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Key Debate: Is India heading the 2008 way?
We compared 2011 with 2008
Growth: It is already slower in 2011. Infrastructure
spending appears to be higher, however.
Inflation and policy room: Indeed, inflation is lower
than in 2008 and real rates are higher. However, fiscal
balances are also worse, so while there is more room for
monetary action, fiscal action could depend on how
steeply commodity prices fall. Interestingly, commercial
bank liquidity is better than in 2008.
Capital flows: 2011 flows appear to be less than in 2008
and, to that extent, there is less exuberance. However,
India’s current account balance is not that different, and
hence dependence on capital flows remains intact.
Interest rates: Absolute interest rates were a bit higher
in 2008, but then fell sharply in response to the financial
crisis.
Corporate balance sheets: They are far superior in
2011 compared to 2008. To that extent, the aggregate
banking sector NPAs could be lower. Trailing capex is
also much lower, implying a quicker recovery as well.
Valuations: Both relative and absolute valuations are
Similar, although the dispersion is higher in 2011. The
stock-picking opportunity seems better now than in 2008.
Relative interest rates and performance: Correlation
with EM equities rose sharply in 2008 – so keep a watch.
That said, India’s rate differentials are also higher now,
and that is probably a big factor in India’s favor.
Consensus views: Institutions were never sold net in
2008, but so far have been bigger buyers in 2011.
Consensus earnings estimates as well as revisions
breadth is already lower in 2011.
Market sentiment: It seems a lot worse in August 2011
than in August 2008. Hedging appears to be higher,
although the tail risks were not in the price then and do
not seem to be in the price now.
Sector performance: The broad market is doing better
in 2011. Sector performance is strikingly similar except
Tech (which did better in 2008) and Financials (which
are so far doing better in 2011).
Our conclusion: A growth recession with no seizing
up of capital markets is India’s best case in the context.
Significant global stimulus or a breakdown in financial
markets will hurt India on a a relative basis a la 2008.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Debate: Is India heading the 2008 way?
We compared 2011 with 2008
Growth: It is already slower in 2011. Infrastructure
spending appears to be higher, however.
Inflation and policy room: Indeed, inflation is lower
than in 2008 and real rates are higher. However, fiscal
balances are also worse, so while there is more room for
monetary action, fiscal action could depend on how
steeply commodity prices fall. Interestingly, commercial
bank liquidity is better than in 2008.
Capital flows: 2011 flows appear to be less than in 2008
and, to that extent, there is less exuberance. However,
India’s current account balance is not that different, and
hence dependence on capital flows remains intact.
Interest rates: Absolute interest rates were a bit higher
in 2008, but then fell sharply in response to the financial
crisis.
Corporate balance sheets: They are far superior in
2011 compared to 2008. To that extent, the aggregate
banking sector NPAs could be lower. Trailing capex is
also much lower, implying a quicker recovery as well.
Valuations: Both relative and absolute valuations are
Similar, although the dispersion is higher in 2011. The
stock-picking opportunity seems better now than in 2008.
Relative interest rates and performance: Correlation
with EM equities rose sharply in 2008 – so keep a watch.
That said, India’s rate differentials are also higher now,
and that is probably a big factor in India’s favor.
Consensus views: Institutions were never sold net in
2008, but so far have been bigger buyers in 2011.
Consensus earnings estimates as well as revisions
breadth is already lower in 2011.
Market sentiment: It seems a lot worse in August 2011
than in August 2008. Hedging appears to be higher,
although the tail risks were not in the price then and do
not seem to be in the price now.
Sector performance: The broad market is doing better
in 2011. Sector performance is strikingly similar except
Tech (which did better in 2008) and Financials (which
are so far doing better in 2011).
Our conclusion: A growth recession with no seizing
up of capital markets is India’s best case in the context.
Significant global stimulus or a breakdown in financial
markets will hurt India on a a relative basis a la 2008.
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