Sunday, September 09, 2007

New publication from the Netherlands on India (with implications for all emerging markets)

The Netherlands Environmental Assessment Agency has recently released a report titled "India 2050: scenarios for an uncertain future".

What will be of interest to the average reader is the report's discussion of several scenarios for India (and the options for improving prospects for India), with implications for the realism of current projections regarding where India is headed as a country.

For example, the publication argues that while it is certainly *possible* that India's population could be over 1.5 billion by 2050, and that this population momentum *could* continue to drive economic growth, these are ONLY possible if there are sufficient investments in health care and education NOW (as far as I know, such investments are not going to be made right now, and so most of the predictions for India will prove to have been over-optimistic).

Further factors indicating that most predictions for India are over-optimistic are that suchpredictions do not take ecological and socio-economic constraints into account: "only rigorous government policy initiatives striving for sustainable management of India's resources (land, water, energy) and appropriate investments in education and health can lead to a real increase in well-being for a large part of the population", argues the report.

This is the first fully-rounded examination of Indian (and developing country) prospects that I have seen, and I am convinced that Goldman Sachs' (and others') BRIC-type predictions will be proved false as the prediction deadlines draw near - at least for Brazil, India and China. Russia is a bit of an exception to my downbeat assessment of country prospects but only because of its huge oil and gas supplies - which will become even more important as West Asia descends further into chaos.

However, so far as India is concerned, I note that 12 Indian companies have made it to the (just released) third annual ‘Forbes Asia Fabulous 50 List’, followed by 10 from Taiwan and only seven from China. Taiwan's 10 will be secure, in my view, but China's 10 will not be secure - for various reasons. The Indian companies include four IT outsourcing companies, for example Tata Consultancy Services (TCS), whose revenues jumped 45 per cent in the last twelve months and whose market capitalisation has doubled since listing three years ago (it has now crossed USD27 billion). Tata earns nearly all of its revenues overseas and so will continue to be a good investment long term, even if its market cap declines sharply from time to time in the wake of the volatility which is, for example, hitting the markets as a result of the current global credit crunch.

The other Indian companies on the Forbes Asia 'Fabulous 50' list are: Bharat Heavy Electricals, Bharti Airtel, Grasim Industries, HDFC Bank, ICICI Bank, Infosys Technologies, Larsen & Toubro, Reliance Industries, Satyam Computer Services, Tata Consultancy Services, Tata Steel and Wipro (the last of which, in my view, continues to be severely undervalued).

Interestingly, Grasim, Larsen & Toubro and Reliance, are deeply involved with infrastructure development in India (though of course, as with all conglomerates, not only to infrastructure). One needs to take a somewhat more cautious view of companies which are more exposed to the vagaries of inward investment: their revenues and earnings may well be secure but the value of their shares will depend on the volatility of the global market.

ICICI Bank, HDFC Bank and Bharti Airtel are growing by reaching out to the country's rural customers - and their prospects will be linked to commodity prices. Commodity-focused companies in general, worldwide, are even more exposed to the vagaries of the global market.

Do note that my assessments have had no input from, and are totally unrelated to, my employer's view of India, of developing markets, or of the companies mentioned - I emphasise that these are simply *my* views. Sphere: Related Content

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