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* REAL ESTATE: Land banks of many leading realty firms have shrunk by 50% in the past three to four years as they try to cut their mounting debt....
Global recovery robust – Part II
Global Recovery Robust – Part II
In my analysis last week, I talked about how global recovery is robust and the fear is unfounded.
Two key points from that analysis were:-
Apart from the Eurozone, the major global economies, comprising more than 70% of GDP, are in various stages of recovery or bottoming out.
The fear factor due to the situation in Greece has become so prevalent that the likelihood of a robust global recovery is being overlooked.
There have been a slew of reports during the last few days that seem to confirm my analysis.
Jim O’Neill : US Recovery Improving
Here’s an interview with Jim O’Neill in CNBC Market ‘Freaking Out’ Over Greece, J.P. Morgan- O`Neill :
“After swinging through a cross-country tour of the U.S. last week, the London-based chairman of Goldman Sachs Asset Management said he saw an economy that is improving, despite what some of the indicators show.”
Reports : China Growth Stimulus Likely / 2012 GDP Growth above 8%
Here are some excerpts of a story in Bloomberg - Wen Growth Pledge Spurs Speculation of China Stimulus :
”Wen called for “putting stabilizing growth in a more important position” and didn’t mention concern about inflation in remarks published yesterday by the official Xinhua News Agency. China may announce stimulus actions in the near term, according to a front-page commentary today in the China Securities Journal, which is published by Xinhua.”
Of course, no stimulus has been announced till now, but it would be fair to assume, given its past track record, that China is likely to take decisive action to spur growth. And the consensus view amongst World Bank and research houses like Morgan Stanley, Goldman and J.P. Morgan is that China would be able to engineer a soft landing and maintain an 8% plus growth rate in 2012. And this comes after they pared down their growth estimates when China reported a 7.9% growth rate for the first quarter of this year.
GMAC : Continued Growth in Hiring During 2012 for Management Grads
Maketwire did this story based on a survey done by the Graduate Management Admission Council (GMAC) - Job Market for MBAs Improving; Pay Premium Remains : ”On average, companies in the Asia-Pacific region and the United States expect continued growth in hiring in 2012 for all management graduates, whereas European companies project that hiring levels in 2012 will be similar to what they saw in 2011.”
"These results provide strong evidence of the continued global market recovery, which is also matched with the feedback received from EFMD`s business school members," said Eric Cornuel, director general and CEO of EFMD, a key partner in conducting the recruiter survey along with the MBA Career Services Council.
What about Greece?
My own analysis suggests that Greece, a minuscule economy with less than 0.5% of the global GDP, cannot take down the world. Furthermore it almost seems as though markets are ready for a Greece exit and might even be hoping that it happens! (See - Greece bank runs : a precursor to exit?)
And these viewpoints about Greece now seem to be picking up momentum. Here’s a report in Bloomberg today: A Greek Exit? Euro Zone May Be Ready.
“It is increasingly conceivable that Greece may leave the euro zone, not just because of its own political dysfunction but also because the consequences of such an exit for the rest of the Europe and the global economy no longer seem quite so scary.”
There is no doubt that a Greece exit would have a negative impact on growth and markets, but I doubt it’s going to cause a global slowdown. My sense is that it would be really bad for Greece, bad for Europe, just a tiny bit bad for the U.S., but have near zero impact on global growth.
The bottom line is that major global economies are in various stages of recovery or bottoming out and it seems that the recovery would continue, Greece or no Greece....
Hiring & Salaries Going up - Where’s the Slowdown?
I have been coming across a whole bunch of stories in leading newspapers about double digit salary hikes, increases in attrition rates and increases in hiring. Those doesn’t seem like signs of a slowdown in an economy to me.
In fact, my analysis suggests that the Indian economy went through a moderation phase in the second half of 2011, is now on a recovery path and is very likely be able to maintain growth rates of 8% plus, governance and reform issues notwithstanding.
Consider this:
ET / 3rd May : India Inc. expects double-digit salary hikes this year: Survey : “TeamLease said double-digit salary hikes are likely this year and the average salary growth in India could hit near 20 per cent levels in 2012.”
ET / 22nd May : Boom time for MBAs continues : “…..Not only are the salaries higher but 88% of Indian employers plan to hire MBAs in 2012, in line with the 89% of Indian employers that reported hiring MBAs in 2011.”
ET / 4th Jan. : Employees to get 14% average pay hike in 2012: Experts: “Employees can look forward to an average salary hike of 14 per cent in 2012, up from 11 per cent last year, while hiring activities would be robust in various services sectors, such as banking, experts believe.”
BS /1st May: India Inc may see attrition rates as high as 31% : “India Inc. is likely to see attrition rates as high as 31% during the three months ending June, as employees unsatisfied with annual salary hikes would look out for better prospects, say experts.”
Economy in a Recovery Mode and Expanding
Double digit salary hikes, increases in hiring and high attrition rates are indicators of an expanding economy, not signs of a moderating economy.
Of course, the estimates and opinions differ a bit in terms of actual percentages, but that’s the nature of surveys, estimates and expert opinions in any case. The important point is that directionally all estimates point to a fairly robust growth in salaries and hiring in 2012.
That seems to tie in with my own analysis of economic data which suggests that the Growth story is intact, and slowdown fears are unfounded.
In fact my analysis of economic data of major economies around the world suggests that even the Global recovery is robust.
See the graphs below for IIP and PMI. Which is a better interpretation – that the economy is contracting OR that it is on a slow and steady recovery path?
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There is no denying that there was a moderation of growth in the second half of 2011, with Dec. 2011 GDP growth being at 6.1%, from a high of 9.3% in the June 2010 quarter, with corporate profitability and other indicators too showing a moderation.
But this growth moderation has to be viewed from the right perspective:-
Economies rarely, if ever, grow in a straight line. After a period of frantic growth, there is almost always a period of moderation. After all, economies need time to catch their breath too. And for a moderation period, a 6.1% rate of growth isn’t really too bad.
Macro indicators for the first four months of 2012 are now pointing towards a resumption of growth trajectory and a slow and steady recovery.
What about Governance Issues and Reforms Going on the Back Burner?
There is no denying that we have major governance issues, and there seems to be a general consensus that no major reforms are going to go through till the 2014 general elections.
However, I don’t see that getting in the way of the Indian economy touching 9% growth rates. The reason is simple – the Indian economy has already built up a base momentum and growth rates of 8% plus are the ‘new normal’ so to speak. In fact I recollect an insightful study done by RBI which talks about the new long term average growth rate being in this 8% range.
The bottom line is that the economy went through a moderation phase in the second half of 2011, is now on a recovery path and is very likely be able to maintain growth rates of 8% plus, governance and reform issues notwithstanding....
Are the FII’s in a sell mode ?
This is a repeat of a story that I did a week back, but with numbers till May 18th. And the answer still remains, not yet. The transaction patterns of FII’s seem to show that overall they continue to remain bullish. There has been no exodus, even though they have been net sellers since April 2012. However the selling volumes are minuscule. The next few weeks will shed more light, whether FII’s will provide support or go into an exodus mode.
Take a look at chart below – does it look like the FII’s are in exodus mode ? I rest my case.
FII investment
As the Nifty dropped by nearly a couple of hundred points from beginning of this month, FII’s have been net sellers of equities during this period. However the selling volume is minuscule.
Consider this :
Overall, for the whole of 2012, FII’s have been net buyers to the extent of Rs 38000 Cr, while being minor sellers in April (Rs 1600 Cr) and May (Rs 1200 Cr).
A few months back during Jan to March ’12 time period, when the markets were in freefall, FII’s started to provide support throughout the 4500 to 4800 range. It needs to be seen if they again step in to provide support or not.
How will we know FII’s are in exodus mode
On the other hand, how will we know if FII’s are going into a selling mode? Well, we don’t have to look too much in the past. FII’s started to exit the markets last year around Jan ‘11 – Feb’11 timeframe , right near the market tops, selling around Rs 8000 in each of those months with consistent selling on most of the days. We need to keep a close watch on FII numbers for the next few week – those tend to be better indicators than the FII interviews that are published in media.
In summary, the transaction patterns of FII’s seem to show that overall they continue to remain bullish. There has been no exodus, even though they are starting to get bearish. The next few weeks will shed more light, whether FII’s will provide support or go into an exodus mode.
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idbibank ka target kya hoga...
May Series is looking like the worst series for the traders as well as investors.. the market will surely fall to further levels.. it will be better to cut the long positions as market bounces.. but overalll market is very bearish.. nifty to fall till 4150 and sensex to 13000.. ruppee will fall till 56-57.
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What is frustrating us that indices are unable to move up.If I remember correctly,No farmer suicide reported in this govt.regime.NREGA launched by the govt is a good program which provided
100 days wages to rural area.Govt can not be blamed for excess leveraged balance sheets of greedy corporates.It is true that scam developed cold feet in govt.History suggests govt owning comfortable majority never push reform unless economic condition reaches at its nadir.For FII, accept India with its shortcoming is message.They are here because they are earning in someway or others not for obliging us....
dear current market scenario is like patient on ventilator. everything was and is in the hand of govt. since 8 YEARS the fall has happened. it is a scam govt and in their last year of term. think of poor people, inflation in double digit, corruption at top of the list, austerity and affluency, petrol and diesel prices and worst affected rising prices of daily needs, doubled in their rule term and to blame is on the heads of coliation govt. This is my SHINING INDIA....
It actually shows on how immature the Indian market can be and is driven purely by FII. Remember Mr. Chidambaram announcing banning the P-Notes in Oct 2007, and marking reacted by a negative circuit?...
market is not at all connected to real life economy. after 2008 nothing positive has happened to raise the market but it still crossed 6000...
