800am - ajit dayal - agora equitymaster july 2009

8/13/2019 800AM - Ajit Dayal - Agora Equitymaster July 2009

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BRIC by BRICAjit Dayal, Director, Equitymaster Agora India


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Equitymaster Agora India 2

In 1999, they said Buy NASDAQ

Source: Quantum Advisors, Bloomberg | As on 30 th June 2009

(In USD)

-100

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Aug-00 Jun-09

BSE-30 TRI

MSCI EM Free

S&P 500

Nasdaq

Base = 100


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InfosysIBM

Technology: Infosys, IBM

Souce: Bloomberg


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ZeeNews Corp

Media: Zee, News Corp

Souce: Bloomberg


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HDFCWells Fargo

Financials: HDFC, Wells Fargo

Souce: Bloomberg


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Long- term investment case for BRICs

Economic reforms in all BRIC economies

By 2020, 5 large economies in the world: 2 from BRIC

Source: Goldman Sachs, & MSCI

% share globalGDP, 2005 2020

% change % share globalmarket cap, 2005

GDP (PPP)(US$ bn)

USA 33% 31% -5% 56% 10,923Euro zone 23% 22% -5% 25% 8,175

Japan 16% 13% -18% 10% 3,568

China 6% 10% +70% 2% 6,446

India 3% 5% +70% < 1% 3,078


7/23Equitymaster Agora India 7

Time for a reversal ?



Profit is the difference betweenreality and perception



Their strengths

Country comparison Brazil China India Russia

Area (million sq km) 8.5 9.6 3.3 17.0

Population (millions) 190 1,328 1,154 142

GDP in CY 2008 (nominal, US$ bn) 1,487 4,326 1,145 1,332Fx Reserves (US$ bn) 125 1,946 241 414

Gold holdings (US$ bn) 0.9 4.6 8.5 n.a

Savings/GDP (%) 19.1 51.2 33.8 35.1

Source: Thomson Reuters, Datastream/www.cia.gov



Their weakness

Country comparison Brazil China India RussiaArea (million sq km) 8.5 9.6 3.3 17.0

Population (millions) 190 1,328 1,154 142

GDP/capita (US$) 7,840 3,258 992 9,382

Govt. education spend/capita (US$) 321 4 16 n.a.

Govt. health spend/capita (US$) 150 40 40 12

Govt pension funds/capita (US$) n.a. 100 80 n.a.

Source: Thomson Reuters, Datastream/www.cia.gov



India: Half full or half empty?



Solid GDP growthdespite coalition governments GDP Growth rate across 8 governments has been 6.2% p.a. over the past 28 years

will this 9th government deliver 6.5%?

9 governments \ * 6 coalition government |

5.6 5.7 5.4 5.76.5

8.6

6.56.1 6.3

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1980 1984 1989 1991 1996 1998 1999 2004 2009

Congress Congress JanataDal*

Congress DF * BJP * NDA * UPA * UPA *

GDP Growth Rateper annum (%)

6.2 averag e

est



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Sensex in INR

Sensex in USD

Sensex Index ; (INR/US$)

Souce: B loomberg

Annualized return INR USD+16.99% +10.40%



1999 2004 2009Total voters 620 m 672 m 710 mWho voted 60% 58% 58%

Poll stations n.a 690,670 834,944Seats 543 543 543Candidates 4,648 5,435 8,070Coalition govt led by BJP Congress Congress

India elections: no chads, no hanging chads, no hangings!


15/23



India not that coupled to global GDP:cost- check your house!

As a % of GDPPrivate

Consumption Exports of Goods &

Services

India 67 18

China 46 40

Indonesia 64 40

Thailand 56 60

Malaysia 42 114Source: Bloomberg, RBI

Lower global links



Period Net Foreign

Activity(US$ m)

Net Local FundActivity(US$ m)

Total(US$ m)

Change in BSE-30 TRI in that period (% )

( USD)

CY 2003 6,940 93 7,033 + 86.3%CY 2004 8,958 -261 8,697 + 23.1%CY 2005 10,896 3,089 13,985 + 42.2%CY 2006 7,994 3,442 11,435 +53.3%CY 2007 17,235 3,121 20,357 +68.5%CY 2008 -13,136 2,037 -11,099 -60.7%Cumulative 38,888 11,520 50,407 +231.1%2009 YTD 2009 +4,203 +321 +4,524 +55.4%

The coupling is in foreign money flows: India

Source: Sebi.gov.in: As on June 30, 2009



Capital flows: BRICs hit a wall

(all in USD) % Gain/Loss since July 31, 2007(Bear Stearns funds in trouble)

India BSE-30 TRI -19.1%Brazil - Bovespa -9.8%

China - SHCOMP -24.7%Russia - RTSI$ -49.4%MSCI EM Free -28.7%S&P 500 -33.8%MSCI World -34.3%Berkshire Hathaway -18.2%Gold +39.5%Oil -10.6%

Source: Bloomberg ; as on June 30, 2009



but BRICs are recovering

(all in USD) % Gain/Loss since July31, 2007 (Bear Stearns

funds in trouble)

% change YTD inCY 2009

India BSE-30 TRI -19.1% +53.2%Brazil - Bovespa -9.8% +63.1%

China - SHCOMP -24.7% +64.2%Russia - RTSI$ -49.4% +58.7%MSCI EM Free -28.7% +35.7%S&P 500 -33.8% +3.2%MSCI World -34.3% +9.4%

Berkshire Hathaway -18.2% -6.8%Gold +39.5% +5.1%Oil -10.6% +56.7%

Source: Bloomberg: As on June 30, 2009


20/23


NASDAQ or BRIC

BRIC is not a theme it is a reality

Over the past decade, BRIC gained global clout

But BRIC will not rule the world for decades

Nor should companies in the BRIC dominate your portfolio

Significant social and political uncertainty + many crooks

But ignoring BRIC means surrendering long term returns


21/23


Fasten your seat beltsenjoy the ride!

Your profit =

underlying economic earnings (find the winners)+

volatile capital flows that move to BRIC


22/23


Thank youObrigado

(xie xie) (dhanya-vaad)

(spassiba)


23/23

i A di 23

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800am - ajit dayal - agora equitymaster july 2009

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