India to Borrow and Spend More in 2010-2011

[RiazHaq]

Would you please reveal you share valuations method? I am really interested in knowing that. Anyway, Performance of an economy is reflected in Stock Exchange performance and not the other way round. It boggles me that Pakistan Rupee has gone down, but the returns have increased by 900% in last 10 years!!!! By the way, by your own calculation nowhere it can be inferred that shares have downside risk in India

The basic valuation method is price-earnings multiple, which are twice as high in Mumbai as in Karachi. The current economic situations and forecasts in both countries are reflected in this.

It shouldn't boggle your mind to see the sharp rise in KSE over the last decade when Pak economy went from $60 billion gdp to $180 billion and the PE ratios improved.

 

[DeathGod]

The basic valuation method is price-earnings multiple, which are twice as high in Mumbai as in Karachi. The current economic situations and forecasts in both countries are reflected in this.

It shouldn't boggle your mind to see the sharp rise in KSE over the last decade when Pak economy went from $60 billion gdp to $180 billion and the PE ratios improved.

Btw Mr. Riaz what insights do the dividend discount model and residual model provide?

I have always believed in Graham and Dodd so you see a primitive form of P/E rations wont help.

Also , because of lack of regulatory framework in Pakistan I will not like to use the earnings data.

The truth is Pakistan doesnt get close to getting in on my checklist for an economy to invest in and fails at the very first stage of top-down approach( market analysis).

Whats your say on the same.

P.S : Its always prudent to not trust a single ratio but have data from multiple methods to support your answer

 

[karan.1970]

Let's try and focus on the topic without getting personal.

India's stocks are priced for perfection. On the other hand, Pakistan's share valuations reflect the current situation and forecasts, which are mostly pessimistic at the moment. But the smart money is still coming in to KSE. Why" Because the history tells that Pakistanis have repeatedly defied pessimistic outlooks in the last 60 years, and Pak markets have performed well over time. The last decade is an example of it.

Pakistan's key share index KSE-100 was just over 1000 points at the end of 1999, and it closed at over 9727.40 on Dec 31, 2009. Pakistan rupee remained quite stable at 60 rupees to a US dollar until 2008, slipping only recently to about 80 rupees to a dollar. In spite of the currency decline, Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms. During the same period of 1999-2009, Mumbai Sensex index moved from just over 5000 points to close at 17,464.81. If you had invested $100 in KSE-100 stocks on Dec. 31, 1999, you'd have over $900 today, while $100 invested in the Mumbai's Sensex stocks would be worth $274. Investment of $100 in emerging-market stocks in general on Dec. 31, 1999, would get you about $262 today, while $100 invested in the S&P500 would be worth $91.

Even with the current share valuations means, there 's a lot more downside risk in India, and significant upside opportunity in Pakistan.

By this logic, one would only invest in penny stocks because they have the highest headroom..

Investment 101.. Risk drives the safe money, reward drives the punts and the risk reward ratio drives the smart money..

The money coming into Pakistan is not smart money but punt money. Its the small sums of disposable money which is similar to an individual putting a small percentage in penny stocks in hope of hitting a jackpot but at the same time bracing himself for losing it all in case the stock goes south....

And because of the tiny size of Pakistani Capital markets even a small sum of money coming in / going out causes huge up / down movements in the index...Which is the reason for high volatility of the KSE


Compare this.. The total inflow of Foreign money into India's capital markets in 2009-2010 fiscal is close to $25 billion.. This is almost equal to the total Market Cap of Pakistan's KSE..You think all this money is foolish money (that too just after the global financial crisis)

 

[Jade]

Would you please reveal you share valuations method? I am really interested in knowing that. Anyway, Performance of an economy is reflected in Stock Exchange performance and not the other way round. It boggles me that Pakistan Rupee has gone down, but the returns have increased by 900% in last 10 years!!!! By the way, by your own calculation nowhere it can be inferred that shares have downside risk in India

First, the performance of the economy is not properly accounted for in price-earnings multiple: example inflation. Apart from that price-earnings multiple is very primitive and is not applicable in many situations such as companies that are very mature with little growth. Even if Pakistan economy has grown from $60 billion to $180 billion, it doesn’t explain abnormal increase in returns by 900%

 

[RiazHaq]

First, the performance of the economy is not properly accounted for in price-earnings multiple: example inflation. Apart from that price-earnings multiple is very primitive and is not applicable in many situations such as companies that are very mature with little growth. Even if Pakistan economy has grown from $60 billion to $180 billion, it doesn’t explain abnormal increase in returns by 900%

The results always speak louder than words...especially outstanding returns over an entire decade that KSE has produced.

It makes a lot of sense to investors who are laughing all the way to their banks, while others, like Franklin Templeton and Goldman Sachs, are either recommending or actually investing in KSE shares now.

Haq's Musings: Goldman, Franklin-Templeton Bullish on Pakistan's Economy

 

[desiman]

The results always speak louder than words...especially outstanding returns over an entire decade that KSE has produced.

It makes a lot of sense to investors who are laughing all the way to their banks, while others, like Franklin Templeton and Goldman Sachs, are either recommending or actually investing in KSE shares now.

Haq's Musings: Goldman, Franklin-Templeton Bullish on Pakistan's Economy

I give up there is really so use arguing with you as you yourself do not understand simple logic. I have already explained everything about KSE in my previous post and i dont plan to do it again. Believe whatever you want, it does not change the reality.

 

[RiazHaq]

Gross borrowing for India's new fiscal year will total 4.57 trillion rupees ($99 billion), below a Reuters poll forecast for 4.61 trillion but above a record 4.51 trillion rupees expected in the current year ending in March, Mukherjee said, according to Reuters.

"With the fiscal deficit expected to be still high over the next fiscal year, it is clear that the onus will be on the RBI to hike rates in coming months in order to move policy settings closer to neutral and to deal with emerging inflation pressures," said Brian Jackson, strategist at Royal Bank of Canada.

And, in fact, RBI just hiked interest rate by 0.25% yesterday, in an effort to contain inflation nearing double digits in general, and food inflation running even higher.

Budget raises borrowing to new record; bonds hit | Business News | Reuters

India?s Central Bank Raises Interest Rates - NYTimes.com

 

[karan.1970]

The results always speak louder than words...especially outstanding returns over an entire decade that KSE has produced.

It makes a lot of sense to investors who are laughing all the way to their banks, while others, like Franklin Templeton and Goldman Sachs, are either recommending or actually investing in KSE shares now.

Haq's Musings: Goldman, Franklin-Templeton Bullish on Pakistan's Economy

In economy and investments its not only the growth rate but also the size that matters. Its much easier to grow a market cap of $ 4 billion to $ 30 billion in a decade.. Try doing that to a market cap of about a $ 500 billion.

IN the world of international stocks, Pakistan is still akin to penny stocks (and some of them do become multi baggers) due to the lack of maturity of its capital markets and the present security situation. However both these are fixable roadblocks and the true potential of Pakistan as an investment destination can only be assessed post that..

 

[Jade]

The results always speak louder than words...especially outstanding returns over an entire decade that KSE has produced.

It makes a lot of sense to investors who are laughing all the way to their banks, while others, like Franklin Templeton and Goldman Sachs, are either recommending or actually investing in KSE shares now.

Haq's Musings: Goldman, Franklin-Templeton Bullish on Pakistan's Economy

Let us not concentrate on what Franklin Templeton and Goldman Sachs are recommending. We can do our own analysis.

First, the inflation is generally high in Pakistan. If I recall it was around 25% in the year 2008 and due to high inflation, the Pakistan economy even reached a state of Balance of Payment crisis from which IMF bailed out; this clearly indicates a high Inflation premium in Pakistan economy.

Moreover, since the IMF bail out, Pakistan economy is in the state of stagnation, which I hope everybody agrees, and the cost of war on terror has clearly weaken the economy of Pakistan to such an extent that the default risk must be very high, in addition to decreased liquidity on assets.

A high Inflation premium, high default risk and low liquidity clearly indicate high interest rates. Everyone knows that the relationship between interest rates and the stock markets tend to move in opposite directions.

If your calculations are right and KSE is functioning extremely well, then there must be as lot information asymmetricity present in the market which can, in my opinion, harm Pakistan economy in future very much

 

[Jade]

Gross borrowing for India's new fiscal year will total 4.57 trillion rupees ($99 billion), below a Reuters poll forecast for 4.61 trillion but above a record 4.51 trillion rupees expected in the current year ending in March, Mukherjee said, according to Reuters.

"With the fiscal deficit expected to be still high over the next fiscal year, it is clear that the onus will be on the RBI to hike rates in coming months in order to move policy settings closer to neutral and to deal with emerging inflation pressures," said Brian Jackson, strategist at Royal Bank of Canada.

And, in fact, RBI just hiked interest rate by 0.25% yesterday, in an effort to contain inflation nearing double digits in general, and food inflation running even higher.

Budget raises borrowing to new record; bonds hit | Business News | Reuters

India?s Central Bank Raises Interest Rates - NYTimes.com

Government borrowing is not something isolated in India. In fact the Government borrowing across the world has peaked this year. The credit crisis, recovering economy and depressed government revenues has made the Government borrowing imperative. So what is wrong in that? After all GOI has a duty to spend on welfare programs for citizens. But, the best part in the whole process is that the GOI is thinking of divesting some PSU for raising money, this certainly would decrease the burden on borrowings


It is great that RBI hiked interest rate by 0.25% taking into account inflation premium. It is a self correcting measure. Let things reflect what they are. This is healthy for Indian Economy. The duty of GOI here is to bring down the inflation rates and not, not to hike interest rate

 

[RiazHaq]

Let us not concentrate on what Franklin Templeton and Goldman Sachs are recommending. We can do our own analysis.

First, the inflation is generally high in Pakistan. If I recall it was around 25% in the year 2008 and due to high inflation, the Pakistan economy even reached a state of Balance of Payment crisis from which IMF bailed out; this clearly indicates a high Inflation premium in Pakistan economy.

Moreover, since the IMF bail out, Pakistan economy is in the state of stagnation, which I hope everybody agrees, and the cost of war on terror has clearly weaken the economy of Pakistan to such an extent that the default risk must be very high, in addition to decreased liquidity on assets.

A high Inflation premium, high default risk and low liquidity clearly indicate high interest rates. Everyone knows that the relationship between interest rates and the stock markets tend to move in opposite directions.

If your calculations are right and KSE is functioning extremely well, then there must be as lot information asymmetricity present in the market which can, in my opinion, harm Pakistan economy in future very much

It's all relative.

In a WEF report on financial stability last year, Pakistan ranked at the very top in In corporate governance and shareholder rights index and 14th in strength of investor protection.

In overall financial development index rankings, Pakistan is ranked at 34, ahead of the Russian Federation (35), Indonesia (38), Turkey (39), Poland (41), Brazil (40), Philippines (48) and Kazakhstan (45).

With these rankings, Pakistan clearly stands out as a good bet among emerging markets.

Haq's Musings: Financial Services Sector in Pakistan

 

[Jade]

It's all relative.

In a WEF report on financial stability last year, Pakistan ranked at the very top in In corporate governance and shareholder rights index and 14th in strength of investor protection.

In overall financial development index rankings, Pakistan is ranked at 34, ahead of the Russian Federation (35), Indonesia (38), Turkey (39), Poland (41), Brazil (40), Philippines (48) and Kazakhstan (45).

With these rankings, Pakistan clearly stands out as a good bet among emerging markets.

Haq's Musings: Financial Services Sector in Pakistan

Bigger the size and more is the global nature of the economy more is it interdependent on other economies and more is it affected by the financial crises and less is its financial stability. Pakistan’s economy is relatively smaller and isolated no wonder it is ahead of Brazil in financial development index.

Anyway, financial stability, corporate governance and shareholder rights, and strength of investor protection have very minuscule effect on the overall performance of the economy. Healthy macroeconomic measures, good business environment, trade with other economies, and, political stability have much greater impact on overall economy. Unfortunately on most measure Pakistan is lagging much behind most of its neighbors

I would like to know how you could extrapolate performance on some development index to the general economic performance of a country and conclude that Pakistan is a good bet among emerging markets? I would certainly be waiting for you answer

 

[yuvabharat]

I hate this whenever we think we are economic powers though we are still in poverty nothing is done dam with the borrow only to fill the politicans pockets nothing more do u guys even care about the poor people in india were 300millions beggars are on the street ,india is a failed nation a change must come or nothing will change in inda as we are known as bottomless pits for any aid no good nothing

 

[karan.1970]

It's all relative.

In a WEF report on financial stability last year, Pakistan ranked at the very top in In corporate governance and shareholder rights index and 14th in strength of investor protection.

In overall financial development index rankings, Pakistan is ranked at 34, ahead of the Russian Federation (35), Indonesia (38), Turkey (39), Poland (41), Brazil (40), Philippines (48) and Kazakhstan (45).

With these rankings, Pakistan clearly stands out as a good bet among emerging markets.

Haq's Musings: Financial Services Sector in Pakistan

Old data dude.. I am sure it was not intentional ...2009 report on financial development index shows Pakistan slipping from 34 to 49 (out of 55 countries evaluated). Behind the Russian Federation (40), Indonesia (48), Turkey (44), Poland (39), Brazil (34), Kazakhstan (47) and surely INDIA (38).

On some of your incorrectly reported numbers, am putting in the right details below (rank out of 55 for Pakistan)

corporate governance Pakistan (48/55)
shareholder rights index (47/55)
strength of investor protection (16/55)

Surely, not very attractive bet for investors in emerging markets


Also let me quote what the same report from 2009 says in summary about Pakistan

Pakistan (49th), the Philippines (50th), and Bangladesh (54th) round out the representation of Asian countries in the FDI, all falling within the bottom 10 countries of the Index. A high degree of political and economic instability are probably contributing to weak scores across Pakistan’s institutional (52nd) and business (50th) environments; likewise, the country shows a very high risk of sovereign debt crisis (54th).

Lets also get into detail on this report

This report talks about 7 pillars that determine financial development index. And then the report goes and ranks 55 countries on these pillars. Putting below the ranks (out of 55) of Pakistan on each of those 7 pillars

1st pillar: Institutional environment Pakistan (52/55)

2nd pillar: Business environment Pakistan (50/55)

3rd pillar: Financial stability India Pakistan (48/55)

4th pillar: Banking financial services Pakistan (46/55)

5th pillar: Non-banking financial services Pakistan (51/55)

6th pillar: Financial markets Pakistan (25/55)

7th pillar: Financial access Pakistan (50/55)

Doesnt seem too attractive.. Does it?? Needless to say, India scores better than Pakistan in each of these pillars
http://www.weforum.org/pdf/FinancialDevelopmentReport/Report2009.pdf

 

[desiman]

lets just call India a failed nation and end this stupid debate.