Indias Growth Story Intact: Interpreting macro numbers and trends the right way
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Pranab & Mamata Out, Mulayam In: Reforms on - III
Ever since Mamata was sidelined, Mulayam joining in its fold and Pranab out, the messaging from government around reforms has been very clear and consistent.
Whether it be the case of Vodafone tax issue, taxation of FII investments, petrol price hike, diesel price hike or noises around FDI investment in retail, the government is slowly but surely pushing ahead the reforms agenda. And the timing could not be better. With elections just two years away, the government has enough elbow room to push ahead major initiatives and also start to see the fruits of its efforts.
In my stories a few months back (Pranab & Mamata Out, Mulayam In: Reforms on!, Pranab & Mamata Out, Mulayam In: Reforms on II ) I have been consistently been pointing out that with the new political equations in place, India is all set for the next set of reforms.
Herere some key excerpts from my previous stories accompanied with the latest updates.
Excerpt : So why had the reforms process stalled for so long? There was a nice story in FirstPost a few days back (PM-Pranab-Sonia hiatus was key cause of policy paralysis), which captures some of the background dynamics that might have contributed to this situation. Heres what it says:
It seems the PM wanted to keep the finance ministry with him even in 2004 but was dissuaded from doing so by the party. So Chidambaram got the job. When Chidambaram was removed in 2008, Pranab Mukherjee got it. After UPAs resounding victory in 2009, the PM made another bid for the job and failed.
What this history makes clear is that Dr. Singh was always keen on doing the finance ministers job himself, or getting another economist whom he trusts to do the job for him.
The gap between the PM and his FM grew widest during the tenure of Pranab Mukherjee, when the latter subtly kept the PM out of the loop. The possible reason is ego: Pranab felt that he was Manmohan Singhs senior in politics. (Mukherjee was FM in the 1980s, when Singh was just a bureaucrat under him.)
Conclusion
In 1990s Manmohan did magic with PVRs support. Is he on his way to another round of magic, with Sonias support ? I tend to believe so. Time magazine called Manmohan singh an Underachiever and he has been badly beaten and bruised in Indian media too. I will continue to keep track of this story to see how it plays out over the next few years.
Amar Harolikar
Unknown Insights
Related Analysis
June 12 : Indias Growth Story Intact: Interpreting macro numbers and trends the right way
May 12 : GDP Downgrades: Be wary of research house estimates; Indias growth story intact
May 12 : Party Time Again: Time to buy panic for the Sensex ride to 80,000
Apr 12 : Bull run intact, Growth rate on a rise
Dec 11: Macro-Technicals point to a possible bottom
Ever since Mamata was sidelined, Mulayam joining in its fold and Pranab out, the messaging from government around reforms has been very clear and consistent.
Whether it be the case of Vodafone tax issue, taxation of FII investments, petrol price hike, diesel price hike or noises around FDI investment in retail, the government is slowly but surely pushing ahead the reforms agenda. And the timing could not be better. With elections just two years away, the government has enough elbow room to push ahead major initiatives and also start to see the fruits of its efforts.
In my stories a few months back (Pranab & Mamata Out, Mulayam In: Reforms on!, Pranab & Mamata Out, Mulayam In: Reforms on II ) I have been consistently been pointing out that with the new political equations in place, India is all set for the next set of reforms.
Herere some key excerpts from my previous stories accompanied with the latest updates.
Excerpt : So why had the reforms process stalled for so long? There was a nice story in FirstPost a few days back (PM-Pranab-Sonia hiatus was key cause of policy paralysis), which captures some of the background dynamics that might have contributed to this situation. Heres what it says:
It seems the PM wanted to keep the finance ministry with him even in 2004 but was dissuaded from doing so by the party. So Chidambaram got the job. When Chidambaram was removed in 2008, Pranab Mukherjee got it. After UPAs resounding victory in 2009, the PM made another bid for the job and failed.
What this history makes clear is that Dr. Singh was always keen on doing the finance ministers job himself, or getting another economist whom he trusts to do the job for him.
The gap between the PM and his FM grew widest during the tenure of Pranab Mukherjee, when the latter subtly kept the PM out of the loop. The possible reason is ego: Pranab felt that he was Manmohan Singhs senior in politics. (Mukherjee was FM in the 1980s, when Singh was just a bureaucrat under him.)
Conclusion
In 1990s Manmohan did magic with PVRs support. Is he on his way to another round of magic, with Sonias support ? I tend to believe so. Time magazine called Manmohan singh an Underachiever and he has been badly beaten and bruised in Indian media too. I will continue to keep track of this story to see how it plays out over the next few years.
Amar Harolikar
Unknown Insights
Related Analysis
June 12 : Indias Growth Story Intact: Interpreting macro numbers and trends the right way
May 12 : GDP Downgrades: Be wary of research house estimates; Indias growth story intact
May 12 : Party Time Again: Time to buy panic for the Sensex ride to 80,000
Apr 12 : Bull run intact, Growth rate on a rise
Dec 11: Macro-Technicals point to a possible bottom
Interpreting GDP Numbers: long-term trend intact
The GDP numbers declared last week for the quarter that ended in June 2012 showed the economy growing by 5.5% year-over-year (YoY). I came across many economists and analysts who say that in the short term there are signs of recovery given the 5.3% YoY growth in the quarter that ended in March 2012. There are many more who say that Indias long-term growth story is under threat given the sub 7% growth rates in the past five quarters.
Well, heres the right way to interpret these numbers.
First, the difference of 20 basis points between the 5.5% and 5.3% is of no consequence, especially given the large revisions and mistakes occurring in the governments numbers. Furthermore, the difference is just around 12 basis points if we include the second decimal place! And if you take into account that the March quarter typically shows a bump up in GDP growth rates, then the June 2012 quarterly growth rate of 5.5% should actually be interpreted a little negatively.
Second, while looking at GDP numbers, an over-reliance on looking at YoY growth rates would very often lead to an incorrect interpretation. In order to correctly see the long-term growth trend and the impact of business cycles, one has to also look at the GDP chart in absolute numbers.
Shown below is a chart of just the YoY growth rates. If you just look at the YoY growth rate chart, it does seem a little depressing.
Now take a look at the chart of absolute GDP.
Does it show that the long-term story is over? Or does it show that the long-term story is well intact, albeit interspersed with minor business cycles? I rest my case.
Recently, even the RBI reduced Indias long-term trend growth rate from 8% to 7.5%. I normally have great respect for the quality of analysis at the RBI, however, this time I would tend to believe the RBI might have been a little premature to reduce that rate.
To put things in perspective take a look at the chart below. It shows a comparison between absolute GDP of the U.S. and India over the same period as the previous charts. Since the U.S. GDP is in USD and Indias GDP is in INR, I have indexed it to start at 100 for both.
If Indias long-term story is supposed to have ended based on the GDP trend, then what about the U.S.? Is it going vanish from the economic landscape and become a powerless player?
Well, no. Indias growth story is not over and neither is the U.S. going to lose its pre-eminent position in the global politico-economic landscape anytime soon. Period.
Related Analysis
June 12 : Indias Growth Story Intact: Interpreting macro numbers and trends the right way
May 12 : GDP Downgrades: Be wary of research house estimates; Indias growth story intact
May 12 : Party Time Again: Time to buy panic for the Sensex ride to 80,000
Apr 12 : Bull run intact, Growth rate on a rise
Dec 11: Macro-Technicals point to a possible bottom
The GDP numbers declared last week for the quarter that ended in June 2012 showed the economy growing by 5.5% year-over-year (YoY). I came across many economists and analysts who say that in the short term there are signs of recovery given the 5.3% YoY growth in the quarter that ended in March 2012. There are many more who say that Indias long-term growth story is under threat given the sub 7% growth rates in the past five quarters.
Well, heres the right way to interpret these numbers.
First, the difference of 20 basis points between the 5.5% and 5.3% is of no consequence, especially given the large revisions and mistakes occurring in the governments numbers. Furthermore, the difference is just around 12 basis points if we include the second decimal place! And if you take into account that the March quarter typically shows a bump up in GDP growth rates, then the June 2012 quarterly growth rate of 5.5% should actually be interpreted a little negatively.
Second, while looking at GDP numbers, an over-reliance on looking at YoY growth rates would very often lead to an incorrect interpretation. In order to correctly see the long-term growth trend and the impact of business cycles, one has to also look at the GDP chart in absolute numbers.
Shown below is a chart of just the YoY growth rates. If you just look at the YoY growth rate chart, it does seem a little depressing.
Now take a look at the chart of absolute GDP.
Does it show that the long-term story is over? Or does it show that the long-term story is well intact, albeit interspersed with minor business cycles? I rest my case.
Recently, even the RBI reduced Indias long-term trend growth rate from 8% to 7.5%. I normally have great respect for the quality of analysis at the RBI, however, this time I would tend to believe the RBI might have been a little premature to reduce that rate.
To put things in perspective take a look at the chart below. It shows a comparison between absolute GDP of the U.S. and India over the same period as the previous charts. Since the U.S. GDP is in USD and Indias GDP is in INR, I have indexed it to start at 100 for both.
If Indias long-term story is supposed to have ended based on the GDP trend, then what about the U.S.? Is it going vanish from the economic landscape and become a powerless player?
Well, no. Indias growth story is not over and neither is the U.S. going to lose its pre-eminent position in the global politico-economic landscape anytime soon. Period.
Related Analysis
June 12 : Indias Growth Story Intact: Interpreting macro numbers and trends the right way
May 12 : GDP Downgrades: Be wary of research house estimates; Indias growth story intact
May 12 : Party Time Again: Time to buy panic for the Sensex ride to 80,000
Apr 12 : Bull run intact, Growth rate on a rise
Dec 11: Macro-Technicals point to a possible bottom
IIP, Exports and Bank Credit Numbers Bad? No, Not At All
Over the last two days the numbers for the Index of Industrial Production (IIP), exports and bank credit were reported and, on the face of it, they look disappointing. However, a deeper look shows the long-term growth trend is intact and, in fact, all the key indicators point to the possibility that the growth slowdown is also over and the economy is getting ready for the next growth phase.
To understand this better we need to look at the economic and market recovery during 2009 after the great bear market of 2008. During that time, equity markets started to make new intermediate highs in the April-June 2009 period in anticipation of the upcoming growth phase later in the year (which did materialize). These intermediate highs were accompanied with huge increases in foreign institutional investor (FII) inflows, even as IIP, bank credit and exports were tracing negative year-over-year (YoY) growth numbers.
Refer to my analysis of December 2011 (Macro-Technicals Point to a Possible Bottom) in which I talked about a possible bottom and the indicators for the same. My analysis shows that an economic recovery is preceded by falling inflation and a rise in commodity prices after making new lows as well as a rise in U.S. 10-year yields after making new lows. And that equity markets would continue to make new intermediate highs even as IIP and exports trace negative YoY growth numbers and bank credit YoY growth continues to fall.
It is exactly the same recovery pattern that is being traced out now, with equity markets making new intermediate highs, a sharp increase in FII flows, falling wholesale inflation, a rise in commodity prices after new lows and a rise in U.S. 10-year yields after making major lows.
In fact, the growth numbers for IIP, exports and bank credit being posted now are far better than during the economic and market recovery of 2009. For instance, exports are down 9.7% now compared to the minus 35% during the market recovery of 2009. As for bank credit growth, it is at 17% now compared to 15% during the 2009 recovery. In fact, bank credit growth went down to 10% later in 2009 even as equity markets continued to make new intermediate highs. As for IIP, it is running at around 1% now compared to minus 2% during 2009.
The only cause for a concern is a fall in corporate profitability in the June 2012 quarter after tracing a recovery pattern in prior quarters. Overall economic recovery is typically preceded by a slight improvement in corporate profitability numbers and hence the concern. The silver lining here is that most key sectors including banking, software and consumer goods showed a rising profitability trend with overall corporate performance numbers being pulled down by infrastructure-related industries, primarily energy and steel. Keep in mind though that infrastructure sectors typically start to recover only when recoveries in the banking and consumer sectors are well-established. The extraordinarily poor numbers in energy and steel were driven by environmental regulatory issues and the banning of iron ore mining in certain states. With the ban already lifted in Karnataka, I believe these issues are transitory and the worst case is that the beginning of the next growth phase might get pushed back by a quarter or two.
In conclusion, there is no cause for concern around the recently released numbers for IIP, exports and bank credit even though on the surface they might sound disappointing. Most of the economy- and market-related indicators are pointing toward the economic recovery picking up pace and the equity markets continuing to make new intermediate highs.
Amar Harolikar
Unknown Insights
Related Analysis
June 12 : Indias Growth Story Intact: Interpreting macro numbers and trends the right way
May 12 : GDP Downgrades: Be wary of research house estimates; Indias growth story intact
May 12 : Party Time Again: Time to buy panic for the Sensex ride to 80,000
Apr 12 : Bull run intact, Growth rate on a rise
Dec 11: Macro-Technicals point to a possible bottom
Over the last two days the numbers for the Index of Industrial Production (IIP), exports and bank credit were reported and, on the face of it, they look disappointing. However, a deeper look shows the long-term growth trend is intact and, in fact, all the key indicators point to the possibility that the growth slowdown is also over and the economy is getting ready for the next growth phase.
To understand this better we need to look at the economic and market recovery during 2009 after the great bear market of 2008. During that time, equity markets started to make new intermediate highs in the April-June 2009 period in anticipation of the upcoming growth phase later in the year (which did materialize). These intermediate highs were accompanied with huge increases in foreign institutional investor (FII) inflows, even as IIP, bank credit and exports were tracing negative year-over-year (YoY) growth numbers.
Refer to my analysis of December 2011 (Macro-Technicals Point to a Possible Bottom) in which I talked about a possible bottom and the indicators for the same. My analysis shows that an economic recovery is preceded by falling inflation and a rise in commodity prices after making new lows as well as a rise in U.S. 10-year yields after making new lows. And that equity markets would continue to make new intermediate highs even as IIP and exports trace negative YoY growth numbers and bank credit YoY growth continues to fall.
It is exactly the same recovery pattern that is being traced out now, with equity markets making new intermediate highs, a sharp increase in FII flows, falling wholesale inflation, a rise in commodity prices after new lows and a rise in U.S. 10-year yields after making major lows.
In fact, the growth numbers for IIP, exports and bank credit being posted now are far better than during the economic and market recovery of 2009. For instance, exports are down 9.7% now compared to the minus 35% during the market recovery of 2009. As for bank credit growth, it is at 17% now compared to 15% during the 2009 recovery. In fact, bank credit growth went down to 10% later in 2009 even as equity markets continued to make new intermediate highs. As for IIP, it is running at around 1% now compared to minus 2% during 2009.
The only cause for a concern is a fall in corporate profitability in the June 2012 quarter after tracing a recovery pattern in prior quarters. Overall economic recovery is typically preceded by a slight improvement in corporate profitability numbers and hence the concern. The silver lining here is that most key sectors including banking, software and consumer goods showed a rising profitability trend with overall corporate performance numbers being pulled down by infrastructure-related industries, primarily energy and steel. Keep in mind though that infrastructure sectors typically start to recover only when recoveries in the banking and consumer sectors are well-established. The extraordinarily poor numbers in energy and steel were driven by environmental regulatory issues and the banning of iron ore mining in certain states. With the ban already lifted in Karnataka, I believe these issues are transitory and the worst case is that the beginning of the next growth phase might get pushed back by a quarter or two.
In conclusion, there is no cause for concern around the recently released numbers for IIP, exports and bank credit even though on the surface they might sound disappointing. Most of the economy- and market-related indicators are pointing toward the economic recovery picking up pace and the equity markets continuing to make new intermediate highs.
Amar Harolikar
Unknown Insights
Related Analysis
June 12 : Indias Growth Story Intact: Interpreting macro numbers and trends the right way
May 12 : GDP Downgrades: Be wary of research house estimates; Indias growth story intact
May 12 : Party Time Again: Time to buy panic for the Sensex ride to 80,000
Apr 12 : Bull run intact, Growth rate on a rise
Dec 11: Macro-Technicals point to a possible bottom
Copying below my original post (published in March 2008 when Sensex was around 18000 level, having come off the highs of 20000)
-----Pasted Story Below----------------
Sensex - 10K in one year and 80 K in eight years !
Sensex likely to go up to 40K (min 25K) by Sept 2013 and 80K (min 45K) by 2016.
However before that , Sensex likely to breach the 10K mark too in the next 18 months period.
Here's how the the Senxex's 10 year historical trend looks like.
Cycles, in stock markets and in the economy go hand in hand and repeat themselves. Check out the table below. The stock markets have corrected by more than 50% in past and have rallied by more than 50% too (in fact much much more than that).
Have also provided Sensex projections - best case and worst case. Projections based on certain assumption on length of cycles and severity and timing of economic slowdown and subsequent recovery.
Go back in time. When during end of 2004, the markets were at around 3000 levels , levels of 20000 in just 4 years hence would have sounded ridiculous.
Just as levels of 10k were sounding absolutely ridiculous 6 months back..!
Markets are harsh and unforgiving. But for those who can think (and hold stocks) for a 7 year range, they are one of the best investment options.
As we go ahead in this fascinating journey of stock markets, I will talk about my thoughts on making super normal returns in stock markets on a long term. And also revise the projections (if necessary) as we get more and more additional information
And believe me , super normal returns in stocks is more psychology than analysis.
Amar Harolikar
Unknown Insights
-----Pasted Story Below----------------
Sensex - 10K in one year and 80 K in eight years !
Sensex likely to go up to 40K (min 25K) by Sept 2013 and 80K (min 45K) by 2016.
However before that , Sensex likely to breach the 10K mark too in the next 18 months period.
Here's how the the Senxex's 10 year historical trend looks like.
Cycles, in stock markets and in the economy go hand in hand and repeat themselves. Check out the table below. The stock markets have corrected by more than 50% in past and have rallied by more than 50% too (in fact much much more than that).
Have also provided Sensex projections - best case and worst case. Projections based on certain assumption on length of cycles and severity and timing of economic slowdown and subsequent recovery.
Go back in time. When during end of 2004, the markets were at around 3000 levels , levels of 20000 in just 4 years hence would have sounded ridiculous.
Just as levels of 10k were sounding absolutely ridiculous 6 months back..!
Markets are harsh and unforgiving. But for those who can think (and hold stocks) for a 7 year range, they are one of the best investment options.
As we go ahead in this fascinating journey of stock markets, I will talk about my thoughts on making super normal returns in stock markets on a long term. And also revise the projections (if necessary) as we get more and more additional information
And believe me , super normal returns in stocks is more psychology than analysis.
Amar Harolikar
Unknown Insights
JP Morgan India: Courageous leader
Pasting below story published by me in June
-----Pasted Story from Unknown Insights ---------------
JP Morgan India upgraded Indian equities to overweight from neutral last week. This was despite acknowledging the risk factors facing the economy, and demonstrated that they were encouraged by what they called a number of more positive factors including historic valuations.
I dont usually give much credence to reports from agencies like S&P, Moodys, Goldman Sachs, Morgan Stanley and most others.
However, JP Morgan India, under Kalpana Morparia, seems to have got the long-term trend right, even as far back as October 2008 when the markets were making a capitulation bottom. In September 2011, they had the courage to call the IIP numbers misleading and take a stand stating that economic growth is not collapsing.
Among the major global financial firms, JP Morgan is not just the first out of the blocks in acknowledging the strengths of the India story, but it has also made a bullish call when pretty much every other major firm has made a bearish call. That takes a lot of courage in the murky world of large and influential financial firms.
Moodys had followed immediately with a stable outlook for India sovereign rating. Thats again courageous given that S&P and Fitch have scaled down their outlook to negative with a threat of downgrading the sovereign rating to below investment grade / junk status.
In fact, it now seems that every other brokerage firm is starting to come out of its slumber in trying to rate India overweight, stable etc.
The question to ask is that when the signs of recovery and an upcoming bull market were apparent as long ago as back in Dec 2011 (Dec '11: Macro-Technicals point to a possible bottom) why are these agencies (except maybe JP Morgan) only waking up now?
Amar Harolikar
Unknown Insights
Related Analyses:
June 12: Indias Growth Story Intact: Interpreting macro numbers the right way.
May 12/ Mar 08 : Party time again: Time to buy panic for the Sensex ride to 80000
April 12 : Bull run intact, Growth rate on a rise
Dec '11: Macro-Technicals point to a possible bottom
Pasting below story published by me in June
-----Pasted Story from Unknown Insights ---------------
JP Morgan India upgraded Indian equities to overweight from neutral last week. This was despite acknowledging the risk factors facing the economy, and demonstrated that they were encouraged by what they called a number of more positive factors including historic valuations.
I dont usually give much credence to reports from agencies like S&P, Moodys, Goldman Sachs, Morgan Stanley and most others.
However, JP Morgan India, under Kalpana Morparia, seems to have got the long-term trend right, even as far back as October 2008 when the markets were making a capitulation bottom. In September 2011, they had the courage to call the IIP numbers misleading and take a stand stating that economic growth is not collapsing.
Among the major global financial firms, JP Morgan is not just the first out of the blocks in acknowledging the strengths of the India story, but it has also made a bullish call when pretty much every other major firm has made a bearish call. That takes a lot of courage in the murky world of large and influential financial firms.
Moodys had followed immediately with a stable outlook for India sovereign rating. Thats again courageous given that S&P and Fitch have scaled down their outlook to negative with a threat of downgrading the sovereign rating to below investment grade / junk status.
In fact, it now seems that every other brokerage firm is starting to come out of its slumber in trying to rate India overweight, stable etc.
The question to ask is that when the signs of recovery and an upcoming bull market were apparent as long ago as back in Dec 2011 (Dec '11: Macro-Technicals point to a possible bottom) why are these agencies (except maybe JP Morgan) only waking up now?
Amar Harolikar
Unknown Insights
Related Analyses:
June 12: Indias Growth Story Intact: Interpreting macro numbers the right way.
May 12/ Mar 08 : Party time again: Time to buy panic for the Sensex ride to 80000
April 12 : Bull run intact, Growth rate on a rise
Dec '11: Macro-Technicals point to a possible bottom
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