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Indian distributors remain cautious about the strength of underlying consumption in the April-June period. Deliveries to downstream industries were disrupted by the Holi festival and the close proximity of the general election.




 
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India is the 11th largest economy in the world by nominal GDP and 4th largest by Purchasing Power Parity.An economy which was the largest in the 17th century after being the 2nd largest in the 15th & 16th century behind Ming's China.It has the second largest population at 1.13B and the largest young workforce in the world.[1] India’s GDP grew 9.1% in 2007[2] and grew about 8% each of the previous three years. It has the most stable & robust banking-financial system which ensures financial discipline compared to most of the developed & emerging markets.However, while India’s economy is booming, its lack of fossil fuel resources, compared to emerging markets like Brazil and Russia, and lack of infrastructure investments present a real obstacles to the country's further growth. The Indian government also expects that about $500B in infrastructure investment will be needed to support the ongoing growth of the country.[3] The economy ran into difficulties in 2008 during the global recession as inflation rose to 11.4% , the highest since 1995,though it came down to 8.6% by september 2010[4] due largely to record prices in oil and other major commodities. The stock market fell 40% in the first half of 2008 however since Feb 2008 it has come a long way.It gained 114% since the end of 2008 and up about 22% since September 2009.[5] and foreign investors withdrew $5.5B from the market after having put $19B into the market in 2007.The investors came back again to the Indian market after the global slowdown in 2008-09 and has invested $28.5B in 2010 till September.The month of September itself saw FII pouring in $7.1B in stocks & bonds.The benchmark rate set by the Reserve Bank of India at 6% is also attracting investors from most of the developed world with near zero interest rates.[6] India also has a fiscal deficit amounting to 6% of GDP, higher than any other major emerging market however projected to reach the pre-2007 level of below 3% by 2012.India has the largest savings rate among major economies at 36% and 6th largest foreign exchange reserves at $294B on October 2010.[7]



Major Indian Companies

Energy


Banking


Telecommunications


Industrial


Retail


Services


Automotive

Foreign Companies Invested in India

  • Nokia's second largest market behind China is in India. Nokia's Asia-Pacific segment made up 22% of sales in 2007, predominantly coming from China and India. India was Nokia's third largest market in 2006, but passed the US in 2007 putting it in the second place spot.
  • Hyundai is the second largest car manufacturer in India and had a 17% share in the automobile market in 2007.
  • IBM is the largest multinational company in India and received about $1B in sales from India in 2007.

Exchange Traded Funds

Trends and Forces

India Pays High Price to Fuel Rapidly Growing Economy

India's GDP grew 9.1% in 2007 and over 8% per year the three years before that, but India does not have the natural resources to cover the majority of the fuel demanded by this growth. India must import 75% of its oil and in 2007/2008 oil prices hit record highs. India paid $68B in oil imports in 2007-2008, a 40% increase from the previous year.[8] In an effort to reduce the pain of high oil prices, India is turning to one of its few major resources: coal. Coal makes up about 55% of India's energy needs, with about 83% of coal coming from the state-run oil company, Coal India Limited.[9] However, domestic coal production is still not sufficient as Coal India's chairman said that he expects coal imports to rise 10% in 2008.[10] Coal India is also investing in operations in Africa, Indonesia, Canada, and Australia to help meet the demand.[11] While India must import a lot of its energy, the domestic energy companies, like Reliance Industries and Indian Oil Corporation, are still in high demand and growing rapidly.

A Booming Retail Market

The retail market has grown 1,440% between 1991 and 2007 and is the 5th largest retail market in the world at $330B in 2007.[12] India has 12M retail outlets,[13] but the market is by no means dominated by organized retail chains. Only 4% of India’s retail market is made up by organized retailers,[14] and, as a result, foreign companies have started to invest in the growing Indian market. McKinsey Global reported that the middle class in India could grow from 50M to 300M[15] and that the average Indian income will grow 300% by 2025.[16] However, already India is the 3rd largest country in the world by purchasing power and has the second largest population in the world – 1.1B people.

Expanding the Infrastructure

The Indian government expects that about $500B in infrastructure investment will be needed to support the ongoing growth of the country.[17] In 2007 only 20% of India’s roads were considered to be in good condition and it takes an average of 3 to 5 days for a port to turnaround a ship (compared to 4 to 6 hours in Hong Kong and Singapore).[18] On top of that, India has not expanded its air infrastructure since 2002, but over that same time the number of air passengers has increased 25%.[19] India's GDP is growing at an average annual rate of 7%, but without an equally impressive investment in India's infrastructure, the growth can not be sustained. Tata Steel and the Steel Authority of India are the two largest steel companies in India.

Growth of Internet and Technology Usage

About 40% of the 1.1B person population is 18 or younger, and this is the generation leading the adoption of the internet and consumer technology products. Between 2000 and 2007, the number of Indian people using the internet grew 700%.[20] The internet population grew to 60M which represents a 5.2% penetration.[21] This, however, is very low compared to penetration in the US, Japan, and South Korea which are all around 68% penetration.[22] Of those 60M users, only about 3M have access to broadband.[23] At the same time, India is the fastest growing mobile phone market in the world. Gartner predicts that India's market will be $37B by 2012 (a compounded annual growth rate of 12%).[24] In 2007, mobile phone penetration was 19.8%, but Gartner expects that to increase to 60.7% by 2012.[25] India has primarily a rural population and a low average income so mobile phone manufacturers are focusing on handsets below $25. Market prices for notebooks tend to be lowered in the Indian market as well in order for companies to gain market share, but the introduction of "netbooks" or mobile internet devices, could provide a cheaper alternative to notebooks for consumers in India.

$31B in Software Exports

Software exports have grown from 500M in 1994 to 31B in March 2007, making up about 22% of India's exports.[26] India is the largest exporter of software beating out both China and Russia. IT business process outsourcing grew 33% in 2007 and Nasscom expects the IT industry in India will grow to $75B by 2010. [27] India’s largest IT outsourcing companies like Infosys and Wipro have also started to set up branches in other possible outsourcing hot spots like China, Latin America, and Morocco.[28]

India's Demographics

For the most part, India remains a rural population. About 77% of the country lives outside the cities and about 60% of the workforce is in agriculture.[29] The average Indian salary has grown 15.2%, the most of any country in the world in 2007,[30] but, at the same time, 30% of the population is in poverty and only about 61% are literate.[31] The educational system has been neglected for many years and while there are finally efforts to revamp India's education, it will take time for measures to take effect. Only 10% of Indian children go to college and, as a result, India is suffering from a shortage of skilled labor.[32]

References

  1. Wikipedia:Economy of India
  2. Wikipedia:Economy of India
  3. HSBC analyst report - July 2008, Keep the Gateway Open, pg.5
  4. Nytimes.com - June 2008: The Food Chain
  5. Businessweek.com - July 2008: India’s Economy Hits the Wall
  6. India’s Businessweek.com - July 2008: Economy Hits the Wall
  7. HSBC analyst report - July 2008, Keep the Gateway Open, pg.6
  8. UPI.com: Energy Resources
  9. iht.com - June 2, 2008: Coal India Looks Abroad to Fuel its Energy Demand
  10. iht.com - June 2, 2008: Coal India Looks Abroad to Fuel its Energy Demand
  11. iht.com - June 2, 2008: Coal India Looks Abroad to Fuel its Energy Demand
  12. IBEF.org, Retail
  13. IBEF.org, Retail
  14. Discussionleader.hbsp.com: Its Time to Open India to Big Retail Chains
  15. HSBC analyst report - July 2008, Keep the Gateway Open, pg.2
  16. Penny Sleuth, Investing in India
  17. HSBC analyst report - July 2008, Keep the Gateway Open, pg.5
  18. HSBC analyst report - July 2008, Keep the Gateway Open, pg.7
  19. Investing in India’s Roads, Rails, and Airports
  20. Penny Sleuth, Investing in India
  21. Internet World Stats
  22. Penny Sleuth, Investing in India
  23. Internet World Stats
  24. Gartner: India’s Mobile Services Market to Surpass $37 billion in 2012
  25. Gartner: India’s Mobile Services Market to Surpass $37 billion in 2012
  26. HSBC analyst report - July 2008, Keep the Gateway Open, pg.46
  27. Rediff.com - Feb 2008: India’s Software Exports to Cross $40bn
  28. Nytimes.com - Sept 25, 2007: Outsourcing Works, So India is Exporting Jobs
  29. Wikipedia:Economy of India
  30. ibtimes.com: India to Witness Highest Average Salary Hike in Asia Pacific
  31. NYtimes.com, World, India
  32. NYtimes.com - Jan 17, 2008: Education Push Yields Little for India's Poor

Companies in the Investing in India Industry (4899)