BRIC by BRIC

Ajit Dayal, Director, Equitymaster Agora India

In 1999, they said Buy NASDAQ

700 (In USD)

BSE-30 TRI
600 500 400 300 200
Base = 100

MSCI EM Free S&P 500 Nasdaq

100 0 -100 Aug-00 Jun-09

Source: Quantum Advisors, Bloomberg | As on 30th June 2009

Equitymaster Agora India

Technology: Infosys, IBM

140000
Infosys IBM

120000

100000

80000

60000

40000

20000

Jun-93

Jun-94

Jun-95

Jun-96

Jun-97

Jun-98

Jun-99

Jun-00

Jun-01

Jun-02

Jun-03

Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

Souce: Bloomberg

Jun-09

Equitymaster Agora India

Media: Zee, News Corp

4000
Zee News Corp

3500

3000

2500

2000

1500

1000

500

Feb-01

Dec-96

Mar-03

May-07

Jan-99

Nov-94

Apr-05

Jun-09

Souce: Bloomberg

Equitymaster Agora India

Financials: HDFC, Wells Fargo

11000 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0
HDFC Wells Fargo

Feb-92

Mar-93

May-95

Feb-05

Oct-00

Dec-02

Mar-06

May-08

Jan-91

Jun-96

Aug-98

Jan-04

Sep-99

Apr-94

Nov-01

Apr-07

Jun-09

Jul-97

Souce: Bloomberg

Equitymaster Agora India

Long-term investment case for BRICs

Economic reforms in all BRIC economies By 2020, 5 large economies in the world: 2 from BRIC

% share global % change % share global GDP, 2005 2020 market cap, 2005

GDP (PPP) (US$ bn)

USA
Euro zone Japan China India

33% 31%
23% 22% 16% 13% 6% 10% 3% 5%

-5%
-5% -18% +70% +70%

56%
25% 10% 2% < 1%

10,923
8,175 3,568 6,446 3,078
Source: Goldman Sachs, & MSCI

Equitymaster Agora India

Time for a reversal ?

Equitymaster Agora India

Profit is the difference between reality and perception

Equitymaster Agora India

Their strengths

Country comparison Area (million sq km) Population (millions) GDP in CY 2008 (nominal, US$ bn) Fx Reserves (US$ bn) Gold holdings (US$ bn) Savings/GDP (%)

Brazil 8.5 190 1,487 125 0.9 19.1

China 9.6 1,328 4,326 1,946 4.6 51.2

India 3.3 1,154 1,145 241 8.5 33.8

Russia 17.0 142 1,332 414 n.a 35.1

Source: Thomson Reuters, Datastream/www.cia.gov

Equitymaster Agora India

Their weakness
Country comparison Area (million sq km) Population (millions) GDP/capita (US$) Govt. education spend/capita (US$) Govt. health spend/capita (US$) Govt pension funds/capita (US$) Brazil 8.5 190 7,840 321 150 n.a. China 9.6 1,328 3,258 4 40 100 India 3.3 1,154 992 16 40 80 Russia 17.0 142 9,382 n.a. 12 n.a.

Source: Thomson Reuters, Datastream/www.cia.gov

Equitymaster Agora India

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India: Half full or half empty?

Equitymaster Agora India

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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%?
10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0
1980 1984 1989 1991 1996 DF * 1998 BJP * 1999 NDA * 2004 UPA * 2009 UPA * GDP Growth Rate per annum (%)

8.6

6.2 average
6.1 5.6 5.7 5.4 6.3 6.5 5.7 6.5 est

Congress Congress Janata Congress Dal*

9 governments \ * 6 coalition government |

Equitymaster Agora India

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Sensex Index ; (INR/US$)

16000
Sensex in INR Sensex in USD

14000

12000

10000

8000

6000

4000

2000

Apr-79

Annualized return

INR +16.99%

USD +10.40%
Souce: Bloomberg

Jun-09

Equitymaster Agora India

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India elections: no chads, no hanging chads, no hangings!

Total voters Who voted Poll stations Seats Candidates Coalition govt led by

1999 620 m 60% n.a 543 4,648 BJP

2004 672 m 58% 690,670 543 5,435 Congress

2009 710 m 58% 834,944 543 8,070 Congress

Equitymaster Agora India

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Crystal balls see India from the outside

Agency
ADB IMF OECD World Bank Sell-side brokers CMIE, India

Est. of March 2010 GDP

5.0% 5.3% 5.8% 4.0% 5.0% - on average 6.2% - the one we believe in

Equitymaster Agora India

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India not that coupled to global GDP: cost-check your house!

As a % of GDP

Private Consumption

Exports of Goods & Services

India
China Indonesia Thailand Malaysia

67
46 64 56 42

18
40 40 60 114

Lower global links

Source: Bloomberg, RBI

Equitymaster Agora India

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The coupling is in foreign money flows: India

Net Foreign Activity (US$ m) 6,940 8,958 10,896 7,994 17,235 -13,136 38,888 +4,203 Net Local Fund Activity (US$ m) 93 -261 3,089 3,442 3,121 2,037 11,520 +321 Change in BSE30 TRI in that period (% ) ( USD) + 86.3% + 23.1% + 42.2% +53.3% +68.5% -60.7% +231.1% +55.4%

Period CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008 Cumulative 2009 YTD 2009

Total (US$ m) 7,033 8,697 13,985 11,435 20,357 -11,099 50,407 +4,524

Source: Sebi.gov.in: As on June 30, 2009

Equitymaster Agora India

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Capital flows: BRICs hit a wall

(all in USD)
India BSE-30 TRI Brazil - Bovespa China - SHCOMP Russia - RTSI$ MSCI EM Free S&P 500 MSCI World Berkshire Hathaway Gold Oil

% Gain/Loss since July 31, 2007 (Bear Stearns funds in trouble)

-19.1% -9.8% -24.7% -49.4% -28.7% -33.8% -34.3% -18.2% +39.5% -10.6%
Source: Bloomberg ; as on June 30, 2009

Equitymaster Agora India

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but BRICs are recovering

% Gain/Loss since July 31, 2007 (Bear Stearns funds in trouble) -19.1% -9.8% -24.7% -49.4% -28.7% -33.8% -34.3% -18.2% +39.5% -10.6%

(all in USD) India BSE-30 TRI Brazil - Bovespa China - SHCOMP Russia - RTSI$ MSCI EM Free S&P 500 MSCI World Berkshire Hathaway Gold Oil

% change YTD in CY 2009 +53.2% +63.1% +64.2% +58.7% +35.7% +3.2% +9.4% -6.8% +5.1% +56.7%
Source: Bloomberg: As on June 30, 2009

Equitymaster Agora India

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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

Equitymaster Agora India

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Fasten your seat beltsenjoy the ride!

Your

profit

underlying economic

earnings
+

(find the winners)

volatile

capital flows
Equitymaster Agora India

that move to BRIC

21

Thank you Obrigado (xie xie) (dhanya-vaad) (spassiba)

Equitymaster Agora India

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Disclaimer
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Equitymaster Agora India

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