Volatility is making the biggest and best investors and analysts, think and rethink.
Rules and correlations,which would have been blindly adhered to are being shred to pieces by the markets. But as investors and market participants,all of us try to keep our thinking cap on to seek "alpha" as they call it.
What I am writing today is just a continuation from November 2011 linked below.
Manufacturing Opportunity
- Chinese Yuan which was around 7.5 to INR then, is now above 10. At the same time, Chinese wages are now growing fast as the working population of China peaks,a side effect of the one child policy that has been followed for decades.
Simmering discontent on the environment quality amongst the masses is making the Chinese Govt anxious. Just as examples of the havoc that the unfettered industrial growth has caused, the average life expectancy in North China has gone down by 5.5 years over the last 2 decades. Its almost a compulsion to have gas masks on,when moving around in Beijing. China is also not exactly "water rich".
Cleaning up would require lot of money and I would assume shutting down few capacities as well.
- Indian situation has worsened from what was discussed in article above. Consumption continued with no corresponding action to get things made within the country. Manufacturing reflected by IIP has been stagnant for two years now.Naturally CAD situation has worsened and USDINR movement is for all to see.
Moreover if what is understood of the Land Acquisition bill is correct then acquiring land for industrial expansion is hardly going to be a cakewalk.
The case for existing manufacturing assets to become far more profitable is getting stronger.Rupee depreciation, hopefully reduced Chinese competition and increased Chinese costs should act as tailwinds. Land acquisition problems may act as entry barriers.
Its been almost two years since that article in November 2011 and all the bearish calls on consumption have not turned out as I thought they would.While its negative side effects are causing distress, consumption itself has not collapsed yet.On the other side, manufacturing companies have not exactly set things on fire.
But given the way things are shaping up I would still bet that these "old sector" manufacturing assets are going to reap a lot of money and valuations are unlikely to remain at the pathetic levels that they are available at today.
While for the last 3-4 years "asset light" branded distribution companies have been investors' delight, I think "Asset Kings" are set to outperform them over the next few years!!
(Standard Disclaimer : The probability of my opinions going horribly wrong is closer to 1 than zero!!)
1 comment:
Asset kings with cash rich corporates. Most Indian Industrial houses are debt ridden and in teh interest spiral trap. Absolutely agree with asset kings considering the fact that Land Bill will make organic expansion extremely difficult even for the domestic companies. So global conglomorates will look for acquisitions. Indian companies with good land bank, Govt clearance and a decent sales,distribution setup will prosper. Chinese issues will provide the icing on the cake. Any names here...
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