|
 


  

 


   

  
   
 
   
‡ World investment outlook.
‡ Analysis of the Japanese Securities market.
‡ Analysis of the Indian Securities market.
‡ Analysis of the Chinese securities market.
‡ External factors for Investment.
‡ Conclusion.
 

|

 

Agriculture, 6

Industry, 30.6
Agriculture
services, 63.4
Industry
services
 | 
India
58% of
GDP

China
17% of
GDP

Japan
189%
GDP
Investment as % of GDP

India
China 45.2 %
32.3 % of of GDP
GDP

World Japan
22.3% of 20.6 % of
GDP GDP
 


   
2447
2500

1952
2000
1682

1500
1202 India
1015 1018 1050 Japan
1000 852875 909
China

500 309 277

199 252
151

0
2006 2007 2008 2009 2010
      



 

áhe world's leading holders of foreign exchange reserves are

China, with $2.4 trillion worth, and Japan, with $1 trillion
worth.

Such funds are invested over-conservatively, resulting in

opportunity costs on the order of 6%.-(ByIMF)

About 70% of such funds are held in US dollars, mostly in the

form of low-yielding US áreasury securities
|

!
 
   !   
"
‡ 
  |
 
!
‡ 




‡       
‡  
#     | 


|

‡ |    
|
| $
‡ 
   
 |   

 %
 | 
  | &

|

 

Agriculture, 1.6

Industry, 21.9

Agriculture
Services, 76.5 Industry
Services


 
 
|

 ||
 


| '| 
 |  
 
 



 
 

   |!
! 
     

 |

 
  
 
 
 EASONS FO DEFLAáION

‡ áhe return of deflation for the first time since August 2006 had
been expected but there is a fear that flat consumption and a
stagnant job market will strengthen the possibility of a double-dip
recession.
‡ In the 1990s, consumers stopped spending in the expectation
that prices would fall further.
‡ Faced with falling profits, companies were forced to squeeze
wages, shed jobs and cut production.
‡ áhis situation is again expected to come.
  | 
 

 
  |  | 
 

‡Confidence survey measures the level of optimism that

people who run companies have about the performance
of the economy and how they feel about their
organizations͛ prospects.

‡Business confidence surveys can provide useful signs

about the current condition of the economy, because
companies often have information about consumer
demand sooner than government statisticians do.
   
‡ FII in India are regulated by SEBI and BI, highly
regulated.
‡ India investment in Securities in primary and
secondary markets including shares, debentures and
warrants of companies, unlisted, listed or to be listed
on a recognized stock exchange in India.
‡ In Indian spot market, FIIs will not be allowed to
issue P-Notes more than 40 per cent of their assets
under custody, at the rate of 5 per cent of their
assets.
 
|

 

Agriculture, 17

Agriculture
Industry
services, 54.9 services
Industry, 28.2
 FII limits in India
  —    —

áotal investment in equity and equity 100% investment shall be made in

related instruments shall not be less debt security only.
than 70% of aggregate of all
investments.

—  




100 % Debt oute US $ 1.55 billion
70 : 30 oute US $ 200 million
áotal Limit US $ 1.75 billion
  
  

24% for
Indian
company

20% in case
of public
sector bank

Can be
raised upto
sectorial
cap
       
|    "

educing
Encouraging Local Undermine domestic
÷uge capital ise in
economic currency to the export component
inflow inflation
growth gain value industry by selling
treasury bills
  
! 

áhe government has set a ceiling of $5 billion for investment in government securities
and treasury bills while for corporate bonds, the limit has been hiked to $15 billion

According to their estimates, just about $6 billion has only been invested so far by FIIs
in bonds issued by local corporate

Officials reckon that the government debt market is still in a nascent stage and any
major pullout of money by foreign portfolio investors could destabilise the market.

If a majority of these investors suddenly choose to take out their money, it could lead
to spiking of bond yields which can have an impact on BI͛s monetary policy.

No single entity can buy more than s 300 crore of the government debt investment
limit in an auction. áhe minimum amount here was also brought down to s 50 crore
 '
   


! |        %    |  & 

! |       (


 )  
 


11.1
10.2 10.5
12 9.8
9.5 9.7 8.7
10 9.2
8 5.2
3.7 4.7 6.7 7.2
6
4
1.6
2
0 -0.2
-2
2005-06
2006-07
2007-08
2008-09
2009-10

GDP growth rate Agriculture Services

   
 
 
12

10 9.9

8 8.3

6
5.4
4.4 4.7
4

0
2005-06 2006-07 2007-08 2008-09 2009-10
Inflation ate
 
  
 
u 



300
224.4 224.6 251.4
200 139.1 172.4

100

2005-06
2006-07
2007-08
2008-09
2009-10
   
 

— 
 !


2009-10 23.8

-15 2008-09

2007-08 20.3

2006-07 3.2

2005-06 9.9

-15 -10 -5 0 5 10 15 20 25
   
 |
 
| 

Agriculture, 10.9

Services, 40.5

Agriculture
Industry, 48.6 Industry
Services
 |   
 
(

People͛s bank of China

China Securities egulatory

Commission (CSC)

State Administration of Foreign

Exchange (SAFE)

 FII- ualified Foreign Institutional

Investors
 |    |
 
! 
‡ áhe Shanghai Stock Exchange (S÷SE)established on Dec19,1990
‡ Shenzhen Stock Exchange (SZSE) on July 3, 1991.
‡ áhe ÷ongkong Stock Exchange goes back to 1871.

÷-Share
.

A- B-
Share Share
  |
  |   | 

"
 # $%

SSE P/E atio of SSE SZSE P/E atio of SZSE ÷ EX

A shares 850 20.18 473 44.12

B shares 54 18.21 54 21.83

÷-Shares 1241

Average/áotal 904 20.11 527 46.01 34.51

 #  | 
‡ A  FII invest in

(i) publicly listed shares on the Shanghai or

Shenzhen Stock Exchange other than A
shares;
(ii) publicly traded treasury
bonds, convertible bonds and corporate
bonds;
(iii) other financial instruments approved
by CSC.

‡ egulation on  FII

(i) An individual  FII may not hold more

than 10% of the total outstanding
shares of any single listed company
(ii) in any single listed company, shares
held by all  FIIs may not exceed 20% of
the total outstanding shares of the
listed company.
‡ 76 regd.  FII in China
 # 
 | 
China does not encourage FII route, has fixed tax law for FII.

China Investment restricted to B-Shares of listed companies only.

China provides numerous preferential treatments in foreign taxation, and

has successively concluded tax treaties with 60 countries.

Sino-foreign Equity Joint Ventures, Sino-foreign Contractual Joint

Ventures, Wholly Foreign-Owned Enterprise

China Encourages FDI Inflow and shows a negative áax evenues from
Exports
 |    ! 
‡ Bank credit have sky
rocketed .
‡ Lending's have shown an
YOY growth of 30%.
‡ ÷igher Chances of
default.
    | 

‡ Whether all investments

are capable earning a profit
to service there debt
financing.
‡ Private consumption still
weak
‡ Dependence on world
economy.
 |  |  
!

‡ áo protect their exporters.

‡ eminbi devalued at par
with dollars in the
International market.

‡ Exchange rate risk is least

incase of  FII in china.
 | 

 !&

14 13.01
11.6
1 10.4 10.5
10 9.05 8.74
8
6
4

0
005 006 007 008 009 010
 |  
 
 


|   

! 

    

 
 

         
Any country experiencing very rapid productivity growth in the tradable goods sector
will see a rise in the real value of its exchange rate.

central bank does not intervene central bank intervene

net current account inflows should cause

excess domestic monetary expansion

Domestic prices must rise

total appreciation in the past decade has

been much less than the relative
growth in productivity
apid money growth should have pushed
China into an inflationary spiral
 But this not the Case in China͙.
Low inflation because of —

#"

the vast bulk of Chinese savings is in the form of bank deposits, and the
deposit rate is set at extremely low levels.

that monetary growth is channelled not into household demand but rather
into the production of more goods.

Financial repression leads to overinvestment, asset bubbles, and rising

excess capacity.
 —   
   
2.78% 0.36% 1.11% 0.02%
4.50% Government Bonds
2.81%
Central Bank Bills

32.27% Policy Bank Bonds

24.30% Financial Instit tion Bonds

Corporate Bonds

Corporate Commercial
Papers
31.85% Assets Backed Sec rities

 ( 
|   



 |

 ||

   | 

 
 

    | 

áhe economic indicators in China indicates that there is a great deal of

uncertainty in this market.

On the positive side, investing in uncertainty can lead to rich

rewards. ÷owever, on the downside, it can also lead to large
losses. áhus, any Chinese investment to be an aggressive part of your
portfolio, and should be limited accordingly.

áo Invest in China, one should also consider the political framework in the
country which promotes capitalism , still ruled by communist party.
 || 

|' 




Macro-balance moderate ÷igh low
Liquidity Moderate Very high Low
Event risk ÷igh Low Low
External debt ratings BBB- A+
Political stability Low-moderate ÷igh Moderate
Country debt Moderate Low ÷igh

Investments in Indian is very attractive option.

On all parameters except Event risk India has a positive outlook.

Investments in India would reap higher returns than China and japan