Notes on Indian equities, sectors and economy

Archive for the ‘China’ Category

China’s labour costs could be 2x India now

Posted by fairval on January 27, 2014

Had to dig out info on labor cost comparision between China and India for a client. Here is a small summary of it. The info we could find seems to suggest that China’s labor could be 2x more expensive than India. The conclusion has a few assumptions, but this is how it goes.

Till 2009, we could find a direct comparision from US govt data. This shows:

  1. China had less labour cost than India till 2002.
  2. Parity was achieved in 2006.
  3. By 2009, Chinese labor was 40% more expensive. More recent data is not available.
By 2009, China's labour was 40% more expensive than India

By 2009, China’s labour was 40% more expensive than India

We believe after 2010, the difference between Chinese and Indian labour costs could have widened. Note the following values for Rs/CHY (chart below)

  • 31 Dec 2006: 5.695
  • 31 Dec 2009: 6.81 (20% depreciation for Re over 2006)
  • 31 Dec 2013: 10.077 (48% depreciation for Re over 2009)
From 1 Jan'10, Re fell 48% against CHY

From 1 Jan’10, Re fell 48% against CHY

So between 2006 and 2009, Chinese labor became 40% more expensive, whereas currency explains only half of it. So there is a structural component to Chinese labor cost inflation.

After that, Indian Re has depreciated 48%. It is possible labor cost difference could have expanded even more. Even if it was in line with currency, Chinese labor could be twice Indian costs.

As we have written earlier, this is a golden opportunity for Indian manufacturing to compete with China. However, thanks to UPA’s policies, Indian costs are also rising rapidly (or maybe that is partly why Re has fallen, I am no economist, so the cause and effect may not be spot on).



Posted in China, Indian Economy | 3 Comments »

Exports: China versus India

Posted by fairval on January 29, 2013

A good chart from a Ambit Report, showing how India’s exports have been growing faster than China since 2007.

Manufactured Exports: China versus India


The big reason for that is – China is not cheap anymore. And rupee has depreciated massively against the Chinese Yuan.

I had made this chart last year, which shows the extent of depreciation of rupee against other currencies since 2008. Against Renminbi, the Rupee was down 35% over about 3.5 years. It fell as much as 16% in the 12 month period preceding when this chart was made.

Rupee versus other currencies

We have had a massive devaluation in recent years. But as this blog as pointed out earlier, we could lose the gains if our inflation remains out of control.


Posted in China, Data, Indian Economy, Trends | Tagged: , , | 1 Comment »

China’s Building Market – 50% global share!

Posted by fairval on December 11, 2009

Figures about China boggle the mind. Here’s another one (the second line)-

China has the world’s largest construction market. Over the next decade, China will build half of the world’s new buildings and is currently adding 2 billion square meters of floor space annually.

Currently, 44 billion square meters of buildings exist in China. In order to meet China’s Green Building Standard many of those buildings need renovations for energy conservation. Additionally, it is estimated that by 2020, there will be an additional 30 billion square meters of new construction. This is about 3 bn sq mtrs per annum.

How much is India’s annual building market in contrast? Havent come across a statistic like that. DLF in FY09 delivered 7 mn sq feet (or about 0.7 million sq mtr) of finished area. If DLF has say 0.5% market share in India (random number, but DLF is India’s no 1 building company, it is reasonable to expect a market share of that much atleast), total market may be 140 mn sq mtr. 

So is China’s building market about 15x India’s market?

Posted in China, Real Estate / Construction | Leave a Comment »

Look for multibaggers in Indian Financial Sector

Posted by fairval on September 9, 2007

China’s broking firms are having a party on the primary markets. This shows the value creating potential India’s financial sector may have

Most Indian broking firms are currently looking to raise money and in some cases, are looking to find strategic investors. Are these companies attractive for either the strategic investor, or the retail investor? For answers, perhaps look at some recent cues come from China. India’s financial companies, which are about all in the market for raising money, would be heartened by the amount of capital raising Chinese companies are doing in recent months.
Citic Securities raised $3.3bn recently, in the biggest IPO by a Chinese financial security firm. Haitong Securities, China’s sixth largest broking firm, plans to raise $3.4bn soon. Goldstate Securities reportedly aims to raise $4-5 billion in a domestic IPO by March 2008. Everbright Securities, part of a large state-owned conglomerate, also plans to do a multibillion dollar IPO next year.
China’s banks have done even bigger IPOs. China Construction Bank, among the big four Chinese banks, plans to raise $7.4 bn, in what would be mainland China’s largest IPO. This bank had earlier raised $9.2bn in 2005, but from overseas markets. The big daddy of Chinese banks, Industrial and Commercial Bank of China, raised $19bn in what would be the biggest global IPO ever. Bank of China, another member of the Chinese big 4 banks, had raised $9.7bn in 2005. China appears to have a few national level banks and around 115 or so city commercial banks. Some recent IPOs have seen even these raise around half a billion dollars or more.
For someone sitting in India, these numbers are clearly eye popping. No security firm in India has even raised $500 mn from the market, while the sixth largest Chinese firm plans to raise 3 times that amount. Motilal Oswal, perhaps among the top 5 domestic broking firms, raised around Rs 246 crore ($60mn or so) from its IPO. Other than ICICI Bank, which managed to raise upward of $4bn in June/July, Indian banks (barring SBI or maybe HDFC bank) don’t have the scale to raise even more than $1bn. China’s domestic market it appears can support capital raising of over $7 bn from one outfit. That was a kind of amount the entire Indian market can support in a year, all IPOs combined.
The difference in GDP does not explain this massive difference in financial sector numbers. China’s GDP is around twice the size of India’s. The size of the stocks markets does not explain this either. China’s stock market capitalization is around $1500bn, about two times India’s size. In fact, till 2-3 years ago, China’s market cap was less than India’s.
China’s financial market thus appears to be disproportionately bigger compared to India, and much better capitalized. That may be the reason why global banks and security firms are keen to get a presence in India when local assets are still cheap. The largest domestic broking firm is perhaps not worth more than 2 billion dollars. All others are perhaps less than one billion dollars in market value. Most banks are small too. While ICICI Bank is around $20bn in market cap, and SBI is around $15bn, a few others like HDFC Bank have some size, most others are less than $1bn in market cap.
India’s financial sector can thus potentially create a lot of wealth going ahead. The transformation of Chinese brokerages gives a clue. According to a media article, 7 of top 10 Chinese broking firms for which financials where available, registered a combined loss of almost a billion dollars in 2005. These same firms reported a net profit of over $2bn in the first six months of this year. Assuming they make a net profit of $4bn this year, and given that Chinese firms quote at a P/E of around 40-50x normally, these 7 firms are perhaps worth a market cap of around $100bn. Now contrast with this the billion dollar loss these firms made in 2005, and the fact that the Chinese stock market was smaller the India’s till recently.
What is amazing is, the till-recently-Communist China, appears to have an equity cult bigger than India’s now. Haitong, for example, has two million clients, served from 124 outlets around China. The largest Indian retail broking firm has a little over half this number as its client base. In April and May of this year, retail investors were opening around 300,000 demat accounts a day! Having started much later on the capitalist path, China current has around 3 times the retail investors India has. And they appear to trade a lot more than ours do.
Look at this another way, you may well say that India’ financial sector has a lot more wealth creation yet to do. From broking firms to banks, there may be a lot of stock picks there for the long term investor.

Posted in China, Corporate Finance, Markets | 4 Comments »