Scanning Global Eco

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Private and Confidential

Scanning World & Indian Macro Environment

z

Manish Bhandari, CIIA

CEO and Managing Partner

Vallum Capital Advisors Pvt Ltd.

Mumbai, India

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Agenda

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A ) Global Economic Environment & Outlook

B) China Growth model

C) Indian Economic Scenario

D) Key Investment Themes

Vallum Capital Advisors Pvt. Ltd.


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-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

2005 2006 2007 2008 2009 2010 2011 2012

Real GDP growth rate (%)

USA China Euro Union World

Source: World Bank Data

3Vallum Capital Advisors Pvt. Ltd.

Developed markets GDP have been on a declining trend

Developing economies are still the main driver of global growth, but their output has

slowed compared with the pre-crisis period

While headwinds from restructuring and fiscal consolidation will persist in high-income

countries, they should become less intense allowing for a slow acceleration in growth over

the next several years


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-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2004 2005 2006 2007 2008 2009 2010 2011

CA as % of GDP

Portugal USA India Brazil

Japan China Russia Germany

-800

-600

-400

-200

0

200

400

600

SA

rance

razil

ndia

reece

ortugal

ussia

apan

ermany

hina

Current Acc. position (US $ Bn)

2007 2008 2009 2010 2011

Source: IMF Data


Medium-term prospects for the regionwill critically depend on progress in

addressing external constraints (large

current account deficits)

Domestic constraints (large fiscal

deficit, unemployment, and inflation)imbalances; lack of competitiveness;

and structural constraints.

Falling international reserves and high

current account deficits may constrain

monetary policy in some middle-incomecountries

Current Account Deficit : Impact on policy decisions of countries around the world


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Substantial progress has been made in reducing fiscal deficits, but debt levels

continue to rise


Many developing countries would be well advised to gradually restore depleted fiscal and

monetary buffers, so as to ensure that their economies can respond as resiliently as theydid during the 2008/09 crisis should a further significant external shock arise.


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Declining commodity prices are a further indication of the real-side effects of

recent turmoil


Commodity prices should stabilize or decline in this moderate growth environment

Looking at the current macro environment, the commodity prices are highly sensitive to

any kind of supply side shock


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Agenda

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As seen below, over the last decade contribution made by investments towards the GDP

growth of china has been steadily increasing due to fiscal & monetary plans introduced

China : combination of high investment rates, rapid capital formation & strong

productivity growth for last 10 yrs



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Investments Rate & growth in China

Source: World Economic Outlook

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Investments as % of GDPAverage Real Wages (% change)

As Chinas investment rate increased, the contribution of investment to growth rose to

about 50 percent of 10 percent annual growth in the 2000s



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Neither Japan nor Korea two countries that have also enjoyed lengthy periods ofrapid growth ever saw investment rates exceed 40 percent

Chinas capital/output ratio, which in an economy on a stable growth path will be

broadly stable, increased by almost 25 percent over the past 15 years and is still rising

rapidly

China's authorities have identified the need for a more balanced pattern of investments

& savings

Shift toward investments and expenditures in the service sector and in intangible

assets like human capital combined with a lower investment rate

If China is to avoid opening up a large output gap, either investment rates will have to

decline or consumption growth will have to expand very rapidly

China Growth Model : the risk of stronger-than expected deceleration



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Agenda

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India : GDP & its components

Real GDP growth has slowed to a nine year low of 6.5 percent for FY2011-12, from 8.4

percent in the two previous years.

The slowdown can be attributed to various factors ranging from structural problems,

policy uncertainties, corruption scandals, financial difficulties & global slowdown

Source: RBI Annual Report 12Vallum Capital Advisors Pvt. Ltd.


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Balance of Payments hugely affected by the current account position

Decelerating export growth and high crude prices have pushed the current account

deficit to 4.2 percent of GDP in FY2011-12



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In real terms, the value of the rupee is now below its long term average.

Returns of Currency against Indian Rupee (INR)

Country Name Currency Latest Value 1m 3m 6m 1yr 3yr 5yr

Japan Yen 0.6 5.0% 7.9% 11.9% 9.7% -18.6% -40.8%

China Yuan 8.8 -1.7% -4.8% -1.4% -5.9% -23.9% -38.3%Hong Kong HK Dollar 7.1 -0.7% -3.7% 0.0% -4.8% -16.5% -28.6%

USA US Dollar 54.7 -0.7% -3.7% 0.0% -4.6% -16.4% -28.1%

Thailand Thai Baht 1.8 -2.5% -6.2% -5.2% -10.5% -22.9% -27.9%

Euro Area Euro 72.7 -1.7% -5.8% -7.9% -9.1% -9.5% -20.7%

Brazil Real 26.9 -3.1% -3.6% 0.0% 8.8% -1.8% -16.9%

HOW TO READ : (-)INR Depriciated/ (+) INR Appriciated

To arrest the rupees depreciation, foreign

exchange reserves were depleted by 3.4 %

(of the total) during FY2011-12.



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Core inflation, which has been the main component of overall inflation since

September 2010, has slowed down substantially.

According to this new index, which was first

presented in January 2011, inflation increasedfrom 7.7 % in January to 9.9 % in July 2012,

mostly on account of a surge in food prices,

especially vegetables

Indias CPI inflation trajectory shows little

correlation with that in other importantemerging markets



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Agenda

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Vallum Capital Advisors Pvt. Ltd. 17

Key Investment Themes

Shale Gas Boom : US independence of energy

Manufacturing returns to the United States

Disintegration of the European union

Booming E-commerce industry

Softening commodity prices & impact on India

Demographic Dividend of Indian population


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0

10

20

30

40

50

60

70

80

90

100

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Brazil China Russia India

China rapid growth

in 1990-00s

Demographics comparison : India set for high growth from

demographic dividend

India seems to be

poised for an accelerated

growth period

The adverse dependency ratio has started showing up in higher wages cost in China

19

Source: UNPP (population department)



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Founder and VALLUM CAPITAL

ADVISORS in Media



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Thank You

ContactVallum Capital Team

Mumbai, India

B8/58, MIG Society, Near MHADA Office,

Bandra (East), Mumbai -51Phone : +91 22 64539772/74

Cell : +91 9820326393

Email :[email protected]


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