Eye on India - Indian infra showing Lord Ganesha's appetite:: Macquarie Research,

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Eye on India
Indian infra showing Lord Ganesha's
appetite
Event
 The Indian infrastructure sector is currently showing a voracious appetite,
much like Lord Ganesha (the lord of beginnings, the remover of obstacles and
the God of wisdom and intellect), whose birthday Mumbai is currently
celebrating. But as Lord Ganesha is overfed by his worshippers, we would
caution that the infra sector may just be devouring more cash and time, than
anticipated. The latest report from the Ministry of Statistics and Programme
Implementation (MOSPI) indicates a sharp rise in time and cost overruns for
Infrastructure projects. 567 projects under survey have seen US$27bn or a
20% cost overrun. Railways (+84%) and Steel (+65%) have shown large cost
overruns while Roads (50%) and Power (72%) have shown maximum time
overruns.
 Infrastructure projects had seen a significant decline in cost overruns - from a
high of a 62% increase seen in FY93 to 12% in FY08, but has now inched up
to 20%; while the proportion of projects showing time overruns had reduced
from 61% in FY93 to 34% in FY08, it has now gone up to 43%.
 A McKinsey study in 2009 had estimated that India could suffer US$200bn of
GDP loss by FY17 or a decline in GDP growth rate by 1.1% if such trends
continue. Things have actually worsened in the last two years.
 One thing is certain to us, bank NPLs are set to rise and most PSU banks
especially Canara Bank may feel the heat.
Impact
 Markets continued their bounce-back in a short week: Developed markets
recorded a 3.5% increase and emerging markets increased by 6.4%; the
Indian market was up by 5.2% (as of Tuesday closing, from last Friday). The
best performing sector was Auto (+4.7%) followed by Metals (3.5%). FIIs were
net sold US$240m while domestic MFs net bought US$33m worth of equities.
Our top-10 list performed in line with MSCI but continues to outperform by
680bp since Aug-2010.
 GDP softens on slower consumption, but overstated on past revisions:
India's GDP growth slowed to 7.7% YoY Q1FY12 from 7.8% YoY in Q4FY11;
Private consumption showed slower growth which is corroborated by
softening auto sales and credit growth over the past few months. Our
economist, Tanvee Gupta Jain, expects GDP growth to slow in the coming
quarters before picking up in Q1FY13. (Link)
 Rains pick up; monsoon likely to be normal: After losing momentum midway,
rains in Aug, an important month for farmers, were 10% above normal,
as per the weather department, which now expects overall monsoons to be
normal and above its previous forecast of 95% of long-term average. (Link)
Outlook
 Strong rebound – but lacking catalysts: Indian markets have rebounded
smartly as worries on the global front eased a bit. However, we don’t see any
positive catalysts on the anvil. All eyes will be on the RBI meeting on 16th Sep
for a possible direction. Selling into the rally is advised. Stay defensive.