bombay stock exchange limited - bsebti macro update feb 2017.pdficra 7.50% 7.90% icici securities...

Macro updateFeb 2017

Major Policy Actions

2

Demonetization

Bankruptcy Bill

Goods and Services Tax Bill

• Demonetization of Rs.1000 and Rs.500 Notes with effect from 9th November 2016• Aims to curb corruption and black money• The move is aimed at promoting digital transactions and is expected to lower the

inflation

• Aimed at improving India’s ‘Ease of Doing Business’ Rank• Would facilitate faster turnaround of business• Would facilitate creditors in taking timely and effective action against defaulting

borrowers

• Marks a major step towards implementation of India’s most ambitious indirecttax reform

• Aims to bring the indirect taxes under one umbrella• On a company level, it reduces the effective tax paid by producers

Revised GDP Growth forecast post Demonetization

3

With the effect of demonetization, the consumer demand is expected to fall, given the factthat the country is cash based economy. The rural demand in particular is expected to fall inthe near future. Hence, as a result certain investment banks have reduced their GDPforecasts

FY16-17 GDP Growth Estimate

Current Previous

Fitch 6.90% 7.40%

Goldman Sachs 6.80% 7.90%

Ambit Capital 3.50% 6.80%

Care Ratings 7.3%-7.5% 7.80%

Emkay Global 6.50% 7.40%

ICRA 7.50% 7.90%

ICICI Securities 7.40% 7.80%

RBI 7.1% 7.6%

Highlights from the Economic Survey

4

7.20%

0.76%

8.20%

9.90%

7.30%

6.10%

7%

4.10%

5.20%

8.80%

6.50%

-0.20%

-2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00%

GVA at basic prices

Agriculture

Industry

Services

Private consumption

Investment demand

GDP components 2016-17 (f) 2015-16

• Agriculture sector is expected to do well in FY16-17 on the back of good monsoon despite the effect ofdemonetisation

• The Budget has announced the Government’s willingness to continue the recent trend of high public spending in thelight of contracting private spending

• Market interest rates expected to be lower in FY2017-18 due to demonetisation• Government debt to GDP ratio in 2016 seen at 68.5 percent down from 69.1 percent in 2015• The average consumer price index (CPI) inflation rate declined to 4.9% in 2015/16 from 5.9% in 2014/15 and are likely

to remain below the RBI’s target of 5% for 2016-17• Demonetisation to affect growth rate by 0.25-0.5%, but to have long-term benefits• GST, other structural reforms should take the trend growth rate to 8-10% in the next few years

Highlights from the Union Budget

5

Fiscal management

• Total budget expenditure: Rs 21 trillion

• Fiscal deficit for FY18 pegged at 3.2% of GDP

• Revenue deficit for FY18 at 1.9%

Financial Sector

• Foreign Investment Promotion Board will be abolished in 2017-18. The plan to dismantle the FIPB

indicates that almost all sectors attracting FDI will move into automatic approval route.

• An expert committee will be constituted to study and promote creation of an operational and legal

framework to integrate spot market and derivatives market in the agricultural sector, for commodities

trading. e- NAM will be an integral part of the framework

• Relief for category I and II foreign portfolio investors (FPIs) from tax liability arising out of sale of assets

or shares in a foreign company due to redemption of an investment within India

• Rs.10,000 crores will be provided for recapitalization of Banks in 2017-18

Infrastructure

• A total allocation of Rs.39, 61,354 crore has been made for infrastructure and allocation for Railways is

Rs.1, 31,000 crore

• allocation for highways increased from 57,976 crores in 2016-17 to 64,900 crores in 2017-18

Highlights from the Union Budget

6

Capital Markets

• No announcement on application of LTCG on trading

• Systematically important NBFCs above a certain net worth will be categorized as qualified institutional buyers

by SEBI. This will help the initial public offering market become stronger and channelize more investments

• Online registration of financial market intermediaries such as mutual funds, brokers and portfolio managers

will be initiated

• Common applications for registration and opening of bank and demat accounts and the issue of a Permanent

Account Number for foreign portfolio investors

• A bill on the resolution of financial firms is to be introduced in the Parliament for setting up of a Securities

Appellate Tribunal

• Listing and trading of Security Receipts issued by a securitization company or a reconstruction company will be

permitted on stock exchanges registered under the Security Exchange Board of India (SEBI). This will enhance

capital flows into the securitization industry and effectively deal with bank non-performing assets

• No postponement announcement of GAAR implementation. GAAR will come into force from 1st April 2017

• LTCG will applicable for sale those equity shares acquired on or after 1st October 2004 if securities transaction

tax was not paid at the time of acquiring them (with exception to IPO, FPO , rights issue and bonus issue)

Highlights from the Union Budget – Capital market effects

7

Capital Markets

• Transfer of Rupee Denominated bonds by a non-resident to another non-resident will be exempted from capital

gains tax

• Concessional tax rate of 5% will be extended to the interest paid on rupee denominated bonds issued by an Indian

company to a non-resident investors up to 30th June 2020 effective retrospectively from AY2016-17

• Government will put in place a revised mechanism and procedure to ensure time bound listing of identified CPSEs

on stock exchanges. The shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed in stock exchanges

SME Sector

• Tax for MSME companies with turnover of up to Rs. 50 Cr. is reduced from 30% to 25% while turnover limit

for compulsory audits is increased to Rs. 2 Cr.

• the businesses that have turnover up to Rs 2 crore, under section 44AD of the Income Tax Act, income

would be presumed to be 6% of the total turnover of the assesse, instead of 8% only if gross receipts are

received through digital means

8

Economic fundamentals

Sources : CMIE

• GDP in Q2 FY grew at 7.3% faster than 7.1% growth recordedin Q1 FY17 backed by strong performance in the farm sectorand higher Government spending.

• The Current Account Deficit (CAD) narrowed to 0.6% of GDP inthe second quarter of FY17 to US$3.4 billion on account oflower trade deficit. This is lower than the CAD of 1.7% of GDPin the same quarter last year. CAD is expected to be between 1-1.5% of the GDP in the current fiscal

• Exports have grown in each of the last three quarters afterfalling for 5 consecutive quarters between Q2-15 and Q3-16

7.7%

5.5%4.6%

7.5%

8.4% 7.7%

7.30%

4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%8.5%9.0%

Jun

-20

11

Sep

t-2

01

1

Dec

-20

11

Mar

-20

11

Jun

-20

12

Sep

t-2

01

2

Dec

-20

12

Mar

-20

12

Jun

-20

13

Sep

t-2

01

3

Dec

-20

13

Mar

-20

13

Jun

-20

14

Sep

t-2

01

4

Dec

-20

14

Mar

-20

14

Jun

-20

15

Sep

t-2

01

5

Dec

-20

15

Mar

-20

15

Jun

-20

16

Sep

t-2

01

6

GDP Growth Rate

3.8%

6.8%

2.2%1.7%

0.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Jun

-20

11

Sep

t-2

01

1

Dec

-20

11

Mar

-20

11

Jun

-20

12

Sep

t-2

01

2

Dec

-20

12

Mar

-20

12

Jun

-20

13

Sep

t-2

01

3

Dec

-20

13

Mar

-20

13

Jun

-20

14

Sep

t-2

01

4

Dec

-20

14

Mar

-20

14

Jun

-20

15

Sep

t-2

01

5

Dec

-20

15

Mar

-20

15

Jun

-20

16

Sep

t-2

01

6

Current Account Deficit as % of GDP

38.6%

10.3%

44.1%

12.9%

-6.9%

-20.0%

0.0%

20.0%

40.0%

60.0%

Jun

-20

11

Sep

t-2

01

1

Dec

-20

11

Mar

-20

11

Jun

-20

12

Sep

t-2

01

2

Dec

-20

12

Mar

-20

12

Jun

-20

13

Sep

t-2

01

3

Dec

-20

13

Mar

-20

13

Jun

-20

14

Sep

t-2

01

4

Dec

-20

14

Mar

-20

14

Jun

-20

15

Sep

t-2

01

5

Dec

-20

15

Mar

-20

15

Jun

-20

16

Sep

t-2

01

6

Dec

-16

Trade dataExports Imports

9

• Industrial activity, as measured by the Index of Industrial Production (IIP), rose by 5.71% in November2016 from 1.9% drop in October 2016

• The increase is important especially since industrial activity was expected to drop postdemonetisation

• Retail inflation in December, benefited from a sharp decline in vegetable prices and the possibleadverse impact of the note ban on the bargaining power of producers of perishables


11.5%

3.3%

7.2%

7.6% 6.4%

-5.1%

3.39%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2Ja

n-1

3M

ar-1

3M

ay-1

3Ju

l-1

3Se

p-1

3N

ov-

13

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4Ja

n-1

5M

ar-1

5M

ay-1

5Ju

l-1

5Se

p-1

5N

ov-

15

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Y-o-Y Inflation

CPI growth WPI growth

0.97%

9.87%

-3.37%

5.71%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Index of industrial production ( %y-o-y change)

10

• Consumer sentiments at the all-India level were down 0.18%at 95.25. This can be attributed to a 0.3% fall in the index ofconsumer expectations to 95.95. Meanwhile, the index ofcurrent economic conditions was steady at 94.14.

• Sentiments were stable across regions. In urban India,consumer sentiments index and its constituents- the index ofcurrent economic conditions and the index of consumerexpectations were steady at 91.86, 91.63 and 92.01,respectively.

• Rural consumer sentiments index and its constituents i.e. theindex of current economic conditions and the index ofconsumer expectations stood unchanged at 97.45, 95.31 and98.81, respectively


103.3

96.5

103.4

96.0

103.497.7

104.9

96.5

103.3

94.6

100.9

95.190

95

100

105

110

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

No

v-1

6

Dec

-16

Jan

-17

Indian Consumer Statistics

Consumer Sentiments Consumer Expectations Current Economic Conditions

100.2100.6

92.4

100.9

101.2

92.3

99.2

99.6

92.590

95

100

105

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

No

v-1

6

Dec

-16

Jan

-17

Urban Consumer Statistics


105.0

94.9

106.9

105.0 96.5108.9

105.0

91.3

103.8

90

95

100

105

110

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

No

v-1

6

Dec

-16

Jan

-17

Rural Consumer Statistics


11


• The Unemployment Rate in India remained unchanged in January 2017 compared to the previous month. It has fallen by 11.4% on m-o-m basis in December 2016, while it rose in November 2016 by 3%. Unemployment rate has fallen by 41.1% since hitting a high in May-16

• Unemployment rate has decreased each month since August 2016

8.7 8.0 8.49.3

10.2

8.8 8.7

9.8

8.9

6.6 6.8 6.0 6.0

10.0 9.610.5

11.7 12.5

9.810.8 11.2

10.3

7.2

9.1

7.6 7.78.17.2 7.4

8.29.1

8.47.6

9.28.2

6.2 5.55.2 5.1

0

2

4

6

8

10

12

14

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17

Unemployment Rate

India Urban Rural

12

40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

Jun

-20

11

Sep

t-2

01

1

Dec

-20

11

Mar

-20

11

Jun

-20

12

Sep

t-2

01

2

Dec

-20

12

Mar

-20

12

Jun

-20

13

Sep

t-2

01

3

Dec

-20

13

Mar

-20

13

Jun

-20

14

Sep

t-2

01

4

Dec

-20

14

Mar

-20

14

Jun

-20

15

Sep

t-2

01

5

Dec

-20

15

Mar

-20

15

Jun

-20

16

Sep

t-2

01

6

Dec

-16

Exchange Rate

Rupees per US dollar Rupees per Pound Sterling

Rupees per Euro Rupees per 100 Japanese Yen

8.33%

9.11%

6.64%5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

Jun

-20

11

Sep

t-2

01

1

Dec

-20

11

Mar

-20

11

Jun

-20

12

Sep

t-2

01

2

Dec

-20

12

Mar

-20

12

Jun

-20

13

Sep

t-2

01

3

Dec

-20

13

Mar

-20

13

Jun

-20

14

Sep

t-2

01

4

Dec

-20

14

Mar

-20

14

Jun

-20

15

Sep

t-2

01

5

Dec

-20

15

Mar

-20

15

Jun

-20

16

Sep

t-2

01

6

Dec

-16

10 Year Government Bond Yield

Government Securities with RBI

Total worth of Notes RBI can offer as of

November 22, 2016

Rs. 7 lakh

Crore

Worth of Notes offered as of November 22,

2016

Rs. 4.3 Lakh

Crore

Worth of Notes left with RBI as of

November 22, 2016

Rs. 2.7 Lakh

CroreSource: Economic Times\Bond Shortage at RBI

• Indian Rupee depreciated 0.5% against the US Dollar,while it appreciated 0.9% against the Pound, 2.8% onthe Euro and 6.9% against the Japanese Yen on aMoM basis in December 2016. The Rupee hasdepreciated by 7% against the Yen on a yearly basis

• The bond yield fell by 7.4% in the third quarter of2016 on a QoQ basis. The yield is the lowest since Q12011

• As per RBI, the claims of RBI on Government areRs.6,370 billion


13


• The foreign exchange reserves has reduced by 3.1% in December 2016 (US$ 11.7 billion) on Q-o-Q basis but has increased by 2.3% on Y-o-Y basis

276.3

372.00360.30

-8.2%

13.7%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

250.0

270.0

290.0

310.0

330.0

350.0

370.0

390.0M

ar-2

01

1

Jun

-20

12

Sep

t-2

01

2

De

c-2

01

2

Mar

-20

12

Jun

-20

13

Sep

t-2

01

3

De

c-2

01

3

Mar

-20

13

Jun

-20

14

Sep

t-2

01

4

De

c-2

01

4

Mar

-20

14

Jun

-20

15

Sep

t-2

01

5

De

c-2

01

5

Mar

-20

15

Jun

-20

16

Sep

t-2

01

6

De

c-1

6

%Y-

o-Y

ch

ange

US$

Bill

ion

Foreign Exchange Reserve

Total foreign exchange reserves YoY growth

0%

20%

40%

60%

80%

100%

Egyp

t

Bra

zil

Hu

nga

ry

Arg

enti

na

Mo

rocc

o

Ind

ia

Sou

th…

Ch

ina

Mex

ico

Po

lan

d

Mal

aysi

a

Co

lom

bia

Thai

lan

d

Ko

rea

Turk

ey

Taiw

an

Ph

ilip

pin

es

Ind

on

esia

Per

u

Ru

ssia

Ch

ile

Expected Reduction in general government debt (% of GDP) 2009-2019(E)*

2009 2019E

78.7

66.1 59.3

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

E

20

15

E

20

16

E

20

17

E

20

18

E

20

19

E

20

20

E

General government gross debt(% of GDP)*

14


Source: *IMF World Economic Outlook, October 2015**CMIE

• As per the IMF’s October 2015 survey India’s government gross debt as a percentage of GDP is expected toconsistently fall from 78.7% in 2001 to an estimated level of 59.3% in 2020 which implies prudent fiscal disciplineby the government.

• A look at the change in general government debt as a percentage of GDP for various Emerging Market (EM)economies indicate that India is expected to reduce this number by 12% on an absolute basis by 2019 as comparedto 2009; which is only second to Philippines which is expected to reduce it by 15.6% by 2019.

15


Sources : CMIE**Total FDI, Department of Industrial Policy and Promotion (http://dipp.nic.in/English/Publications/FDI_Statistics/FDI_Statistics.aspx), Data till November 2016 for FY17Financial Times, “India tops global FDI league for the second year running”

• As per the data released by Organization forEconomic Co-operation and Development (OECD),FDI flows have slowed to most emerging marketsincluding India this year

• The recent trend in India has been broadly in linewith other major emerging market economies, whichhave witnessed a visible slowdown in their FDIinflows

• The total FDI announced in greenfield projects sinceMay 2014 is close to US$ 138 billion compared toUS$177 billion between 2009-2014

-7.85

15.91 20.31

-45.41

37.74

-6.80-22.44

29.49

-57.39

-11.55

-43.22-26.54

-20.67-8.78

2.96

-80

-60

-40

-20

0

20

40

60

China Indonesia India Russia Brazil

Net FDI inflow %y-o-y

2014 2015 H1'2016 (Jan-June)

46.6

34.3 36.0

45.2

55.6

43.2

-

10.0

20.0

30.0

40.0

50.0

60.0

FY12 FY13 FY14 FY15 FY16 FY17

Net FDI inflow in US$ billionTop 10 Sectors – FDI INFLOWS (Amount in Rs. Cr.)

FY16 FY17-Apr-Sep

Services Sector 45,415 35,368

Computer Software & Hardware 38,351 6,903

Trading 25,244 9,936

Automobile Industry 16,437 4,865

Chemicals (Other Than Fertilizers) 9,664 3,561

Hotel & Tourism 8,761 3,497

Telecommunications 8,637 18,659

Power 5,662 3,744

Drugs & Pharmaceuticals 4,975 4,270

Construction Development 727 414

http://dipp.nic.in/English/Publications/FDI_Statistics/FDI_Statistics.aspx

16

TOP 10 Countries - FDI INFLOWS (Amount in USD Million)

FY16 FY17-Apr-Sep

Mauritius 8,355 5,850

Singapore 13,692 4,680

U.K 898 964

Japan 2,614 2,795

U.S.A 4,192 1,437

Netherlands 2,643 1,615

Germany 986 588

Cyprus 508 381

France 598 183

UAE 985 355

Top 10 States – FDI INFLOWS (Amount in Rs. Cr.)

FY16 FY17-Apr-Sep

Maharashtra 62,731 68,409

Delhi - NCR 83,288 23,415

Tamil Nadu 29,781 4,136

Karnataka 26,791 7,216

Gujarat 14,667 2,462

Andhra Pradesh - Telangana 10,315 7,204

West Bengal 6,220 208

Kerala 589 2,199

Rajasthan 332 753

Punjab & Himachal Pradesh 177 39

• With the government focusing on enhancing services exports and relaxing norms in thesector, Foreign Direct Investment (FDI) inflows into the service sector has seen a jump byover two and a half times to US$ 5.28 billion in the April-September period of the currentfiscal

• The government has taken several measures such as fixing timeliness for approvals andstreamlining procedures to improve ease of doing business in the country

• A strong inflow of foreign investments would help improve the country’s balance ofpayments situation and strengthen the rupee value against other global currencies,especially the US dollar


17

Market fundamentals

Sources :BSE website

• FII (foreign institutional investors) net inflows into equitymarkets stood at Rs. 16,301 Cr. so far in FY16-17 compared toa net outflow of Rs. 35,005 Cr in the debt segment.

• Domestic inflows into equities were quite strong, largelydriven by continued robust savings by retail investors inequities through mutual funds.

• The PE for the Sensex has come down from 22.1 in Aug-15 toaround 21.2 in Jan-17. As per some experts the valuations ofIndian companies at this level is pretty attractive speciallywhen compared to a PE value of 23.6 registered in Jan-11

• Bankex has given better returns as compared to oil and realestate indices indicating some weakness in these physicalassets

69,858

34,852

92,12264,764

30000

40000

50000

60000

70000

80000

90000

100000

Turnover (Rs. Cr.)

406080

100120140160180200

S&P BSE Major Indices Performance

BSE Sensex BSE Oil & Gas BSE Realty BSE Bankex

17,823.40

29,182.95

27,655.96

22 22.5 21.19

10

12

14

16

18

20

22

24

10,000

15,000

20,000

25,000

30,000

35,000

Jan

-11

Jun

-11

No

v-1

1

Ap

r-1

2

Sep

-12

Feb

-13

Jul-

13

Dec

-13

May

-14

Oct

-14

Mar

-15

Au

g-1

5

Jan

-16

Jun

-16

No

v-1

6

PE

Rat

io

S&P BSE Sensex ActivityClose PE Ratios

18

• Stock markets underperformed DMs and EMs by 5% and 8% in dollar terms in 2016

• BOVESPA of Brazil has risen by 49.2% in the last one year compared to 12.5% for S&P BSE Sensex. The average YoY growth for major BRICS indices is 16.5%

Market Fundamentals

50

70

90

110

130

150

170

190

210

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

Jan

-17

Sensex Vs other major global indices

Sensex HangSeng Nikkei 225 FTSE 100 S&P 500 Index

50

70

90

110

130

150

170

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

Jan

-17

Sensex Vs. Asian Indices

Sensex Bursa Malaysia SET -Thailand KOSPI-Korea

50

100

150

200

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

Jan

-17

Sensex Vs Brics

Brazil Bovespa Russia (MICEX)

India (Sensex) China (Shanghai Composite Index)

South Africa (Jalsh)

19

Indian Demographics (1 of 2)

*Sources CMIE**IMF***United Nations

• India’s overall literacy rates increased from 64.8% as per the2001 census to 73.0% in the 2011 census. Female literacyrates increased by 10.9% compared to 5.6% for males in thelatest census.

• With an increase in the population the proportion of workingage population (15-60 years) increased to 60.5% which makesIndia one of the youngest nations in the world with a medianage of 27.3 years. It also makes India home to the largest youthpopulation in the world***

• India’s GDP per capita is expected to grow at a CAGR of 5.7%during 2010-2020. A healthy GDP growth rate is expected tobring a large section of India’s population above the povertyline

39.5%

46.9%

64.1%

75.3%

80.9%

1971

1981

1991

2001

2011

Literacy ratesMale Female

64.6%

53.7%

39.39%

24.8%

18.7%

44.3% 42.9%39.5%

55.7% 57.1%60.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

1991 2001 2011

Demographic dividend% of dependent population % of working age population

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

600800

100012001400160018002000220024002600

GDP per capita (in US$) and GDP growth rate**

20

Indian Demographics (2 of 2)

*Sources World Bank

• India’s Dependency ratio has been falling consistently since2010 and by 2050 this ratio is expected to fall below 50%

• India has the second best young age dependency ratiocompared to major global economies and as per a UN reportIndia has the largest youth population in the world which canact as a major boost to the economy as the labour marketexpands

• Over the years the female workforce participation has seen anincrease, however it is still lower than desired levels. Currentefforts of the government like Skill India and increasedexpenditure on education is expected to boost this ratio

48

.3%

47

.4%

46

.5%

45

.6%

44

.7%

8.0

%

8.1

%

8.2

%

8.3

%

8.4

%

56.3% 55.5% 54.7% 53.9% 53.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2010 2011 2012 2013 2014

Age Dependency ratioAge Dependency ratio Young Age Dependency ratio Old

Age Dependency ratio total

0

10

20

30

40

50

Age Dependency ratio global comparisonAge dependency ratio, old Age dependency ratio, young

25.9

12.119.7 22.3

25.6 25.5

5752.61 52.62 51.61 51.68 53.3

0

10

20

30

40

50

60

1961 1971 1981 1991 2001 2011

Indian Workforce participation ratio

female WPR male WPR

Global

22

Growth Prospects

Source: IMF, UN

Growth to be Propelled by Emerging Markets led by India & China

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

World EuropeanUnion

Emergingmarkets

DevelopingAsia

China India UnitedStates

GDP (% Change)

2013 2014 2015e 2016p 2017p 2018p

• Global growth again fell short ofexpectations in 2015

• Decelerated to 3.1% from 3.4% in 2014.

• Disappointing performance mainlyreflected a continued growthdeceleration in growing economies

• Global growth is projected to edge up inthe coming years, but at a slower pacethan envisioned due to:

o Continued gains in major high-income countries

o Gradual tightening of financing conditions

o stabilization of commodity priceso Gradual rebalancing in India &

China

BRICS comparison

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

India China Russia Brazil South Africa

India vs major developing economies GDP growth

2013 2014 2015 2016F 2017F 2108F• Among the BRICS nations, India has the

highest GDP growth rate projection

• China is heading for a new normalgrowth rate which is significantly lowerthan those recorded in the past twodecades

• Due to a steep fall in oil prices andeconomic sanctions, Russian economy isfacing challenges to revive growth

• Brazil suffering from Stagflation andnegative growth rate

• South Africa is on the brink of recessionand is battling stagflation and is facingsub-2% growth in 2015

Source: World Bank

24

Commodities Outlook

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2013 2014 2015e 2016p 2017p 2018p

Crude Oil Prices (US$)

50.0

70.0

90.0

110.0

130.0

150.0

170.0

190.0

2013 2014 2015e 2016p 2017p 2018p

IMF Global Commodity Price Index

World Bank Lowers 2016 Forecasts for their Global Commodity Prices ( Including Oil)

Source: IMF, UN, World Bank

• Emerging market economies have been the main sources of commodity demand growth since 2000, as a result,slower than expected growth prospects in these economies are weighing on commodity prices

• Further slowdown in major emerging markets would reduce trading partner growth and global commodity demand

• Gradual recovery in oil prices is expected over the course of the year, for several reasons

• Beyond oil markets, all main commodity price indices are expected to fall in 2016 due to persistently large supplies,and in the case of industrial commodities, slowing demand in emerging market economies

25

Key Growth Indicators

Growth to be led by Moderate Inflation, Increased Infrastructure Investments and Efficient Debt Management

Source: IMF, UN, World Bank

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

World EuropeanUnion

Emergingmarkets

DevelopingAsia


Inflation (% Change)2013 2014 2015e 2016p 2017p 2018p

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

World EuropeanUnion

Emergingmarkets

DevelopingAsia


Total Investment (% of GDP)2013 2014 2015e 2016p 2017p 2018p

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

EuropeanUnion

Emergingmarkets

DevelopingAsia

China India United States

Gross Debt (% of GDP)2013 2014 2015e 2016p 2017p 2018p

• Core inflation has remained broadly stable well below inflationobjectives. In many emerging market economies, notably thosewith weak domestic demand, headline inflation has declined

• There is a large scope for investments particularly in agriculturalsector as capital formation is one of the cornerstones for theeconomic development in a country

• Pace of fiscal consolidation needs to strike an appropriate balancebetween debt reduction and imposing a drag on economic activity

4.4

6.2

8.2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

E

20

13

E

20

14

E

20

15

E

20

16

E

20

17

E

20

18

E

20

19

E

India’s share in world GDP (PPP current USD)*

17.2

7.1

42.4

33.2

Estimated % Share in world GDP (PPP), 2015*

Other developing countries

China

India

Developed economies

Increasing Share in World GDP

26

Relative GDP at MERs and PPPs in 2050 in US$**

Source: *IMF World Economic Outlook, October 2015**The World in 2050 Will the shift in global economic power continue?, February 2015 (PwC Analysis)

• Currently within the emerging markets India’s share of globalGDP in PPP terms is only next to that of China with a 7.1%share in 2015. With China slowing down, this share is expectedto increase

• As per the IMF’s October 2015 survey India’s share in worldGDP in PPP terms is expected to rise continuously from 4.4% in2001 to approximately 8.2% by 2019. This estimate reiteratesthe growth story of India.

• India is expected to be the second largest economy in the worldby 2050 measured in terms of PPP just behind China andsurpassing USA. It is expected to be a US$42 trillion economyby 2050.

27

China: Great Dilemma

• Slowing global growth will make it difficult to continue with the current model

• Tax cuts to reduce company liabilities

• Future growth cannot rely on debt and investment alone

• Overexposure to the U.S. dollar

High Capital

Outflows

Over-reliance on Investment

Export Orientated Economy

High Rate of

Corporate Loan

Default

Quality of GDP Data:

Many China observers believe that local province officials systematically exaggerate growth to secure promotions

Stock market Crash of 2015:

The Chinese market fell by 30% in three weeks between June-July 2015 reflecting the uncertainty of the Chinese economy

Restriction on capital outflows:

China has introduced regulations in 2015 to restrict investments in overseas stock markets and limit banks’ foreign exchange operations to restrict capital outflows

28

Negative Interest

Rates

US Fed Rate Hike

Slowdown in China

Weak Economic Recovery

Increase in Protectionism

Geopolitical Issues

Major Global-Economic Issues

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