10 August 2011

India Strategy – India's 'gold' lining :RBS

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India's private consumption expenditure should stay robust as the wealth effect from gold
holdings could more than offset declines in equity holdings.


Mutual fund and brokerage statements hardly tell the tale of India’s household wealth
We estimate India’s households’ equities exposure, excluding promoter stakes, at US$257bn
as at 5 August 2011. This is down US$33bn or 12% from end-2010. We derive this estimate
by summing direct retail ownership of Indian equities (se India ownership monitor, 5 August
2011) and domestic institutional ownership of Indian equities (assuming that the bulk of
domestic institutional equity holdings reflect indirect household ownership).
The World Gold Council estimates India’s gold ownership at 18,000 tonnes
Excluding the estimated 459 tonnes held by the RBI (US$22.5bn of gold reserves as at end-
2010), this implies non-government gold holdings of around 17,500 tonnes, or US$1,029bn
at 5 August 2011 prices. The value of this stock these holdings has increased US$150bn ytd,
or 17%.


Aggregate private consumption should keep trucking along
Higher interest rates have certainly affected passenger car sales. However, we think aggregate
private consumption should stay robust as the “gold” wealth affect could offset some of the
interest rate pressures and equity market sentiment. Historically, private final consumption
expenditure has been quite resilient in India, with yoy growth troughing at 6.6% in the March 2010
quarter.
India’s two listed pure-play gold loan financing companies
Muthoot Finance Ltd (MUTH IN, mkt cap: Rs70bn; NR, current price Rs189) is India’s largest gold
financing company in terms of loan portfolio, providing personal and business loans secured by
gold jewellery. Manappuram Finance (MGFL IN, mkt cap: Rs44bn, NR, current price Rs52) is its
smaller peer. These two are the only pure-play listed companies in India in this business,
although the big banks do also work in it. Lower net interest margins due to higher competition
and regulation are the key investor concerns for the two.


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