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1
Road map for the Indian Bullion Industry for the next 10 years
Sept 12, 2014
2
Global macro scenario
Global economy reviving, but traction continues to remain weaker than the previous cycle
Note: The point labeled “t” on the horizontal axis corresponds to the pre-recession peak quarter for each cycle Source: OECD database, KMBL
3
DM real GDP, relative to pre-recession peak
90
95
100
105
110
115
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
1990s; Peak at 1990Q42000s; Peak at 2008Q1
Fragile Recovery process
4
Stabilizing global growth a positive for India’s external demand
Source::CEIC, IMF, Kotak Economic Research
(40)
(20)
0
20
40
60
80
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
25
30
35
40
45
50
55
60
65
70
75India Exports %YoY,3mma 3m lag (LHS)ISM export orders,3mma (RHS)
IMF Growth Projections2012 2013 2014 2015
World 3.5 3.2 3.4 4.0Advanced economies 1.4 1.3 1.8 2.4US 2.8 1.9 1.7 3.0Euro area (0.7) (0.4) 1.1 1.5UK 0.3 1.7 3.2 2.7Japan 1.4 1.5 1.6 1.1EM economies 5.1 4.7 4.6 5.2EM Asia 6.7 6.6 6.4 6.7
Commodity prices: US$ firmness to depress $ price of commodities
Source: Bloomberg, Kotak Mahindra Bank5
260
270
280
290
300
310
320
330
340
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep-
12
Nov-1
2
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep-
13
Nov-1
3
Jan-
14
Mar
-14
May
-14
Jul-1
4
7677787980818283848586CRY Index DXY Index, RHS
CRY Index
200
250
300
350
400
Jan-
09
Apr-0
9
Jul-0
9
Oct-0
9
Jan-
10
Apr-1
0
Jul-1
0
Oct-1
0
Jan-
11
Apr-1
1
Jul-1
1
Oct-1
1
Jan-
12
Apr-1
2
Jul-1
2
Oct-1
2
Jan-
13
Apr-1
3
Jul-1
3
Oct-1
3
Jan-
14
Apr-1
4
Jul-1
4
CRY Index
Question remains – If ECB goes in for a QE, what implications will this have on global commodity prices?
6
India: macro data hints that worst is over
7
Lead indicators as well as some real sector indicators point up
Source: Bloomberg, D&B, Kotak Economic Research
(30)(25)(20)(15)(10)
(5)05
10152025
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep-
12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep-
13
Nov
-13
Jan-
14
Mar
-14
May
-14
Jul-1
4
Total Automobile Sales Passenger Vehicle Commercial Vehicle %yoy,3mma
100
110
120
130
140
150
160
170
180
190
Jun-
08Se
p-08
Dec-
08M
ar-0
9Ju
n-09
Sep-
09De
c-09
Mar
-10
Jun-
10Se
p-10
Dec-
10M
ar-1
1Ju
n-11
Sep-
11De
c-11
Mar
-12
Jun-
12Se
p-12
Dec-
12M
ar-1
3Ju
n-13
Sep-
13De
c-13
Mar
-14
Jun-
14Se
p-14
Business Optimism Index (3QMA)
44
46
48
50
52
54
56
58
60
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep-
12
Nov-
12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep-
13
Nov-
13
Jan-
14
Mar
-14
May
-14
Jul-1
4
PMI Manufacturing PMI Services PMI CompositeIndex,sa, 3mma
CAD has corrected meaningfully….
Source::CEIC, Kotak Economic Research8
100
300
500
700
900
1,100
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
10
20
30
40
50
60Volume of gold imports (tons, LHS)
Value of gold imports (US$ bn, RHS)
(7)
(6)
(5)
(4)
(3)
(2)
(1)
0M
ar-0
8
Jun-
08
Sep-
08
Dec
-08
Mar
-09
Jun-
09
Sep-
09
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Dec
-12
Mar
-13
Jun-
13
Sep-
13
Dec
-13
Mar
-14
Jun-
14
40
45
50
55
60
65
CAD/GDP
Average USD-INR (RHS)
Foreign capital flows have improved, rewarding stable politics
Source: CEIC, SEBI, Kotak Economic Research;
9
(7,000)
(5,000)
(3,000)
(1,000)
1,000
3,000
5,000
7,000
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep-
12O
ct-1
2N
ov-1
2D
ec-1
2Ja
n-13
Feb-
13M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Jul-1
3A
ug-1
3Se
p-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14Fe
b-14
Mar
-14
Apr
-14
May
-14
Jun-
14Ju
l-14
Aug
-14
FII equity net inflows FII debt net inflowsUS$ mn
(8)
(3)
2
7
12
17
Mar
-08
Jun-
08
Sep-
08
Dec
-08
Mar
-09
Jun-
09
Sep-
09
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Dec
-12
Mar
-13
Jun-
13
Sep-
13
Dec
-13
Mar
-14
Jun-
14
40
45
50
55
60
65Foreign Portfolio Investment (US$bn) Average USD-INR (RHS)
Funding of CAD: Capital flows heavily biased towards FII …
Source: CEIC, Kotak Mahindra Bank estimates
10
Government policy traction to crucially determine pace of other flows, such as FDI
Biggest risk: Global issues
(1) Geopolitical and implications on oil and commodity prices
(2) Fed stance on interest rates – carry trades unwinding
(US$bn) FY11 FY12 FY13 FY14 FY15EFDI 9 22 20 22 25FII 30 17 27 5 25Banking capital 5 16 17 25 8 - NRI deposits 3 12 15 39 10Short-term credit 11 7 22 (5) 0ECBs 13 10 8 12 8Others (6) (5) (4) (10) (9)Capital account 62 68 89 49 57
11
India : Next 5-10 years
12
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
13
India’s manufacturing sector needs to gain importance in policy space
Source: WDI, CEIC, Planning Commission, KMBL
10 15 20 25 30 35
South AfricaIndiaBrazil
MexicoSri Lanka
JapanSingapore
PhilippinesIndonesia
MalaysiaChinaKorea
Thailand
Share of manufacturing sector (% of GDP)
India’s manufacturing is one of the worst in the EME space
0
20
40
60
80
100
120
China Germany Japan Russia Brazil Thailand US India UK
Manufacturing Agriculture Services
Employment distribution (%)
India’s manufacturing contributes only ~12% of employment
Key to boosting manufacturing exports – efficiency of the sector rather than currency dynamics
Source: CEIC, KMBL
14
Exports weaken even as INR depreciates sharply!
0
10
20
30
40
50
60
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
India China Indonesia Korea Thailand
Manufacturing Exports as a % of GDP
India’s manufacturing exports have remained stagnant for more than a decade
(35)
(25)
(15)
(5)
5
15
25
35
45
55
65
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
37
42
47
52
57
62
Exports (%yoy,3mma) USD-INR (3M lead, RHS) Reverse order
15
Bane for manufacturing: Labor - not competitive enough with widening skill gap
Source: WEF, Asian Productivity Organization (APO) productivity database; BCG
8.3
12.4
15.3
57.7
63.9
93.3
0 20 40 60 80 100
India
China
Thailand
Korea
Japan
US
('000 US$)GDP per worker (‘000s, US$)Labor productivity (X=1970)
0
400
800
1,200
1,600
1970 1980 1990 2000 2010
India China
Gap of skilled workforce widening [Annual skilled workers DD/SS (mn) ]
3.9
1.8
4.1
10.5
0
2
4
6
8
10
12
2012 2025
Demand Supply
-53%
-61%
16
Agriculture is another area that needs to be revitalized – both from the growth and inflation perspectives
Source: MOSPI, Kotak Mahindra Bank
The sector has been largely ignored by the policymakers in 2000s and still depends on monsoon vagaries
Capital investment in agriculture remains low at 2.3% of GDP and 8% of total investments
(6.0)
(4.0)
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Agri & allied activities GDP growth (%yoy) Planned Agri growth (%yoy)
Average 3.4%Average 2.8%
Agri capital formation (% of total capital formation)
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
17
Savings dip – household segment sees the maximum erosion
Gross Domestic Total Savings (% of GDP)
20
22
24
26
28
30
32
34
36
38
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
(4)
(2)
0
2
4
6
8
10
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20.0
21.0
22.0
23.0
24.0
25.0
26.0CorporatePublicHousehold (RHS)
Gross Savings as a % of GDP
Source: RBI, CEIC
18
Financial savings erosion is large as real returns to savings are low
20
21
22
23
24
25
26
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
7.5
8.5
9.5
10.5
11.5
12.5
13.5
14.5
15.5Household total savings (LHS)HH financial savings (RHS)HH physical savings (RHS)
% of GDP % of GDP
Real deposit rate (CPI based)
(11)
(9)
(7)
(5)
(3)
(1)
1
3
5
7
9
11
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Real deposit rate (CPI based)%
Source: RBI, CEIC
India : : Monetising Gold Reserves
• 25000 tonnes of Gold above ground • Recycling • Processing • Structuring• Gold-backed financial products• Gold imports in 2024 …. !!!
TradeTrade
20
THANK YOU
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