Transcript Slide 1

Road map for the Indian Bullion Industry for
the next 10 years
Sept 12, 2014
1
Global macro scenario
2
Global economy reviving, but traction continues to remain weaker
than the previous cycle
DM real GDP, relative to pre-recession peak
115
1990s; Peak at 1990Q4
2000s; Peak at 2008Q1
110
105
100
t-6
t-4
t-2
t
t+2
t+4
t+6
t+8
t+10
t+12
t+14
t+16
t+18
t+20
t+22
t+24
95
Fragile Recovery process
90
Note: The point labeled “t” on the horizontal axis corresponds to the pre-recession peak quarter for each cycle
Source: OECD database, KMBL
3
Stabilizing global growth a positive for India’s external demand
IMF Growth Projections
2012
3.5
1.4
2.8
(0.7)
0.3
1.4
5.1
6.7
World
Advanced economies
US
Euro area
UK
Japan
EM economies
EM Asia
2013
3.2
1.3
1.9
(0.4)
1.7
1.5
4.7
6.6
2014
3.4
1.8
1.7
1.1
3.2
1.6
4.6
6.4
2015
4.0
2.4
3.0
1.5
2.7
1.1
5.2
6.7
India Exports %YoY,3m m a 3m lag (LHS)
ISM export orders,3m m a (RHS)
80
75
70
60
65
60
40
55
20
50
45
0
40
35
(20)
30
Source::CEIC, IMF, Kotak Economic Research
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
25
2000
(40)
4
Commodity prices: US$ firmness to depress $ price of commodities
340
CRY Index
86
85
84
83
82
81
80
79
78
77
76
DXY Index, RHS
330
320
310
300
290
280
270
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
260
CRY Index
CRY Index
Question remains – If ECB goes
in for a QE, what implications
will this have on global
commodity prices?
400
350
300
250
Source: Bloomberg, Kotak Mahindra Bank
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
200
5
India: macro data hints that worst is over
6
Source: Bloomberg, D&B, Kotak Economic Research
Jul-14
Passenger Vehicle
May-14
Total Automobile Sales
Dec-10
Commercial Vehicle
7
Sep-14
Jun-14
Dec-13
Mar-14
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Jun-11
Sep-11
Mar-11
190
Mar-14
44
Jun-10
46
Sep-10
130
Jan-14
48
Mar-10
140
Sep-09
50
Dec-09
150
Nov-13
52
Sep-13
160
Dec-08
170
54
Mar-09
Jun-09
56
Jul-13
58
Sep-08
Jun-08
Jul-14
May-14
Mar-14
PMI Composite
May-13
Mar-13
Jan-13
Nov-12
Jan-14
Nov-13
Sep-13
PMI Services
Sep-12
%yoy,3mma
Jul-12
Jul-13
May-13
Mar-13
Jan-13
PMI Manufacturing
May-12
25
20
15
10
5
0
(5)
(10)
(15)
(20)
(25)
(30)
Mar-12
Jan-12
Nov-12
Index,sa, 3mma
Sep-12
Jul-12
May-12
60
Mar-12
Jan-12
Lead indicators as well as some real sector indicators point up
180
Business Optimism Index (3QMA)
120
110
100
CAD has corrected meaningfully….
CAD/GDP
Average USD-INR (RHS)
0
65
(1)
60
(2)
(3)
55
(4)
50
(5)
45
(6)
Volume of gold imports (tons, LHS)
1,100
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
40
Mar-08
(7)
60
Value of gold imports (US$ bn, RHS)
50
900
40
700
30
500
20
300
10
Source::CEIC, Kotak Economic Research
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
2001
100
8
Source: CEIC, SEBI, Kotak Economic Research;
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Foreign Portfolio Investment (US$bn)
Jun-12
FII equity net inflows
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
US$ mn
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
7,000
Jun-08
Mar-08
Foreign capital flows have improved, rewarding stable politics
FII debt net inflows
5,000
3,000
1,000
(1,000)
(3,000)
(5,000)
(7,000)
Average USD-INR (RHS)
65
17
12
60
7
55
2
50
(3)
45
(8)
40
9
Funding of CAD: Capital flows heavily biased towards FII …
(US$bn)
FDI
FII
Banking capital
- NRI deposits
Short-term credit
ECBs
Others
Capital account
FY11
9
30
5
3
11
13
(6)
62
FY12
22
17
16
12
7
10
(5)
68
FY13
20
27
17
15
22
8
(4)
89
FY14
22
5
25
39
(5)
12
(10)
49
FY15E
25
25
8
10
0
8
(9)
57
Source: CEIC, Kotak Mahindra Bank estimates
 Government policy traction to crucially determine pace of other flows, such as FDI
 Biggest risk: Global issues
(1) Geopolitical and implications on oil and commodity prices
(2) Fed stance on interest rates – carry trades unwinding
10
India : Next 5-10 years
11
Policy steps
 Outlined agenda of the government looks strong – making India a manufacturing hub etc.
 Some steps in the right direction

Streamlining decision making by abolishing GoM; strengthening PMO

Speeding up environmental clearances

Pushing for greater accountability (less government, more governance)
 National policies to bring about a resurrection of manufacturing sector

Labour laws

Land acquisition

Infrastructure issues and skilling of work-force
12
India’s manufacturing sector needs to gain importance in policy space
Share of manufacturing sector (% of GDP)
Thailand
Korea
China
Malaysia
Indonesia
Philippines
Singapore
Japan
Sri Lanka
Mexico
Brazil
India
South Africa
India’s manufacturing is
one of the worst in the
EME space
10
15
20
25
30
35
Employment distribution (%)
120
Manufacturing
Agriculture
Services
100
80
India’s manufacturing
contributes only ~12% of
employment
60
40
20
0
China
Germany
Japan
Russia
Brazil
Thailand
US
India
UK
13
Source: WDI, CEIC, Planning Commission, KMBL
Key to boosting manufacturing exports – efficiency of the sector
rather than currency dynamics
India
60
China
Indonesia
Korea
Thailand
Manufacturing Exports as a % of GDP
50
India’s manufacturing exports
have remained stagnant for
more than a decade
40
30
20
10
65
Exports (%yoy,3mma)
USD-INR (3M lead, RHS)
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
Reverse order
37
55
42
45
35
47
25
15
52
Exports weaken even as INR
depreciates sharply!
5
(5)
57
(15)
62
(25)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
(35)
14
Source: CEIC, KMBL
Bane for manufacturing: Labor - not competitive enough with
widening skill gap
1,600
GDP per worker (‘000s, US$)
Labor productivity (X=1970)
India
('000 US$)
China
US
93.3
1,200
Japan
63.9
Korea
800
57.7
Thailand
15.3
400
China
12.4
India
0
1970
1980
1990
2000
12
10
2010
Demand
8.3
0
20
40
60
80
100
Supply
Gap of skilled workforce widening
10.5
-61%
[Annual skilled workers DD/SS (mn) ]
8
-53%
6
4.1
3.9
4
1.8
2
0
2012
2025
15
Source: WEF, Asian Productivity Organization (APO) productivity database; BCG
Agriculture is another area that needs to be revitalized – both from
the growth and inflation perspectives
Agri & allied activities GDP growth (%yoy)
12.0
10.0
Planned Agri growth (%yoy)
Average 2.8%
Average 3.4%
8.0
 The sector has been largely
ignored by the policymakers in
2000s and still depends on
monsoon vagaries
6.0
4.0
2.0
0.0
(2.0)
(4.0)
13.0
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
(6.0)
Agri capital form ation (% of total capital form ation)
12.0
 Capital investment in agriculture
remains low at 2.3% of GDP and
8% of total investments
11.0
10.0
9.0
8.0
7.0
Source: MOSPI, Kotak Mahindra Bank
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
6.0
16
Savings dip – household segment sees the maximum erosion
38
Gross Domestic Total Savings (% of GDP)
36
34
32
30
28
26
24
22
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
20
Gross Savings as a % of GDP
10
26.0
Corporate
Public
Household (RHS)
8
25.0
6
24.0
4
23.0
2
22.0
(4)
Source: RBI, CEIC
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
(2)
2000
0
21.0
20.0
17
Financial savings erosion is large as real returns to savings are low
Household total savings (LHS)
HH financial savings (RHS)
HH physical savings (RHS)
26 % o f G D P
25
% o f GD P
15.5
14.5
13.5
24
12.5
23
11.5
10.5
22
9.5
21
8.5
2011
2012
2012
2010
2009
2008
2007
2006
2005
2011
%
11
2004
2003
2002
2001
7.5
2000
20
Real deposit
ratebased)
(CPI based)
Real deposit
rate (CPI
9
7
5
3
1
(1)
(3)
(5)
(7)
(9)
Source: RBI, CEIC
2013
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
(11)
18
India : : Monetising Gold Reserves
•
•
•
•
•
•
25000 tonnes of Gold above ground
Recycling
Processing
Trade
Structuring
Gold-backed financial products
Gold imports in 2024 …. !!!
THANK YOU
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