1. WHY INDIA?
September 2004

2. Summary Overall, economic policy is geared towards growth
India is a party to various global trade and tariff agreements
Political risk exists - but the effect is more on specific sector reforms, rather than overall direction
Indian companies and entrepreneurs are now prepared to live – and thrive – in competitive, free markets.
While the outlook for the macro-economy is positive, persistent long-term fiscal deficits could rekindle inflationary pressures and cause the Indian Rupee to resume its historical decline of -3% p.a.
September 2004
Quantum Advisors

3. A Sustainable Growth Story
The rate of growth of GDP has increased from the “Hindu” rate of < 3% p.a. ( ) to a more respectable and sustainable 6% p.a.
The growth rate of 8.2% in FY2004 is the highest in a decade.
September 2004
Quantum Advisors

4. Coalition Politics has not hurt economic growth
There is no proof that coalition governments are bad for GDP growth. In fact, it seems that GDP growth rates have trended higher during coalition rule!
* Coalition government
September 2004
Quantum Advisors

5. A Consumption Story…
Low interest rates and a reduction in tax rates since 1991 has increased the supply of goods and services and resulted in a surge in consumption.
September 2004
Quantum Advisors

6. The birth of the Middle-class
Homes are in demand in a country with a population of over one billion which is undergoing a cultural shift – younger people with better job opportunities no longer adopting a “joint-family” model
And demand for automobiles is also increasing
September 2004
Quantum Advisors

7. Motoring Ahead
With annual production of nearly 7 million vehicles (cars, trucks, 2-wheelers) and its low cost labor; India has the potential to develop its export markets and convert a cyclical industry into a secular story
September 2004
Quantum Advisors

8. Increased Demand For Cement
CAGR 6.5%
Increase in consumption and infrastructure leads to increase in the demand for cement
India is the 3rd largest consumer of cement in the world after China and USA
September 2004
Quantum Advisors

9. Increased Demand For Steel
CAGR 8%
India’s consumption of steel has increased although it is less than 4% of global demand because manufactured exports are not significant. This will change.
September 2004
Quantum Advisors

10. Rising Exports
CAGR 9%
Exports are increasing as India integrates with the rest of the world - in line with economic policy initiatives put in place since 1991.
September 2004
Quantum Advisors

11. The Software Story
CAGR 35%
Led by exports of software products: from 2% of exports in FY1995 software now accounts for 20% of India’s total exports.
And this was not mandated (or designed) by government: an evolution of market-led demand and supply
September 2004
Quantum Advisors

12. Increasing Imports
CAGR 10%
India’s imports are also increasing at 10% annually as Indian industry modernizes (import of capital machinery) and consumers consume
September 2004
Quantum Advisors

13. Oil Imports
Oil continues to be the single-largest imported product: oil’s share of total imports has grown from 20% in FY1995 to 26% in FY2004 and is likely to grow further.
September 2004
Quantum Advisors

14. Foreign Direct Investments (FDI) and Foreign Portfolio Investments (FPI) on the upswing
CAGR 13%
The multinationals have made it clear that the future is “India and China” and not “India or China”
Consistent foreign direct investments since liberalization
Robust portfolio investments
September 2004
Quantum Advisors

15. Market Capitalization And Volume
Increased foreign participation has made the stock markets more mature
Market Cap of BSE approx $ 260 billion in FY2004, up from $ 125 billion in 1995.
Average daily volume Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) for the year 2004 is US$ 2 billion/day.
September 2004
Quantum Advisors

16. Healthy Foreign Exchange Reserves
India’s Foreign Exchange Reserves are $ 117 billion as of August 2004
These reserves have grown from a dismal 6 weeks of imports in 1991 to a healthy 77 weeks in 2004
September 2004
Quantum Advisors

17. But this higher FX has led to an increase in Money Supply…
CAGR 14.2%
A continuous growth in the money supply and…
September 2004
Quantum Advisors

18. Additionally, high Fiscal Deficits...
…the high fiscal deficits at the federal level of 5% (the combined deficits including those of the states is about 10% of GDP)
September 2004
Quantum Advisors

19. Could fuel Inflationary pressures…
Could result in the end of the recent benign inflation period
September 2004
Quantum Advisors

20. …And result in a mild depreciation of the currency
The Rupee has depreciated 3.6% y.o.y. against the US Dollar in the last 10 years
September 2004
Quantum Advisors