India: Glass Half Full - Half Empty
Presented by Nilesh Shah, Deputy CEO, Axis Capital, at the Morningstar Investment Conference, 2013
It’s not surprising that The Louvre is one of the most visited attractions in France. It houses two exceptionally famous ladies: the Mona Lisa and the armless Venus de Milo, and the headless Winged Victory of Samothrace, a peerless masterpiece of Greek sculpture.
So why did this museum feature in a presentation on India’s macro-economic scenario? Because Nilesh Shah used it to deftly draw the audience’s attention to India’s position in the competitive global travel industry.
- The Louvre attracted more visitors than the whole of India in FY13.
- China, Malaysia, Thailand, Singapore, Korea and Indonesia each attracted more tourists than India in the period from 1995 to 2011.
In an equally compelling way, he presented a frame of reference concerning inflation. The Wholesale Price Index and Consumer Price Index have been on the rise and will continue to move at an elevated level. Nevertheless, certain items have witnessed a dramatic decrease in prices from 2000 to 2010.
- A cell phone would have set an individual back by Rs 15,000 at the turn of the century, but could be purchased for around Rs 1,000 a decade later.
- The price of an air ticket on the Delhi-Mumbai sector dropped by around 68%.
His bone of contention: If India has learnt to control prices in certain areas of the economy, why is that learning not implemented in other areas such as food grains?
Shah aptly titled his presentation India: Glass Half Full – Half Empty to reflect his perspective. India is plagued with problems, but the good news is that there exists a solution to almost all of them.
He flagged it off like a true economic prognosticator with the prediction that the rupee may stabilize at current levels though its “destiny is to depreciate”. True to his style, he backed it up with the virtue of reasoned logic: high inflation compared to other parts of the globe, low productivity, and the fact that Indians are importing more than they can afford – be it oil, electronic consumer goods, coal or iron ore, a product that we exported till last year.
The ominous note continued when he tackled the fiscal deficit. Shah’s rhetoric has always been consistent when talking about taxes in India. If citizens pay their taxes honestly and subsidies are rationalized, it would go a long way in alleviating the fiscal deficit. Once again backing it up with numbers and examples, he left the audience with little doubt as to why India has one of the lowest tax-to-GDP ratios in the world.
His dry sense of humor was evident when he spoke of India’s rating downgrade. By pointing to a slide which showed the ratings of US boasting of an AA+ rating and India a BBB-, he joked about how a higher deficit and larger debt gets the country a better rating. He referred to the irony of agencies giving a favourable rating to a country which raised its debt ceiling 60 times in the last 80 years and is the world’s largest debtor, while a country that has never defaulted on its creditors in its 5,000-year history is positioned just above junk level. He foresaw a good buying opportunity if there is a further downgrade and encouraged investors to “ignore the rating and focus on fundamentals”.
Some interesting pointers:
- The Reserve Bank of India has refrained from creating a credit bubble in the blind pursuit of growth.
- Growth in the Indian economy is not accurately represented because the country is unable to capture growth in the informal economy.
- Corporate India is getting more leveraged and unable to make fresh investments because while banks are lending, there is not sufficient equity being raised in the form of IPOs, FPOs, QIPs and rights issues.
- Growth will get supported from the current low level of expectations on the back of a good monsoon, the festive season picking up in momentum, and the forthcoming elections which tend to typically support growth.
- Interest rates will eventually start falling from current levels as they cannot continue at such levels if growth is to be given a fillip. The availability of liquidity, a stable currency, and food inflation dipping due to a good monsoon are all supportive of interest rates.
His summed it up with some timeless advice for everyone: The market will always be volatile. If you stay disciplined, you can make money even in this market.
