‘We can support our growth from our own capital’
 
ML: What are the key factors you would watch out for signs of significant reversal?
NS: At the end of the day if 8% growth happens, notwithstanding small corrections, we can be reasonably sure that markets will continue to move up. At 8% growth rate even interest rates need not move up. We can have a virtuous cycle which can support us or we could have a vicious cycle which could derail us. The optimism is basically driven from the fact that we are generating about 25% savings and putting similar amount in investments. With that savings and investments we are able to generate just around 5%-6% kind of growth. If we can increase our productivity, it could easily become 8%-9% growth. The productivity is not going to increase overnight. For that infrastructure needs to be developed, deficit needs to be cured. For that certain real reforms have to happen in the real economy. I think all of that will follow, but at a slow and steady pace. The second shortcut is that we get money from overseas investors and convert that into capital. My feeling is that the world can give us that capital. People are talking about China and India virtually in the same breath, but the allocation is far more tilted towards China. We can bridge that gap. With that capital coming in, we can accelerate growth, which will accelerate government revenue, narrow down deficit problem, reduce interest rate pressure and reasonable liquidity becomes available. With that jobs and employment will be created, more consumption will happen, optimism will prevail, corporate earnings will go up. The entire virtuous cycle will prevail for us, in which scenario equity markets will continue to move up. The vicious cycle could come is essentially because of two things. One, the real reforms don’t happen in the economy and hence the absorption capacity does not increase. Capital flows go towards asset price inflation, building up of bubbles, rather then building up of real assets. If that happens then we are back to the old story where eventually the bubble burst. So there have to be some real reforms in terms of improving the absorption capacity. We are seeing some improvements happening but it is not sufficient. We can do better. Like the ultra mega power projects announced some time back. None of these are moving at the speed they should. Same is the case with coal allocations. Bank credit growth has definitely slowed down in response to falling raw material prices, oil companies are not borrowing as much as before. But this slack of bank credit should have been absorbed either by the planned capex or infrastructure development. The slowdown in bank credit probably signifies that the real economy’s absorption capacity is not as high, so that we can be sure of that 8% growth on a sustained basis.
 
ML: Is there too much of complacency not only about global growth but also about the domestic growth situation?
NS: I think what we are seeing is the difference in the return expectation of investors. The Japanese investors investing in India will probably be happy with 5%-10% return because he is comparing with a 0.1% return on his deposits. An Indian investor on the other hand is looking for 30-40% return because he is comparing with previous experience. So we are seeing participation from different sets of investors with different return expectations, time horizons and hence the shrugging off of certain short term economic issues.
 
ML: Domestic investors have poured more funds into the markets. Have we finally shrugged off our huge dependence on FIIs? If so, what are the long-term implications?
NS: I think while we suffer from the limitation of long term investment on the equity side by pension funds and retirement funds, we are seeing the emergence of insurance companies and mutual funds as a major force. They are acting as a stabilising factor for the Indian equity market. Very recently Goldman Sachs came up with a research report that said that India can actually fund the entire $7 trillion worth of infrastructure investment from its own savings. We don’t need foreign capital. This is based on certain assumptions and projections, but it shows the enormous power of Indian savings. For us savings comes naturally. We still don’t have the American lifestyle of living on credit cards. We live within our means. So we have this ability to support our own growth from our own capital.
 
ML: At what stage would inflation and higher interest rates be worrying factors given the higher high liquidity in the system, rising prices and huge government borrowing?
NS: Somewhere between 1997-2003, our fiscal deficit remained at an elevated level, which is why stock markets fluctuated. It went up because of certain reasons other than fundamentals. Overall it didn’t go anywhere. From 2002, fiscal deficit started contracting. Fiscal responsibility and budget management reduced the deficit from around 7% levels to 3%. This created the brand value of India. Our equity markets expanded almost 7 times in those four-five years. Then in 2008-09 again we saw an exceptional response from the government. It resulted in higher deficit and the market valuation corrected. Now there is hope, that though deficits are high, they are cyclical in nature, they will come down.
 

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BK Modi acquires two islands close to Singapore for $200 million project
BK Modi, one of India’s affluent businessmen and known for his eccentric business strategies has confirmed to Moneylife that he is investing $200 million to acquire two pristine Islands—Batam and Bintan near Singapore.
 
A suave Mr Modi said, “It is true that I am acquiring two Indonesian Islands located just about 45 km south east of Singapore. I have plans to transform both the Islands into ultra global residential and entertainment townships, which will house super-luxury homes and ultra studio apartments for high net-worth individuals (HNIs) on search for super luxury villas and also set up a 24-hour entertainment precinct. The project management team is in place to carry out the acquisition of the two Islands.”
 
“I am looking to buy small Islands in and around Singapore. This is also because Singapore is my next home after India and I live here,” said Mr Modi.
 
When asked about the source of funding for the mega-project, Mr Modi said, “The entire $200 million will be funded by Spice Global which is one of my group companies. Besides, I have set aside an additional corpus of $70 million which will go towards developing the Islands.”
 
“Spice Finance—one of my financial services arms along with Singapore-based 3 Degrees Asset Management has recently formed Spice 3 Degrees Special Opportunities Fund. The fund will invest in distressed assets like acquiring properties in India and Southeast Asia,” said Mr Modi.
 
According to realty experts, Singapore has emerged as one of the hottest destinations for HNIs and celebrities. The global economic slowdown adversely impacted the realty market in Singapore. The real estate rates are down by 30-40%. Mr Modi’s move to acquire properties like the two Islands near Singapore is related to the falling real estate cost.
 
Apart from the residential apartments, Mr Modi has bought several properties across Singapore. He also has plans to venture into the reality market of China and also set up a holistic wellness centre.
 
Meanwhile, many say Mr Modi is flush with funds after selling his stake in Spice Communications to Aditya Birla group for almost $600 million.  Recently, he has acquired 51% stake in Wall Street Finance where Anil Ambani Group's Reliance Money had 36.8% holding before exiting.
— Vidyut Kumar Ta [email protected]
 

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Spices, Cotton and Soya Oil

Spice exports from India fell 10% between April 2009-August 2009. The country’s export earning has slipped 9% to $429.68 million from $546 million a year ago. However, in August 2009, exports rose 3.5%.

Indias cotton exports in the 2008-2009 season which ended in September 2009, are estimated to have plunged a massive 55% to about 38 lakh bales due to higher prices in the domestic market. The country had exported 85 lakh bales in the 2007-2008 season. In October 2008, the Cotton Advisory Board had estimated cotton exports to be at 75 lakh bales during 2008-2009. Last year, the government had raised the minimum support price (MSP) by 50%. The MSP has not been hiked for the 2009-2010 season. India is now left with over 71 lakh bales of carry-over stock for the 2009-2010 season.

According to the Solvent Extractors Association of India (SEA), during the season ending September 2009, Indias crude soya oil import is estimated to have surged by 40%, to over one million tonnes, against 731,000 tonnes last season. The government has allowed crude soya oil import at zero duty and refined variety which attracts 7.5% duty.

Coking Coal
According to a report by Citi Investment Research and Analysis, a division of Citigroup Global Markets Inc, global prices of coking coal, which are floating around $160-$170 a tonne, are expected to harden further and reach $200 a tonne in 2010-2011, thanks to higher coking coal imports by China.

 

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