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BRIC by BRICAjit Dayal, Director, Equitymaster Agora India
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In 1999, they said Buy NASDAQ
Source: Quantum Advisors, Bloomberg | As on 30 th June 2009
(In USD)
-100
0
100
200
300
400
500
600
700
Aug-00 Jun-09
BSE-30 TRI
MSCI EM Free
S&P 500
Nasdaq
Base = 100
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0
20000
40000
60000
80000
100000
120000
140000
J u n - 9 3
J u n - 9 4
J u n - 9 5
J u n - 9 6
J u n - 9 7
J u n - 9 8
J u n - 9 9
J u n - 0 0
J u n - 0 1
J u n - 0 2
J u n - 0 3
J u n - 0 4
J u n - 0 5
J u n - 0 6
J u n - 0 7
J u n - 0 8
J u n - 0 9
InfosysIBM
Technology: Infosys, IBM
Souce: Bloomberg
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0
500
1000
1500
2000
2500
3000
3500
4000
N o v - 9
4
D e c - 9
6
J a n - 9 9
F e b - 0
1
M a r - 0
3
A p r - 0
5
M a y - 0
7
J u n - 0 9
ZeeNews Corp
Media: Zee, News Corp
Souce: Bloomberg
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0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
J a n -
9 1
F e b - 9
2
M a r - 9
3
A p r - 9
4
M a y - 9
5
J u n -
9 6
J u l - 9 7
A u g - 9
8
S e p -
9 9
O c t - 0
0
N o v - 0
1
D e c - 0
2
J a n -
0 4
F e b - 0
5
M a r - 0
6
A p r - 0
7
M a y - 0
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J u n -
0 9
HDFCWells Fargo
Financials: HDFC, Wells Fargo
Souce: Bloomberg
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Long- term investment case for BRICs
Economic reforms in all BRIC economies
By 2020, 5 large economies in the world: 2 from BRIC
Source: Goldman Sachs, & MSCI
% share globalGDP, 2005 2020
% change % share globalmarket cap, 2005
GDP (PPP)(US$ bn)
USA 33% 31% -5% 56% 10,923Euro zone 23% 22% -5% 25% 8,175
Japan 16% 13% -18% 10% 3,568
China 6% 10% +70% 2% 6,446
India 3% 5% +70% < 1% 3,078
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Time for a reversal ?
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Profit is the difference betweenreality and perception
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Their strengths
Country comparison Brazil China India Russia
Area (million sq km) 8.5 9.6 3.3 17.0
Population (millions) 190 1,328 1,154 142
GDP in CY 2008 (nominal, US$ bn) 1,487 4,326 1,145 1,332Fx Reserves (US$ bn) 125 1,946 241 414
Gold holdings (US$ bn) 0.9 4.6 8.5 n.a
Savings/GDP (%) 19.1 51.2 33.8 35.1
Source: Thomson Reuters, Datastream/www.cia.gov
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Their weakness
Country comparison Brazil China India RussiaArea (million sq km) 8.5 9.6 3.3 17.0
Population (millions) 190 1,328 1,154 142
GDP/capita (US$) 7,840 3,258 992 9,382
Govt. education spend/capita (US$) 321 4 16 n.a.
Govt. health spend/capita (US$) 150 40 40 12
Govt pension funds/capita (US$) n.a. 100 80 n.a.
Source: Thomson Reuters, Datastream/www.cia.gov
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India: Half full or half empty?
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Solid GDP growthdespite coalition governments GDP Growth rate across 8 governments has been 6.2% p.a. over the past 28 years
will this 9th government deliver 6.5%?
9 governments \ * 6 coalition government |
5.6 5.7 5.4 5.76.5
8.6
6.56.1 6.3
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1980 1984 1989 1991 1996 1998 1999 2004 2009
Congress Congress JanataDal*
Congress DF * BJP * NDA * UPA * UPA *
GDP Growth Rateper annum (%)
6.2 averag e
est
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0
2000
4000
6000
8000
10000
12000
14000
16000
A p r - 7
9
J u n - 0
9
Sensex in INR
Sensex in USD
Sensex Index ; (INR/US$)
Souce: B loomberg
Annualized return INR USD+16.99% +10.40%
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1999 2004 2009Total voters 620 m 672 m 710 mWho voted 60% 58% 58%
Poll stations n.a 690,670 834,944Seats 543 543 543Candidates 4,648 5,435 8,070Coalition govt led by BJP Congress Congress
India elections: no chads, no hanging chads, no hangings!
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India not that coupled to global GDP:cost- check your house!
As a % of GDPPrivate
Consumption Exports of Goods &
Services
India 67 18
China 46 40
Indonesia 64 40
Thailand 56 60
Malaysia 42 114Source: Bloomberg, RBI
Lower global links
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Period Net Foreign
Activity(US$ m)
Net Local FundActivity(US$ m)
Total(US$ m)
Change in BSE-30 TRI in that period (% )
( USD)
CY 2003 6,940 93 7,033 + 86.3%CY 2004 8,958 -261 8,697 + 23.1%CY 2005 10,896 3,089 13,985 + 42.2%CY 2006 7,994 3,442 11,435 +53.3%CY 2007 17,235 3,121 20,357 +68.5%CY 2008 -13,136 2,037 -11,099 -60.7%Cumulative 38,888 11,520 50,407 +231.1%2009 YTD 2009 +4,203 +321 +4,524 +55.4%
The coupling is in foreign money flows: India
Source: Sebi.gov.in: As on June 30, 2009
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Capital flows: BRICs hit a wall
(all in USD) % Gain/Loss since July 31, 2007(Bear Stearns funds in trouble)
India BSE-30 TRI -19.1%Brazil - Bovespa -9.8%
China - SHCOMP -24.7%Russia - RTSI$ -49.4%MSCI EM Free -28.7%S&P 500 -33.8%MSCI World -34.3%Berkshire Hathaway -18.2%Gold +39.5%Oil -10.6%
Source: Bloomberg ; as on June 30, 2009
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but BRICs are recovering
(all in USD) % Gain/Loss since July31, 2007 (Bear Stearns
funds in trouble)
% change YTD inCY 2009
India BSE-30 TRI -19.1% +53.2%Brazil - Bovespa -9.8% +63.1%
China - SHCOMP -24.7% +64.2%Russia - RTSI$ -49.4% +58.7%MSCI EM Free -28.7% +35.7%S&P 500 -33.8% +3.2%MSCI World -34.3% +9.4%
Berkshire Hathaway -18.2% -6.8%Gold +39.5% +5.1%Oil -10.6% +56.7%
Source: Bloomberg: As on June 30, 2009
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NASDAQ or BRIC
BRIC is not a theme it is a reality
Over the past decade, BRIC gained global clout
But BRIC will not rule the world for decades
Nor should companies in the BRIC dominate your portfolio
Significant social and political uncertainty + many crooks
But ignoring BRIC means surrendering long term returns
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Fasten your seat beltsenjoy the ride!
Your profit =
underlying economic earnings (find the winners)+
volatile capital flows that move to BRIC
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Thank youObrigado
(xie xie) (dhanya-vaad)
(spassiba)
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i A di 23
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