Just about a decade back, crude oil price in 2000 was at a bottom of $10/ barrel. And in the seventies crude oil prices were in range of $3/ barrel. Then as we all know that was the meteoric rise of crude oil price to a high of $175 /barrel in 2008- a whooping increase of 17.5 times in just eight years – the previous high of crude oil being $33/ barrel in the 1990’s. The high of 2008 was an increase of 5.3 times over the high touched in 1990’s. By now you must get the drift. In 2008, with crude oil at a high of $175 / barrel, every body was expecting the price to go to $ 300/ barrel & more. But I made the correct prediction in my blog - www.rupeekul.blogspot.com- that crude oil is headed for a massive correction- read the blog dated 6june,2008- ‘crude prices at record highs’.
In India, retail prices of petrol, diesel etc. are heavily susidized by the govt.. At import parity , with present crude prices at $78/ barrel- the retail price of petrol will be approximately Rs 70/litre.
By conservative estimates, one can easily say that in the next cycle of increase crude oil prices, they might increase say 3-4 time their previous high of $175/ barrel. The next record high of crude might be in range of $525-700 /barrel. Hard to imagine, isn’t it? But then the crude oil price was just $10/barrel just as recently as 2000.Hence in future we are headed for super high inflation. Be prepared for it.
Monday, March 22, 2010
Sunday, March 14, 2010
Falling exports-Re rise is not to be blamed!
While we have been happy with the growth of Indian economy in the recent global turmoil, it would benefit us not to rest on our laurels. Deep & far reaching changes are taking place in the global economy, India can not afford to be complacent. China is already the biggest economy in Asia -having overtaken Japan & the third largest economy in the world. China has already become the biggest market in the world in some products like automobiles, mobile phone users etc. having overtaken the biggest market in the world-U.S.A.-in this product category.
One remarkable fact worth noting amidst this rapid growth of China is that its currency, the Yuan, is far stronger than Indian rupee vis a vis the American dollar or the euro. One Chinese Yuan is equal to Rs. 5.68. If appreciating rupee is the cause for recent decline in India’s export growth- except the negative impact on I.T. software exports sector- ( as the so called economic experts are saying), then by that measure Chinese Yuan being 5.68 times stronger then rupee, Chinese exports should have collapsed. But that is not the case as shown by following figures :
• Merchandise exports ( 2007, $ billion)-China 969,India 126.
• Textile exports to U.S.A. ( $ billion)-China20,India 4.
This data indicates there is no negative impact of China having a far far stronger currency than India, on its exports. It is remarkable that even at 1$=Rs39.5, we have a far far favorable exchange ratio than China but still we are far far behind China not only in exports but most other competitive economic parameters also, as the following data shows :
• Electricity production (billion KW,2002) China 1641, India 597.
• F.D.I ($billion,2004) China 61, India 5.5.
• Tourist arrival (million,2003) China 33, India 2.4.
• Foreign exchange reserves ($,ending 2007 ) China 1.612 trillion, India 276 billion. One figure to note very seriously from this data is that China’s forex reserves of $1.6 trillion = India’s G.D.P. (2007)!
• Medals in Olympics (2008) China 120 gold, India 1 Gold.
So how does China do this ?a) Infrastructure development = rapid economic growth is the key to China’s stupendous economic success.
In Jan., 2007 , Industrial & Commerce Bank of China (I.C.B.C. ) came out with the largest ever I.P.O. of $ 22 billion ( Rs 88,000 Crores !). Post listing , I.C.B.C. market capitalization is double the market capitalization of entire Indian banking. The success of such mega I.P.O.’’s at Honk Kong stock exchanges is the reason for the premier stock exchange of New York being unhappy with the policies( read success) of Honk Kong stock exchange . But that topic is for another time . And in year 2002, Chinese banking industry was in trouble with estimated 30-40% assets as N.P.A.’s!
China is a major equity market in the world. The market capitalization of Shanghai & Shenzhen exchanges is close to $6 trillion ( Indian equity market valuation -$1.6 trillion ).
Whereas we cannot stop patting our back for having built the Delhi Metro
( at an astronomical cost of Rs 175 Crore /km i.e. Rs 10,500 for 60 odd kms. – to put this in perspective -enough to purchase 10 full bodied Boeing 747 aero planes !) , China was the first country in the world to commercially operate M.A.G.L.E.V- Magnetically levitated train.
On the contrary, the rupee appreciation is good for some sectors as well as the ‘aam admi’ as the imports become cheaper –main benefit being cheaper crude oil prices. ( India being net importer of crude oil).Remember in 1993, $1=Rs15-17. Cheaper gold. Cheaper international travel.( Imagine paying for a round trip airfare to Australia Rs 1400 only with $1= Re 1 ) . Less brain drain. In fact as per rumor mills, only section losing out on Re appreciation are the people who have money stashed away abroad in Swiss banks. And no prizes for guessing who these people are- the politici….
b) Emphasis on F.D.I.
: As the data above shows ,F.D.I. into China is 11 time the F.D.I. coming into India. It is better to allow foreign capital coming in to build assets rather than the money coming in as F.I.I. inflows. F.I.I.’s can always take their money out of Indian equity markets –that is the reason why Indian equity markets fall drastically with F.I.I. selling- but it is very difficult to do so if foreign money has been used to build assets like power plant, manufacturing units etc.
c) Focus on agriculture and increasing output
China produces 400 million tones of food grain from just 100 million hectares whereas India produces 108 million tones of food grain from its 146 million hectares. China rice and wheat productivity (kg per hectare) 6233 and 4155, respectively. India 3034 and 2688 respectively.
d) China –Global Impact
“China’s huge appetite for natural resources has led it t cultivate deeper relationship in Africa, Central Asia and Latin America. Last yea, it hosted a summit in Beijing attended at least by 45 African Head of states. The Shanghai Co-operation Organization founded with Russia & other Central Asian countries has become a crucial instrument of China’s energy security policy. The Chinese education Ministry approximates that there will be 100 million people worldwide learning Chinese as foreign language by 2010. Two decades ago Chinese universities attracted about 8000 overseas students : by 2008 that number would have leapt exponentially to 1,20,000”-source Rishabh Bhandari. It is also expected to emerge as the No1 tourist destination in the world with the beginning of Beijing 2008 Olympics proving to be the shot in arm for Chinese tourism.
Hence poor infrastructure and inept policies might be blamed for India’s lower growth and progress vis-à-vis China & the recent decline in exports but not the appreciation in rupee. This is the lesson, one hopes our P.M. has learnt well from his recent visit to China. The inept - one step forward and two backward –policies of Indian Central and State governments explains thought the Centre and state (govt. of J&K) are about to complete their tenures in power, the situation on ground in terms of roads, electricity etc. is as bad as ever. The situation is laughable if it were not tragic.
Every cloud has a silver lining:To conclude, the inadequate infrastructure etc. of India ensures that huge sum of money running into crores of rupees will have to be spent to improve it. This expenditure will ensure that we will have huge growth in economy in the years to come. I was in Thailand some time back. Leave aside the developed countries like U.S., Europe etc., India is even behind Thailand in infrastructure. while at present U.S., Europe are in recession Indian economy is growing in real terms @7.5% p.a.. Our community should try to benefit from this huge economic growth by investing in the equity of fast growing Indian cos..
One remarkable fact worth noting amidst this rapid growth of China is that its currency, the Yuan, is far stronger than Indian rupee vis a vis the American dollar or the euro. One Chinese Yuan is equal to Rs. 5.68. If appreciating rupee is the cause for recent decline in India’s export growth- except the negative impact on I.T. software exports sector- ( as the so called economic experts are saying), then by that measure Chinese Yuan being 5.68 times stronger then rupee, Chinese exports should have collapsed. But that is not the case as shown by following figures :
• Merchandise exports ( 2007, $ billion)-China 969,India 126.
• Textile exports to U.S.A. ( $ billion)-China20,India 4.
This data indicates there is no negative impact of China having a far far stronger currency than India, on its exports. It is remarkable that even at 1$=Rs39.5, we have a far far favorable exchange ratio than China but still we are far far behind China not only in exports but most other competitive economic parameters also, as the following data shows :
• Electricity production (billion KW,2002) China 1641, India 597.
• F.D.I ($billion,2004) China 61, India 5.5.
• Tourist arrival (million,2003) China 33, India 2.4.
• Foreign exchange reserves ($,ending 2007 ) China 1.612 trillion, India 276 billion. One figure to note very seriously from this data is that China’s forex reserves of $1.6 trillion = India’s G.D.P. (2007)!
• Medals in Olympics (2008) China 120 gold, India 1 Gold.
So how does China do this ?a) Infrastructure development = rapid economic growth is the key to China’s stupendous economic success.
In Jan., 2007 , Industrial & Commerce Bank of China (I.C.B.C. ) came out with the largest ever I.P.O. of $ 22 billion ( Rs 88,000 Crores !). Post listing , I.C.B.C. market capitalization is double the market capitalization of entire Indian banking. The success of such mega I.P.O.’’s at Honk Kong stock exchanges is the reason for the premier stock exchange of New York being unhappy with the policies( read success) of Honk Kong stock exchange . But that topic is for another time . And in year 2002, Chinese banking industry was in trouble with estimated 30-40% assets as N.P.A.’s!
China is a major equity market in the world. The market capitalization of Shanghai & Shenzhen exchanges is close to $6 trillion ( Indian equity market valuation -$1.6 trillion ).
Whereas we cannot stop patting our back for having built the Delhi Metro
( at an astronomical cost of Rs 175 Crore /km i.e. Rs 10,500 for 60 odd kms. – to put this in perspective -enough to purchase 10 full bodied Boeing 747 aero planes !) , China was the first country in the world to commercially operate M.A.G.L.E.V- Magnetically levitated train.
On the contrary, the rupee appreciation is good for some sectors as well as the ‘aam admi’ as the imports become cheaper –main benefit being cheaper crude oil prices. ( India being net importer of crude oil).Remember in 1993, $1=Rs15-17. Cheaper gold. Cheaper international travel.( Imagine paying for a round trip airfare to Australia Rs 1400 only with $1= Re 1 ) . Less brain drain. In fact as per rumor mills, only section losing out on Re appreciation are the people who have money stashed away abroad in Swiss banks. And no prizes for guessing who these people are- the politici….
b) Emphasis on F.D.I.
: As the data above shows ,F.D.I. into China is 11 time the F.D.I. coming into India. It is better to allow foreign capital coming in to build assets rather than the money coming in as F.I.I. inflows. F.I.I.’s can always take their money out of Indian equity markets –that is the reason why Indian equity markets fall drastically with F.I.I. selling- but it is very difficult to do so if foreign money has been used to build assets like power plant, manufacturing units etc.
c) Focus on agriculture and increasing output
China produces 400 million tones of food grain from just 100 million hectares whereas India produces 108 million tones of food grain from its 146 million hectares. China rice and wheat productivity (kg per hectare) 6233 and 4155, respectively. India 3034 and 2688 respectively.
d) China –Global Impact
“China’s huge appetite for natural resources has led it t cultivate deeper relationship in Africa, Central Asia and Latin America. Last yea, it hosted a summit in Beijing attended at least by 45 African Head of states. The Shanghai Co-operation Organization founded with Russia & other Central Asian countries has become a crucial instrument of China’s energy security policy. The Chinese education Ministry approximates that there will be 100 million people worldwide learning Chinese as foreign language by 2010. Two decades ago Chinese universities attracted about 8000 overseas students : by 2008 that number would have leapt exponentially to 1,20,000”-source Rishabh Bhandari. It is also expected to emerge as the No1 tourist destination in the world with the beginning of Beijing 2008 Olympics proving to be the shot in arm for Chinese tourism.
Hence poor infrastructure and inept policies might be blamed for India’s lower growth and progress vis-à-vis China & the recent decline in exports but not the appreciation in rupee. This is the lesson, one hopes our P.M. has learnt well from his recent visit to China. The inept - one step forward and two backward –policies of Indian Central and State governments explains thought the Centre and state (govt. of J&K) are about to complete their tenures in power, the situation on ground in terms of roads, electricity etc. is as bad as ever. The situation is laughable if it were not tragic.
Every cloud has a silver lining:To conclude, the inadequate infrastructure etc. of India ensures that huge sum of money running into crores of rupees will have to be spent to improve it. This expenditure will ensure that we will have huge growth in economy in the years to come. I was in Thailand some time back. Leave aside the developed countries like U.S., Europe etc., India is even behind Thailand in infrastructure. while at present U.S., Europe are in recession Indian economy is growing in real terms @7.5% p.a.. Our community should try to benefit from this huge economic growth by investing in the equity of fast growing Indian cos..
Wednesday, March 3, 2010
Aristotle
We are what we repeatedly do. Excellence , therefore is not an act but a habit –Aristotle. This excellent quote of the great man is worth a billion dollars. It applies to all spheres of life including investing in the equities of cos.. in fact, the supreme success of living legend & the richest man in the world- my guru- Mr. Warren Buffett is a direct consequence of this quote. All the great men & women in other spheres of life also owe their success to this quote . It would benefit all of us if we heed these words of this great man
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