*By Ruma Dubey*
The green tea pot just seems ready to boil over. Most of the fund managers seem to be heading to China from Dalal Street. Amongst the BRIC nations, China, for now at least, seems to be the most preferred destination. And India is left with its *masala chai*, finding no takers. So why are the fund managers from abroad rushing to exit from India and enter China? First, the exiting India part. Right now, we are in the midst of political instability and that is a big no-no when it comes to investments. So till things get back to normal after the polls with a stable Govt at the center, at least politically India looks unattractive. Apart from this, the biggest concern for the FIIs is the burgeoning fiscal deficit. With the various stimulus packages announced, the expenditure has far superceded the revenues and there is mounting concern that this would only grow. Now many feel that this is unfair – the American FIIs are scornful of India’s fiscal deficit when their own fiscal deficit is over 12% of the GDP. But the big difference is that the US President is aware of the deficit, concerned and said that it would be tackled. On the other hand, in India, the Govt even while presenting the interim budget remained silent about the fiscal deficit. So when the Govt has no concrete plans to correct this financial mess, how can they assure FIIs that all will be well? And why China? China is the only one of the world’s five biggest economies still growing, but the pace has slowed from 13% in 2007 and 9% in 2008. The country has set itself a target of 8% growth in 2009 but that would likely be revised downwards. Its growth slowed to 6.8% in the fourth quarter of 2008 as trade collapsed and the property market sagged. Trade is also on a decline. Yet, it is preferred over India as it does not have a fiscal deficit, its economy remains in surplus. Trade surplus apart, the Chinese Govt had unveiled a 4 trillion yuan or $585 billion stimulus package through 2010. The focus of this stimulus is on housing and infrastructure. It has also cut interest rates five times between Sep – Dec 2008. But there is one big difference between India and China – transparency or relevance of the facts presented. In India, though the picture of the economy presented is battered, at least there is no doubt about its veracity. In China, one does not really know what the real picture is and there is now apprehension amongst the fund managers that the growth figures may not actually be what they are shown to be. A report in Hong Kong's Ming Pao Daily recently, stated that China had registered a trade deficit in the first half of February. Again, no one knows the truth behind this but if indeed true, it would be China's first monthly trade deficit in nearly five years. This would then be a shocking reversal from its S$39.1-billion surplus in January, the second biggest on record. China’s January exports fell 17.5% and imports also plunged 43.1%, so as imports fell faster, the surplus remained but it is doubtful whether the same story would get repeated in February. There is news that to counter this fall, the Chinese Govt might announce another huge stimulus package, to the tune of almost 8 trillion yuan. Yes, the Govt there is also accepting the fact that it might have a trade deficit of around 3% of the GDP in 2009, which would be its largest in decades. Yet, compared to the rest of the world, it remains better placed. Fund managers could start looking back at India during the second quarter of FY10. Once political stability comes in and the new Budget is in place, maybe then, FIIs would see value back in India. Till then, its Beijing they head to. -- Regards, Jigar Tanna, Arihant Capital Markets Ltd. 9821301971 --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en -~----------~----~----~----~------~----~------~--~---
