high fiscal deficit, rural wages andnegative deposit rates.

Here is the update on the trend all three factors:

Rural wages: Rural wage growth has moderated toaround 8-9% YoY from an average growth of 18% between

April-09 and March-13..

Fiscal deficit: Monthly public finance data indicates thatthe central government is likely to achieve budgeted fiscaldeficit target of 4.1% of GDP in F2015. Taken together withthe state government deficit, we expect consolidated fiscaldeficit to decline to 6.5% of GDP in F2015 from 7.1% inF2014 and peak of 9.9% of GDP in F2009.

Real deposit rates: One-year real bank deposit rateshave moved into positive territory since Jan-14 after largely

remaining in negative territory for the last five years. Basedon latest CPI inflation data, real deposit rates haveincreased to 2.3%.




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October 27, 2014

Outlook: Faster Transit ion f rom Stagflation to Higher Growth and Slower Inflation

Macro Stability:

Price Stability: We expect sustained deceleration in CPIinflation, supported by (1) moderation in rural wage growthcloser to nominal GDP growth; (2) further reduction in thefiscal deficit; (3) a sustained trend in positive real depositrates; (4) lower global commodity prices YoY in INR terms;and (5) moderation in housing costs in line with the weaktrend in property prices. We expect CPI inflation to

touch 6% by July 2015, which is earlier than RBI andconsensus expectations of reaching the 6% mark byJanuary 2016 and April-June 2016, respectively.

External stability: As inflation moves to 6% in asustained manner, we expect external stability indicatorsto be within central bank’s comfort zone.

Financial stability: Build-up of real deposit rates andcontinued policy action from the government to improvethe investment approval process and address the specificproblems of the infrastructure sector will steadily helpcorrect the asset-quality issues facing the banking sector.

Implications for interest rate outlook : We believe thereis a high chance that the RBI takes up a rate cut of 25bpsin Feb/Apr-2015, if the actual inflation trajectory indicateshigh probability of reaching 6% sustainably from Jul-15.We also see increased probability of RBI taking anotherrate cut of 25bps in 2015. From the underlying cost ofcapital perspective, we will be more focused on trend in

underlying bank deposit rates (1Y rates), which has beenrunning significantly higher than the current policy rates.

Considering our inflation forecast, we expect 1Y deposit

rates to decline by 125 basis points over the next 12-15months.

Growth

In the first stage of recovery, we believe the government’spolicy reforms will help revive the productivity dynamic,bring down the capital-output ratio and improve returns oninvestment. The most important macro outcome we arefocused on is reviving the productivity dynamic. Hence, we

believe this initial phase of recovery in growth will be lesscapital-input-intensive.

As returns on investment improve, the corporate sector willbe incentivized to lift capex, thereby leading to the secondstage of the recovery. This will place India on a transitionpath from stagflation to higher growth and lower inflation.Indeed, we expect GDP growth on a quarterly basis to

increase from the current pace of 5.7% (QE June-14) to

7.2% for QE Mar-17. CPI inflation should head towards theRBI’s comfort zone of 6% by August 2015 (MS India Eco:

On a Steady Recovery Path, September 8 2014).

(See slides 9-16, where we are tracking recent government

measures announced to revive growth. )

Risks to our outlook: We believe the upside anddownside risks to our forecasts will be influenced by twokey factors: (i) pace of policy actions to revive theproductivity dynamic, and (ii) strength of external demandrecovery.

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October 27, 2014

Policy Actions Tracker

Back to Navigation Page

MeasuresTo Improve

MacroOutlook

Fiscal Policy:Measures toImprove Tax

andExpenditureManagement

IncreasingFlexibility in

Labour Market

ImprovingInvestment

Climate

Banking /Financial Sector

Reforms

Measures toManage Food

prices

ImprovingGovernance /

Simplification of Admin istrative

Process /Increasing

Transparency

Tracking t he new government’s pol icy measures to revive growth: We believe that government policy action to improve productivity

dynamic is critical to revive growth and investment in the economy. In the first stage the government has focused on improving thefunctioning of the executive; we believe this in itself will help speed up the decision making process and improve business sentiment.

In the following slides we provide details on government policy action taken on six main areas, as shown in the diagram below.




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October 27, 2014

Policy Actions Tracker (cont’d)


A. Fi scal Policy: Measures to Improve Tax and Expenditure Management

Goods and Services Tax – The empowered committee of state finance ministers has reached consensus on two issues with the centre according topress reports – common threshold for GST tax will be kept at Rs1 mn (Rs 0.5 mn for special-category states) and harmonization of the exception lists ofstates and centre. Differences continue to persist between centre and states over fiscal autonomy and keeping entry tax, petroleum and alcohol out ofGST purview, compensation of states for revenue loss. The centre has proposed to compensate the sates for a 3-year period for the revenue loss,against states’ demand for 5-years. The government is working towards introducing the Constitutional Amendment bill in the Winter Session ofParliiamant. Considering the complexities involved in this major tax reform, we expect GST to be implemented from F2017. ( A Primer on Goods &Service Tax)

National employment guarantee scheme – The government has proposed to reduce the labour: material ratio from 60:40 to 51:49 and restrict theprogram to tribal and backward areasReduction o f subsidi es – Government decontrolled diesel prices on October 19th – fuel subsidy expected to reduce to 0.6% of GDP in F2015 from 1.2%of GDP in F2014.

Expenditure management: 1) The government is maintaining expenditure growth at a modest level, improving quality of spending with an increase incapital expenditure. 2) The government has set up an expenditure reform commission to streamline government spending – its interim report is expectedbefore the budget for F2016Direct Benefit Transf er – Government launch the modified direct benefit transfer (DBT) scheme for transfer of subsidies on sale of LPG cylinders(cooking gas) in 54 districts from Nov 10 and the same to countrywide from Jan-15.Rail Fare hike – In June 2014, the government hiked passenger fares by 14.2% and freight rates by 6.5%

Source: Government of India, Various media articles, Morgan Stanley Research

B. Increasing Flexibility in Labour Market

Central government effort to make changes to labour laws – The cabinet has cleared amendments to Factories Act, Apprenticeship Act, Labour Laws Act, mainly with provisions related to relaxing norms for women workers in factories, reducing the amount of paperwork for small establishments, anddropping the clause which allows employers to be imprisoned if apprenticeship act is not implemented. The Lok Sabha (Lower House) has approved the

changes to the Apprenticeship Act. This will now be taken up by the Rajya Sabha (Upper House). Factories Act and Labour Laws Act will be taken up inthe coming sessions of the Parliament.

Easing on-ground implementation of labour laws – The central government on October 16 launched measures to introduce greater flexibility in labourlaws. Measures include taking away of labour inspectors' discretionary powers by way of making inspections based on a computer generated list, easyportability for provident fund users through a Universal Account Number (UAN), a unified labour law compliance web portal for ease of compliance.

State-level changes – The government of Rajasthan (BJP-ruled state) has approved amendments to four labour laws - most importantly is to increasethe threshold of firm size to 300 workers (from 100 earlier) to allow retrenchment of employees without prior government approval. Similarly, the cabinet ofMadhya Pradesh has also approved amendments (including related to retrenchment). Haryana has also indicated willingness to take up changes. Aslabour is a concurrent subject, amendments need the President's approval. (India Economics: Labour Law Reforms – What’s Needed? Part II)

Skill Development – The government has set up the National Skill Development Agency (NSDA), which will be responsible for coordinating the skill

development efforts of various ministries, departments and private players. The government is considering to introduce a Vocational Training Act toprovide legal framework for Skill India programme. On October 17th the government launched the ‘Apprentice Protsahan Yojana’, which aims to increaseapprenticeship coverage to 2.3 million from the 490,000 at present. (India Economics: What’s Holding Back India’s Labour Market Environment? - Part 1)

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October 27, 2014


C. Improving Investment Climate

C.1. Retrospective Taxation, Reducing Litigation, Encouraging Foreign Investment

Retrospective taxation – The government in the budget announced that it will not make any retrospective tax changes in future, but did not repeal theretrospective law change taken up in 2012.

Increasing FDI limits and fixing timelines for approvals – The Cabinet has cleared FDI in the defence sector at 49%, FDI in railway operations, FDIin insurance at 49% (from 26% previously). While FDI in insurance needs Parliaments approval FDI in defence and railways are an executive decision.FDI in insurance has been cleared by the Lower House and is awaiting Upper House approval. Separately the Department of Industrial Policy &Promotion (DIPP) has issued timelines that need to be followed for review and approval of FDI policies.

Panel to reduce tax litigations – In order to reduce tax litigation and bring certainty in the tax environment, the Finance Ministry has set up a committeeto recommend ways to reduce tax disputes for corporate and non-corporate assesses.

C.2. Streamlining Clearance of ProjectsOn-line approvals for projects – Online approval for environment and forest clearances with prescribed timelines at various stages. Governmentexpected to launch an e-biz portal which will be an investor-centric hub and spoke based online single window clearance for all central and state levelclearances required. The government expects to launch the portal by Mar-15.

Easing environmental rules – The Ministry of Environment and Forests (MoEF) has eased the guidelines for granting environmental clearances –some of these include - coal mining projects which one-time expansion of production capacity within existing mine lease area do not need furtherapproval, certain categories of industry have been exempt from public hearing, approval of ultra mega power projects to be delinked from requirement ofclearance of coal mine, certain projects to only require state level clearance etc.. Ministry plans to launch the Geographic Information System (GIS)-based decision support mechanism to improve decision making process and in a transparent manner.



C.3. Measures Relating to Increasing Ease of Doing Business

Make in India: The government launched ‘Make in India’ campaign (website: Make In India) to attract investments and create a global manufacturinghub in the economy. The campaign has identified 25 key sectors to attract investment. The “Invest India” unit of commerce ministry to be the guiding thepoint for foreign investors with respect to regulatory requirements. The government is also working on reducing the numbers of days required to registera business from 27 to 1 day – DIPP is the nodal agency for putting the procedural reforms in place.

Ease of doi ng bus iness in SEZ –The government has set up prescribed time limits for disposal of various activities related to SEZ Developers/Units bythe Zonal Development Commissioners offices to improve the business environment. Government is considering to exempt SEZ’s from MAT (Minimum

Alternative Tax) and Dividend Distribution Tax (DDT) – but is likely to be taken up at the time of budget

Self-inspection of boilers – The government has allowed for self inspection of boilers - following the example of Gujarat and Madhya Pradesh.Moving to online licenses, increasing validity of licenses, guidelines to simplify the administrative process - Commencement of online IndustrialLicense (IL), Industrial Entrepreneur Memorandum (IEM) through eBiz website and on line registration for Employees Provident Fund Organization

(EPFO) and Employees State Insurance Corporation (ESIC). Validity period of Industrial License increased to seven years from two years. To treatpartial commencement of production as commencement of production of all items included in the license

http://www.makeinindia.gov.in/

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October 27, 2014


C.3. Measures Relating to Increasing Ease of Doing Business

Rationalisation of Defence products’ list f or indust rial licensing – The government has taken a series of measures to rationalise defence productslists for industrial licensing - large number of parts/components, castings/forgings etc. have been excluded from the purview of industrial licensing.Items of dual use, (unless classified as defence item) will not require Industrial License from defence angle. Private companies in the defence sector tosell equipment to state-run entities without prior approval of the defence ministry.Encourage online approvals by state governments - In order to improve the regulatory business environment all departments/State Governmentshave been requested to take the following measures on priority: (a) All returns should be filed on-line through a unified form, (b) to put a check list ofrequired compliances on ministry's website, (c) replace all registers to be maintained by businesses with a single electronic register, (d) no inspectionto be undertaken without approval of Head of Department, (e) introduce self-certification for all non-hazardous businessesEnlisting best practices by states – The government conducted a comparative study (through Accenture) of best practices followed by the States forgrant of clearance and ensuring compliances. As a result of this study, six best practices were identified. These best practices have been circulated

among all the states for peer evaluation. The six select best practices are the Integrated and Comprehensive system for managing indirect taxes inKarnataka, Labour Management Solution (LMS) by Maharashtra, Single Window Clearance (SWC) for Industries - MAITRI by Maharashtra, Landrelated interventions in Gujarat, Implementation of e-Governance in Pollution in Gujarat and Single Window Clearance mechanism in Rajasthan andPunjab.Simplification of hotel classification and reclassification procedure - Ministry of Tourism will now not seek licenses and clearances issued byvarious Local, State and Central Government authorities for operation of hotels.

Ease of licenses to incom ing ships - Automatic rollover of licenses for incoming ships as opposed to the requirement of annual renewal of licenses

C.4. Infrastructure

Roads – The new government has cleared projects worth Rs400bn that were stuck. It has also put a target of construction of road length of 6300km,award of 8500km of road length and toll revenue collection of INR 65bn in F2015. The government is also considering to increase spending through

EPC (Engineering, Procurement and Construction) mode (financial risk is with the government) as compared to BOT (build operate transfer,government target under BoT is 3000kms for F2015). In a bid to revive stressed projects the National Highways Authority of India (NHAI) has approveda proposal to set up an asset reconstruction company .

Railways - Government has indicated several plans for increasing investments in railways: 1) dedicated freight corridors, 2) metros in cities with morethan 2mn population, and (3) usual capex of railways. he Dedicated Freight Corridor is a key railway investment project worth INR 810bn, and is likelyto be fully awarded by F2016 (of the 2800km, 1100km are done and 1000km is planned for F15). Following the cabinet approval for FDI in constructionof railways, the Ministry is preparing a strategy to attract FDI in diverse projects, and is consulting the private sector. Streamlining of PPP is underconsideration by the Railways with focus on making the procedure for model concession agreements easier by reducing number of clearances,inspections, longer lease periods etc.Urbanisation – The government has put emphasis on increasing urbanisation with increasing spending on urban infrastructure and creation of smartcities. Efforts on creation of smart cities has begun with centre to invite bids for Dholera investment region in Gujarat in the next three months and for

integrated industrial townships in Greater Noida and Vikram Udyogpuri in Madhya Pradesh along the Delhi-Mumbai Industrial Corridor (DMIC) byMarch-15. In order to encourage manufacturing and boost job growth the government has given in-principle approval to set up a total of 16 NationalInvestment & Manufacturing Zones (NIMZs), of these 8 are located outside of Delhi Mumbai Industrial Corridor.






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October 27, 2014


C.4. Infrastructure (cont’d…)

Oil & Gas – The government on Oct 19

th

announced the new gas prices – gas prices have been hikes to US$ 6.2/mmbtu from US$ 4.2/mmbtu earlierand will be revised every six months. To boost investments in the sector the Budget has proposed 15000km of gas pipeline though PPP mode.

Ports - Budget proposed to award 16 new ports in F2015. Shipping Ministry considering to amend model concession agreement to allow companies toexit long-term agreements. The government has also planned to make 12 dry satellite ports, spruce up capacity of 12 major ports and set up an entity tospeed up port connectivity projects.

Airports - Budget proposed to set up airports in all tier I and II cities with public private partnership (PPP). Government has identified 24 domesticairports to develop as dedicated domestic cargo terminals. Airport Authority of India to invest INR 9.3bn in F2015 vs. INR 5.6bn in F2014. Newinternational airports in Bhopal, Indore and Raipur.

Sanitation - Better sanitation facilities were emphasised with the launching of 4-yr 'Clean India' programme from Oct 2nd, under which all schools in thecountry should have toilets and participation from the corporate sector by allocating funds under CSR. The corporate sector has responded positively

with TCS and Bharti committing Rs1bn each.Link ing Rivers / Clean Ganga - The government aims to link India’s rivers with the aim of distributing water from surplus areas to deficit areas. TheNational Water Development Agency (NWDA) has identified 30 such links. Apart from the inter-linking of rivers the government has set a three-yeartarget to clean and rejuvenate the river Ganga.

Power – To encourage investments in the power sector, the government in the budget extended tax breaks on power sector investments to Mar-17. Thegovernment is planning to introduce a bill to reform the power sector in the winter session – the bill will consider steps to improve tariff policy andregulations in the power sector. The government has decided that all power plants over 25 years old will get automatic exemption from clearances andautomatic coal linkage for setting up plants with higher capacity.Progress on power projects - The government has notified nine power transmission projects estimated at Rs.122.72bn for implementation through theTariff Based Competitive Bidding (TBCB) route. The government has also started the process of setting up four new ultra mega power projects in Bihar,Jharkjand and Orissa, which together will add 16000MW power generation capacity . The government sanctioned INR 47bn for the strengthening of theIntra-State Transmission & Distribution System in Arunachal Pradesh & Sikkim

Solar – The government has planned to launch the largest bidding of solar power projects worth 1,500 MW under its flagship Jawaharlal Nehru NationalSolar Mission (JNNSM). This will be the first success story of converging the three energy ministries - coal, power and renewable energy.

Coal Production – In order to boost coal production, the MoEF has eased guidelines for grant of environment clearances to coal mining projects. Fewprojects of Coal India have been identified for operation under the mine-developer-cum-operator route, where international as well as domestic operatorsmay take part. The interpretation and enforcement of CEPI (Comprehensive Environment Pollution Index), which had been hindering production in twocoalfields of Coal India has been eased. Meanwhile work on three crucial rail links has been expedited and the government is confident that it will becompleted by Dec-2016. Update on re-allocation of coal mines - Government has issued an ordinance to resolve issues arising out of the cancellation ofcoal blocks – the ordinance will address issues related to coal supply to government as well as private companies (steel, cement, power companies). Itwill also address valuation of the land to be taken over from those who have lost coal blocks. Finance Minister has also indicated that an enabling

provision would be made later to introduce commercial mining. In the first stage 74 mines will out for e-auction process and the government expects theprocess to be completed in 3-4months.






14


October 27, 2014


C.4. Infrastructure (cont’d…)

Infrastructure Financing – To increase avenues available for infrastructure financing the government in its budget has proposed setting up of real stateinvestment trusts (REITS) and infrastructure investment trusts (INVITs). SEBI has issued final guidelines on setting up of RETIS and INVITs. RBI hasallowed banks to raise funds by issuing long-term bonds (7 yrs maturity) for lending to long-term infrastructure projects and affordable housing.

Land Acquisition Act – The industry has raised concerns on the new Land Acquisition Act which was passed by the previous government, which isseen to increase bureaucracy in the process of land acquisition for industrial purposes. While land is a state subject, "acquisition and requisitioning ofproperty" is in the concurrent list. Both Parliament and state legislatures can make laws on this subject. While the Central government could initiatemeasures to amend the Land Acquisition Act sometime later, it is interesting that the state governments are planning to independently makeamendments to ensure land acquisition process does not become a hurdle for setting up of manufacturing or infrastructure projects. Rajasthan (BJPruled) has proposed changes to the Land Acquisition Act that was passed by the previous government to enable quicker acquisition of land by industry /government. The amended bill is likely to be introduced in the next state legislative assembly session. Finance Minister conducted a meeting withvarious stakeholders in October to understand the issues faced in the implementation of the law.

D. Banking / Financial Sector Reforms

State-owned bank recap – The government has not indicated a systematic plan for SOE bank recap and has only clarified it intends to take up bankrecap through a run down in government stake to 51%. Some news articles indicate that Finance minister has approved the draft cabinet note oncreating a holding company structure for state-run banks. The holding company will raise money in order to recapitalise the SOE banks – howeverfurther clarity on the same is awaited.

Bank licenses – RBI released guidelines on licensing of new banks in private sector and granted license to two participants, the central bank also aimsto gradually move towards on-tap licensing to grant licenses more frequently. RBI has also released guidelines on differentiated bank licenses forpayment banks and small banks. The RBI released a framework of setting-up Wholly Owned Subsidiaries (WOS) in India by foreign banks, with the aim

of promoting local incorporation of foreign banks.Financial inclusion plan – The government launched (on August 28) the 'Pradhanmantri Jan-Dhan Yojana' with aim to increase bank accounts amongthe poor with a target of 2 accounts in every household . Under the scheme an account holder will be given a debit card, accident insurance cover of Rs100,000 and life insurance cover of Rs 30,000. Till now 60mn accounts have been opened. We believe that the scheme will help increase penetration ofbank accounts and improve the effective transmission of Direct Benefit Schemes.






15


October 27, 2014


D. Banking / Financial Sector Reforms (cont’d) Clarifying and strengthening the monetary policy framework - The RBI set out guidelines on clarifying and strengthening the monetary policyframework, under which the following recommendations were made: CPI was chosen as the nominal anchor and a glide path of inflation target of 8%by Jan-2015 and 6% by Jan-2016 was set, setting-up of monetary policy committee, increasing liquidity provided by term repo, government debt andcash management to be taken over by the Government’s debt management office, emphasis on fiscal prudence etc .

Improving the system’s ability to deal with corporate distress and financial institu tion distress - The RBI released the framework for DomesticSystematically Import banks (D-SIBs) which specifies identification of such banks based on their size, interconnectedness, lack of readily availablesubstitutes and complexity. D-SIBs will need to maintain higher capital ratio. The RBI has issued Framework for Revitalizing Distressed Assets in theEconomy, the main features of which include centralized reporting of information on large credit, early formation of lenders’ committee to agree on planof resolution, independent evaluation of large value restructuring, more liberal regulatory treatment of asset sales etc.

Amend the Securi tisat ion and Reconst ruct ion o f Financial Assets and Enforcement o f Secur ity In terest (SARFAESI) Act , 2002 -

The SARFAESI Act empowers banks and financial institutions to recover non-performing assets without the intervention of courts. The government hasproposed to amend the Act (in the winter session of the Parliament), to allow banks to take charge of companies that wilfully default on loan repayment.

E. Measures to Manage Food prices

Minimum supp ort p rices (MSP) for agriculture – The increase in minimum support prices for summer crops. Was lower than last year, with anaverage increase of 1.6%YoY vs. 5% last year.

Vegetable pri ce management - Advised states to delist fruits & vegetables from the APMC act to allow free movement (Delhi government hasimplemented the same). The government plans to amend the Essential Commodities Act to make hoarding a non-bailable offence. Government hasproposed setting-up national food grid to reduce wastages.

Restructuring Food Corporation of India (FCI) – The government has set up a panel to consider restructuring of Food Corporation of India isresponsible for procurement, storage and distribution of food grains - The panel is expected to give a report in three months.

Open market sales of food grain - The cabinet approved open market sale of 10million tons of wheat from FCI stocks, to be completed by March2015 (done through weekly auctions). This will help in proactive management of food prices and with the lower food grain stock that needs to bemaintained, some benefits on account of lower food subsidy is also expected for F2015.






16


October 27, 2014


F. Improving Governance / Simplifi cation o f Adminis trative Process / Increasing TransparencyScrap all Groups of Ministers – The new government scrapped all groups of ministers (GoMs) and empowered groups of ministers(eGoMs) to entrust the decisions to be made by concerned ministers

New institution to replace Planning Commission – Government to create a new institution to address the current economic challengesand strengthen the federal structure. PM has sought suggestions on the role and shape of the commission from the publicDigital India / e-governance – Government approved the Digital India programme which aims to connect all gram panchayats bybroadband internet and promote e-governance. Aims to reduce telecom imports to zero and create 10crore jobs (direct and indirect). Thegovernment plan to implement the program in phased manner by 2019.Consumer grievances – Government is planning an inter-ministerial group on consumer advocacy (IMGCA). The secretaries of theidentified six key sectors – agriculture, food, healthcare, housing, financial services and transport – will be part of IMGCA to ensure a

"consumer-centric focus". Government is also considering amendment to Consumer Protection Act, 1986 in order to quickly dispose ofcases.Simplification of administrative procedures for citizens – Allowed self-attestation of documents. Central government is in the processof bringing in a law to scrap regional transport offices (RTO) and replacing them with an efficient alternative system in the next fewmonths.Tourism – Government plans to roll out Electronic Travel Authorisation (ETA) across nine airports of Delhi, Mumbai, Kolkata, Chennai,Hyderabad, Bangalore, Kochi, Thiruvananthapuram and Goa. ETA will enable a foreign traveller to get an e-visa online within five days ofapplying, according to the plan. The National Informatics Centre is giving the finishing touch to the software to make the visa processavailable online.Greater income & asset disclosure of ministers – Ministers need to declare their assets, along with their spouse and children on anannual basis, relinquish all positions in businesses they may own to prevent conflict of interest, not hire any family or friend to ministries,proposals to post mobile numbers and email id of ministers on a central website.Strive for efficient administration – The government has asked all central government departments to go for ISO certification (GujaratCMO is ISO certified). Government departments have been urged to phase out paperwork by adopting e-Office. Increasing efficiency ofbureaucracy with a change in work culture in ministries and government department.


Policy Actions Tracker




17


October 27, 2014

Recent Research Reports

Analysing Impact of Diesel Deregulation and Hike in Gas Prices Analysing the Implications of Lower Commodity Prices RBI Policy – Still Concerned on Inflation Outlook Macro Indicators Chartbook: Domestic Demand Recovering, Steady Momentum Of Policy Actions Five Reasons Why We Are More Optimistic Than Consensus on Inflation Outlook India Macro Trip Feedback On a Steady Recovery Path What’s Holding Back India’s Labour Market Environment? Part II

What’s Holding Back India’s Labour Market Environment? Part 1 Government Starts with Decisive Move – Increases Rail Fares Union Budget F2015: Policy Under Construction Economic Survey: A Long Wish List of Reforms Government Announces Plan to Increase Rail Investment; Execution Is Key

A Primer on Goods & Service Tax

Higher Commodity Imports Widen Trade Deficit Sept WPI Inflation Decelerated Below 3%, Near 5-Year Low Rural Wage Growth Moderates Below Nominal GDP Growth Positive Surprise in September CPI inflation IP Growth Surprises Negatively Expenditure Expands After Two Consecutive Months of Contraction Non-Oil Export Growth Picked Up in August

Aug WPI Inflation near 5-Year Low High Base Effects Drives IP Growth Lower

Positive Surprise in Core Inflation Crop Sowing Improving, Reduced Risks to Agriculture Output

Data Releases


Briefing Notes

https://ny.matrix.ms.com/eqr/article/webapp/8e7b97f4-57a4-11e4-a5f5-00b8a37746a7

https://ny.matrix.ms.com/eqr/article/webapp/16e3af3e-527b-11e4-b03b-7e57cd39a3c9

https://ny.matrix.ms.com/eqr/article/webapp/41983af0-48ae-11e4-939b-fa70b500ebdf

https://ny.matrix.ms.com/eqr/article/webapp/d962ecbe-479a-11e4-939b-fa70b500ebdf

https://ny.matrix.ms.com/eqr/article/webapp/9dc87bc0-3d8f-11e4-a3f9-c4c5b429d110

https://ny.matrix.ms.com/eqr/article/webapp/286c8080-3cc5-11e4-a3f9-c4c5b429d110

https://ny.matrix.ms.com/eqr/article/webapp/b48d48b8-3687-11e4-a124-19abbf9868ab

https://ny.matrix.ms.com/eqr/article/webapp/6c9f51be-2619-11e4-bcee-a2c607d46481

https://ny.matrix.ms.com/eqr/article/webapp/60e1753a-2166-11e4-9def-2558c24c165b

https://ny.matrix.ms.com/eqr/article/webapp/7f303cb2-f8ab-11e3-a7ac-c2fa27250c54

https://ny.matrix.ms.com/eqr/article/webapp/fbedc962-0847-11e4-a557-265f51da9937

https://ny.matrix.ms.com/eqr/article/webapp/75d98098-0769-11e4-a557-265f51da9937

https://ny.matrix.ms.com/eqr/article/webapp/a4dfe6e2-06a2-11e4-a557-265f51da9937

https://ny.matrix.ms.com/eqr/article/webapp/600617b8-05a2-11e4-a557-265f51da9937

https://ny.matrix.ms.com/eqr/article/webapp/bcc02554-53b1-11e4-b03b-7e57cd39a3c9

https://ny.matrix.ms.com/eqr/article/webapp/7262e312-537e-11e4-b03b-7e57cd39a3c9

https://ny.matrix.ms.com/eqr/article/webapp/bf60f662-536b-11e4-b03b-7e57cd39a3c9

https://ny.matrix.ms.com/eqr/article/webapp/874d5364-52e5-11e4-b03b-7e57cd39a3c9

https://ny.matrix.ms.com/eqr/article/webapp/fe6502c2-5087-11e4-b7d5-857f2576cfc9

https://ny.matrix.ms.com/eqr/article/webapp/55f5e4b4-4932-11e4-939b-fa70b500ebdf

https://ny.matrix.ms.com/eqr/article/webapp/66be2e88-3ce3-11e4-a3f9-c4c5b429d110

https://ny.matrix.ms.com/eqr/article/webapp/35dbdc36-3ca0-11e4-a3f9-c4c5b429d110

https://ny.matrix.ms.com/eqr/article/webapp/72b66142-3a86-11e4-a124-19abbf9868ab

https://ny.matrix.ms.com/eqr/article/webapp/a3c4231c-3a7e-11e4-a124-19abbf9868ab

https://ny.matrix.ms.com/eqr/article/webapp/4ccfd4a0-1b9a-11e4-88d8-349e888f8058

https://ny.matrix.ms.com/eqr/article/webapp/4ccfd4a0-1b9a-11e4-88d8-349e888f8058

https://ny.matrix.ms.com/eqr/article/webapp/a3c4231c-3a7e-11e4-a124-19abbf9868ab

https://ny.matrix.ms.com/eqr/article/webapp/72b66142-3a86-11e4-a124-19abbf9868ab

https://ny.matrix.ms.com/eqr/article/webapp/35dbdc36-3ca0-11e4-a3f9-c4c5b429d110

https://ny.matrix.ms.com/eqr/article/webapp/66be2e88-3ce3-11e4-a3f9-c4c5b429d110

https://ny.matrix.ms.com/eqr/article/webapp/55f5e4b4-4932-11e4-939b-fa70b500ebdf

https://ny.matrix.ms.com/eqr/article/webapp/fe6502c2-5087-11e4-b7d5-857f2576cfc9

https://ny.matrix.ms.com/eqr/article/webapp/874d5364-52e5-11e4-b03b-7e57cd39a3c9

https://ny.matrix.ms.com/eqr/article/webapp/bf60f662-536b-11e4-b03b-7e57cd39a3c9

https://ny.matrix.ms.com/eqr/article/webapp/7262e312-537e-11e4-b03b-7e57cd39a3c9

https://ny.matrix.ms.com/eqr/article/webapp/bcc02554-53b1-11e4-b03b-7e57cd39a3c9

https://ny.matrix.ms.com/eqr/article/webapp/600617b8-05a2-11e4-a557-265f51da9937

https://ny.matrix.ms.com/eqr/article/webapp/a4dfe6e2-06a2-11e4-a557-265f51da9937

https://ny.matrix.ms.com/eqr/article/webapp/75d98098-0769-11e4-a557-265f51da9937

https://ny.matrix.ms.com/eqr/article/webapp/fbedc962-0847-11e4-a557-265f51da9937

https://ny.matrix.ms.com/eqr/article/webapp/7f303cb2-f8ab-11e3-a7ac-c2fa27250c54

https://ny.matrix.ms.com/eqr/article/webapp/60e1753a-2166-11e4-9def-2558c24c165b

https://ny.matrix.ms.com/eqr/article/webapp/6c9f51be-2619-11e4-bcee-a2c607d46481

https://ny.matrix.ms.com/eqr/article/webapp/b48d48b8-3687-11e4-a124-19abbf9868ab

https://ny.matrix.ms.com/eqr/article/webapp/286c8080-3cc5-11e4-a3f9-c4c5b429d110

https://ny.matrix.ms.com/eqr/article/webapp/9dc87bc0-3d8f-11e4-a3f9-c4c5b429d110

https://ny.matrix.ms.com/eqr/article/webapp/d962ecbe-479a-11e4-939b-fa70b500ebdf

https://ny.matrix.ms.com/eqr/article/webapp/41983af0-48ae-11e4-939b-fa70b500ebdf

https://ny.matrix.ms.com/eqr/article/webapp/16e3af3e-527b-11e4-b03b-7e57cd39a3c9

https://ny.matrix.ms.com/eqr/article/webapp/8e7b97f4-57a4-11e4-a5f5-00b8a37746a7




18


October 27, 2014I. Growth Indicators: Corporate Revenue

Source: Capitaline, Morgan Stanley India Strategy Team, Morgan Stanley Research,corporate revenue growth is based on the performance of 471 companies (for BSE 500), 186 companies (BSE 200) & 3824 companies (broad market)

Corporate Revenue Growth (ex-Energy) – Broad Market*Corporate Revenue Growth (ex-Energy) – BSE 200*

Corporate Revenue Growth Shows Slight Acceleration in QE June 2014

Corporate Revenue Grow th (BSE500, ex-Energy)*IP vs. Real Corporate Revenue Growth

(Broad Market ex-Energy)

0%

5%

10%

15%

20%

25%

30%

35%

0%

5%

10%

15%

20%

25%

30%

35%

Jun-05 Dec-06 Jun-08 Dec-09 Jun-11 Dec-12 Jun-14

Broad MarketRevenue Growth(ex-energy, YoY%)

0%

5%

10%

15%

20%

25%

30%

35%

40%

0%

5%

10%

15%

20%

25%

30%

35%

40%


BSE 500 exEnergy (YoY%)


-6%

-1%

4%

9%

14%

19%

24%

29%

-6%

-1%

4%

9%

14%

19%

24%

29%

Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14

IP Growth (3MMA YoY%)

Broad Market Rev Growth (ex-energy, YoY%), deflatedby WPI ex. Primary Food

Broad Market Rev Growth (ex-energy, YoY%), deflatedby CPI ex. Food

0%

5%

10%

15%

20%

25%

30%

35%

0%

5%

10%

15%

20%

25%

30%

35%


BSE 200 Revenue Growth(ex-energy, YoY%)




19


October 27, 2014

I. Growth Indicators: IP Growth

Source: CSO, Morgan Stanley Research

IP Seasonally Adjusted IP Growth

Industrial Production Growth Moderated For Two Consecutive Months

-8%

-5%

-2%

1%

4%

7%

10%

13%

-8%

-5%

-2%

1%

4%

7%

10%

13%

Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14

YoY%

YoY%, 3MMA

100

110

120

130

140

150

160

170

180

100

110

120

130

140

150

160

170

180

Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14


IP: Sector & Use Based Infrastructure Index

YoY% Weight Aug-13 Jun-14 Jul-14 Aug-14

IIP 100 0.4 3.9 0.4 0.4

Sectoral

Manufacturing 75.5 -0.2 2.5 -1.0 -1.4

Mining & Quarrying 14.2 -0.9 4.5 1.2 2.6

Electricity 10.3 7.2 15.7 11.7 12.9

Use Based

Basic Goods 45.7 0.9 10.0 7.4 9.6

Capital Goods 8.8 -2.0 23.3 -3.9 -11.3

Intermediate Goods 15.7 3.8 2.4 3.0 0.3

Consumer Goods 29.8 -0.9 -9.7 -7.7 -6.9

---Durables 8.5 -8.3 -23.4 -20.9 -15.0

---Non Durables 21.4 5.4 0.6 2.4 -0.9

YoY% Weight in IP Aug-13 Jun-14 Jul-14 Aug-14

Infrastructure Index 37.90 4.7 7.2 2.6 5.8

--Coal 4.38 6.1 8.1 6.2 13.3

--Crude Oil 5.22 -1.5 0.1 -1.1 -4.9

--Natural Gas 1.71 -16.0 -1.7 -9.0 -8.4

--Refinery Products 5.94 4.9 1.2 -5.5 -4.3

--Fertilizers 1.25 1.7 -1.1 -4.3 -4.3

--Steel 6.68 8.1 4.2 -3.3 9.1

--Cement 2.41 5.2 13.5 16.4 10.3

--Electricity 10.32 7.1 15.7 11.2 12.6

Due to high base

effect of Jul-13




20


October 27, 2014

I. Growth Indicators: IP Growth

Source: CSO, Morgan Stanley Research

IP Growth – Use-based ClassificationIP Growth – Sector Classification

Electricity & Mining Sector Growth Shows Better Performance Than Manufacturing Sector

IP Growth – Sector Classification IP Growth – Use-based Classification

-20%

-10%

0%

10%

20%

30%

40%

50%

-20%

-10%

0%

10%

20%

30%

40%

50%


Capital Goods Consumer Goods

Intermediate Goods Basic Goods

YoY%, 3MMA

-8%

-3%

2%

7%

12%

17%

-8%

-3%

2%

7%

12%

17%


Manufacturing Electricity Mining

YoY%, 3MMA

94

99

104

109

114

119

124

129

134

94

99

104

109

114

119

124

129

134

A p r - 1

0

J u n

- 1 0

A u g

- 1 0

O c

t - 1 0

D e c

- 1 0

F e b

- 1 1

A p r - 1

1

J u n

- 1 1

A u g

- 1 1

O c

t - 1 1

D e c

- 1 1

F e b

- 1 2

A p r - 1

2

J u n

- 1 2

A u g

- 1 2

O c

t - 1 2

D e c

- 1 2

F e b

- 1 3

A p r - 1

3

J u n

- 1 3

A u g

- 1 3

O c

t - 1 3

D e c

- 1 3

F e b

- 1 4

A p r - 1

4

J u n

- 1 4

A u g

- 1 4

Mining (wt 14.3%) Manufacturing (wt 75.5%)

Electricity (wt 10.3%) IP

Indexed Mar 2010 = 100, 3MMA


85

90

95

100

105

110

115

120

125

85

90

95

100

105

110

115

120

125

A p r - 1 0

J u n - 1 0

A u g - 1 0

O c

t - 1 0

D e c - 1 0

F e

b - 1 1

A p r - 1 1

J u n - 1 1

A u g - 1 1

O c

t - 1 1

D e c - 1 1

F e

b - 1 2

A p r - 1 2

J u n - 1 2

A u g - 1 2

O c

t - 1 2

D e c - 1 2

F e

b - 1 3

A p r - 1 3

J u n - 1 3

A u g - 1 3

O c

t - 1 3

D e c - 1 3

F e

b - 1 4

A p r - 1 4

J u n - 1 4

A u g - 1 4

General (wt: 100%) Consumer Goods (29.8%)

Capital Goods (8.8%) Basic Goods (45.7%)

Intermediate Goods (15.7%)

Indexed,Mar 2010 = 100, SA 3MMA




21


October 27, 2014

I. Growth Indicators: Consumption

Source: CSO, Company Data, Morgan Stanley Research

Passenger Car SalesTwo-wheeler Sales

Two-wheeler Sales Remain Strong While Passenger Car Sales Dipped in Sept

Domestic Retail Sales Growth(Consumer Staple Companies’ Sales Growth)

Consumer Non-Durables Production

-15%

-5%

5%

15%

25%

35%

45%

55%

65%

-15%

-5%

5%

15%

25%

35%

45%

55%

65%

Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14

YoY%

YoY% 3MMA

-20%

-10%

0%

10%

20%

30%

40%

50%

-20%

-10%

0%

10%

20%

30%

40%

50%


% YoY

% YoY, 3MMA

-22%

-17%

-12%

-7%

-2%

3%

8%

13%

-22%

-17%

-12%

-7%

-2%

3%

8%

13%


YoY%

YoY%, 3MMA

14%

12%

10%11%

12%

16%18%

21%

18%

20%18%

18%18%

14%14%14%

12%13%12%

9%

13%

0%

5%

10%

15%

20%

25%

J u n

- 0 9

S e p

- 0 9

D e c

- 0 9

M a r

- 1 0

J u n

- 1 0

S e p

- 1 0

D e c

- 1 0

M a r

- 1 1

J u n

- 1 1

S e p

- 1 1

D e c

- 1 1

M a r

- 1 2

J u n

- 1 2

S e p

- 1 2

D e c

- 1 2

M a r

- 1 3

J u n

- 1 3

S e p

- 1 3

D e c

- 1 3

M a r

- 1 4

J u n

- 1 4







23


October 27, 2014

I. Growth Indicators: Capex

Source: CMIE, CEIC, Morgan Stanley Research

Medium & Heavy Commerc ial Vehic les SalesSteel Production

Other Capex-related Indicators Showing Signs of Gradual Improvement

Cement Production Light Commercial Vehicles Sales

-40%

-30%

-20%

-10%

0%

10%

20%

-40%

-30%

-20%

-10%

0%

10%

20%

Sep-11 Sep-12 Sep-13 Sep-14

% YoY

% YoY, 3MMA

-50%

-20%

10%

40%

70%

100%

130%

-50%

-20%

10%

40%

70%

100%

130%


% YoY

% YoY, 3MMA

0%

4%

8%

12%

16%

0%

4%

8%

12%

16%

Aug-12 Feb-13 Aug-13 Feb-14 Aug-14

YoY%

YoY% 3MMA


-5%

0%

5%

10%

15%

20%

25%

-5%

0%

5%

10%

15%

20%

25%

Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14

YoY%, 3MMA

YoY%




24


October 27, 2014

I. Growth Indicators: Capex

Source: Jones Lang La Salle – REIS India, RBI Morgan Stanley Research; *MS Property team index includes cities of Mumbai, Bangalore, NCR, NHB resi index includes Hyderabad,Faridabad, Patna, Ahmedabad, Chennai, Jaipur, Lucknow, Pune, Surat, Kochi, Bhopal, Kolkata, Mumbai, Bangalore, Delhi

Absorption Rate (Pan-India Res ident ial )New Launches vs. New Sales (Pan-India Residential)

Residential New Sales & New Launches Continued to Decline in QE Sep-14

New Sales Trend (Key Cities, Pan-India Residential ) All-India House Price Index

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

3Q10 3Q11 3Q12 3Q13 3Q14

New Launches (YoY)

New Sales (YoY)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Noida Mumbai Gurgaon Chennai Pune Bangalore Greater Mumbai

Hyderabad Kolkata

3Q13 4Q13 1Q14 2Q14 3Q14

No of Units

20%20%

18%

15%

13%13%

15%

14%15%

14%14%13%

11%11%11%

9% 9%

8%

11%

14%

17%

20%

23%

26%

0

50,000

1,00,000

1,50,000

2,00,000

2,50,000

3,00,000

3,50,000

3Q10 3Q11 3Q12 3Q13 3Q14

New Launches (Units) Active Vacancy / Unsold Inventory (Units)New Sales (Units)

Absorption Rate - RHS

1%

5%

9%

13%

17%

21%

25%

1%

5%

9%

13%

17%

21%

25%

Jun-10 Jun-11 Jun-12 Jun-13 Jun-14

Three-City Residential PropertyPrice Index (MS PropertyTeam)*

NHB Resi Index

YoY%





25


October 27, 2014

I. Growth Indicators: Services

Source: CMIE, Morgan Stanley Research

Seaport Cargo TrafficRail Freight

Rail Freight Growth Decelerates, While Air & Seaport Cargo Growth Remains Healthy

-2%

0%

2%

4%

6%

8%

10%

12%

-2%

0%

2%

4%

6%

8%

10%

12%


YoY% 3MMA

YoY%

Air Cargo Handled All Scheduled Air lines – Total Hours Flown

-12%

-7%

-2%

3%

8%

13%

18%

23%

28%

33%

-12%

-7%

-2%

3%

8%

13%

18%

23%

28%

33%

Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14

YoY%

YoY%, 3MMA

-30%

-20%

-10%

0%

10%

20%

-30%

-20%

-10%

0%

10%

20%


YoY%

YoY%, 3MMA

Kingfisher airlines internationaloperations have been affected since April 2012

Due to base effect

-10%

-7%

-4%

-1%

2%

5%

8%

11%

-10%

-7%

-4%

-1%

2%

5%

8%

11%

Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14

YoY%

YoY% 3MMA





26


October 27, 2014

I. Growth Indicators: Services

Source: CEIC, IAMAI, Morgan Stanley Research, Note : Data for internet subscribers includes rural subscribers from Dec 2008

Touris t Arrivals Air Passenger Traffic – No. of Passengers Flown

Trend in Tourist Arrivals Improving

Mobile Subscriber Base Growth Internet Subscriber Base Growth

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

0

25

50

75

100

125

150

175

200

225

D e

c - 0

0

D e

c - 0

1

D e

c - 0

2

D e

c - 0

3

D e

c - 0

4

D e

c - 0

5

D e

c - 0

6

D e

c - 0

7

D e

c - 0

8

D e

c - 0

9

D e

c - 1

0

D e

c - 1

1

D e

c - 1

2

D e

c - 1

3

in Mn, LS YoY%, RS

Total Internet Users

-15%

-5%

5%

15%

25%

-15%

-5%

5%

15%

25%


YoY%

YoY% 3MMA

-5%

0%

5%

10%

15%

20%

-5%

0%

5%

10%

15%

20%


YoY%

YoY% 3MMA

-10%

0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

700


Cellular Subscriber Base, Mn, LS

Cellular Subscriber BaseGrowth,YoY%, RS







28


October 27, 2014

II. External Indicators




29


October 27, 2014

-40%

-20%

0%

20%

40%

60%


Exports Non oil Exports

YoY%

-35%

-25%

-15%

-5%

5%

15%

25%

35%

45%

55%

-7%

-2%

3%

8%

13%

18%

23%

28%

Jan-04 May-05 Sep-06 Jan-08 May-09 Sep-10 Jan-12 May-13 Sep-14

Nominal IP (YoY%) - LS

Exports YoY%, RS3MMA

60

70

80

90

100

110

120

130

140

150

60

70

80

90

100

110

120

130

140

150

160


Exports Seasonally Adjusted

Indexed Jul 2008=100

II. External Indicators: Expor ts

Source: CEIC, Haver, Morgan Stanley Research

Seasonally Adjusted Export TrendExports

Nominal IP vs. Expor ts Growth (YoY, 3MMA) India’s Share in Global Good Expor ts

0.5%

0.7%

0.9%

1.1%

1.3%

1.5%

1.7%

1.9%

2.1%

0.5%

0.7%

0.9%

1.1%

1.3%

1.5%

1.7%

1.9%

2.1%

M a y - 9 6

M a y - 9 7

M a y - 9 8

M a y - 9 9

M a y - 0 0

M a y - 0 1

M a y - 0 2

M a y - 0 3

M a y - 0 4

M a y - 0 5

M a y - 0 6

M a y - 0 7

M a y - 0 8

M a y - 0 9

M a y - 1 0

M a y - 1 1

M a y - 1 2

M a y - 1 3

M a y - 1 4

Monthly

6M trailing


Headline Export Growth Largely Steady in Sept, Non-Oil Export Growth Accelerated




30


October 27, 2014

II. External Indicators: Service Exports / Invisibles

Software Services ExportsServices Exports

Software Services Export Growth Decelerated in QE June-14

Services Exports by Segment Private Remittances

Source: RBI, CEIC, Morgan Stanley Research

-40%

-30%

-20%

-10%

0%

10%

20%

30%40%

50%

60%

-40%

-30%

-20%

-10%

0%

10%

20%

30%40%

50%

60%

Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14

YoY%

-20%

-10%

0%

10%

20%

30%

40%

50%

-20%

-10%

0%

10%

20%

30%

40%

50%


YoY%

-60%

-30%

0%

30%

60%

90%

-60%

-30%

0%

30%

60%

90%


YoY%


Sep-13 Dec-13 Mar-14 Jun-14

--Serv ices 13% 9% 16% 1%

--- Travel -8% 15% -26% -52%

--- Transportation 842% -11% -29% 19%

--- Miscellaneous 11% 8% 27% 3%

-----Software Serv ices 5% 6% 4% 5%

-----Business Services 8% 124% 114% -34%

-----Financial Services 199% 45% -357% -128%

-----Communication Services 18% 174% 127% -10%

---Others -61% 483% -117% -68%

YoY%




31


October 27, 2014

II. External Indicators: Imports

Oil, Gold and Non-oil Non-gold Imports (% YoY)Imports and Non-oil Imports

Oil, Gold and Non-oil Non-gold Imports (% of GDP) Seasonally Adjusted Imports (in Dollars, Indexed)


-25%

-5%

15%

35%

55%

75%

-25%

-5%

15%

35%

55%

75%

Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14

Imports

Non Oil Imports

Non oil non gold

YoY% 3MMA

0%

1%

2%

3%

4%

5%

6%

6%

8%

9%

11%

12%

14%

15%

17%

Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14

Non oil non gold, LS Gross Oil , LS Gold, RS

% of GDP, Annualised50

70

90

110

130

150

170

50

70

90

110

130

150

170

S e p - 0

8

M a r - 0

9

S e p - 0

9

M a r - 1

0

S e p - 1

0

M a r - 1

1

S e p - 1

1

M a r - 1

2

S e p - 1

2

M a r - 1

3

S e p - 1

3

M a r - 1

4

S e p - 1

4

Imports

Non Oil Imports

Non oil non gold imports

Seasonally Adjusted Indexed Jul 2008=100


-120%

-70%

-20%

30%

80%

130%

180%

-15%

-10%-5%

0%

5%

10%

15%

20%

25%

30%

Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14

Non oil non gold, LS

Gross Oil , LS

Gold, RS

YoY% 3MMA

Rise in growth of goldimports partly due tonegative base effect as wellas rise on an MoM basis

Sharp Increase in Oil and Non-Oil Imports in September Indicate Front Loading of CommodityPurchases by Corporate Sector to Capitalize on Lower Commodity Prices

Broad based rise in imports wheninternational prices are decliningindicate some front loading bycorporate sector to capitalize onlower commodity prices




32


October 27, 2014II. External Indicators: Expor ts – Segment & Destination

Source: Ministry of Commerce, Morgan Stanley Research

Expor ts by Segment – YoY% 3MMA Exports by Segment (September-14)

Export by Destination (Share, Apr-August 2014) Export by Destination


Europe18% Afr ica

11% Amer ica

20%

ASEAN10%

Middle East20%

China4%

Rest of Asia15%

Others

2%

Exports by region

40

60

80

100

120

140

160

180


EU UAE

US ASEAN

India Expo rts Ind ex, SA, July 2008=100 3MMA

% of Expor ts (2013)EU: 16.5% US: 12.4%UAE: 10.2% ASEAN: 9.2%

Exports by Segment and Destination

Exports - by commodi ty USDmn YoY% % Shar e i n total

Engineering Goods 6,485 20% 22%

Petroleum Products 6,024 -13% 21%

Gems & Jewellery 4,397 11% 15%

Ready-made Garments of All Textiles 1,294 16% 4%

Drugs & Pharmaceuticals 1,263 3% 4%

Organic & Inorganic Chemicals 1,122 7% 4%

Cotton Yarn/Fabrics/made-ups, Handloom Products 944 -1% 3%

Rice 687 18% 2%

Marine Products 597 13% 2%

Electronic Goods 564 -17% 2%

Others 5,527 -3% 19%

Total 28,903 3% 100%

-25%

-15%

-5%

5%

15%

25%

35%

45%

Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14

Engineering GoodsPetroleum ProductsGems & JewelleryReady-made Garments of All TextilesDrugs & PharmaceuticalsOrganic & Inorganic ChemicalsElectronic GoodsTotal

3MMA, YoY




33


October 27, 2014

Source: Ministry of Commerce, Morgan Stanley Research

Imports by Segment – YoY% 3MMA Imports by Segment (September-14)

Imports by Segment and Destination

Imports by Destination (Share, Apr-August 2014) Imports by Destination

20

40

60

80

100

120

140

160

180

Aug-08 Apr-09 Dec-09 Aug-10 Apr-11 Dec-11 Aug-12 Apr-13 Dec-13 Aug-14

EU

China

USA

UAE + Saudi Arabia

Asean

India Impor ts Index, SA Ju l 2008=100,3MMA

% of Impo rts (2013)UAE+Saudi Arabia: 14.8%EU: 10.7% China 11.1%USA 4.8% Asean : 9.1%

Back to Navigation Page II. External Indicators: Imports – Segment & Destination

Rest of Asia10%

Europe15%

China12% America

12%

ASEAN10%

Africa9%

Others3%

Middle East29%

Imports by Region

Im por ts - by com m odity USD m n YoY% % Share in total

Petroleum, Crude & products 14,497 10% 33.6%

Gold 3,752 450% 8.7%

Electronic goods 3,477 18% 8.1%

Machinery, electrical & non-electrical 2,390 9% 5.5%

Pearls, precious & Semi-precious stones 2,093 0% 4.9%

Organic & Inorganic Chemicals 1,796 17% 4.2%

Iron & Steel 1,459 40% 3.4%

Coal, Coke & Briquettes, etc. 1,348 23% 3.1%

Transport equipment 1,198 -1% 2.8%

Artif icial resins, plastic materials, etc. 1,173 44% 2.7%

Others 9,968 34% 23.1%

Total 43,151 26% 100.0%-100%

-50%

0%

50%

100%

150%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14

Petroleum, Crude & productsIron & SteelCoal, Coke & Briquettes, etc.TotalCapital goodsGold & Silver ~ rhs

3MMA




34


October 27, 2014

II. External Indicators: Trade Balance

Trade Balance Ex – Net Oil, Net Gold (% of GDP)Trade Balance (% of GDP)

Trade Balance, 12M Trailing (% of GDP) Current Account Deficit (% of GDP)

Source: RBI, CEIC, Morgan Stanley Research.

-15%

-13%

-11%

-9%

-7%

-5%

-3%

-15%

-13%

-11%

-9%

-7%

-5%

-3%

M a r - 1 1

S e p - 1

1

M a r - 1 2

S e p - 1

2

M a r - 1 3

S e p - 1

3

M a r - 1 4

S e p - 1

4

Monthly, annualized

3-month trailing sum, annualized

Trade Deficit % of GDP

-15%

-13%

-11%

-9%

-7%

-5%

-3%

-1%

1%

3%

-15%

-13%

-11%

-9%

-7%

-5%

-3%

-1%

1%

3%

Sep-05 Mar-07 Sep-08 Mar-10 Sep-11 Mar-13 Sep-14

Trade Deficit ex Net Gold Net Oil

Trade Deficit ex Net Gold

Trade Deficit

3M trailing sum,annualized % of GDP

-11%

-9%

-7%

-5%

-3%

-1%

1%

-11%

-9%

-7%

-5%

-3%

-1%

1%


Trade Deficit

Trade deficit ex net gold

Trade deficit ex net gold net oil

12M Trailing, % of GDP


Trade Deficit Widened in Sept Reflecting Spike in Commodity Imports

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

-33

-28

-23

-18

-13

-8

-3

Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14

US$ bn, LS

Quarterly Annualized, % of GDP, RS




35


October 27, 2014

Source: CEIC, RBI, Morgan Stanley Research

What Explains the Improvement in the Current Account Balance from the Low Point?

Change in Current Account Balancefrom -6.5% of GDP in QE Dec-12 to-1.7% of GDP in QE Jun-14

+US$ 23.9bn4.8% of GDP

-US$ 7.5bn-1.1% of GDP

Capital Goods

Current Accountbalance

+US$ 7.5bn+2.1% of GDP

Goods Exports Increase

Imports Decline

-US$ 16.2bn-2.5% of GDP

Oil

Gold

Non-oil

non-gold


-US$ 9.8bn-1.9% of GDP

-US$ 4.6bn

-1.0% of GDP

Services & Remit tances Increase

Trade Balance


+US$ 23.7bn4.6% of GDP




36


October 27, 2014

-7.0%

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

S e p - 0

4

S e p - 0

5

S e p - 0

6

S e p - 0

7

S e p - 0

8

S e p - 0

9

S e p - 1

0

S e p - 1

1

S e p - 1

2

S e p - 1

3

S e p - 1

4

3M trailing sum as % of GDP




-5.6%

Macro Impact of Changes in Commodity Prices

Source: CEIC,CMIE, Commerce Ministry, Morgan Stanley Research.

Back to Navigation Page II. External Indicators: Commodi ty Price Sensitivit y

Trend in Commodity Trade Balance

Impact CPI WPI

CAD as %

of GDP

Subsidy Burden

as % of GDP^

Oil* -0.5% -0.8% to -1% -0.5% -0.05%

Coal# -0.01% -0.2% -0.1% NA

Fertilizer NA -0.3%

-0.03% NAIron & Steel NA -0.9% 0.01% NA

Impact of a 10% Decline in Prices

Sensitivi ty of Macro Variables to Lower Commodity

Prices

*indirect impact could be of a similar magnitude for both CPI and WPI# indirect impact will also be through pass through in electricity prices

^ includes government and OMCsWe have used weights from consumer expenditure survey to analyse the impact on CPI

For more details on this topic see our note MS India Eco: Analysing th e Implications ofLower Commodity Prices

https://ny.matrix.ms.com/eqr/article/webapp/16e3af3e-527b-11e4-b03b-7e57cd39a3c9?t=1413166183%3A30%3A11467%3Ahz451c57n1&m=1&ch=Outlook%20Blastmail







37


October 27, 2014II. External Indicators: Capital Flows

Monthly ECB / FCCB^ Flows (US$ bn)FII Flows – Equity and Debt (US$ bn)

Capital Flows: FII Inflows Picked up in September

Monthly Gross FDI Inflows (US$ bn) NRI Deposits Flows (US$ bn)

Source: RBI, CEIC, Morgan Stanley Research .^ ECB-External Commercial Borrowing, FCCB-Foreign Currency Convertible Bond.

-10

0

10

20

30

40

50

-6

-4

-2

0

2

4

6

8

Sep-10 Sep-11 Sep-12 Sep-13 Sep-14

Equity, LS Debt, LS Total (12M trailing sum), RS

0

5

10

15

20

25

30

35

40

-1

2

5

8

11

14

17

Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14

Non Resident Ordinary Rupee Accounts

Non Resident External Rupee Accounts

Foreign Currency Non Resident Accounts

Total 12M trailing sum, RS

10

15

20

25

30

35

40

0

1

2

3

4

5

6

Aug-10 Aug-11 Aug-12 Aug-13 Aug-14

Monthly, LS

12M trailing sum, RS

15

20

25

30

35

40

45

50

0

1

2

3

4

5

6

7

Aug-10 Aug-11 Aug-12 Aug-13 Aug-14

Monthly, LS

12M trailing sum, RS 12M trailing FDIinflows at a 27month high





38


October 27, 2014

II. External Indicators: External Balance Sheet

Months of Import CoverFX Reserves (US$bn)

External Debt Net International Investment Position (US$bn)


-325

-125

75

275

475

675

-325

-125

75

275

475

675

Mar 09 Dec 09 Sep 10 Jun 11 Mar 12 Dec 12 Sep 13 Jun 14

Net IIP Assets Liabilities


FX Reserves Declined in October from Near All-Time High Levels

6

8

10

12

14

16

18

S e p - 0

1

S e p - 0

2

S e p - 0

3

S e p - 0

4

S e p - 0

5

S e p - 0

6

S e p - 0

7

S e p - 0

8

S e p - 0

9

S e p - 1

0

S e p - 1

1

S e p - 1

2

S e p - 1

3

S e p - 1

4

8.3x

Import cover using total FX Reserves

Import cover using

total FX reservesadjstd for forward

Avg import cover of12 months between2006-2010

8.5x

249

326

245

255

265

275

285

295

305

315

325

O c t - 0 9

A p r - 1 0

O c t - 1 0

A p r - 1 1

O c t - 1 1

A p r - 1 2

O c t - 1 2

A p r - 1 3

O c t - 1 3

A p r - 1 4

O c t - 1 4

FX Reserves

FX Reserves, Adjustedfor Fwd

Foreignexchangereservesadjusted forforwardbook haverisen fromtrough levelofUS$249bnin Nov-13 tocurrent levelofUS$312bn

US$ bn

Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

Total external debt US $ bn 405 406 428 442 450

Total external debt % of GDP 21 21 23 24 24

Short-term debt by original maturity US $ bn 97 95 93 89 88Short-term (including residual maturity) US $ bn 170 NA NA 175 175

FX Reserves US$ bn 285 276 296 304 316

Total external debt% of FX

Reserves142 147 145 146 143

Short-term debt by original maturity% of FX

Reserves34 34 31 29.38 27.83

Short-term (including residual maturity)% of FX

Reserves60 NA NA 57.5 55.4

Number of months imports cover (FX

reserves/Avg monthly imports)Times 6.9 6.8 7.3 8.1 8.6




39


October 27, 2014

90

95

100

105

110

115

120

125

130

O

c t - 0 4

M

a r - 0 5

A

u g - 0

5

J

a n - 0

6

J

u n - 0

6

N

o v - 0

6

A

p r - 0 7

S

e p - 0

7

F

e b - 0

8

J u l - 0 8

D

e c - 0

8

M

a y - 0

9

O

c t - 0 9

M

a r - 1 0

A

u g - 1

0

J

a n - 1

1

J

u n - 1

1

N

o v - 1

1

A

p r - 1 2

S

e p - 1

2

F

e b - 1

3

J u l - 1 3

D

e c - 1

3

M

a y - 1

4

O

c t - 1 4

Mean + 1s.d

Mean -1s.d

Average (10Y)

MS India REER on CPI, (F2000 base, 30 Countries)

II. External Indicators: Exchange Rate

Trend in Real Effective Exchange Rate (REER)US$/INR and EUR/INR

RBI Real Effect ive Exchange Rate(REER – CPI adjusted, 36 Country)

MS Real Effecti ve Exchange Rate(Based on CPI Inflation*)

Source: RBI, CEIC, Morgan Stanley Research *India REER on CPI is constructed by Morgan Stanley Research using trade weights for 30 countries, with base as F2000 adjusting thenominal effective exchange rate for CPI (for India and t rading partners)

55

60

65

70

75

80

85

90

95

42

46

50

54

58

62

66

70

Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14

US$/INR EUR/INR ~ rhs


70

90

110

130

150

170

O c t - 0 1

O c t - 0 2

O c t - 0 3

O c t - 0 4

O c t - 0 5

O c t - 0 6

O c t - 0 7

O c t - 0 8

O c t - 0 9

O c t - 1 0

O c t - 1 1

O c t - 1 2

O c t - 1 3

O c t - 1 4

India* China BrazilRussia Indonesia South AfricaThailand Turkey Mexico

QE-March 2001=100, 3MMA

96

100

104

108

112

116

S e

p - 0

4

M a r - 0

5

S e

p - 0

5

M a r - 0

6

S e

p - 0

6

M a r - 0

7

S e

p - 0

7

M a r - 0

8

S e

p - 0

8

M a r - 0

9

S e

p - 0

9

M a r - 1

0

S e

p - 1

0

M a r - 1

1

S e

p - 1

1

M a r - 1

2

S e

p - 1

2

M a r - 1

3

S e

p - 1

3

M a r - 1

4

S e

p - 1

4

RBI REER on CPI

10 Year Average

Mean + st dev

Mean - st dev

Strong Appreciation in REER Reflecting INR Appreciation vs. Euro

REER has been i n the o vervaluedterritory in Oct and Sept.

REER is 4.4% above 10-year mean




40


October 27, 2014II. External Indicators: Exchange Rate

AXJ FX Performance (vs. US$)FX Reserves Accretion (3M trailing, US$ bn)

RBI’s Forward Position Has Moved into Net Long Dollars Over Last Two Months

RBI FX Intervention (Spot , US$ bn) Outstanding RBI FX Intervention (Forwards, US$ bn)


-8

-6

-4

-2

0

2

4

6

8

10

-8

-6

-4

-2

0

2

4

6

8

10


Negative shows - RBI sold dollars

RBI Fx intervention - Spot (US$ bn)

-33

-28

-23

-18

-13

-8

-3

2

-33

-28

-23

-18

-13

-8

-3

2


Negative shows - RBI sold dollars

RBI Fx intervention Outstanding Net Forwards (US$ bn)

-0.9%

0.5% 0.1%1.2%

-0.9% -1.8%0.0%

-0.6% -1.1%

-20.8%

-11.6%

-6.8%-6.5%

-3.2% -2.5%

0.0%

2.4%3.1%

-23%-20%

-17%

-14%

-11%

-8%

-5%

-2%

1%

4%7%

I n d o n e s i a

I n d i a

M a l a y s i a

T h a i l a n d

S i n g a p o r e

T a i w a n

H K

K o r e a

C h i n a

2014 YTD 2013

% change+ shows appreciation- shows depreciation

-30

-20

-10

0

10

20

-30

-20

-10

0

10

20

Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14

-US$4.82bn


RBI’s forward position has movedinto net long in the last 2 months

Since Nov-13 RBIhas bough t US$32.1bn in spot andUS$ 38.4.bn in fwd

(total US$ 70.5bn).





41


October 27, 2014

Trend in Balance of Payments

Source: RBI, Morgan Stanley Research

India's Overall Balance of Payments (US$ mn), F2Q12 – F1Q15

II. External Indicators: Balance of Payments Back to Navigation Page

Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec -13 Mar-14 Jun-14

A. Cu rr ent Ac co unt -18,8 92 -19,9 54 -21,7 68 -17,0 93 -21,1 29 -31,7 70 -18,1 70 -21,7 89 -5,17 0 -4,09 7 -1,34 0 -7,86 0

-Trade Balance -44,528 -48,704 -51,518 -43,849 -47,793 -58,378 -45,635 -50,484 -33,305 -33,152 -30,668 -34,648

--Exports 79,560 71,400 80,172 75,001 72,573 74,236 84,772 73,909 81,243 79,795 83,660 81,712

Growth % 52.9% 8.3% 3.8% -4.6% -8.8% 4.0% 5.7% -1.5% 11.9% 7.5% -1.3% 10.6%

--Imports 124,088 120,104 131,690 118,850 120,366 132,613 130,408 124,393 114,548 112,947 114,328 116,360

Growth % 39.4% 23.3% 22.6% -3.9% -3.0% 10.4% -1.0% 4.7% -4.8% -14.8% -12.3% -6.5%

--Oil Imports 36,229 35,349 43,965 39,357 40,652 41,820 42,209 39,204 41,028 42,082 42,666 42,724

Growth % 51.1% 39.3% 43.0% -0.2% 12.2% 18.3% -4.0% -0.4% 0.9% 0.6% 1.1% 9.0%

--Gold & Si lver Imports 13,403 14,470 15,575 9,577 11,724 17,951 16,585 18,137 4,777 4,211 6,112 8,161

Growth % 34.2% 26.0% 19.9% -47.3% -12.5% 24.1% 6.5% 89.4% -59.3% -76.5% -63.1% -55.0%

--Non oil non gold Imports 74,456 70,285 72,150 69,916 67,990 72,842 71,614 67,052 68,744 66,654 65,551 65,476

Growth % 35.3% 16.1% 13.3% 5.8% -8.7% 3.6% -0.7% -4.1% 1.1% -8.5% -8.5% -2.4%

-Inv is ibles 25,636 28,750 29,750 26,756 26,664 26,608 27,465 28,695 28,135 29,054 29,328 26,788

--Services 13,992 16,167 17,521 14,981 16,328 16,646 16,960 16,868 18,371 18,120 19,605 17,069

--- Travel 701 1,538 2,224 405 961 2,039 2,770 826 887 2,343 2,056 394

--- Transportation 875 260 370 594 74 780 1,080 438 693 693 763 521

--- Miscellaneous 12,242 14,050 14,795 13,704 15,061 13,860 13,006 15,533 16,700 14,953 16,564 16,035

-----Software Services 13,633 15,806 16,870 14,999 15,499 15,901 17,106 16,134 16,297 16,821 17,706 17,014

-----Business Services -232 -143 -370 -593 377 -770 -915 567 408 186 132 761

-----Financial Services -553 -577 -406 -130 248 298 -99 -591 741 432 254 166

-----Communication Services 80 115 -97 316 314 108 207 209 371 297 469 188

---Others 174 319 132 278 232 -34 103 71 91 130 223 118

--Transfers 15,601 16,410 16,802 16,664 15,918 15,762 15,690 16,658 16,086 16,380 16,152 16,413

--------Transfers: Private 15,618 16,208 16,864 16,808 16,076 15,670 15,788 16,792 16,283 16,208 16,199 16,626

--Income -3,958 -3,827 -4,573 -4,889 -5,581 -5,800 -5,185 -4,830 -6,323 -5,446 -6,430 -6,694

B. Capital Account 19,567 7,680 16,586 16,535 20,745 31,470 20,549 20,556 -4,750 23,787 9,195 19,830

-Foreign Inv estment 5,289 6,861 15,283 1,899 15,877 11,887 17,048 6,263 1,499 8,456 10,168 20,607

-- Foreign Direct Investment 6,485 4,963 1,357 3,821 8,159 2,106 5,733 6,488 8,101 6,066 910 8,168

---FDI: in India 9,478 6,873 4,214 5,915 9,523 4,344 7,171 6,476 8,728 5,778 9,781 8,291

---FDI: Abroad -2,993 -1,910 -2,857 -2,094 -1,364 -2,238 -1,438 11 -627 288 -8,872 -123

-- Portfol io Investment -1,196 1,898 13,926 -1,922 7,718 9,781 11,314 -225 -6,602 2,390 9,258 12,440

- Loans 8,498 1,602 2,737 5,960 5,152 10,795 9,218 3,647 -472 3,012 1,579 1,863

--External Assistance 291 1,353 303 54 57 343 529 292 -162 -40 942 -50

--Loans: Commercial Borrowings 5,336 -327 2,282 528 962 2,773 4,221 903 1,552 4,211 5,111 1,690

--Short Term Credit to India 2,871 576 152 5,378 4,133 7,678 4,468 2,451 -1,862 -1,159 -4,474 222

-Bank ing Capital 7,049 -5,487 1,999 9,408 5,491 5,243 -3,572 10,325 1,162 15,758 -1,796 -115

--------- Liab: ow: NonResident Deposit 2,786 3,323 4,658 6,551 2,846 2,651 2,794 5,542 8,158 21,448 3,745 2,409

-Other Capi tal & Rupee Debt -1,270 4,703 -3,433 -731 -5,774 3,545 -2,144 321 -6,940 -3,439 -754 -2,526

Ov erall Balance of Payments 276 -12,812 -5,737 522 -158 781 2,681 -346 -10,355 19,103 7,057 11,179

Errors and Omissions -399 -538 -555 1,080 226 1,081 302 887 -434 -586 -798 -791

Quarter-ended





42


October 27, 2014

III. Inflation





43


October 27, 2014III. Inflation Indicators: WPI


Non-Food WPIHeadline WPI

Seasonally Adjusted Sequential Momentum

-9%

-6%

-3%

0%

3%

6%

9%

12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14

AXJ ex India PPI

WPI

-0.4%

2.4%

YoY%

-3%

-1%

2%

4%

6%

8%

-3%

-1%

2%

4%

6%

8%


YoY% 3MMA

YoY%

3.3%

2.8%

-13%

-8%

-3%

2%

7%

12%

17%

-13%

-8%

-3%

2%

7%

12%

17%


1.7%

WPI MoM, SAAR, 3MMA

Non foodWPI MoM, SAAR, 3MMA

-1.8%


WPI Moderated to 2.4% in September Due to High Base Effect – Near 5Y Low

WPI Index – Detail by Segment (YoY%)

Ov erall Food

Global

Commodities

(ex Mineral

Oil)

Fuel

Non Food Non

Global

Commodity

Global

Commodities

Non Food

Inflation

Weights 100 27 29 15 29 38 73

Sep-13 7.0% 11.1% 1.9% 11.7% 4.4% 5.4% 5.2%

Oct-13 7.2% 11.7% 2.6% 10.5% 4.4% 5.4% 5.3%

Nov-13 7.5% 12.9% 2.5% 11.1% 4.1% 5.5% 5.2%

Dec-13 6.4% 9.0% 2.8% 10.9% 4.1% 5.6% 5.2%

Jan-14 5.1% 5.8% 2.5% 9.8% 4.1% 5.0% 4.8%

Feb-14 5.0% 5.4% 3.1% 8.7% 4.3% 4.9% 4.9%

Mar-14 6.0% 6.8% 3.4% 11.8% 4.1% 5.6% 5.7%

Apr-14 5.5% 6.5% 3.9% 9.3% 3.6% 5.9% 5.1%

May-14 6.2% 7.5% 5.0% 10.5% 3.1% 7.1% 5.6%

Jun-14 5.7% 6.8% 4.6% 9.0% 3.0% 6.3% 5.2%

Jul-14 5.4% 7.3% 4.0% 7.4% 2.3% 5.2% 4.5%

Aug-14 3.7% 5.3% 2.7% 4.5% 2.3% 3.6% 3.0%

Sep-14 2.4% 3.9% 1.9% 1.3% 1.7% 1.7% 1.7%





44


October 27, 2014

III. Inflation Indicators: CPI


MS Forecasts vs. Consensus

CPI New Index (2010 = 100, YoY %) New CPI Index – Detail by Segment (YoY%)


6.5%

7.7%

5.9%6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

M a

r - 1 2

M a y - 1

2

J u

l - 1 2

S e p

- 1 2

N o v - 1

2

J a n

- 1 3

M a

r - 1 3

M a y - 1

3

J u

l - 1 3

S e p

- 1 3

N o v - 1

3

J a n

- 1 4

M a

r - 1 4

M a y - 1

4

J u

l - 1 4

S e p

- 1 4

Headline CPI Food

Core CPI

YoY%

Positive Surprise in CPI Inflation for Sept – Food & Non-Food Inflation Moderated

Headli ne FoodTobacco &

Intoxicants

Fuel &

Light

Clothing,

Bedding &

Footwear

Hous ing Mis c.

Weight 100.0 47.6 2.1 9.5 4.7 9.8 26.3

Sep-13 9.8% 11.5% 9.0% 7.7% 9.3% 10.4% 7.4%Oct-13 10.2% 12.6% 8.8% 7.0% 9.1% 10.4% 6.9%

Nov-13 11.2% 14.7% 8.9% 7.0% 8.9% 10.3% 6.9%

Dec-13 9.9% 12.1% 9.3% 7.0% 9.2% 10.3% 7.0%

Jan-14 8.8% 9.9% 9.4% 6.5% 9.1% 10.2% 7.1%

Feb-14 8.0% 8.6% 9.2% 6.1% 9.1% 9.9% 6.8%

Mar-14 8.3% 9.1% 8.8% 6.3% 9.0% 9.9% 6.8%

Apr-14 8.6% 9.6% 8.7% 5.9% 8.7% 9.7% 6.8%

May-14 8.3% 9.4% 8.1% 5.0% 8.8% 9.2% 6.9%

Jun-14 7.5% 8.0% 7.7% 4.7% 8.6% 9.1% 6.5%

Jul-14 8.0% 9.1% 8.7% 4.5% 8.7% 8.9% 6.6%

Aug-14 7.7% 9.1% 8.8% 4.2% 8.4% 8.5% 5.9%

Sep-14 6.5% 7.6% 8.4% 3.5% 7.6% 8.1% 4.7%

7.1

7.2

6.3

5.8

6.0

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

J u n - 1

4

S e p - 1

4

D e c - 1

4 E

M a r - 1 5 E

J u n - 1

5 E

S e p - 1

5 E

D e c - 1

5 E

M a r - 1 6 E

J u n - 1

6 E

Bloomberg Consensus

Consensus Economics

MS Forecasts

CPI YoY%

-1.1%

-0.6%

-0.1%

0.4%

0.9%

1.4%

1.9%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

20142013Past 3Y Avg

India New CPI, MoM% Non-seasonally Adjusted

Cumulative Increase till YTD Sept:2014: 5.1%

2013: 8.4%Past 3Y Avg: 7.8%

New CPI Index (MoM%, Non-seasonally Adjusted)







46


October 27, 2014III. Inflation Indicators: Food Inflation


CPI Food Inflation WPI Food Inflation

Moderation in Wholesale & Retail Food Inflation in September

High Base Effect to aid Moderation inWholesale Food Prices…

… As Well as Retail Food Prices

0%

3%

6%

9%

12%

15%

18%

21%

0%

3%

6%

9%

12%

15%

18%

21%


CPI (IW) Food

CPI (new index) Food

Food index weight in CPI(IW) is 46.19% and in CPI(new index) is 47.58%

YoY%

0%

4%

8%

12%

16%

20%


Food Inflation

YoY%

Total food is sum of primary

& manufactured food index,sugarcane & oilseed. Totalweight is 26.73%


110

115

120

125

130

135

140

145

150

155

J a

n

F e

b

M a r

A p r

M a

y

J u

n

J u

l

A u

g

S e

p

O c

t

N o

v

D e

c

2014 2013 2012

CPI Food Component

2010= 100

109

113

117

121

125

129

133

137

141

145

J a n

F e

b

M

a r

A

p r

M a y

J u n

J

u l

A u g

S e p

O

c t

N o v

D e c

2014 2013 2012

2010=100

WPI - Food Component





47


October 27, 2014

Trend in High Frequency Food Prices Shows that Food Prices Moderated in October

High Frequency Food Prices Indicate Moderation inWholesale Food Prices on a YoY basis…

…While Sequential Price Trend Shows Sligh t Increase

High Frequency Food Prices Indicate Moderation inRetail Food Prices on a YoY basis…

… Sequential Price Trend Remains Steady

Source: CEIC, Dept. of Consumer Affairs, Morgan Stanley Research. Wholesale and Retail Prices as of October 21 2014

III. Inflation Indicators: Food Inflation

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

S e p - 1

2

O c

t - 1 2

N o v - 1

2

D e c - 1

2

J a n - 1

3

F e

b - 1

3

M a r - 1

3

A p r - 1

3

M a y - 1

3

J u n - 1

3

J u

l - 1 3

A u g - 1

3

S e p - 1

3

O c

t - 1 3

N o v - 1

3

D e c - 1

3

J a n - 1

4

F e

b - 1

4

M a r - 1

4

A p r - 1

4

M a y - 1

4

J u n - 1

4

J u

l - 1 4

A u g - 1

4

S e p - 1

4

O c

t - 1 4

Retail Prices CPI - Food

Retail Food prices aggregated using CPIweights (approx 38% wt), to proxy the

CPI-Food component

YoY%

95

97

99

101

103

105

107

109

111

113

115

0 9 - J u n - 1

4

1 4 - J u n - 1

4

1 9 - J u n - 1

4

2 4 - J u n - 1

4

2 9 - J u n - 1

4

0 4 - J u

l - 1 4

0 9 - J u

l - 1 4

1 4 - J u

l - 1 4

1 9 - J u

l - 1 4

2 4 - J u

l - 1 4

2 9 - J u

l - 1 4

0 3 - A u g - 1

4

0 8 - A u g - 1

4

1 3 - A u g - 1

4

1 8 - A u g - 1

4

2 3 - A u g - 1

4

2 8 - A u g - 1

4

0 2 - S e p - 1

4

0 7 - S e p - 1

4

1 2 - S e p - 1

4

1 7 - S e p - 1

4

2 2 - S e p - 1

4

2 7 - S e p - 1

4

0 2 - O c

t - 1 4

0 7 - O c

t - 1 4

1 2 - O c

t - 1 4

1 7 - O c

t - 1 4

2 2 - O c

t - 1 4

Weekly Food Price

2 Week Average

Weekly Retail Food PriceIndex(Index 6 Jun 2014=100)

Retail Prices

98

99

100

101

102

103

104

105

0 9

- J u n - 1

4

1 4

- J u n - 1

4

1 9

- J u n - 1

4

2 4

- J u n - 1

4

2 9

- J u n - 1

4

0

4 - J u

l - 1 4

0

9 - J u

l - 1 4

1

4 - J u

l - 1 4

1

9 - J u

l - 1 4

2

4 - J u

l - 1 4

2

9 - J u

l - 1 4

0 3

- A u g - 1

4

0 8

- A u g - 1

4

1 3

- A u g - 1

4

1 8

- A u g - 1

4

2 3

- A u g - 1

4

2 8

- A u g - 1

4

0 2

- S e p - 1

4

0 7

- S e p - 1

4

1 2

- S e p - 1

4

1 7

- S e p - 1

4

2 2

- S e p - 1

4

2 7

- S e p - 1

4

0 2 - O c

t - 1 4

0 7 - O c

t - 1 4

1 2 - O c

t - 1 4

1 7 - O c

t - 1 4

2 2 - O c

t - 1 4

Weekly Food Price

2 Week Average

Weekly Wholesale FoodPrice Index(Index 6 J un 2014=100)

Wholesale Prices

-1%

4%

9%

14%

19%

24%

O c

t - 1 1

D e c - 1

1

F e b - 1

2

A p

r - 1 2

J u n - 1

2

A u g - 1

2

O c

t - 1 2

D e c - 1

2

F e b - 1

3

A p

r - 1 3

J u n - 1

3

A u g - 1

3

O c

t - 1 3

D e c - 1

3

F e b - 1

4

A p

r - 1 4

J u n - 1

4

A u g - 1

4

O c

t - 1 4

Wholesale Prices YoY

WPI YoY (Food items for which daily price

data is available have been included)

*Food items included for calculation ofwholesale food price index constitute12.32% weight of the total weight vs.26.73% of food articles in the monthly WPI

Seasonal factors led to som eincrease in prices





48


October 27, 2014

-3%

-2%

-1%

0%

1%

2%

3%

4%

Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14

Total Rural Wage

New wage series MoM5Yr Avg MoM Old wage series

Rural and Urban Wage Growth Moderating

III. Inflation Indicators: Wages

Proxy for Trend In Urban Wages (YoY%) Proxy for Trend in Urban Wages

Source: RBI, Labour Bureau, Capitaline, Morgan Stanley Research. *The labour bureau has released a new wage series starting from Nov 2013.

3%

5%

7%

9%

11%

13%

15%

17%

19%

21%

23%

J u

l - 0 6

J a n - 0

7

J u

l - 0 7

J a n - 0

8

J u

l - 0 8

J a n - 0

9

J u

l - 0 9

J a n - 1

0

J u

l - 1 0

J a n - 1

1

J u

l - 1 1

J a n - 1

2

J u

l - 1 2

J a n - 1

3

J u

l - 1 3

J a n - 1

4

J u

l - 1 4

Rural Wage

Rural Farm Wage

YoY% 3MMA

Old Series until Oct-13. New seriesstarts from Nov-13. We have usedthe MoM change from new seriesfrom Jan-14 onwards. For Nov andDec we have used the 5Y avg MoM

RoughEst.

Rural wagessaw a 5yearperiod ofcontinuousacceleration

National Rural Employment

Guarantee scheme waslaunched in Feb 2006

Rural Wage Growth Sequential increase in Wages Rates Slowing*

0%

5%

10%

15%

20%

25%

30%

35%

40%

J u

n - 0

3

J u

n - 0

4

J u

n - 0

5

J u

n - 0

6

J u

n - 0

7

J u

n - 0

8

J u

n - 0

9

J u

n - 1

0

J u

n - 1

1

J u

n - 1

2

J u

n - 1

3

J u

n - 1

4

4Q trailing avg

Growth in Total Wages Paid by BSE 500 Companies

6.0%

6.5%

7.0%

7.5%

J u n - 0

3

J u n - 0

4

J u n - 0

5

J u n - 0

6

J u n - 0

7

J u n - 0

8

J u n - 0

9

J u n - 1

0

J u n - 1

1

J u n - 1

2

J u n - 1

3

J u n - 1

4

4Q trailing avg

BSE 500 Employee Expense as % of Net Sales





49


October 27, 2014

IV. Monetary Indicators




50


October 27, 2014

IV. Monetary Indicators: Money Supply

Source: RBI, Bloomberg, Morgan Stanley Research * Net FX accretion is Net foreign assets less net non monetary liabilities

Reserve Money vs. M3 (YoY %)Reserve Money – Contribution to Growth (ppt)

M3 Growth Rose to 13.2% YoY in September

Money Multipl ier M1 Growth

4%

6%

8%

10%

12%

14%

16%

Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14

M0, YoY%,

M3 Growth2 month moving avg

4.3

4.5

4.7

4.9

5.1

5.3

5.5

5.7

5.9

4.3

4.5

4.7

4.9

5.1

5.3

5.5

5.7

5.9

Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14

2 month moving avg

-10%

-5%

0%

5%

10%

15%

20%

25%

-10%

-5%

0%

5%

10%

15%

20%

25%


M1 (Nominal) Real M1 (On CPI IW) Real M1 (on CPI new)

YoY%

-10%

-7%-4%

-1%

2%

5%

8%

11%

14%

17%

Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14

Net RBI Credit to Govt Net RBI Credit to Comm Sector

Govt's Currency Liabilities Net FX Accretion*

M0 YoY%


Strong Net FX assets have meant reducedneeds for open market operations




51


October 27, 2014

IV. Monetary Indicators: Credit


Credit Growth – Nominal vs. RealCredit Growth vs. Deposit Growth

Credit Growth by Segment Incremental Bank Credit as a % of GDP

8%

12%

16%

20%

24%

28%

32%

8%

12%

16%

20%

24%

28%

32%

Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14

Credit

Deposit

10.6%

12.6%

YoY%

-5%

0%

5%

10%

15%

20%

25%

30%

-5%

0%

5%

10%

15%

20%

25%

30%


Nominal Credit GrowthReal Credit Growth (on WPI)

Real Credit Growth (on CPI)

YoY%


Mar-13 Mar-14 Jul-14 Aug-14

Non-food Credit 14.0 14.3 12.6 10.2

Agr icu ltu re & A lli ed Ac tiv iti es 8.1 13.5 19.5 18.8

Industry (Micro & Small, Medium and

Large) 15.7 13.1 10.1 7.6

--Micro & Small 20.6 23.7 21.8 19.8

--Medium -5.6 2.2 -2.9 -7.5

--Large 16.7 12.2 9.2 6.8

Services 13.6 16.1 12.3 8.9

Personal Loans 14.5 15.5 14.5 12.8

YoY%

Deposi t Growth Remains Above Credit Growth

Credit growth d ecelerated due tohigh base of l ast year

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

F e b - 0

8

J u n - 0

8

O c t - 0

8

F e b - 0

9

J u n - 0

9

O c t - 0

9

F e b - 1

0

J u n - 1

0

O c t - 1

0

F e b - 1

1

J u n - 1

1

O c t - 1

1

F e b - 1

2

J u n - 1

2

O c t - 1

2

F e b - 1

3

J u n - 1

3

O c t - 1

3

F e b - 1

4

J u n - 1

4

O c t - 1

4

12M trailin g sum as % of GDP




52


October 27, 2014

IV. Monetary Indicators: Deposit

Source: RBI, Bloomberg, Morgan Stanley Research

Demand & Time Deposi t –Contribution to Deposit Growth

Deposit Growth – Nominal vs. Real

Credit-Deposi t Ratio Remains Steady in October

Credit-Deposit Ratio vs. Investment-Deposit Ratio Credit-Deposit Ratio – Scenario Analysis

-4%

0%

4%

8%

12%

16%

20%

-4%

0%

4%

8%

12%

16%

20%

Oct-10 Oct-11 Oct-12 Oct-13 Oct-14

Time DepositDemand Deposit

YoY%

-1%

3%

7%

11%

15%

19%

23%

27%

-1%

3%

7%

11%

15%

19%

23%

27%


Nominal Deposit GrowthReal Deposit Growth (on WPI)

Real Deposit Growth (on CPI)

YoY%

28%

29%

30%

31%

32%

33%

34%

68%

70%

72%

74%

76%

78%

Oct-10 Oct-11 Oct-12 Oct-13 Oct-14

Credit Deposit Ratio,LS

Investment Deposit Ratio, RS


70%

71%

72%

73%

74%

75%

76%

77%

78%

79%

80%

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

MSScenarios

Scenario 1: Credit growth at 10.6%Deposit growth at 12.6%

Scenario 2: Credit growth at 13%Deposit growth at 14%

Current credit gr owth at 10.6%deposit g rowth at 12.6%

Scenario 3: Credit growth at 15%Deposit growth at 12.5%






54


October 27, 2014

IV. Monetary Indicators: Asset Quality

Source: Capitaline, Crisil Research, CDR website, Company Data, Morgan Stanley India Banks Research Team, Morgan Stanley Research ^ For all banks as per RBI

Banking System – Impaired Loan Ratio Amount of Loans Referred to Corporate Debt

Restructuring (CDR)

Asset Qual ity – Impaired Loan Ratio Sti ll High but Trend Improving at the Margin

State Owned Banks – Impaired Loan Ratio Ratio of Rating Upgrades to Downgrades (Crisil )

0%

2%

4%

6%

8%

10%

F2008 F2009 F2010 F2011 F2012 F2013 F2014

GNPLs Restructured Loans

3.4

5.1

6.9

6.0

9.2Impaired Loans Ratio^

7.6

9.8

0.2x

1.1x

2.3x2.2x

1.5x

0.9x

0.7x 0.6x

0.9x0.8x

1.6x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

1HFY10 1HFY11 1HFY12 1HFY13 1HFY14 1HFY15

Credit Ratio (Upgrades to Downgrades)


1%

2%

3%

4%

5%

6%

F2005 F2006 F2007 F2008 F2009 F2010 F2011 F2012 F2013 F2014 F1Q15

SOE Banks (MS Coverage) - Impaired Loan Formation ex State electricityboard & Air India restructuring

As % of Trailing 12M Loans, annlzd

0.3%

0.7%0.4%0.3%

0.6%

1.9%

0.6%

2.7%2.4%2.4%

1.9%1.9%

3.6%

2.6%

3.3%

2.1%

3.1%

1.9%

0.9%

0.0%0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

050

100

150

200

250

300

350

400

450

500

F 3 Q 1 0

F 1 Q 1 1

F 3 Q 1 1

F 1 Q 1 2

F 3 Q 1 2

F 1 Q 1 3

F 3 Q 1 3

F 1 Q 1 4

F 3 Q 1 4

F 1 Q 1 5

Amount of loans referred(Rs bn, LS)

CDR as % of System 12M Trailing Loans (Annualised, RS)


I di E i M I di t Ch tb k



55


October 27, 2014

IV. Monetary Indicators: Rates

Source: RBI, Bloomberg, Morgan Stanley Research Note * Commercial paper is used as a substitute for a bank loan and is a short term money market instrument which matures within aperiod of 270 days, and certificate of deposit is a document issued by the bank to an investor who chooses to deposit funds in the bank for a specific amount of time.

Inter-bank Rate vs. Policy Rate Band91-day T-bill vs. 10Y G-sec Yield (%)

Market Rates Largely Steady in October

3M Commercial Paper (CP) vs. 3M Certi ficate ofDeposit (CD)* Rate

Deposit Rate (SBI 1Y)

3%

4%

5%

6%

7%

8%

9%

10%

3%

4%

5%

6%

7%

8%

9%

10%

O c t - 1 0

J a n - 1 1

A p r - 1 1

J u l - 1 1

O c t - 1 1

J a n - 1 2

A p r - 1 2

J u l - 1 2

O c t - 1 2

J a n - 1 3

A p r - 1 3

J u l - 1 3

O c t - 1 3

J a n - 1 4

A p r - 1 4

J u l - 1 4

O c t - 1 4

Reverse Repo RateRepo Rate

Interbank Rate

MSF

5.5%

6.5%

7.5%

8.5%

9.5%

5.5%

6.5%

7.5%

8.5%

9.5%

J u n - 1

0

O c t - 1 0

F e b - 1

1

J u n - 1

1

O c t - 1 1

F e b - 1

2

J u n - 1

2

O c t - 1 2

F e b - 1

3

J u n - 1

3

O c t - 1 3

F e b - 1

4

J u n - 1

4

O c t - 1 4

1Y Deposit Rate

2

4

6

8

10

12

2

4

6

8

10

12


3M CD Rate

3M CP Rate

3

4

5

6

7

8

9

10

11

12

3

4

5

6

7

8

9

10

11

12


10Y G-sec Yield

91D T-Bill Yield



I di E i M I di t Ch tb k



56


October 27, 2014

IV. Monetary Ind icators: Real Rates

Source: RBI, Bloomberg, Morgan Stanley Research

Real 91-Day T-bi ll YieldReal 10Y G-sec Yield

Real Rates Systematically in Positive Territory Across the Board

Real 3M CP Rate Real 3M CD Rate

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

O c t - 0 9

F e b - 1

0

J u n - 1

0

O c t - 1 0

F e b - 1

1

J u n - 1

1

O c t - 1 1

F e b - 1

2

J u n - 1

2

O c t - 1 2

F e b - 1

3

J u n - 1

3

O c t - 1 3

F e b - 1

4

J u n - 1

4

O c t - 1 4

Real 10Y g-sec (on WPI)Real 10Y g-sec (on CPI IW)

Real 10Y g-sec (on New CPI)

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

O c t - 0 9

F e b - 1

0

J u n - 1

0

O c t - 1 0

F e b - 1

1

J u n - 1

1

O c t - 1 1

F e b - 1

2

J u n - 1

2

O c t - 1 2

F e b - 1

3

J u n - 1

3

O c t - 1 3

F e b - 1

4

J u n - 1

4

O c t - 1 4

Real 91-day T-bill (on WPI)

Real 91-day T-bill (on CPI IW)

Real 91-day T-bill (on New CPI)

-12%

-9%

-6%

-3%

0%

3%

6%

-12%

-9%

-6%

-3%

0%

3%

6%

O c

t - 0 9

F e b - 1

0

J u n - 1

0

O c

t - 1 0

F e b - 1

1

J u n - 1

1

O c

t - 1 1

F e b - 1

2

J u n - 1

2

O c

t - 1 2

F e b - 1

3

J u n - 1

3

O c

t - 1 3

F e b - 1

4

J u n - 1

4

O c

t - 1 4

Real 3M CP (on WPI)

Real 3M CP (on CPI IW)

Real 3M CP (on New CPI)-12%

-9%

-6%

-3%

0%

3%

6%

-12%

-9%

-6%

-3%

0%

3%

6%

O c

t - 0 9

F e

b - 1

0

J u n - 1

0

O c

t - 1 0

F e

b - 1

1

J u n - 1

1

O c

t - 1 1

F e

b - 1

2

J u n - 1

2

O c

t - 1 2

F e

b - 1

3

J u n - 1

3

O c

t - 1 3

F e

b - 1

4

J u n - 1

4

O c

t - 1 4

Real 3M CD (on WPI)

Real 3M CD (on CPI IW)

Real 3M CD (on New CPI)



India Economics Macro Indicators Chartbook



57


October 27, 2014

IV. Monetary Ind icators: Real Rates

Source: RBI, Bloomberg, Morgan Stanley Research Note: Policy rate since July using the marginal standing facility (MSF) rate. E-Morgan Stanley Research estimates

Real Poli cy Rate (adj. for CPI)Real Poli cy Rate (adj. for WPI)

Real Rates Systematically in Positive Territory Across the Board

Real Deposit Rate (SBI 1Y, adj. for WPI) Real Deposi t Rate (SBI 1Y, adj. for CPI)

-5%

-2%

1%

4%

7%

-5%

-2%

1%

4%

7%

O c

t - 0 5

A p r - 0

6

O c

t - 0 6

A p r - 0

7

O c

t - 0 7

A p r - 0

8

O c

t - 0 8

A p r - 0

9

O c

t - 0 9

A p r - 1

0

O c

t - 1 0

A p r - 1

1

O c

t - 1 1

A p r - 1

2

O c

t - 1 2

A p r - 1

3

O c

t - 1 3

A p r - 1

4

O c

t - 1 4

Real 1Y Deposit Rate (on WPI)

-10%

-8%

-6%

-4%

-2%

1%

3%

5%

-10%

-8%

-6%

-4%

-2%

1%

3%

5%

O c t - 0 5

A p r - 0 6

O c t - 0 6

A p r - 0 7

O c t - 0 7

A p r - 0 8

O c t - 0 8

A p r - 0 9

O c t - 0 9

A p r - 1 0

O c t - 1 0

A p r - 1 1

O c t - 1 1

A p r - 1 2

O c t - 1 2

A p r - 1 3

O c t - 1 3

A p r - 1 4

O c t - 1 4

Real 1Y Deposit Rate (on CPI IW)

Real 1Y Deposit Rate (on New CPI)

-5%

-3%

-1%

1%

3%

5%

-5%

-3%

-1%

1%

3%

5%

O c

t - 0 5

A p r - 0

6

O c

t - 0 6

A p r - 0

7

O c

t - 0 7

A p r - 0

8

O c

t - 0 8

A p r - 0

9

O c

t - 0 9

A p r - 1

0

O c

t - 1 0

A p r - 1

1

O c

t - 1 1

A p r - 1

2

O c

t - 1 2

A p r - 1

3

O c

t - 1 3

A p r - 1

4

O c

t - 1 4

Real Policy Rate (on WPI)

E-10%

-8%

-6%

-4%

-2%

0%

2%

4%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

O c

t - 0 5

O c

t - 0 6

O c

t - 0 7

O c

t - 0 8

O c

t - 0 9

O c

t - 1 0

O c

t - 1 1

O c

t - 1 2

O c

t - 1 3

O c

t - 1 4

Real Policy Rates (OnCPI IW)

Real Policy Rates (onNew CPI)






58


October 27, 2014

-14.0

-9.0

-4.0

1.0

6.0

-14.0

-9.0

-4.0

1.0

6.0

O c t - 0 0

O c t - 0 1

O c t - 0 2

O c t - 0 3

O c t - 0 4

O c t - 0 5

O c t - 0 6

O c t - 0 7

O c t - 0 8

O c t - 0 9

O c t - 1 0

O c t - 1 1

O c t - 1 2

O c t - 1 3

O c t - 1 4

US (on CPI) India (on CPI IW)

Real 3M Tbill Rates

India US Interest Rate Differentials

Real 3M Rate (adj. for CPI) Real 10Yr Rate (adj. for CPI)

Real 3M Rate Spread (adj. for CPI)

Source: Bloomberg, Morgan Stanley Research

Real 10Yr Rate Spread (adj. for CPI)

Widening short-term interest rates

differentials-8.5-6.5

-4.5

-2.5

-0.5

1.5

3.5

5.5

7.5

9.5

-8.5-6.5

-4.5

-2.5

-0.5

1.5

3.5

5.5

7.5

9.5

O c

t - 0 0

O c

t - 0 1

O c

t - 0 2

O c

t - 0 3

O c

t - 0 4

O c

t - 0 5

O c

t - 0 6

O c

t - 0 7

O c

t - 0 8

O c

t - 0 9

O c

t - 1 0

O c

t - 1 1

O c

t - 1 2

O c

t - 1 3

O c

t - 1 4

US (on CPI) India (on CPI IW)

Real 10Yr Rates

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.02.0

4.0

6.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.02.0

4.0

6.0

O c

t - 0 0

O c

t - 0 1

O c

t - 0 2

O c

t - 0 3

O c

t - 0 4

O c

t - 0 5

O c

t - 0 6

O c

t - 0 7

O c

t - 0 8

O c

t - 0 9

O c

t - 1 0

O c

t - 1 1

O c

t - 1 2

O c

t - 1 3

O c

t - 1 4

Spread of India Real 3M Tbill Rates over US

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.02.0

4.0

6.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.02.0

4.0

6.0

O c

t - 0 0

O c

t - 0 1

O c

t - 0 2

O c

t - 0 3

O c

t - 0 4

O c

t - 0 5

O c

t - 0 6

O c

t - 0 7

O c

t - 0 8

O c

t - 0 9

O c

t - 1 0

O c

t - 1 1

O c

t - 1 2

O c

t - 1 3

O c

t - 1 4

Spread of India Real 3M Tbill Rates over US






59


October 27, 2014

V. Public Finance Indicators








61


October 27, 2014

Monthly 3M Trailing 12M Trailing

Aug-13 10.7% 19.0% 8.3%

Sep-13 13.6% 11.6% 9.4%

Oct-13 32.2% 17.1% 11.0%

Nov-13 12.5% 18.5% 11.2%

Dec-13 15.5% 19.4% 13.6%

Jan-14 -11.7% 4.8% 11.4%

Feb-14 20.0% 7.6% 12.7%

Mar-14 -13.8% -4.4% 10.9%

Apr-14 18.6% 3.6% 11.2%

May-14 38.1% 9.0% 13.3%

Jun-14 -19.2% 8.2% 7.8%

Jul-14 -35.0% -8.6% 3.5%

Aug-14 19.0% -11.9% 4.4%

V. Public Finance Indicators: Expenditure

Source: CGA, Morgan Stanley Research Note - Data for central government accounts

Total Expendi ture (% of GDP, Annualized)Total Expendi ture (YoY%)

Expenditure Breakdown (YoY%)

Jun-14 Jul-14 Aug-14 Apr-Aug

2014

Apr-Aug

2013

Total Expenditure -19.2% -35.0% 19.0% 1.5% 17%

Non-Plan Expenditure -32% -33% 14% 3% 15%

Ministry of Defence -9% 0% 17% 3% 20%

Department of Fertil izers -98% -92% 207% -9% 12%

Department of Food & Public Dist. -36% -88% 31% 3% 7%

Interest Payments 38% 12% -16% 20% 13%

Ministry of Petroleum & Natural Gas -99% -100% 54% -18% 16%

Plan Expenditure 12% -42% 37% -3% 24%

Ministry of Rural Development 46% -55% 127% 20% 9%

Transfers to States & UT Govts -10% -9% -43% -15% 9%

Revenue Expenditure -18% -38% 17% 2% 17%

Capital Expenditure -28% -8% 42% -1% 21%

Total Expenditure ex subsidy ex

interest (ExpXIS) 0.1% -23.8% 18.6% -1.5% 21.4%


Expenditure Picked Up in August, After Declining in Prior Two Months

12M trailing

Expenditure as% of GDPremains stableat low levels

Expendi ture Breakdown (% of GDP, Annualized)

Jun-14 Jul-14 Aug-14 Apr-Aug

2014

Apr-Aug

2013

Total Expenditure 13.6% 9.2% 16.9% 13.5% 15.0%

Non-Plan Expenditure 8.3% 7.1% 12.4% 9.9% 10.8%

Ministry of Defence 1.9% 2.0% 2.3% 2.1% 2.4%Department of Fertil izers 0.0% 0.1% 1.8% 0.8% 1.0%

Department of Food & Public Dist. 1.0% 0.1% 1.4% 1.2% 1.3%

Interest Payments 3.7% 2.8% 3.5% 3.1% 2.9%

Ministry of Petroleum & Natural Gas 0.0% 0.0% 1.3% 0.8% 1.0%

Plan Expenditure 5.3% 2.1% 4.6% 3.6% 4.1%

Ministry of Rural Development 0.8% 0.1% 1.3% 0.8% 0.8%

Transfers to States & UT Govts 0.5% 0.6% 0.4% 0.4% 0.6%

Revenue Expenditure 12.3% 7.9% 15.4% 11.9% 13.2%

Capital Expenditure 1.3% 1.2% 1.6% 1.6% 1.8%

Tota Expenditure ex subsidy ex

interest (ExpXIS) 8.9% 6.1% 9.0% 7.6% 8.7%

Monthly 3M Trailing 12M Trailing Aug-13 16.0% 16.8% 14.2%

Sep-13 16.3% 15.9% 14.2%

Oct-13 12.5% 14.8% 14.3%

Nov-13 10.9% 13.1% 14.3%

Dec-13 15.5% 12.8% 14.3%

Jan-14 11.4% 12.5% 14.1%

Feb-14 13.8% 13.5% 14.1%

Mar-14 17.3% 14.1% 13.8%

Apr-14 12.6% 14.4% 13.8%

May-14 16.5% 15.3% 14.0%

Jun-14 13.6% 14.1% 13.6%

Jul-14 9.2% 13.0% 13.1%

Aug-14 16.9% 13.1% 13.1%

Exp growthpicked up in Aug, afterdeclining in

Jun and Julbut 12-mthtrailing growthremains closeto 8 year low







63

d a co o cs ac o d cato s C a tboo

October 27, 2014

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

3000

35004000

4500

5000

5500

6000

6500

7000

7500

Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14

Brent (INR/bbl), LS

Net oil imports,3M trailing annualised % of GDP, RS

Net oil imports, 12M trailing % of GDP, RS

Net oil imports (3m trailing sumannualized) rose to 4.6% of GDP inSeptember from a 41-month low at 4.4%of GDP in August, indicating somefrontloading by companies to takeadvantage of the low oil prices.

Source: Bloomberg, PPAC, CEIC, Morgan Stanley Research

Oil Subsidy BurdenBrent (INR/bbl) vs. Oil Import Burden

Net Oil Imports as % of GDP Increased to 4.6% of GDP (3M Annualized) in September

V. Public Finance Indicators: Deficit

LPG (cooking gas) ConsumptionDiesel & Petrol Consumption

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14

Diesel Petrol Total Petroleum Products

Govt. hiked Diesel prices

YoY% 3MMAGovt. allowedperiodic price risein diesel

Source: Morgan Stanley Research Oil & Gas analyst – Vinay Jaising (Mse), cooking gas pricehike of Rs30/cylinder in Jan-16


-10%

-5%

0%

5%

10%

15%

-10%

-5%

0%

5%

10%

15%

Sep-12 Mar-13 Sep-13 Mar-14 Sep-14

YoY% 3MMA, YoY%

Govt. increased

subsidized LPGcap to 9 per yr / HH

Govt. iintroducedcap on subsidizedLPG cylinder to 6per yr / HH

Govt. increased subsidized LPGcap to 12 per yr / HH

F2013 F2014 F2015E F2016E F2015E F2016E

Oil Price US$/bbl 110.4 110 102 99 95 95

Oil Price US$/bbl Avg 110.4 107.5 104.2 99.0 100.7 95.0

Subsidy

Diesel, INR bn 921 628 117 - 115 -

LPG (cooking gas), INR bn 396 465 428 378 406 342

Kerosene, INR bn 294 306 272 232 253 220

Total - Rs bn 1610 1,399 817 610 775 563

Total - US$ bn 29.6 22.6 13.6 10.2 12.9 9.4

As %of GDP 1.6% 1.2% 0.6% 0.4% 0.6% 0.4%

FX Rate (INR/US$) 54.4 62 60.0 60.0 60.0 60.0

Govt Share (%) 62% 51% 19% 0% 20% 0%

Govt share (INR bn) 1000 708 157 - 156 -

As % of GDP (Fiscal Deficit Imp act) 0.99% 0.62% 0.12% 0.00% 0.12% 0.00%

Savi ngs i n Fi scal Defi ci t (FY14 l evel s) 0.00% -0.37% -0.50% -0.62% -0.50% -0.62%

MS Base Case Lo wer Oil Pice





64

October 27, 2014

As % of GDP F2008 F2009 F2010 F2011 F2012 F2013 F2014 F2015E F2016E

Central Fiscal Deficit 2.5% 6.0% 6.5% 4.8% 5.7% 4.8% 4.5% 4.1% 3.8%

Major Off-budget expenditure

items 0.8% 1.6% 0.2% 0.7% 0.2% 0.2% 0.2% 0.2% 0.2%

Central Fiscal Deficit i ncld off

budget 3.4% 7.5% 6.7% 5.5% 5.9% 5.0% 4.7% 4.3% 4.0%

State Fiscal Deficit 1.5% 2.4% 2.9% 2.1% 1.9% 2.3% 2.4% 2.2% 2.0%

Combined Headline Deficit 4.9% 9.9% 9.6% 7.6% 7.7% 7.4% 7.1% 6.5% 6.0%

Inter-government adjustments -0.1% -0.1% 0.0% 0.0% 0.6% 0.0% 0.0% 0.0% 0.0%

Overall Fiscal Deficit 4.8% 9.9% 9.6% 7.5% 8.3% 7.4% 7.1% 6.5% 6.0%

Overall Fiscal Deficit (excluding

telecom license fee) NA NA NA 8.9% 8.5% 7.6% 7.5% 6.9% NA

Public Finance Indicators:F2015 Fiscal Defic it Budget Target Within Reach

Source: Budget Documents, Morgan Stanley Research, E -Morgan Stanley Research estimates.

V. Public Finance Indicators: DeficitBack to Navigation Page

We believe that the government will be able to meet thebudget target of central government deficit at 4.1% of GDP.

Consol idated Fiscal Deficit F2015 Accounts – Target vs. Year to Date Performance

F2014

(Actual)

F2015 (Apr-

Aug) F2015BE

Implied (Sep-

Mar) F2014

F2015 (Apr-

Aug) F2015BE

Implied (Sept-

Mar)

I. Revenue Receipts 10153 2705 11898 9193 17% 7.1% 17.2% 20.5%

(a) Tax Rev enue (net to Centre) 8160 1855 9773 7918 13% 1.0% 19.8% 25.2%

-- Gross tax revenue 11388 3249 13645 10396 12% 5.1% 19.8% 25.3%

-- Customs 1721 698 2018 1320 6% 0.0% 17.2% 29.0%

-- Excise 1695 455 2071 1617 2% -3.6% 22.2% 32.2%

-- Service Tax 1546 528 2160 1632 24% 14.5% 39.7% 50.4%

-- Corporation tax 3947 736 4510 3774 10% 1.3% 14.3% 17.2%

-- Taxes on Income 2378 785 2783 1997 20% 12.6% 17.0% 18.9%

(b) Non-tax Rev enue 1992 850 2125 1275 41% 23.6% 6.7% -2.3%

II. Capital Receipts (ex-

borrowings) 401 43 740 696 -11% -25.4% 84.6% 103.3%

--Divestments220 1 634 633 -15% - 188.4% 207.9%

III. Total Expenditure 15638 6727 17949 11222 13% 1.5% 14.8% 24.6%

IV. Fiscal Deficit (III-I-II) 5084 3979 5312 1332 7% -1.7% 4.5% 28.4%

INR bn YoY%





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October 27, 2014

Appendix: Sovereign Ratings


S&P Moody’s Fitch

BBB+ Baa1 BBB+

BBB Baa2 BBB

BBB- Baa3 BBB-

BB+ Ba1 BB+

BB Ba2 BB

BB- Ba3 BB-

B+ B1 B+

B B2 B

B- B3 B-

Cut-off forinvestment

grade

S&P Moody’s Fitch

BBB+ Baa1 BBB+

BBB Baa2 BBB

BBB- Baa3 BBB-

BB+ Ba1 BB+

BB Ba2 BB

BB- Ba3 BB-

B+ B1 B+

B B2 B

B- B3 B-

India: Foreign Currency Debt Ratings India: Local Currency Debt Ratings

Stable Stable Stable Negative Stable StableRatingOutlook


S&P recently revised its outlook fromnegative to stable





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October 27, 2014


Real Nifty Index and Broad Market (BSE 500)

(Adjusted for CPI)Nifty Index and Broad Market (BSE 500)

Nifty Index and Broad Market (BSE 500) in US$ TermsNifty Index and Broad Market (BSE 500)

Relative to S&P 500

0

50100

150

200

250

300

350

400

450500

0

100

200

300

400

500

600


Nifty

BSE 500

Index Jan 2000=100

0

50

100

150

200

250

300

0

50

100

150

200

250

300


Nifty

BSE500

Adjusted for CPI IndexIndex Jan 2000=100

0

50

100

150

200

250

300350

400

450

500

0

50

100

150

200

250

300350

400

450

500


Nifty

BSE 500

in US$ termsIndex Jan 2000=100

0

50

100

150

200

250

300350

400

450

500

0

50

100

150

200

250

300350

400

450

500


Nifty

BSE 500

Relative to S&P 500 (in US$ terms)Index Jan 2000=100


Appendix: Equity Market Performance





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October 27, 2014

Years Endi ng March 31 F2011 F2012 F2013 F2014 F2015E F2016E F2017ENational IncomeGDP at Factor cost Rs bn 49,370 52,475 54,821 57,418 60,707 64,648 69,154

GDP (at current mkt prices) Rs bn 77,841 90,097 101,133 113,551 128,219 144,208 162,942GDP (US$ bn) 1,706 1,882 1,861 1,879 2,137 2,326 2,628Growth ratesGross domestic product 9.3% 6.3% 4.5% 4.7% 5.7% 6.5% 7.0% Agriculture and Allied activities (incl. mining) 7.5% 5.1% 1.0% 4.0% 1.6% 2.9% 3.1%Manufacturing, Constn, Electricity 9.5% 6.6% 1.2% 0.5% 4.7% 5.4% 6.6%Services 9.8% 6.5% 7.0% 6.8% 7.2% 7.8% 8.0%Interest ratesRepo Rate (year-end) 6.8% 8.5% 7.50% 8.00% 7.75% 7.75% 7.75%PricesWholesale price index (avg y-y increase) 9.6% 9.0% 7.4% 6.0% 4.1% 4.4% 4.6%Consumer price index (avg y-y increase)# 10.5% 8.4% 10.2% 9.5% 7.0% 6.2% 6.1%External sector

Current accountExports (US$ bn) 253 310 307 319 350 381 430Imports (US$ bn) 382 500 502 466 500 557 631Trade balance (US$ bn) -129 -190 -196 -148 -150 -176 -201Exports as % of Imports 66.3% 62.0% 61.0% 68.3% 70.0% 68.4% 68.1%Invisibles, net (US$ bn) 83 112 107 115 111 123 135Current account balance (US$ bn) (45.7) (78.1) (88.2) (32.4) (38.6) (52.6) (66.4)Current account Balance as a % of GDP (2.7%) (4.2%) (4.7%) (1.7%) (1.8%) (2.3%) (2.5%)Capital accountDebt creating capital inflows (US$ bn) 21 25 24 52 19 23 25Foreign investment (US$ bn) 39 39 47 26 50 47 50Total capital -net (US$ bn) 61 68 89 49 63 73 90Capital inflow as a % of GDP 3.6% 3.6% 4.8% 2.6% 2.9% 3.0% 3.3%

ReservesForeign currency reserves (US$ bn)* 305 295 293 304 328 348 372Foreign currency reserves as no. of months imports 9.6 7.1 7.0 7.8 7.9 7.5 7.1External debtExternal debt (US$ bn) 306 346 390 461 501 547 597External debt as a percentage of GDP 17.9% 18.4% 21.0% 24.5% 23.0% 22.6% 22.2%Public FinanceFiscal deficit (As % of GDP)-----Central government 4.8% 5.7% 4.8% 4.5% 4.1% 3.8% 3.5%-------Central government incld off budget 5.5% 5.9% 5.0% 4.7% 4.3% 4.0% 3.7%

-----State government 2.1% 1.9% 2.3% 2.4% 2.2% 2.0% 1.8%-----Consolidated Deficit 7.6% 7.7% 7.4% 7.1% 6.5% 6.0% 5.5%

Appendix: India – Macroeconomic Forecasts

E = Morgan Stanley Research estimates; Source: RBI, CSO, Budget Documents, and Morgan Stanley Research

*excluding revaluation impact, # New CPI index from F2013








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October 27, 2014

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