The Three Monkeys & India’s Investment Story: Anand Rathi

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India EcoTrix: Nov ’10
The Three Monkeys & India’s Investment Story
 Theme – Subdued investment. After rebounding from the crisis
lows, investment growth in India is stalling and there is no obvious
sign of an impending recovery. The consensus seems to be convinced
that despite this, India is poised to grow 8.5% in FY11 and accelerate
thereafter on the back of strong private consumption that will
compensate for low investment growth. Notably, India has never
registered strong real growth without buoyant investment, particularly
industrial investment. Besides leading to possible future
disappointments, overt optimism about real growth is glossing over
various structural issues and may lead to inappropriate policy choices
and portfolio selections.


Also in this issue:
 GDP. Normal monsoon and buoyant services activity have resulted
in upgrade of our FY11e growth to 7.3% from 6.5%. Yet, we remain
well below the consensus expectation of 8.5% growth.
 IIP. IIP growth has slowed since Dec ’09, although volatile capital
goods have somewhat obscured the trend. We expect industrial
growth to further slow down in 2HFY11, mainly due to base effect.
 Inflation. Inflation is on a softening trajectory and likely to hit ~5 %
by Mar ’11. High food prices remain a concern.
 Government finance. Government revenue ahead of spending,
leading to lower deficits. Reforms to deepen the process in FY12.
 Foreign trade. Stronger import growth widening India’s trade
deficit. Increase FY11 estimate for trade deficit to US$131bn.
 BoP. Current-account deficit scaling new highs, but large capital
inflows to the rescue. Rupee to appreciate to 42/USD by Mar ’11.