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Cross Asset Research

5 November 2014

Asia Themes

Indias next steps What is possible?

EQUITY RESEARCH
India Equity Strategy

Indias real GDP has doubled in the past decade from cUS$700bn to US$1.4tn
(2013) and from cUS$650/capita to US$1,200/capita GDP. Following the changed
political scenario this year, expectations have risen that the country could again
double its GDP over the next decade.

Bhuvnesh Singh
+91 22 6719 6314
bhuvnesh.singh@barclays.com
BSIPL, Mumbai
Vijit Jain

Equity Research
Our equity strategy team analyses eight economic indicators across nearly 200
countries to study the feasibility of this. The analysis indicates that India compares well
with other countries that have achieved the transition from US$1,000-2,000/capita
GDP over the past 50 years. Further, while all economies have followed their own
unique path to growth, a number of economies have seen three changes: 1) GDP share
of household consumption reduced; 2) net exports increased; and 3) government
spending trended between 14-18% of GDP (vs 11% in India). Further, for high-growth
countries: a) investment as a proportion of GDP remained above 35%; and b)
manufacturing as a share of GDP rose above 20%.
Economics Research
Our economists believe India can achieve average real GDP growth rates of 7-8% over
the next 5-10 years. This will likely be on the back of a gradual cyclical recovery and
policy initiatives, which accord priority to: 1) boosting the manufacturing sector;
2) planned urbanization; and 3) improving the effectiveness of public services.

+91 (0) 22 6719 6211


vijit.jain@barclays.com
BSIPL, Mumbai
Rachna Biyani
+91 22 6719 6248
rachna.biyani@barclays.com
BSIPL, Mumbai
ECONOMICS RESEARCH
Rahul Bajoria *
+65 6308 3511
rahul.bajoria@barclays.com
Siddhartha Sanyal *
+91 22 6719 6177
siddhartha.sanyal@barclays.com

To support the Make in India drive, the government is attempting to implement an


integrated goods & service tax (GST), further liberalise foreign investment rules, ease
bottlenecks around coal, power and environmental issues, overhaul out-dated labour
laws, and make land acquisition easier. The urbanisation drive is likely to stay focused on
upgrading existing urban infrastructure, and creating new smart cities and dedicated
industrial corridors, which could be a major enabling factor for industrial growth. Finally,
the government has underscored its commitment to enhancing the quality and timeliness
of public services, while remaining on the path of fiscal consolidation. Our economists
think such well-integrated policy initiatives could boost investment and productivity,
strengthen manufacturing and potentially exports and should, thereby, enhance growth
and employment prospects without putting pressure on inflation or the twin deficits.
Equity Research Recommendations
Our equity strategy team believes consumer-oriented sectors (Autos, Telecoms, Private
Sector Banks) would benefit first from a cyclical economic recovery before it percolates
down to asset-heavy industries (Materials, Utilities) with low capacity utilisation. An
investment/capex recovery should follow post an improvement in utilisation levels.
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
This research report has been prepared in whole or in part by equity research analysts based outside
the US who are not registered/qualified as research analysts with FINRA.
FOR ANALYST CERTIFICATION(S) PLEASE SEE PAGE 47.
FOR IMPORTANT FIXED INCOME RESEARCH DISCLOSURES, PLEASE SEE PAGE 47.
FOR IMPORTANT EQUITY RESEARCH DISCLOSURES, PLEASE SEE PAGE 47.

*These authors are members of the Fixed Income,


Commodities and Currencies Research department
and are not equity analysts.

Barclays | Asia Themes

CONTENTS
EQUITY RESEARCH ........................................................................................... 3
Executive summary: Indias next steps What is possible? ............................................................. 3
Key Charts .................................................................................................................................................... 4
No simple achievement for India in the past decade ......................................................................... 8
India primed for further growth ............................................................................................................ 11
How could India change over the next decade? ............................................................................... 18
Our focus remains on the medium term ............................................................................................ 27

ECONOMICS RESEARCH................................................................................31
Governments three-pronged approach a sustainable boost for non-inflationary growth . 31
Political transition is the key catalyst ................................................................................................... 34
Why India is expected to do much better ........................................................................................... 36
What are the policy challenges? ........................................................................................................... 39
Manufacturing .......................................................................................................................................... 40
Urbanisation .............................................................................................................................................. 43
Public service delivery ............................................................................................................................. 45

EQUITY RESEARCH .........................................................................................46


Appendix: Methodology ......................................................................................................................... 46

5 November 2014

Barclays | Asia Themes

EQUITY RESEARCH
Executive summary: Indias next steps What is possible?
EQUITY RESEARCH
India Equity Strategy
Bhuvnesh Singh
+91 22 6719 6314
bhuvnesh.singh@barclays.com
BSIPL, Mumbai
Vijit Jain
+91 (0) 22 6719 6211
vijit.jain@barclays.com
BSIPL, Mumbai
Rachna Biyani
+91 22 6719 6248
rachna.biyani@barclays.com
BSIPL, Mumbai

Indias real GDP has doubled in the past decade from cUS$700bn to US$1.4tn (2013)
and from cUS$650/capita to US$1,200/capita GDP. Following the changed political
scenario this year, expectations have risen that the country could again double its GDP
over the next decade. We analyse eight economic indicators across nearly 200 countries
to study the feasibility of this.
No simple achievement in the past decade: India is one of the 40 countries to have crossed
the US$1,000/capita GDP threshold in the past 50 years. During this time, 42 countries
failed to achieve the same. Indias GDP growth rate at a 7.6% CAGR over the past decade is
also in the 90th percentile among nearly 200 countries.
Primed for further growth: On eight broad economic parameters, we find that Indias
economy compares well with 20 countries (growth countries) that doubled their GDP per
capita from a base level of US$1,000-US$1,100 over the past 50 years. Indias savings rate
of 26% (vs 21% average), inflation of 7.9% (vs 6.8% median), household consumption as a
share of GDP of 58% (vs 65% average) are all close to average for these growth countries
when they were at a similar stage of development.
Two issues to resolve, and one interesting find: However, India has a mountain to climb
compared to other growth economies in: 1) contribution to manufacturing (14% in India
and growth countries moved from an average of 13.5% to 28.8% over their US$1,000US$2,000 transition periods); and 2) net exports (-6% for India; improved c700bps for
growth countries). Prime Minister Modi has correctly identified this issue by launching his
Make in India campaign (for more details please see Megatrends: India's manufacturing
Exports poised for strong growth, 15 July 2014). Interestingly, we notice that Indian
government spending is rather small at c11% of GDP compared with a 14-18% range for
most other growth countries.
How could India change over the next decade? While all economies have followed their
own unique path to growth, we note that a number of economies have seen three changes
1) GDP share of household consumption reduced; 2) net exports increased; and 3)
government spending trended between 14-18% of GDP. Further, for high-growth countries:
a) investment as a proportion of GDP remained above 35%; and b) manufacturing as a
share of GDP rose above 20%.
Our focus remains on the medium term: Over the next three years, our economists expect
a cyclical economic recovery on lower inflation, improved consumer spending and
increased capacity utilisation. Improvement would initially benefit consumer-oriented
sectors, and we believe these sectors should be the first to exhibit earnings recovery.
Improvement in the policy environment is likely to impact corporates with low capacity
utilisation (materials, utilities) before percolating down to strong investment growth
(industrials). On these themes, we highlight our India stock picks: HDFC Bank, Axis Bank,
Tata Motors, Maruti Suzuki, Bharti Airtel, Tata Steel, Shree Cement, Havells, ONGC, Just Dial
and Lupin (all rated OW by our analysts).

5 November 2014

Barclays | Asia Themes

Key Charts
FIGURE 2
Decadal GDP growth of India accelerated to 7.6%

FIGURE 1
Only 18 sub-US$1,000/capita countries (1960) broke the
US$2,000/capita barrier over 1960-2012
40 broke into
>US$1,000/capita

4 broke into
>US$4,000/capita

18 broke into
>US$2,000/capita

GDP 10 year CAGR

7.6

8
7

4
14

18

6.2

40

5
22

4.2

3.8

3.2

3
42

2
1

1960-2012

0
FY54-64 FY64-74 FY74-84 FY84-94 FY94-04 FY04-14
Source: United Nations Statistics Division, Barclays Research

Source: Reserve Bank of India, Barclays Research

FIGURE 3
India needs to sustain, possibly improve its GCF

FIGURE 4
Indias capital formation pace

Gross Fixed Capital Formation


at US$1,000/capita

India

Belize
Cabo Verde
Bhutan
Swaziland
Botswana
Armenia
Bosnia
Congo, Rep.
Georgia
Turkmenistan
Azerbaijan
Dominican Rep.
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea
Thailand
China
India

23.8
40.9
63.5
80.3
53.5
21.1
13.5
34.1
26.6
48.6
32.0
6.5
45.7
24.8
35.7
11.5
19.0
7.3
37.4
37.3
39.9

43
gross capital formation % GDP

% GDP
100
90
80
70
60
50
40
30
20
10
0

38
33
28
23
18
13
8
-

500

1,000

1,500

GDP/capita (2005 const US$)

Population

Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

FIGURE 5
Inflation is comparable to most countries

FIGURE 6
And lending rates are also below the median

% GDP Average inflation over US$1,000-2,000 transition


25

% GDP

Average lending rates


over US$1,000-2,000 transition

20

15

Source: United Nations Statistics Division, Barclays Research


Note: Inflation Rate in chart is as implied by GDP deflator (US$)

5 November 2014

9.8

13.2
Thailand

5.8

11.5

8.2

7.5

18.2
Azerbaijan

Korea

18.8
Georgia

13.5

19.1
Armenia

13.3
Swaziland

11.3

14.3

12.2

Bhutan

Cabo Verde

India

China

Morocco

Sri Lanka

Tunisia

Bosnia

0
Botswana

India

China

Thailand

Korea

Morocco

Malaysia

Sri Lanka

Tunisia

Dominican Rep.

Azerbaijan

Georgia

Turkmenistan

Population

Congo, Rep.

Bosnia

Armenia

Botswana

Bhutan

Swaziland

Belize

Cabo Verde

13.6

7.9

3.2

4.3

6.0

9.7

1.4

8.4

5.0

16.1

10

Belize

23.4

15

9.0

10.2

6.2

0.8

4.4

11.4

10.3

5.6

7.3

0.9

10
5

39.5

25
20

Population
Source: World Bank, IMF, Barclays Research Note: These are rates collected by
IMF as representative interest rates offered by banks to resident customers

Barclays | Asia Themes

FIGURE 8
Manufacturing as share of GDP has plateaued in India

FIGURE 7
Share of manufacturing is low in India (at US$1,000/capita
GDP)

31.6
15.2

21.9

16.2
7.9

3.4

14.3

16.8

21.8
8.6

34.7
6.8

11.2
4.7

11.7

14.9

10.1
4.4

10.1

8.5

9.4

India

16

Belize
Cabo Verde
Bhutan
Swaziland
Botswana
Armenia
Bosnia and
Congo, Rep.
Georgia
Turkmenistan
Azerbaijan
Dominican
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea, Rep.
Thailand
China
India

40
35
30
25
20
15
10
5
0

Manufacturing % GDP
at US$1,000/capita

Mining and Manufacturing % GDP

% gdp

15
14
13
12
11
10
9
8
-

500

1,000

Population
Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

FIGURE 9
Net exports as % GDP

FIGURE 10
Indias net export position has weakened

India

4
4.2

Net Exports as % GDP

1.6

5.8

Net Exports
at US$1,000/capita

Belize
-27.5
Cabo Verde
-28.9
Bhutan
-20.6
Swaziland
-23.9
Botswana
-24.7
Armenia
-18.9
Bosnia-47.3
Congo, Rep.
Georgia
-16.7
Turkmenistan
-31.1
Azerbaijan
Dominican Rep.
-18.2
Tunisia
Sri Lanka
-5.9
Angola
-2.3
NA
Malaysia
Morocco
-8.3
Korea
NA
Thailand
-9.2
China
India
-5.9

20
10
0
-10
-20
-30
-40
-50
-60

10.2

% GDP

1,500

GDP/capita (2005 const US$)

0
-

500

1,000

1,500

-2
-4
-6
-8
-10

GDP/capita (2005 const US$)

Population

Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

FIGURE 11
Share of household consumption in India vs peers at
US$1,000/capita GDP level

FIGURE 12
Household consumption share has levelled in recent years

Household consumption at US$1,000/capita

Population

Source: United Nations Statistics Division, Barclays Research

5 November 2014

India

80
household consumption % GDP

Belize
Cabo Verde
Bhutan
Swaziland
Botswana
Armenia
Bosnia
Congo, Rep.
Georgia
Turkmenistan
Azerbaijan
Dominican Rep.
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea
Thailand
China
India

89.2
64.0
44.4
30.6
72.7
90.4
104.9
34.0
90.5
68.4
47.3
76.9
56.7
66.8
20.5
67.0
75.3
105.4
60.8
44.5
57.8

% GDP
100
90
80
70
60
50
40
30
20
10
0

75
70
65
60
55
50
-

500

1,000

1,500

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

Barclays | Asia Themes

FIGURE 14
India: Government consumption share of GDP has declined
over Indias US$500-US$1,000/capita GDP transition

FIGURE 13
Government consumption in India is lower than most
countries, possibly reflecting lower taxes as a % of GDP
Government consumption expenditure
at US$1,000/capita

25

11.6
11.1
14.9
17.2
14.6
11.0

10

16.1
20.3
20.9
9.2
11.9
11.3
28.7
7.7
8.5
13.3
12.2
7.1
15.0
12.9

20
15

India

14
govt consumption % GDP

30

56.6

% GDP

Belize
Cabo Verde
Bhutan
Swaziland
Botswana
Armenia
Bosnia
Congo, Rep.
Georgia
Turkmenistan
Azerbaijan
Dominican Rep.
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea
Thailand
China
India

13
12
11
10
9
8
-

500

1,000

Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

FIGURE 15
NIFTY Index P/E ratio: 1yr forward P/E

FIGURE 16
NIFTY Index EPS growth trends

NIFTY Index
+Stdev

x
21

Avg
-stdev

% y/y
35
30
25
20
15
10
5
0
-5
-10
-15
-20

19
17

16.2

15

14.2

13

12.2

1,500

GDP/capita (2005 const US$)

Population

14.7

11
9
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14

Source: Bloomberg, Barclays Research

27.9
15.0

16.7

18.9

10.5
5.2
1.0

-17.1
FY09

FY10

FY11

FY12

FY13

FY14 FY15E FY16E

Source: Bloomberg, Barclays Research

FIGURE 17
Barclays Research recommended Equity Portfolio relative to NIFTY Index
Ratio (x)
Building Materials
Telecom
Consumer dis.
Private sector Banks
IT
Healthcare
Energy
Consumer staples
Materials
Utilities
Public sector Banks
Industrials
0

0.2

0.4

0.6

0.8

1.2

1.4

Source: Bloomberg, Barclays Research

5 November 2014

Barclays | Asia Themes


FIGURE 18
India stock picks we expect to benefit from the trends outlined on page 27 (see Figure 102 for more detail)
Curr
Price
Stock

Price
target

Rating

(Rs/share) (Rs/share)

Tata Motors

Market Cap
(US $ mn)

EPS
CAGR

EPS
FY14

FY15E

P/E

FY16E FY14-16 (%)

P/B

EV/EBITDA

FY15E

FY16E

FY15E

FY16E

FY15E

FY16E
25.1

531

561 OW /Neu

25,710

46.5

65.3

85.1

35.3

8.1

6.2

2.0

1.6

24.8

3,287

3,764 OW /Neu

15,952

92.2

130.6

194.6

45.3

25.2

16.9

4.3

3.6

17.1

21.3

HDFC Bank

911

1,032 OW /Neu

35,279

35.3

43.9

54.3

24.0

20.7

16.8

4.2

3.5

22.1

22.6

Axis Bank Ltd

445

463 OW /Neu

16,545

26.5

29.4

36.0

16.6

15.1

12.4

2.4

2.1

16.8

17.9
26.0

Maruti Suzuki

OW /Pos

1,687

17.2

15.6

30.5

33.3

98.0

50.1

17.1

13.0

17.4

Tata Steel Ltd

Just Dial Ltd

1,530
489

2,000

618 OW /Neu

7,510

38.0

40.3

40.4

3.1

12.1

12.1

1.1

1.1

8.6

8.7

Shree Cement

9,127

8,980 OW /Neu

4,915

288.2

226.0

295.8

1.3

40.4

30.9

6.6

5.4

18.1

17.5

Lupin Ltd

1,359

1,592

OW /Pos

9,845

40.9

54.1

65.3

26.4

25.1

20.8

6.7

5.2

26.7

25.1

ONGC Ltd

405

440

OW /Pos

55,199

31.0

27.5

35.1

6.4

14.7

11.5

1.9

1.7

13.1

15.4

Bharti Airtel

396

467 OW /Neu

26,547

6.8

15.9

21.7

78.5

24.9

18.3

2.3

2.1

9.5

11.8

Havells

291

313 OW /Neu

2,848

7.2

9.2

11.9

29.2

31.6

24.4

9.1

7.4

28.2

30.3

Note. Share prices as at market close on 3 November 2014.


Source: Company data, Bloomberg, Barclays Research estimates
Coverage:
Tata Motors, Maruti Suzuki: Asia ex Japan Autos & Auto Parts (industry view: Neutral) - coverage analyst: Sahil Kedia (BSIPL, Mumbai).
HDFC Bank, Axis Bank: Asia ex-Japan Banks (industry view: Neutral) coverage analyst: Anish Tawakley (BSIPL, Mumbai).
Just Dial Ltd: Asia ex-Japan Internet & Media (industry view; Positive) coverage analyst: Hitesh Das (BSIPL, Mumbai).
Tata Steel, Shree Cement: Asia ex-Japan Metals & Mining (industry view: Neutral) coverage analyst: Chirag Shah (BSIPL, Mumbai).
Lupin Ltd: Asia ex-Japan Healthcare & Pharmaceuticals (industry view: Positive) coverage analyst: Balaji Prasad (BSIPL, Mumbai).
ONGC Ltd: Asia ex-Japan Oil & Gas (industry view: Positive) coverage analyst: Somshankar Sinha (BSIPL, Mumbai).
Bharti Airtel: Asia ex-Japan Telecom Services (industry view: Neutral) coverage analyst: Sahil Kedia (BSIPL, Mumbai).
Havells India Ltd: Asia ex-Japan Capital Goods (industry view: Neutral) coverage analyst: Venugopal Garre (BSIPL, Mumbai).

5 November 2014

Barclays | Asia Themes

No simple achievement for India in the past decade


The Indian economy crossed the milestone of US$1,000/capita GDP in 2010. Looking at our
sample of c200 countries (see Figure 21), only 40 countries have breached the
US$1,000/capita GDP barrier in the past 50 years, while 42 countries still remain below this
level. Furthermore, India achieved this with strong real GDP growth, at a CAGR of 7.6% over
the past 10 years, placing it at the 90th percentile in terms of growth over the past decade.

Not easy to cross US$1,000 per capita level


Our analysis of nearly 200 countries over the period 1960-2012 suggests that India now
belongs to a select group of 20 countries with per capita GDP between US$1,000 and
US$2,000. Furthermore, looking at this dataset for the past 50 years (or so), we note that only
40 countries crossed the line of US$1,000 per capita GDP in the period. The next hurdle to
cross for India is US$2,000/capita of GDP. Of the 40 countries that have achieved
US$1,000/capita GDP in the past 50 years, 18 also broke through the barrier of
US$2,000/capita.
FIGURE 20
and the march of progress in GDP per capita since 1960

FIGURE 19
No. of countries at various GDP per capita levels (2013)

62
45
32

30

>US$8,000

US$4,000-8,000

US$1000-2,000

US$2,000-4,000

20

<US$1000

70
60
50
40
30
20
10
-

<US$1000
US$2,000-4,000
> US$8,000

no

100
90
80
70
60
50
40
30
20
10
-

19

26

9
12

11
10

15

1960

32

33

36

37

15

14
8
11

14
7
13

11

15

15

11

9
12

41

34

37

31

31

29

1970

1980

1990

2000

2010

2013

13

45

29

US$1000-2,000
US$4,000-8,000

Note: All GDP/capita figures in this and associated charts are in constant 2005
US$ terms. Source: United Nations Statistics Division, Barclays Research

Note: This chart is based on data from 95 countries for which all data from 1960
until 2012 is available.
Source: United Nations Statistics Division, Barclays Research

FIGURE 21
Only 18 sub-US$1,000/capita countries (1960) broke the
US$2,000/capita barrier over 1960-2012

FIGURE 22
of which just two countries are large (population >50mn)
Population distribution
sub US$1,000-2,000 countries

no
40 broke into
>US$1,000/capita

18 broke into
>US$2,000/capita

4 broke into
>US$4,000/capita

8
7

18

4
14

6
5

40
22

4
7

3
2

42

1960-2012

<1mn

Source: United Nations Statistics Division, Barclays Research

5 November 2014

1-10mn

10-50mn

>50mn

Source: United Nations Statistics Division, Barclays Research

Barclays | Asia Themes

Growth rate is the key variable


However, the speed with which India is able to double its per capita GDP would be critical. We
have analysed economic data from 20 countries (see Methodology section for details) that
have moved from cUS$1,000-US$1,100/capita to cUS$2,000/capita GDP in the past 50 years
(1960-2012). Of these 20 countries, seven achieved it in less than 10 years and two took more
than 20 years. GDP growth per annum for these countries over the transition from US$1,0002,000/capita has varied from the low of 3% CAGR to the high of 26% CAGR.
FIGURE 23
Most countries that moved from US$1,000 to US$2,000/capita took less than 20 years
no

US$1,000-1,100 to US$2,000-2,200/capita

12
10
8
6

11

2
2
0
<10 Years

10-20 Years

>20 Years

Source: United Nations Statistics Division, World Bank, Barclays Research

Large countries have achieved >8% growth rates


Sorting the countries by size, we find that countries with populations larger than 50 million
achieved a GDP growth rate greater than 8% over the period of transition. The growth rate
for smaller countries mostly varied between 4% and 35%. India, by comparison, has
achieved a GDP growth rate of c7.6% over FY04-14.
FIGURE 24
Large countries have tended to achieve US$2,000 at >8% GDP growth rate
%
Population
<20mn

8.4

Bhutan

5.3

7.6

Tunisia

6.9

Swaziland

Turkmenistan

6.3

Georgia

Dominican 7.2

7.2

Cabo Verde

11.8

8.4

Botswana

Congo, Rep.

Belize

Bosnia and

6.7

13.4

Armenia

5.1

Sri Lanka

Azerbaijan

7.0

Malaysia

9.1

4.1

Angola

Morocco

8.8

Korea, Rep.

10.5

9.0

20.0

34.9

Population
20-50mn

Population >
50mn

China

20
18
16
14
12
10
8
6
4
2
0

Thailand

The 3 large countries (>50mn


current population) that broke
through US$2,000 per capita
GDP achieved GDP growth >8%
over the transition

Source: United Nations Statistics Division, World Bank, Barclays Research

5 November 2014

Barclays | Asia Themes

FIGURE 25
Large countries (>50mn population): per capita income
distribution (2012)

FIGURE 26
Several large (>50mn population) and poor (<US$2,000 per
capita GDP) countries achieved >6% decadal growth CAGRs

10,000

9,000
14
12
10
8
6
4
2
0
-2
-4
-6
-8

8,000
US$/capita

7,000
6,000
5,000
4,000
3,000
2,000
1,000
-

100

200

10 year GDP
CAGR

India

1980

300

Countries:
1. Per capita GDP < US$2,000
2. Population >50mn

1985

1990

1995

2000

2005

2010

2012

Population (mn)
Note: Dots at the edge of chart represent values higher than the limits of the axis.
Source: United Nations Statistics Division, World Bank, Barclays Research

Note: Each dot represents 10-year GDP growth CAGR of a country.


Source: United Nations Statistics Division, World Bank, Barclays Research

FIGURE 27
Decadal GDP growth rate of India accelerated to 7.6% over the past decade
%

GDP 10 year CAGR

7.6

8.0
7.0

6.2

6.0
5.0
5.0
4.0

4.2

3.8
3.2

3.0
2.0
1.0
FY54-64

FY64-74

FY74-84

FY84-94

FY94-04

FY04-14

Source: Reserve Bank of India, Barclays Research

5 November 2014

10

Barclays | Asia Themes

India primed for further growth


Given the weak nature of global growth currently, we believe it is possible that even a 5%
GDP CAGR over the next 10 years could put India in the top quartile of global growth.
However, this implies India would take 17 years to move from GDP of US$1,000/capita to
US$2,000/capita and this would put it at the bottom quartile in terms of growth for all
countries that have doubled GDP per capita in the past 50 years.
A GDP CAGR of 5% over the next 10 years would also imply that Indias GDP growth over
2000-2025 would be at a 6.4% CAGR. Looking at the past 50 years of data, East Asian
nations (Thailand, Singapore, Indonesia, Malaysia, Vietnam), commodity-based economies
(such as oil countries including Iran, Oman, Botswana, Equatorial Guinea) and China have
delivered a stronger 25-year GDP CAGR.
FIGURE 28
Global growth quartiles: Highest quartile of growth globally
starts at 5% GDP growth (2003-13)
%

Global Growth Quartiles

16
14
12

Years
35.0
17 years for doubling to
US$2,000/capita would be the
slowest quaritile globally

30.0

5.%+ GDP growth rate over last


decade was the highest growth
quartile globally

10
8

FIGURE 29
Pace of GDP/capita doubling to US$2,000: 17 years timeline
would put India in the slowest quartile

25.0
20.0

15.0

4
2

10.0

5.0

-2
-4

0.0
1st Quartile

2nd Quartile

3rd Quartile

4th Quartile

1st Quartile

2nd Quartile

3rd Quartile

4th Quartile

Source: United Nations Statistics Division, World Bank, Barclays Research


Note: Figure 27,28 include data from all 200 countries available from World Bank

If we assume a 6-8% real GDP growth rate, Indias per capita GDP would double from 2010
levels during 2021-25. Note that over the past decade, Indias per capita GDP has increased
at a CAGR of 7.6% (4.6% CAGR over 2010-13). We present two alternative scenarios below
to examine the potential GDP to be achieved by India by 2025.
FIGURE 30
Scenario I: At c6% GDP CAGR, Indias per capita GDP could double in 15 years
India

2010

2025

US$/capita

1,032

2,092

Population (mn)

1,200

1,419

GDP (US$ bn)

1,238

2,968

CAGR (%)

6.0

Source: United Nations Statistics Division, World Bank, Government of India, Barclays Research

FIGURE 31
Scenario II: At 8%+ GDP CAGR, Indias per capita GDP could double in 10 years
India

2010

2021

US$/capita

1,032

2,112

Population (mn)

1,200

1,367

GDP (US$ bn)

1,238

2,888

CAGR (%)

8.0

Source: United Nations Statistics Division, World Bank, Government of India, Barclays Research

5 November 2014

11

Barclays | Asia Themes

25 year GDP growth CAGR

FIGURE 32
Several countries, particularly in South East Asia and China, have experienced 25-year
periods of >6% GDP growth

25 year CAGR above 6%

16.0
14.0
12.0
10.0
8.0
6.0
1995

2000

Bhutan
China: Macao SAR
Malaysia
Qatar
Viet Nam

Botswana
Equatorial Guinea
Maldives
Singapore

2005

2010

Cambodia
India
Republic of Korea
Thailand

2012

China
Lao People's DR
Indonesia
Uganda

Source: United Nations Statistics Division, World Bank, Barclays Research

How does India compare with other countries?


Restricting our analysis to the countries that went from GDP per capita of US$1,000 to
US$2,000+ in the past 50 years, we note that India is well balanced in terms of: 1)
consumption as a proportion of its GDP; 2) gross capital formation; and 3) inflation and
interest rates. On the other hand, Indias share of government consumption is significantly
smaller compared to other countries, its net exports position has deteriorated over time and
its share of manufacturing in the overall economy is lower.

Household consumption is a significant share of GDP


Share of household consumption in Indias GDP at c58% is slightly lower than the average
of other economies in the cUS$1,000/capita GDP group, which stands at c66% of GDP.
Chinas investment-driven economy had a significantly lower share of household
consumption at c45% (1999) US$1,000/capita GDP.
FIGURE 33
Share of household consumption in India vs peers at
US$1,000/capita GDP level
Household consumption at US$1,000/capita

Population

Source: United Nations Statistics Division, Barclays Research

5 November 2014

India

80
household consumption % GDP

Belize
Cabo Verde
Bhutan
Swaziland
Botswana
Armenia
Bosnia
Congo, Rep.
Georgia
Turkmenistan
Azerbaijan
Dominican Rep.
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea
Thailand
China
India

89.2
64.0
44.4
30.6
72.7
90.4
104.9
34.0
90.5
68.4
47.3
76.9
56.7
66.8
20.5
67.0
75.3
105.4
60.8
44.5
57.8

% GDP
100
90
80
70
60
50
40
30
20
10
0

FIGURE 34
Household consumption share has levelled in recent years

75
70
65
60
55
50
-

500

1,000

1,500

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

12

Barclays | Asia Themes

Savings/domestic investment levels compare well with high-growth peers


Indias gross domestic savings and investment rates are largely in line with most countries
in our analysis at the US$1,000/capita GDP level. Share of capital formation increased from
22% to c40% over 1970-2010 (currently at c38%) and the savings rate increased from 12%
to 32% (currently at c26%) above the average c21% level of peer countries at
US$1,000/capita.
FIGURE 36
Indias gross capital formation pace

FIGURE 35
India needs to sustain, possibly improve its gross capital
formation share
Gross Fixed Capital Formation
at US$1,000/capita

India

Belize
Cabo Verde
Bhutan
Swaziland
Botswana
Armenia
Bosnia
Congo, Rep.
Georgia
Turkmenistan
Azerbaijan
Dominican Rep.
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea
Thailand
China
India

23.8
40.9
63.5
80.3
53.5
21.1
13.5
34.1
26.6
48.6
32.0
6.5
45.7
24.8
35.7
11.5
19.0
7.3
37.4
37.3
39.9

43
gross capital formation % GDP

% GDP
100
90
80
70
60
50
40
30
20
10
0

38
33
28
23
18
13
8
-

500

1,000

Population

Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

FIGURE 37
Gross Domestic Savings Rate

FIGURE 38
Indias gross domestic savings pace

India

gross capital formation % GDP

39.6

32.2

25.2
China

1.9
Korea

India

38

Thailand

15.6
Morocco

20.9

26.1
Angola

Malaysia

33.0
17.4
Tunisia

Sri Lanka

27.3

15.8
Dominican Rep.

9.9
Azerbaijan

2.7

Georgia

Armenia
-0.9

Congo, Rep.

Botswana

27.8

Gross Domestic Savings at US$1,000/capita

34.4

42.0
Bhutan

45
40
35
30
25
20
15
10
5
0
-5

Swaziland

% GDP

1,500

GDP/capita (2005 const US$)

33
28
23
18
13
8
-

500

1,000

1,500

GDP/capita (2005 const US$)

Population
Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

Peer economies had comparable inflation/lending rates


Indias inflation and lending rates may be impediments to higher growth but nevertheless
appear to be in line with other countries at a similar juncture in development. We note that
among the larger countries, Indias inflation does appear to be higher (vis-a-vis China,
Thailand, Malaysia, etc) than the rest.

5 November 2014

13

Barclays | Asia Themes

FIGURE 40
and lending rates are comparable

FIGURE 39
Inflation is comparable to most countries except China,
Thailand

% GDP

% GDP Average inflation over US$1,000-2,000 transition


25

Average lending rates


over US$1,000-2,000 transition
39.5

25

20

20

15

9.8

13.2
5.8

11.5

8.2

7.5

18.2
Azerbaijan

13.5

18.8
Georgia

19.1

13.3
Swaziland

11.3

14.3

12.2

Bhutan

Cabo Verde

13.6

7.9

3.2

16.1

10
4.3

6.0

9.7

1.4

8.4

5.0

9.0

10.2

6.2

0.8

4.4

11.4

10.3

5.6

7.3

0.9

10

Belize

23.4

15

India

China

Thailand

Korea

Morocco

Sri Lanka

Tunisia

Bosnia

Armenia

India

China

Thailand

Korea

Morocco

Malaysia

Sri Lanka

Tunisia

Dominican Rep.

Azerbaijan

Turkmenistan

Georgia

Congo, Rep.

Bosnia

Armenia

Botswana

Bhutan

Swaziland

Belize

Cabo Verde

Population

Botswana

Population

Note: Inflation Rate in chart is as implied by GDP deflator (US$).


Source: United Nations Statistics Division, Barclays Research

Source: World Bank, Barclays Research

Domestic credit and external debt stock look comfortably positioned


Indias net domestic credit at US$1,000/capita GDP (2010) was higher than most countries
at similar per capita GDP levels, except China and Thailand. Indias external debt stock also
looks fairly low compared to peer countries that have similar per capita GDP, although
Chinas external debt stock was even lower.

Note: net domestic credit is the sumo f net claims on the central government and
claims on other sectors of the domestic economy.
Source: United Nations Statistics Division, IMF, World Bank, Barclays Research

13.9

17.2

China

India

36.3

20.8

57.3

27.8

73.6

57.5

64.2

45.2

Thailand

Morocco

Angola

Sri Lanka

Azerbaijan

Georgia

Turkmenistan

Armenia

0
Botswana

India

China

Population

19.3

57.3
Bhutan

50
Thailand

Korea

Morocco

44.2

100

8.6

8.4
Malaysia

Angola

Sri Lanka

Tunisia

Dom. Republic

Azerbaijan

Turkmenistan

Georgia

Congo, Rep.

Bhutan

Armenia

Cabo Verde

200
150

5 November 2014

250

Swaziland

71.9

31.5

57.9

43.7

16.1

21.5

8.7

20

8.4

6.4

40

9.3

60

21.2

47.6

59.4

80

External Debt stock


US$1,000/capita GDP

350
300

82.5

120
100

% GDP

119.3

Net domestic credit


US$1,000/capita GDP

140

Cabo Verde

% GDP

FIGURE 42
External debt stock of India lower than peer countries

311.9

FIGURE 41
Net domestic credit levels higher than most countries at similar
levels of per capita GDP but lower than China and Thailand

Population
Source: United Nations Statistics Division, IMF, World Bank, Barclays Research

14

Barclays | Asia Themes

FIGURE 43
Indias net domestic credit

FIGURE 44
India: External debt stock

% GDP

% GDP

90

35

80

30

70

25

60
50

20

40

15

30

10

20

10
0

0
-

200

400

600

800

1,000

1,200

1,400

200

GDP/Capita (US$2005 const)

400

600

800

1,000

1,200

GDP/Capita (US$2005 const)

Source: World Bank, United Nations Statistics Division, Barclays Research

Source: World Bank, United Nations Statistics Division, Barclays Research

Two issues to resolve and one interesting find


However, India lacks behind other growth economies in: 1) contribution to manufacturing;
and 2) net exports. This remains the key focus of Prime Minister Modis Make in India
campaign. (For more details please read our note Megatrends: Indias manufacturing
Exports poised for strong growth, 15 July 2014). Furthermore, we believe that net exports
could benefit from lower gold imports in the country as gold loses its lustre as an
investment avenue. Interestingly, we notice that Indian government spending is rather small
at c11% of GDP compared to 14-18% for other growth economies.

Manufacturing has skipped a beat


Manufacturing occupies a smaller share of the Indian economy than is commensurate with
its level of GDP/capita. In fact, the share of manufacturing has actually declined slightly
from a peak of 15% of GDP (2010) to 14% currently.
FIGURE 45
Share of manufacturing is low in India (at US$1,000/capita
GDP)
31.6
15.2

21.9

16.2
7.9

3.4

14.3

16.8

21.8
8.6

34.7
6.8

11.2
4.7

11.7

14.9

10.1
4.4

10.1

8.5

9.4

Population
Source: United Nations Statistics Division, Barclays Research

5 November 2014

India

16

Belize
Cabo Verde
Bhutan
Swaziland
Botswana
Armenia
Bosnia and
Congo, Rep.
Georgia
Turkmenistan
Azerbaijan
Dominican
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea, Rep.
Thailand
China
India

40
35
30
25
20
15
10
5
0

Manufacturing % GDP
at US$1,000/capita

Mining and Manufacturing % GDP

% gdp

FIGURE 46
Manufacturing as share of GDP has plateaued in India

15
14
13
12
11
10
9
8
-

500

1,000

1,500

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

15

Barclays | Asia Themes

Net exports: picture has deteriorated over long term


Indias net exports as a percentage of GDP have deteriorated sharply with growth in per
capita income; Indias net exports currently stand at about -6%. Compared to other
countries at a similar juncture (i.e. at US$1,000/capita GDP), India is at par with most large
countries except China.
FIGURE 47
Net exports as % GDP

4.2

Net Exports as % GDP

1.6

5.8

India

Belize
-27.5
Cabo Verde
-28.9
Bhutan
-20.6
Swaziland
-23.9
Botswana
-24.7
Armenia
-18.9
Bosnia-47.3
Congo, Rep.
Georgia
-16.7
Turkmenistan
-31.1
Azerbaijan
Dominican Rep.
-18.2
Tunisia
Sri Lanka
-5.9
Angola
-2.3
NA
Malaysia
Morocco
-8.3
Korea
NA
Thailand
-9.2
China
India
-5.9

20
10
0
-10
-20
-30
-40
-50
-60

Net Exports
at US$1,000/capita

10.2

% GDP

FIGURE 48
Indias net export position has deteriorated

0
-

500

1,000

1,500

-2
-4
-6
-8
-10

GDP/capita (2005 const US$)

Population

Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

Looking at how exports and imports have individually fared over the growth period, we note
recent stabilisation in the share of exports while imports continued to rise.
FIGURE 49
Exports as % of GDP at US$1,000/capita GDP

5 November 2014

30.9
19.1
27.4

84.9
NA

NA

26.6

59.7
42.7

82.4
32.2
39.3
30.1
40.7

88.4
66.5

69.4
53.9
45.8

34.0
39.7

21.6
23.3
21.5
NA

NA

18.3

21.1
31.7
34.9

51.3
38.0

44.2
23.0

23.8
12.5

41.8

41.9
25.0
25.2

Population

Source: United Nations Statistics Division, Barclays Research

100
90
80
70
60
50
40
30
20
10
0

Imports
at US$1,000/capita

Belize
Cabo Verde
Bhutan
Swaziland
Botswana
Armenia
Bosnia
Congo, Rep.
Georgia
Turkmenistan
Azerbaijan
Dominican Rep.
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea
Thailand
China
India

82.5

% GDP

Belize
Cabo Verde
Bhutan
Swaziland
Botswana
Armenia
Bosnia
Congo, Rep.
Georgia
Turkmenistan
Azerbaijan
Dominican Rep.
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea
Thailand
China
India

90
80
70
60
50
40
30
20
10
0

Exports
at US$1,000/capita
64.6

% GDP

FIGURE 50
Imports as % of GDP at US$1,000/capita GDP

Population

Source: United Nations Statistics Division, Barclays Research

16

Barclays | Asia Themes

FIGURE 51
India: Evolution of exports/imports

2012

2013

29%

2011

21%

34%

30%

2010

26%

18%

2009

2008

24%

19%

2007

2006

38%

24%

1,500

Trade Deficit: Non-gold

2005

1,000

2004

500

46%

44%

2003

2002

10

69%

15

2000

20

32%

25

1999

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

30

55%

Trade Deficit: Gold

2001

Exports of goods and services


Imports of goods and services

35
Export/Imports % GDP

FIGURE 52
Gold has accounted for one-third of Indias trade deficit

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

Source: Reserve Bank of India, Barclays Research

Government consumption share is lower than most peers


Government consumption as a share of GDP tends to converge to 14-18% of GDP in most
of the countries we analysed. India government consumption share of GDP is currently at
the low end of the band at c11%.
FIGURE 53
Government consumption in India is lower than most
countries, possibly reflecting lower taxes as a % of GDP
Government consumption expenditure
at US$1,000/capita

25

10
5

11.6
11.1
14.9
17.2
14.6
11.0

15

16.1
20.3
20.9
9.2
11.9
11.3
28.7
7.7
8.5
13.3
12.2
7.1
15.0
12.9

20

Belize
Cabo Verde
Bhutan
Swaziland
Botswana
Armenia
Bosnia
Congo, Rep.
Georgia
Turkmenistan
Azerbaijan
Dominican Rep.
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea
Thailand
China
India

Population

Source: United Nations Statistics Division, Barclays Research

5 November 2014

India

14
govt consumption % GDP

30

56.6

% GDP

FIGURE 54
India: Government consumption share of GDP has declined
over Indias US$500-US$1,000/capita GDP transition

13
12
11
10
9
8
-

500

1,000

1,500

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

17

Barclays | Asia Themes

How could India change over the next decade?


As countries grew from GDP per capita of US$1,000 to US$2,000, we observe that: 1)
consumption as a share of GDP dropped until GDP was around US$4,000/capita; 2)
government spending converged to 14-18% of GDP; and 3) net exports tended to improve.
Furthermore, for countries with faster growth: 1) investment as a proportion of GDP
remained above 35%; and 2) manufacturing share of the economy rose above 20%.

Household consumption declines until GDP/capita reaches cUS$4,000/capita level


From our analysis of the data, we note that share of household consumption declines
progressively until per capita GDP reaches the US$4,000/capita inflection point. In India,
share of household consumption in GDP has declined at a pace of 50bps/year in the last 25
years. At this same pace over the next 10 years, household consumption as a share of GDP
would decline from c58% currently to c53%.
FIGURE 55
International experience suggests an average c650bps
decline in share of household consumption

4.9

70.0

-7.0

-7.9

60.0

50.0
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
2024

China

55.0
Thailand

-18.4
Morocco

Korea -21.8

-19.0
Malaysia

Angola

Sri Lanka

Tunisia

Azerbaijan

Turkmenistan
-32.3

Dominican Rep.

-11.5

-1.9
-18.3

-7.9

Household Consumption % GDP

80.0

65.0

Georgia

Congo, Rep.

-18.5
Bosnia

Armenia

% GDP

75.0
3.2

11.3

29.7
-18.8
Botswana

Swaziland

Bhutan

-5.3

2.9
-0.6
Belize

Cabo Verde

Population

7.2

chg in household consumption


US$1,000-2,000/capita

% GDP
40
30
20
10
0
-10
-20
-30
-40

FIGURE 56
At Indias trend rate, household consumption may decline
600bps to c53% by 2024E

Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research estimates

FIGURE 57
Brazil and China experience suggests decline in share of
household consumption as share of GDP

FIGURE 58
at least until GDP reaches cUS$4000/capita

Brazil

China

65
household consumption % GDP

household consumption % GDP

68
66
64
62
60
58
56
54
52
50

60
55
50
45
40
35
30

2,000

4,000

6,000

8,000

1,000

2,000

3,000

GDP/capita (2005 const US$)

GDP/capita (2005 const US$)

Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

5 November 2014

4,000

18

Barclays | Asia Themes

FIGURE 59
Similar experience in Korea

Korea

110
household consumption % GDP

FIGURE 60
and Thailand

Thailand

70.0
68.0

100

66.0

90

64.0

80

62.0

70

60.0
58.0

60

56.0

50

54.0

40

52.0
50.0

30
-

5,000

10,000

15,000

20,000

25,000

1,000

2,000

3,000

4,000

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

Government consumption converges to c14-18% of GDP


Government consumption as a share of GDP tends to converge to 14-18% of GDP in most
of the countries we analysed. India government consumption share of GDP is currently
lower than other nations at c11%.

10.6

10.7

China

India

16.5

24.5
18.2

16.1

18.8

21.0
10.8

15.3

13.0

Jordan

20.9

Thailand

Ukraine

Malaysia

Morocco

Angola

Tunisia

Guatemala

Azerbaijan

Bosnia

Armenia

Botswana

Belize

China

Thailand

Korea

Morocco

Angola

Malaysia

Tunisia

Sri Lanka

Georgia

Bosnia

Armenia

Botswana

Bhutan

Swaziland

Belize

Cabo Verde

Source: United Nations Statistics Division, Barclays Research

5 November 2014

5.0
-

Population

14.8

11.9

13.7

10.0

18.5

23.0
11.6

16.6
8.1

3.6

Azerbaijan

Dominican Rep.

9.1
Turkmenistan

14.0

17.7
7.9
Congo, Rep.

16.9
9.8

14.2

10

Nicaragua

15.0

30.0

15

25.9

20.0

18.0

20

18.2

25.0

16.5

25

22.7

30.0

17.8

30

27.1

% GDP

Government consumption expenditure


at US$2,000/capita

Cabo Verde

% GDP

FIGURE 62
India has one of the lowest shares of tax revenues as % of
GDP (at US$1,000/capita GDP)

18.7

FIGURE 61
At US$2,000/capita, countries have an average c15% share
of government consumption

Source: United Nations Statistics Division, Barclays Research

19

Barclays | Asia Themes


FIGURE 63
Brazil: Share of government consumption declined after
US$2,000/capita but from elevated levels

Brazil

26

China

18

25

17

govt consumption % GDP

govt. consumption % GDP

FIGURE 64
China: Government consumption share consolidated at
c14% levels

24
23
22
21
20
19
18

16
15
14
13
12
11

17
16

10
-

2,000

4,000

6,000

8,000

1,000

2,000

3,000

4,000

GDP/capita (2005 const US$)

GDP/capita (2005 const US$)

Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

FIGURE 65
Korea: Government consumption share at c15%

FIGURE 66
Thailand: Government consumption share at 14-16%

Korea, Rep.

govt. consumption % GDP

35

Thailand

20.0
18.0

30

16.0

25

14.0

20

12.0
10.0

15

8.0

10

6.0
4.0

2.0

5,000

10,000

15,000

20,000

25,000

1,000

2,000

3,000

4,000

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

FIGURE 67
Sri Lanka: Government consumption surged over US$1k-2k

FIGURE 68
Morocco: Government consumption share surged to c20%

Sri Lanka

Morocco

25.0

government consumption % GDP

government consumption % GDP

16.0
15.0
14.0
13.0
12.0
11.0
10.0

20.0
15.0
10.0
5.0
-

500

1,000

1,500

2,000

1,000

2,000

GDP/capita (2005 const US$)

GDP/capita (2005 const US$)

Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

5 November 2014

3,000

20

Barclays | Asia Themes

Net exports improve


Most economies underwent improvement in their net exports profile during their growth
phase from US$1,000 to US$2,000 per capita. Indias net exports position has worsened
with growth so far but deep current account deficits tend to be destabilising and we believe
the net exports position is likely to improve. In our recent report on manufacturing in India
(see Megatrends: India's manufacturing Exports poised for strong growth, 15 July 2014),
we highlighted the opportunities for manufacturing-driven exports growth in India.
FIGURE 69
Most of the countries improved their net export position
over the transition to US$2,000/capita GDP
chg in net exports
US$1,000-2,000/capita

% GDP
35

-10%

30%

3.4

1.4

3.7
NA

NA

Malaysia
Indonesia
China

China

Thailand

Korea

Morocco

Angola

Malaysia

Tunisia

Sri Lanka

Azerbaijan

Dominican Rep.

Georgia

Turkmenistan

Bosnia

Congo, Rep.

Armenia

Botswana

Swaziland

Bhutan

Belize

Cabo Verde

20%

Thailand

-35

Population

10%

43.3
7.2
-6.9

-2.7

3.7

16.4

67.8

-25

0%

India

0.1

18.4

-20%

-29.0

-15

-0.4

-5.9

-5

1.2

0.3

6.3

25
15

FIGURE 70
Currency movements in regional countries over 2010-13
have made Indias exports more competitive

Depcn/(Apcn) vs US Dollar

Source: United Nations Statistics Division, Barclays Research

Source: Ministry of Commerce, World Bank, Barclays Research

While most countries improved their net export balance over the evolution from US$1,000US$2,000/capita, almost all countries experienced a robust growth in share of external
trade, with both imports and exports rising sharply as a share of national GDP.
FIGURE 71
China: Both imports and exports accelerated with exports
overtaking imports at initial stage
Exports of goods and services
Imports of goods and services

45

Exports of goods and services


Imports of goods and services

120

40

100

Export/Imports % GDP

Export/Imports % GDP

FIGURE 72
Malaysia: Net Exports have continued to strengthen even as
both imports and exports accelerated rapidly

35
30
25
20
15
10
5

80
60
40
20
0

0
-

1,000

2,000

3,000

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

5 November 2014

4,000

2,000

4,000

6,000

8,000

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

21

Barclays | Asia Themes

FIGURE 73
Similar experience in Morocco

FIGURE 74
Sri Lanka: Largely stable growth in global trade although
deficits have widened

Exports of goods and services


Imports of goods and services

40

Export/Imports % GDP

35

Export/Imports % GDP

Exports of goods and services


Imports of goods and services

60

30
25
20
15
10
5
0

50
40
30
20
10
0

1,000

2,000

3,000

GDP/capita (2005 const US$)

500

1,000

1,500

GDP/capita (2005 const US$)

Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

FIGURE 75
Thailand: Strong growth in trade led by exports

FIGURE 76
Korea: Remains an exports/trade powerhouse

Exports of goods and services


Imports of goods and services

90

Exports of goods and services


Imports of goods and services

60

Export/Imports % GDP

80

Export/Imports % GDP

2,000

70
60
50
40
30
20
10
0

50
40
30
20
10
0

1,000

2,000

3,000

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

4,000

5,000

10,000

15,000

20,000

25,000

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

Capital formation momentum will need to be sustained


India has a healthy capital formation rate at c35% GDP, but the pace has moderated slightly
in recent years. Looking at the peer group, we note that almost all the high-growth
countries followed an investment growth path to US$2,000/capita GDP.

5 November 2014

22

Barclays | Asia Themes

FIGURE 77
Large countries see improvement in capital formation

India: GFCF

45.0
40.0
35.0

Source: United Nations Statistics Division, Barclays Research

Source: World Bank, International Monetary Fund, Barclays Research

FIGURE 79
Brazil: Capital formation peaked at cUS$4,000/capita levels

FIGURE 80
China: Capital formation has continued to rise rapidly

Brazil

32

48
46

28
GCF % GDP

44

26
24
22

42
40
38
36

20

34

18

32

16

30
-

2,000

4,000

6,000

8,000

GDP/capita (2005 const US$)

1,000

2,000

3,000

4,000

GDP/capita (2005 const US$)

Source: United Nations Statistics Division, Barclays Research

Source: World Bank, International Monetary Fund, Barclays Research

FIGURE 81
Korea: Capital formation remains fairly high at c25% GDP

FIGURE 82
Thailand: Capital formation remained near 40% until per
capita GDP comfortably crossed US$2,000 level

Korea, Rep.

45

Thailand

60.0

40

50.0

35
GCF % GDP

2012

China

50

30

GCF % GDP

2009

2006

2003

2000

1997

1994

1991

1988

1985

1982

1979

1976

1973

20.0
1970

China

Korea

Thailand

Malaysia

25.0
Morocco

Angola -23.4

Sri Lanka

Tunisia

Azerbaijan

Dominican Rep.

-16.7

-30.0

Population

Turkmenistan

Georgia

Congo, Rep.

Bosnia

Armenia

Botswana -22.3

Bhutan

-32.9

30.0

Swaziland

Belize

Cabo Verde

% GDP

4.7

12.7

12.3

12.8
4.1

3.3

2.4

10.1

12.9

17.2

chg in gross fixed capital formation


US$1,000-2,000/capita

-0.6

1.1

4.6

16.4

50
40
30
20
10
0
-10
-20
-30
-40

40.1

% GDP

FIGURE 78
Investment as proportion of GDP remains above 35%

40.0

30
25

30.0

20

20.0

15
10

10.0

0
-

5,000

10,000

15,000

20,000

25,000

1,000

2,000

3,000

4,000

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

5 November 2014

Source: United Nations Statistics Division, Barclays Research

23

Barclays | Asia Themes

Manufacturing: India needs more of it


The share of manufacturing in Indias GDP is low even for the countrys current per capita
GDP. Our analysis of peer countries suggests that while a few countries de-industrialized on
their path to US$2,000/capita GDP, large countries witnessed a median 7% increase in
share of manufacturing in GDP over the US$1,000-US$2,000/capita GDP transition.
FIGURE 83
Share of manufacturing rose across most countries over the
US$1,000-2,000/capita transition
chg in share of manufacturing
over US$1,000-2,000/capita

61

51

35.0

10

25.0
8

22
1

9
2

30.0

29

32

40
24
1

High value-add
manufacturing
sectors

40.0

Belize
Cabo Verde -0
Bhutan
Swaziland
Botswana
Armenia
Bosnia and
Congo, Rep.
Georgia
Turkmenistan-3
Azerbaijan
Dominican Republic
Tunisia
Sri Lanka
Angola
Malaysia
Morocco
Korea, Rep.
Thailand
China

%
70
60
50
40
30
20
10
0
-10

FIGURE 84
Value addition in Indias manufacturing sector continues to
remain low compared with other EM peers

20.0
15.0
10.0
5.0
0.0

Population

2000

2010

Source: United Nations Statistics Division, Barclays Research

Source: World Bank, International Monetary Fund, Barclays Research

FIGURE 85
China: Share of manufacturing grew rapidly until
US$2,000/capita GDP

FIGURE 86
Brazil: Share of manufacturing peaked at cUS$4,000/capita

China

Brazil

20
19

40
manufacturing % GDP

mining + manufacturing % GDP

45

35
30
25
20
15

18
17
16
15
14
13
12
11
10

10
-

1,000

2,000

3,000

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

5 November 2014

4,000

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000


GDP/capita (2005 const US$)

Source: United Nations Statistics Division, Barclays Research

24

Barclays | Asia Themes

FIGURE 87
Thailand: Share of manufacturing continues to rise

FIGURE 88
Korea: Share of manufacturing rapidly accelerated in initial
growth phase and continues to grow

Thailand

35.0

Korea

30

Manufacturing % GDP

30.0
25.0
20.0
15.0
10.0

25
20
15
10
5

5.0

1,000

2,000

3,000

4,000

5,000

10,000

15,000

20,000

25,000

GDP/capita (2005 const US$)


Source: United Nations Statistics Division, Barclays Research

Source: United Nations Statistics Division, Barclays Research

Leverage comparison
Comparison of leverage levels with peer countries indicate that most countries witnessed
rises in net domestic credit levels over the US$1,000-2,000 transition, with a concurrent
decline in external debt stock.
FIGURE 89
Most peer countries experienced rising domestic credit
levels over the US$1,000-2,000/capita transition

9.8

27.9

(3.3)

6.9

(13.7)
Sri Lanka

(284.1)

(13.1)
Azerbaijan

(66.7)

(32.2)
Armenia

(62.9)

(25.6)

-150

Botswana

-100
(8.4)

29.8

-50

-60

5.1

0
(1.9)

48.2
8.5

21.9

51.9

46.2

50

-20
-40

chg in external debt stock


over US$1,000-2,000/capita GDP

% GDP

4.7

21.2
4.3

13.4

20

0.7

41.8
2.8

-200
-250

5 November 2014

China

Thailand

Morocco

Angola

Turkmenistan

Population

Georgia

Swaziland

China

Korea

Thailand

Morocco

Malaysia

Angola

Tunisia

Sri Lanka

Azerbaijan

Dom. Republic

Georgia

Turkmenistan

Congo, Rep.

Bhutan

Armenia

Cabo Verde

Population

Source: United Nations Statistics Division, World Bank, Barclays Research

Cabo Verde

-300

-80

Bhutan

40

15.5

60

15.0

chg in Net domestic credit


over US$1,000-2,000/capita GDP

% GDP

FIGURE 90
...while the external debt stock declined over the transition

Source: United Nations Statistics Division, World Bank, Barclays Research

25

Barclays | Asia Themes

FIGURE 91
China: Net domestic credit

FIGURE 92
China: External debt stock

% GDP

% GDP

160

25

140
20

120
100

15

80
10

60
40

20
0

0
0

500

1,000

1,500

2,000

2,500

3,000

3,500

500

1,000

1,500

2,000

2,500

3,000

3,500

GDP/Capita (US$2005 const)

GDP/Capita (US$2005 const)


Source: United Nations Statistics Division, World Bank. Barclays Research

Source: United Nations Statistics Division, World Bank. Barclays Research

FIGURE 93
Thailand: Net domestic credit

FIGURE 94
Thailand: External debt stock
% GDP

% GDP

120

200
180

100

160
140

80

120
60

100
80

40

60
40

20

20
0

0
0

500

1,000

1,500

2,000

2,500

3,000

3,500

GDP/Capita (US$2005 const)


Source: United Nations Statistics Division, World Bank. Barclays Research

5 November 2014

500

1,000

1,500

2,000

2,500

3,000

3,500

GDP/Capita (US$2005 const)


Source: United Nations Statistics Division, World Bank. Barclays Research

26

Barclays | Asia Themes

Our focus remains on the medium term


Indian markets are still trading near 10-year average levels, with the cyclical economic
recovery underway providing additional comfort, in our view. Further, the changed political
landscape in India has raised expectations of significant structural reforms over the medium
term. Given the mix of cyclical and structural improvement, we estimate the earnings CAGR
for the market could be in the mid-to-high teens over the next three years, with consumeroriented names (autos and consumer-oriented financials) and the cement sector likely to be
first to exhibit an EPS recovery.
Signs of cyclical and structural improvements underway: Earnings momentum has
already turned with FY15/FY16 Bloomberg consensus EPS estimates for NIFTY up 1%/4%
over the past three months. Bloomberg consensus earnings growth expectations are
currently at c17%/19% EPS over FY15/16E. Further, our recent interaction with policy
makers suggests that the government is strongly focused on improving economic growth
and resolving various issues that could be impacting investments (for more details,
see India Policy Tour Season 5: The new colours of India). Our economists believe that
GDP growth has bottomed and forecast growth of 5.7%/6.4% for FY15/FY16 compared to
4.7% in FY14. Our economists also expect the Reserve Bank of India to start cutting rates in
1Q CY15, with a total of 50bp over H1 CY15 (see India: RBI prefers to keep rates elevated
near term). Finally, we believe key structural reforms (Goods and Services Tax, Direct Tax
code, subsidy reform, natural resource allocation, and a new mechanism of investments in
the infrastructure sector) could also come in over the medium term (three to five years).
Expect consumer-oriented stocks to outperform: An improvement in the economy would
initially impact consumer-oriented sectors, and we believe these sectors should be the first
to exhibit an earnings recovery and hence stock performance. In our view, an improvement
in the policy environment is likely to first impact corporates with low capacity utilisation
(materials, utilities) before percolating down to strong investment growth (industrials).
Further, we believe industrials and public sector bank stocks are comparatively expensive,
with likely delayed earnings recovery compared to the market, and hence should lag market
performance. On these themes, we highlight our India stock picks: HDFC Bank, Axis Bank,
Tata Motors, Maruti Suzuki, Bharti Airtel, Tata Steel, Shree Cement, Havells, ONGC, Just Dial
and Lupin (all rated OW by our analysts).
FIGURE 95
Barclays Research recommended Equity Portfolio relative to NIFTY Index
Ratio (x)
Building Materials
Telecom
Consumer dis.
Private sector Banks
IT
Healthcare
Energy
Consumer staples
Materials
Utilities
Public sector Banks
Industrials
0

0.2

0.4

0.6

0.8

1.2

1.4

Source: Bloomberg, Barclays Research

5 November 2014

27

Barclays | Asia Themes

FIGURE 96
NIFTY Index P/E ratio: 1yr forward P/E

FIGURE 97
NIFTY Index EPS trends

NIFTY Index
+Stdev

x
21

Avg
-stdev

% y/y

19
17

16.2

15

14.2

13

12.2

14.7

11
9
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14

35
30
25
20
15
10
5
0
-5
-10
-15
-20

27.9
15.0
10.5
1.0

-17.1
FY09

FY10

FY11

FY12

FY13

FY14 FY15E FY16E

Source: Bloomberg consensus estimates, Barclays Research

FIGURE 98
Barclays GDP forecasts FY15-16

FIGURE 99
Interest rates v/s Inflation

6.4
5.0
4.7
5.7

4
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15E
2015-16E

CPI (% YoY)

Repo Rate (%) (RHS)

18
16
14
12
10
8
6
4
2
0

10
9
8
7
6
5
4
3
2
1
0
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14

9.3
6.2

8.6

4.0

4.3

4.3

5.5

6.7

8.1
7.0

6.7

7.3
5.4
5.7

6.4

7.6

8.0

9.5
9.6
9.3

% YoY

Source: Reserve Bank of India, Barclays Research estimates

Source: Thomson Reuters Datastream, Barclays Research

FIGURE 100
Utilization rate at a near 5-year low

FIGURE 101
CWIP/Net Fixed Assets ratio at near 20-year high

manufacturing sector capacity utilisation

Net fixed assets

Capital work-in-progress

100%

84
82

95%

82

90%

79
78

85%

78

80%

78
76

76

75%
70%

74

65%
60%

72
FY10

FY11

FY12

Source: Reserve Bank of India, Barclays Research

5 November 2014

FY13

FY14

Mar-93
Mar-94
Mar-95
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14

80

18.9

5.2

Source: Bloomberg, Barclays Research

10

16.7

Note: Above chart is based on standalone ex-energy ex-financials data from a


sample universe of 500+ stocks.
Source: Prowess, Barclays Research

28

Barclays | Asia Themes


FIGURE 102
Stock picks we expect to benefit from the trends outlined on page 27

Stock

Price
(Rs)

Price
target
(Rs)

Stock rating/
industry view

Up/
downside to
PT (%)

Axis Bank Ltd

445

463

OW /Neu

Axis is very well positioned from a growth perspective it is already a well established
national franchise and yet has significant room to expand its network. The banks deposit
franchise continues to develop well Axis has delivered the strongest CASA growth among
the top three private banks in the past eight years.

HDFC Bank Ltd

911

1,032

OW /Neu

13

With a strong deposit franchise and a clean balance sheet, HDFCB remains well positioned to
benefit from the recovery. It can continue to gain SA market share as it expands its presence
in semi-urban areas, and can benefit from the cyclical recovery in the CA deposit market.

Havells India

291

313

OW /Neu

We expect a strong earnings CAGR of c26% over FY14-17E on our expectations of 1) strong
domestic performance led by an increase in consumer durables demand (increase in
discretionary spends), market share gains (strong branding and channel strategy) and
recovery in industrial demand and; 2) stabilisation of the Sylvania subsidiary performance.

Maruti Suzuki

3,287

3,764

OW /Neu

15

1. Maruti Suzuki is the largest passenger car manufacturer in India with a market share of
51% in the passenger car segment (1QFY15). We believe the company will be the biggest
beneficiary of the recovery in the passenger car segment as discretionary spending improves
amid lower discounts.
2. Maruti continues to focus on its core strength of small cars, but it is also incrementally
filling its product and segment gaps, highlighted by the launch of the Ciaz (A3 luxury) and its
entry into SUV and LCV segments.
3. Maruti has been deepening its rural distribution. New products, combined with the
marketing muscle of the company, make for a very strong competitive positioning.

531

561

OW /Neu

Expect improvement in JLR to offset concerns on standalone operations. We are positive because
a) We believe JLR's EBIT margin is set to expand (221bps from FY13-17E) on account of
improved product mix and platform consolidation benefits. Also, we expect JLR to report strong
volumes supported by a healthy pipeline of launches and capacity expansion (JV with Chery and
b)Tata Motors standalone operations will be key beneficiary of macro-led recovery in the
demand of M&HCV volumes (expected from 2H FY15). Additionally, its performance in the
passenger car segment is likely to see a revival on the back of new launches (Zest and Bolt).

1,530

2,000

OW /Pos

31

Just Dial is the market leader in local search in India and has benefitted significantly from
growing mobile data use in India, with a 130% CAGR witnessed in mobile searches over
FY09-14. Given Just Dials significant focus on sales efforts, we expect growth in paid listings
to see a c23% CAGR over FY14-16E, which we estimate would drive revenue growth of c32%
over the same period. Another key catalyst could be the monetisation of Search Plus services,
which were launched in Dec-13. Management is currently not charging any fee from SMEs
for transactions through Just Dial and expects monetisation to begin in 2H FY16E.

Tata Steel Ltd

489

618

OW /Neu

26

Multiple triggers in play, such as balance sheet de-leveraging, cash flow generation from
asset sales, growth visibility in India and efficiency improvements in Europe:
1. Displaying increasing flexibility in its capex programme (particularly for Odisha Phase-II).
Management expects both debt and capex to peak in FY15 and the company continues to
explore various options (debt refinancing, asset sales) to reduce gearing.
2. Losses in Europe appear to be hitting a trough: Macroeconomic indicators in Europe are
showing signs of recovery. In addition, Tata Steels initiatives to reduce costs have started to
yield results.
3. Project execution risk reducing: Odisha Phase-I expansion is tracking its commissioning
timeline of 4QFY15; timely execution would improve volume growth visibility beyond FY15.

Shree Cement

9,127

8,980

OW /Neu

-2

One of the most efficient cement companies in India in terms of operations due to its large
captive power availability, innovative fuel mix management and short lead distances. We
expect Shree Cement to remain FCF positive even as it pursues an aggressive expansion
strategy:
1. Cost leadership: The company is in a rapid expansion phase but has sought to maintain its
low-cost advantage, despite capacity additions, by building captive power plants and grinding
units closer to key markets
2. Cement capacity additions to drive growth: Shree Cement plans to increase capacity to
17.5mt and 21.5mt by June 2014 and March 2015, respectively.
3. Shree Cements core geographical location in north India should sustain the companys
above national-average utilisation levels, due to the regions low capacity overhang.

405

440

OW /Pos

1. Gas prices in India should rise from FY15, while net oil price realisations for ONGC should
also increase in FY16 as gross under-recoveries decline (helped by retail diesel price hikes).
2. Together we estimate these could drive an 18% EPS CAGR for ONGC over FY14-16E, with
room for earnings to surprise on the upside.
3. ONGC is now trading similar to its historical averages at 9.4x FY16 P/E, but still 8-10%
lower than global peers.

1,359

1,592

OW /Pos

17

Lupins strong 22% sales and 26% EPS CAGR (coverage leading) should be driven by:
1. Steady ramp-up in the US: Accelerating Gx market leadership, improving product quality
and a strong pipeline (130 products over the next three years).
2. Increasing traction in emerging markets (ramp-up in LATAM through partnerships;
recovering trend in the domestic market).
3. Enhancing product mix and efficiencies, which should drive margins (up 200bps over
FY14-16E) and improve returns.

Tata Motors Ltd

Just Dial Ltd

ONGC

Lupin Ltd

5 November 2014

Analyst views

29

Barclays | Asia Themes


FIGURE 102 (CONTD)
Stock picks

Stock
Bharti Airtel

Price
(Rs)

Price
target
(Rs)

Stock rating/
industry view

Up/
downside to
PT (%)

396

467

OW /Neu

18

Analyst views
1. Improving voice trends: we expect Bharti Airtel to be one of the biggest beneficiaries of
improving voice trends in the country given the high quality of its subscriber base (highest
subscriber market share of 21% in Metros and circles A). We forecast voice realisations to
improve strongly at a CAGR of 3.2% till FY17E as the company continues to weed out free
minutes.
2. Data Services: Bharti Airtel is one of the key players in the data market with revenues from
data to increase from Rs44bn in FY14 to Rs153bn in FY17, on our estimates, and contribute
21.6% of overall voice revenues (vs. 9.5% currently).
3. Margin expansion: We believe that margins will improve by 325bps from FY14-17E as a
result of improving realisations and a higher contribution from data services.

NB. Share prices as at market close on 3 November 2014.


Source: Bloomberg, Barclays Research estimates
Coverage
Tata Motors, Maruti Suzuki: Asia ex Japan Autos & Auto Parts (industry view: Neutral) - coverage analyst: Sahil Kedia (BSIPL, Mumbai).
HDFC Bank, Axis Bank: Asia ex-Japan Banks (industry view: Neutral) - coverage analyst: Anish Tawakley (BSIPL, Mumbai).
Just Dial Ltd: Asia ex-Japan Internet & Media (industry view; Positive) coverage analyst: Hitesh Das (BSIPL, Mumbai).
Tata Steel, Shree Cement: Asia ex-Japan Metals & Mining (industry view: Neutral) coverage analyst: Chirag Shah (BSIPL, Mumbai).
Lupin Ltd: Asia ex-Japan Healthcare & Pharmaceuticals (industry view: Positive) coverage analyst: Balaji Prasad (BSIPL, Mumbai).
ONGC Ltd: Asia ex-Japan Oil & Gas (industry view: Positive) coverage analyst: Somshankar Sinha (BSIPL, Mumbai).
Bharti Airtel: Asia ex-Japan Telecom Services (industry view: Neutral) coverage analyst: Sahil Kedia (BSIPL, Mumbai).
Havells India Ltd: Asia ex-Japan Capital Goods (industry view: Neutral) coverage analyst: Venugopal Garre (BSIPL, Mumbai).

5 November 2014

30

Barclays | Asia Themes

ECONOMICS RESEARCH
ECONOMICS RESEARCH
Rahul Bajoria *
+65 6308 3511
rahul.bajoria@barclays.com
Siddhartha Sanyal *
+91 22 6719 6177
siddhartha.sanyal@barclays.com
*These authors are members of
the Fixed Income, Commodities
and Currencies Research
department and are not equity
analysts.

Governments three-pronged approach a sustainable boost


for non-inflationary growth
We attribute the revival of hope and expectations for the Indian economy primarily to the
political transition in 2014. In the context of Indias long-term growth potential, its
demographics remain a key advantage, in our view. A resultant outcome of these favourable
demographics is high savings, which, in turn, provides the building blocks for higher
investment and, subsequently, a boost to productivity that can drive economic growth over
the medium term. Against that backdrop, the new government seems to be focusing its
efforts to promote economic growth, which strengthens the possibility that India can
achieve an average real GDP growth of 7-8% over the next five to 10 years.
To reap this potential, we believe the government needs to capitalise on the recent surge in
investor confidence. It faces various challenges, including entrenched inflation expectations,
weak fiscal health, a stagnating agriculture sector, corruption and poor delivery of
government services. The task is challenging, but we believe the new government has
demonstrated a willingness to address these problems head on. We believe the government
is prioritising three areas: 1) manufacturing, via the Make in India campaign; 2) planned
urbanisation; and 3) enhancing the effectiveness and efficiency of government services.

1) New manufacturing policy: Make in India campaign


The government has launched the Make in India campaign to boost Indias manufacturing
sector. We think the potential for a stronger manufacturing sector depends on a number of
policy initiatives the implementation of a good and service tax (GST), further liberalisation
of foreign investment, easing bottlenecks around coal, power and environmental issues,
overhaul of out-dated labour laws, and potentially making land acquisition easier. The
stated goals of the New Manufacturing policy are to increase the share of manufacturing to
about 25% of GDP by 2022 (from the current 15%) and create 100 million jobs in the next
decade. In our view, a stronger manufacturing sector would not only boost Indias growth
potential, but would also help to address the structural issues of creating employment,
reining in inflation and strengthening the countrys external sector balance.

FIGURE 103
We estimate improvements in productivity (incremental capital output ratio or ICOR) and capital formation could help India
average 7-8% growth over next 5-10 years
Investment rate (GFCF as a % of GDP)

ICOR

27%

30%

33%

36%

39%

42%

3.50

7.7%

8.6%

9.4%

10.3%

11.1%

12.0%

3.80

7.1%

7.9%

8.7%

9.5%

10.3%

11.1%

4.10

6.6%

7.3%

8.0%

8.8%

9.5%

10.2%

4.40

6.1%

6.8%

7.5%

8.2%

8.9%

9.5%

4.70

5.7%

6.4%

7.0%

7.7%

8.3%

8.9%

5.00

5.4%

6.0%

6.6%

7.2%

7.8%

8.4%

Note: Values in each cell indicate real GDP growth rate for a certain combination of ICOR and investment rate. Source: Barclays Research

5 November 2014

31

Barclays | Asia Themes

2) Planned urbanisation
We think another key focus area is planned urbanisation. Increasing urbanisation has been a
strong driver of growth in India since the 1990s, and urban areas now generate c63% of
Indias GDP up from c45% in 1990. A policy focus is to make the countrys urbanisation
plans more coherent with its industrialisation needs by creating new smart cities and
dedicated industrial corridors, as well as upgrading existing urban infrastructure and
improving the quality of life for Indias urban residents. If the government succeeds in these
areas, we think this would be a major enabling factor supporting industrial growth. Even if
past trends are maintained, we estimate that urban India could make up 35% of the
countrys population and contribute 70-75% of GDP by 2020. According to a report on
Urbanisation in India by the McKinsey Global Institute in 2010 in the next 20 years, India
could have 68 cities with a population over one million up from 42 in 2010.

3) Enhancing government services


The administration of Prime Minister Narendra Modi has conveyed its commitment to
enhancing the effectiveness and efficiency of government services. The government
remains focused on the path of fiscal consolidation, but is also emphasising making the
delivery of public services faster and better targeted. Whether it is the policy of self
attestation of documents, encouraging wider use of Unique Identification Authority of India
(UIDAI) identification, re-launching the scheme of direct transfer of government subsidies,
focusing on its Clean India mission, or strengthening the financial inclusion drive, the
government has made concrete progress in a relatively short time. Overall, we believe an
uptick in the service quality and timeliness of the government agencies a significant part
of the economy could push value addition in the economy materially, both directly and
indirectly.
Following the sub-optimal growth registered by India since 2008, the government appears
focused on reviving growth in a sustainable manner. As the government focuses on
boosting the economy through its well-integrated three-pronged policy initiatives, keeping
the focus on the manufacturing sector, we see a greater possibility of sustainable high
growth being achieved in India over the medium term. We believe the current initiatives, if
delivered reasonably well, could provide a significant boost to both investment and
productivity, strengthen manufacturing and potentially exports over the medium term and
should, thereby, enhance growth and employment prospects without putting pressure on
inflation or the twin deficits.

5 November 2014

32

Barclays | Asia Themes


FIGURE 104
We expect Indias macro variables to improve significantly in next 10 years
Last 10 years
(average)

Next 10 years
(baseline
scenario)

Next 10 years
(optimistic
scenario)

GDP growth
(% y/y)

7.6

7-8

8-9

We believe India can improve on its growth performance from the


lows of the recent past. The rate of its real GDP growth could
gradually move towards 7-8% over the medium term, on the back of
the ongoing gradual cyclical recovery but, more importantly, reflecting
the coherent policy initiatives that are emerging from the new
government. The seemingly explicit policy focus on the manufacturing
sector could potentially be more effective in sustaining a decent path
for growth for India, along with boosting employment, without
putting undue pressure on inflation or the twin deficits.

Agriculture
(% y/y)

3.6

3-5

5-6

Productivity in agriculture has been a major constraint in India, having


adverse implications for several macro economic variables including
growth, inflation and employment. The weak productivity growth in
the sector has been marred by weakness in irrigation, rural
electrification, and agricultural storage. Policy pronouncements from
the new government on agriculture have been less exciting than those
for the manufacturing sector, in our view. Nevertheless, the
government is focusing on improving the quality of public services in
general and has hinted at revamping some of its rural public work
programmes to become more geared towards building infrastructure
and assets. Accordingly, we expect a gradual improvement in rural
infrastructure, which could help Indian agriculture by boosting
productivity and lowering volatility.

Industry (% y/y)

7.2

7-8

8-10

Following the launch of the Make in India campaign and fresh focus
on manufacturing and construction, we expect a notable
improvement in the performance of Indias manufacturing sector. Our
baseline scenario of 7-8% annual growth in this sector might appear
high following the recent protracted weakness in Indias industrial
sector. However, India had a similar growth trajectory for
manufacturing during the pre-2008 years.

Services (% y/y)

9.0

8-10

10+

The services sector had been the key growth driver for the Indian
economy for nearly two decades. Importantly, growth stability, at near
double-digit levels, has been very strong in this sector. Interestingly,
and contrary to popular perception, the bulk of the contribution for
Indias service sector comes from domestic services (e.g., trading,
telecom, transportation, financial services, government services),
rather than export-oriented services (e.g., IT services). Given that it is
likely to play an important part in domestic economic activity in the
coming years, our base case factors in services sector growth
hovering around its growth rate of the previous decade.

Savings
(% of GDP)

32.7

34.0

37.0

Indias savings rate is expected to move up with an uptick in growth


dynamics and a greater policy focus on financial markets deepening.
Our baseline scenario pegs the domestic savings rate as a % of GDP in
the mid-30s, lower than the previous cycles peak of nearly 37%.

Investment
(% of GDP)

35.1

36.0

39.0

We expect investments to increase in tandem with the savings rate,


with quality of investments also improving at the margin.

Fiscal balance
(% of GDP)

-4.6

-3.0

-2.0

With fiscal consolidation efforts likely continuing, we expect the procyclicality of Indias fiscal dynamics will help bringing the headline
deficit number down. The ongoing reduction in subsidies and the
likely reforms in the tax system could potentially deliver a significant
improvement in Indias fiscal balance in the next 10 years.

Current account
balance

-2.2

-2.5

-1.0

While a modest widening of the current account deficit is likely over


the medium to long term (i.e., 5-10 years) from the current 1.6% of
GDP during FY14-15E, we forecast the current account deficit to stay
broadly in the range of 1.5-3.0% of GDP. The scenario of modest
widening in the current account is based on conservative
assumptions, including rising demand for commodities and capital
goods and an eventual uptick in commodity prices. However, funding
needs of the current account will likely be comfortably met with
capital flows.

(% of GDP)

Comments

Source: Barclays Research

5 November 2014

33

Barclays | Asia Themes

Political transition is the key catalyst


Political outcome presents a historic opportunity
India has a majority single-party government for the first time in three decades. We believe
this significant political transition has improved Indias ability to take on difficult but
necessary policy reforms. It also signals a break from the past, when fractured electoral
mandates weighed on the abilities of governments in India to make decisions and initiate
policy reforms much more than history suggests. This became a particular issue in recent
years, when the previous government, facing pressure from corruption scandals and
regional parties, put economic reforms on the back-burner for a large part of its tenure.
Under Prime Minister Modi, the new government has moved quickly to take advantage of
the sea change in Indias international perception. Whether by reducing subsidies on a
medium-term basis by deregulating diesel, fiscal consolidation, opening up more sectors for
foreign investment, focusing on manufacturing and de-clogging infrastructure bottlenecks,
the government has made a fresh attempt to unblock the economy, and so far it appears to
have been largely successful.
At the same time, more state governments have aligned themselves with the centre, either
through political affinity or through federal programmes, which should help in terms of
project implementation. The Bharatiya Janta Party (BJP), the ruling party, is now directly in
control of seven states out of 29, and has formed alliances with regional parties in another
three states. Most of these are systemically important and control almost 44% of Indias
GDP. The entire Delhi Mumbai Industrial Corridor (DMIC), the biggest infrastructure project
in India, passes through them. With another eight state elections scheduled over the next
two years, the possibility of this number increasing is high, in our view.
We think the political backdrop, which in the past has hobbled Indias growth story, is now a
positive. Political inertia has gone, and key reforms such as overhauling the national tax
structure could be the next big step. Implementation of a goods and service tax (GST) has
been delayed for years, largely due to differences between state governments and the
centre over revenue sharing, but we expect this initiative to move forward over the next 1218 months. Along with the opening up of some sectors for FDI, we expect critical hurdles to
be lowered, especially around land acquisition, labour law reforms and the ease of doing
business for a variety of sectors, which we believe would help to realise Indias potential.

FIGURE 105
Political transition has been key to the change in the perception of India (% of total parliament seats)
100
90
80
70
60
50
40
30
20
10
0
51

57

62

67

71

BJP

77
Congress

80

84

89

Left parties

91

96

98

99

04

09

14

Others

Source: Election Commission, Factiva, Barclays Research

5 November 2014

34

Barclays | Asia Themes

Indias political map


FIGURE 106
We estimate the 10 states currently ruled by BJP and coalition contribute nearly half of Indias GDP

BJP ruled states


Congress ruled states
Regional parties ruled states

* map not to scale; Source: Barclays Research

5 November 2014

35

Barclays | Asia Themes

Why India is expected to do much better


Revisiting the demographic dividend
In the context of Indias growth potential, its demographics are considered a key positive.
With 65% of Indias 1.25bn population under the age of 35, its growth trajectory is defined
through their consumption and savings potential. According to the UN, Indias population is
expected to rise to 1.6bn by 2040, an increase of roughly 400mn from 2010 levels. More
importantly, the working age population is expected to increase by almost 300mn over this
period, which we believe can drive a significant rise in consumption and growth.
FIGURE 109
India likely to remain a young country for a considerable period

FIGURE 110
Productivity of labour has fallen, but not dramatically

1,600

10

1,400

1,200

1,000

800

600

400
200

Residual

6
5

0
1982

0
1991 1997 2003 2009 2015 2021 2027 2033 2039

1986

1990

1994 1998 2002 2006 2010


Capital stock per labour (% y/y)

2
2014

Real GDP (% y/y, 3yrma, RHS)

labour force (mn people)

Source: UN, CEIC, Barclays Research

Source: UN, CEIC, Barclays Research

Furthermore, Indias labour productivity has increased over the past 20 years, due to better
education and capital availability. This higher productivity, coupled with the improving
health and education of the Indian labour force, has provided a significant opportunity, both
in terms of consumption demand and economic size. We expect this demographic
dividend to continue for at least three decades, as the median age of India is expected to
remain low by global standards well into the 2040s.

FIGURE 107
Indias population will remain one of the youngest for a
considerable period
60

FIGURE 108
Rising incomes have allowed for better education and health,
which has raised the quality of labour
25

Median age
(years)

50

20

40

15
30

10
20

10
0
IN

BR

CN
2000

Source: UN, Barclays Research

5 November 2014

ID
2015

2040

KR

US

0
FY98

FY03
FY08
FY13
Per capita personal disposable income (% y/y)

Source: CEIC, Barclays Research

36

Barclays | Asia Themes

Savings-income virtuous cycle has stalled


A key positive influence of Indias strong demographics is seen in its domestic savings rate,
which improved from 23% of GDP in FY91 to 37% of GDP in FY08 before moderating to
30% in FY13. This has allowed Indias investment rate to rise significantly, from 25% of GDP
in FY91 to 35% in FY13. While productivity has been an ongoing issue, Indias growth
slowdown is also partially reflected in the savings investment imbalance, which was driven
by a fiscal deficit expansion, hence creating financing issues.
FIGURE 112
Falling savings rate means investable surplus has also
declined

FIGURE 111
Savings rate has fallen in past seven years

40%

40%

35%

35%

30%

30%

25%

25%

20%

20%

15%

15%

10%

10%

5%
FY 54

FY 64

FY 74

FY 84

FY 94

FY 04

5%
FY 54

FY 14

FY 64

FY 74

FY 84

FY 94

FY 04

FY 14

Gross capital formation Investment (% of GDP)

Gross domestic savings (% of GDP)


Source: CEIC, Barclays Research

Source: CEIC, Barclays Research

But Indias savings rate remains healthy, in our view. Even at around 30% of GDP, it is among
the highest in emerging markets, and comparable to levels in East and South East Asia.
Indias savings pattern has kept pace with that of China, if one accounts for the gap in the
liberalisation phase. We view this as encouraging, as it points to the savings rate increasing in
tandem with per capita GDP, largely because consumption should moderate as a percentage
of GDP, given the falling marginal propensity to consume at higher incomes.

FIGURE 113
Indias saving improvement is in line with what China experienced post liberalisation
Change in savings
rate from the year
of takeoff (%)

20
15
10
5
0
-5
0

10

15

20
Year of takeoff
CN

IN

25

30

35

ID

Take-off year for China, India and Indonesia is defined as 1979, 1991 and 1973, respectively.
Source: Haver Analytics, Barclays Research

5 November 2014

37

Barclays | Asia Themes

ICOR likely to decline as growth improves further


One of the key drivers of growth in India between 2000 and 2008 was the improvement
(i.e., lowering) in the countrys incremental capital output ratio (ICOR), which measures the
total output generated by 1 unit of investment. Indias GDP grew at an average of 7.3% pa
over this period and maintained an average ICOR of 4.4x. This was a significant
improvement from ICOR being close to 6x, as the virtuous cycle of higher incomes, larger
savings and low ICOR meant that growth in GDP was strong relative to Indias history.
We believe one of the problems in the past four to five years has been a persistent rise in
ICOR. Indias investments have become less productive, and marginal investments have not
resulted in an increase in output, as was the case previously. We think much of this can be
traced back to the so called policy paralysis under the previous UPA regime, where lack of
decision making and the arbitrary nature of policy decisions resulted in several large
investment projects either being delayed and shut down. This was particularly the case with
investments in the mining and power sectors, but also extended to other key infrastructure
related investments.
An important tailwind for the Indian economy has been a resolution of these investments
through the last mile approach. In its last year, the previous government set up a Project
Monitoring Group (PMG) to provide key clearance and resolve bottlenecks for some large
investment projects. This was an initial but important move, as it resulted in significant
capacity additions for the power sector. Similarly, bottlenecks in the mining and railways
sectors are being cleared, which we believe should further improve the productivity of
investments and help lower the ICOR in the coming years. Given our current growth and
investment expectations, we estimate ICOR in India could decline from an estimated 6.8x in
FY14 to closer to 5.1x in FY16, and potentially closer to 4x by end-FY20, similar to the
average of 3.9x during FY04-08.

FIGURE 114
Indias incremental capital output ratio should fall as growth improves
9
8
7
6
5
4
3
2
FY93

FY96

FY99

FY02

FY05

FY08

FY11

FY14

Incremental capital output ratio (x times)


Source: CEIC, Barclays Research

5 November 2014

38

Barclays | Asia Themes

What are the policy challenges?


Multi-dimensional policy challenges
We believe the new government faces multi-dimensional challenges in coming years, and
identify five key issues we think the government needs to focus on:
Infrastructure bottlenecks The decline in investment growth notwithstanding, the quality
of investments has also deteriorated. Investment in key infrastructure areas such as
highways, ports, electricity, mining and housing has stagnated, and the governments
investment levels have come down from the peaks in 2010, largely due to rising welfare
spending and the need for fiscal consolidation.
Inflation Indias inflation rate has risen significantly in the past seven years. This has
resulted in a deep entrenchment of inflation expectations, which has shown little signs of
easing despite the recent decline in the actual rate of inflation. This has led to a restrictive
monetary policy stance, and has further slowed the economy when the fiscal policy itself
has turned contractionary.
Agriculture productivity Indias agriculture productivity has been poor and has added to
its inflation problems. Indias food grain production has been largely stagnant in the past
four decades, with the last decade seeing an actual decline in per capita grain production.
This, combined with greater incentives for horticulture production (fruits & vegetables), has
led to a surge in food inflation, which has further dented Indias discretionary consumption.
Corruption and transparency Policy paralysis was a phrase used to characterise the lack
of decision making of the previous government. A key reason for the slowdown in decision
making was corruption scandals, with some linked to ministers in the cabinet, particularly in
the mining and telecom sectors. The general deterioration in the Transparency International
Corruption Perceptions Index for India (2013 rank: 94 out of 177 countries, 2000: 69 in 90
countries) and public concern about the issue damaged Indias growth trajectory, in our
view, due to subsequent legal actions and general government policy paralysis.
Poor delivery of government services One of the key challenges for the Modi
administration is to improve the efficiency of the government and delivery of government
services. Perceptions about the ineffectiveness of governments in India central, state and
local have led to a decline in confidence in public institutions. While bottom-up stories in
several states are somewhat encouraging, and helping in the re-election of several state
governments, improving the impact and delivery of government services would go a long
way to improve Indias growth woes, in our view.
This would also require the central government to reach out to other branches of the state,
namely the bureaucracy (i.e., civil service) and the judiciary. The rule of law needs to be
strengthened by raising the efficiency of the judiciary and police, while day-to-day
improvements in the running of the government need to be spearheaded by the
bureaucracy raising its operational efficiency.

5 November 2014

39

Barclays | Asia Themes

Manufacturing
Boosting manufacturing
The performance of Indias manufacturing sector has been suboptimal for a prolonged period,
which has negatively affected multiple areas of the economy such as growth, inflation and
employment. From a demographic point of view, creating jobs is the biggest challenge for
Indian policymakers. However, we believe the lack of depth in manufacturing remains a key
issue for India, and without it, Indias ability to boost its consumption potential could be cut
short. Most of the manufacturing sector issues arise from difficulties of doing business, sub-par
growth in heavy infrastructure and out-dated labour laws.
FIGURE 116
Capacity utilisation remains weak

FIGURE 115
Manufacturing sector needs to see a revival

15

17

10
16

5
0

15

-5
-10

14

Level of Capacity
utilisation (%)

-15
13
FY 89

FY 94

FY 99

FY 04

Manufacturing (% of GDP)

FY 09

FY 14

Trendline

Source: CEIC, Barclays Research

-20
-25
Dec-02

Dec-04

Dec-06

Dec-08

Dec-10

Dec-12

Dec-14

Source: RBI, Barclays Research

Resolving ease of doing business is one focus area


The Modi administration has stated a priority to strengthen Indias manufacturing sector. The
targeted improvement in the World Banks ease of doing business rankings, revamping the
labour laws and inspections, and improving access to trunk infrastructure such as power and
roads, should go a long way in boosting Indias manufacturing appeal in our view. The Make in
India campaign may appear to be a government-driven capital allocation approach (which has
FIGURE 117
Investment in manufacturing sector needs to be revived

45

Singapore
US
UK
Malaysia
Thailand
Mexico
Turkey
Vietnam
China
Philippines
Indonesia
Brazil
India

40
35
30
25
20
15
FY89

FIGURE 118
India ranks low in the ease of doing business index, which
reflects issues hampering investments

FY93

FY97

FY01

GCF: Manufacturing (% of GCF)


Source: CEIC, Barclays Research

5 November 2014

FY05

FY09
Trendline

FY13

1
7
8
18
26
39
55
78
90
95
114
120
142
0

50

100

150

Ease of doing business (1=easiest)


Source: World Bank, International Monetary Fund, Barclays Research

40

Barclays | Asia Themes


had mixed successes in East Asia), but we think it is aimed more at facilitating doing business,
rather than financing it.

while implementation of GST will be key


We believe the implementation of the GST under the new government would provide a
major boost to the manufacturing sector, as it would likely radically simplify the indirect tax
system and cover taxes levied at the value-add stage of production. The GST now appears
set to be finalised by the next budget, and could be in place from 2016 onwards. According
to the recently published World Bank 2015 India Development Update, resolving logistics
issues will be key for a revival in manufacturing. The report also states that apart from poor
quality of highways, customs inefficiencies and checks post border clearance in states leads
to delays in transferring goods from one part of the country to another. With a GST model
in place, a number of these regulatory stoppages would likely end, and thus should result in
significant productivity gains in our view.

Improving land acquisition is also important


The stated goal of the New Manufacturing policy is to increase the share of manufacturing
to about 25% of GDP by 2022 (from the current 15%) and create 100 million jobs in the
next decade. We believe the policy covers the various areas that have hindered Indias
growth regulatory issues, including grey areas in environmental clearance, slow clearance
of projects, labour laws and taxation issues, and inadequate infrastructure. A necessary
condition for achieving this, in our view, is the simplification of land acquisition procedures,
especially post the introduction of the land acquisition bill in 2013. To make land acquisition
easier, the Ministry of Rural Development has already proposed several amendments to the
bill, which have also found support from state governments. These include a re-think on the
consent levels (i.e., bringing these down from 80% to a more reasonable level), and also
restricting social and environmental impact assessment studies. While we do not think the
government will significantly water down the bill, we believe some more steps to shorten
the time period of land acquisition (currently about 50 months) would significantly improve
the potential for investments in the manufacturing sector.

FIGURE 119
GST would help lower logistics costs for manufacturing
sector...
35

FIGURE 120
and reduce time wastage during transit

Costs as % of net sales

30
25
Check posts
26%

20
15

Driving
40%

10
5
0

Resting and
meals
13%

Logistics

Labour compensation

Source: World Bank, Barclays Research

5 November 2014

Vehicle
refueling
and traffic
21%

Distribution of time
spent in movement
for goods

Power, fuel & water


Source: World Bank, Barclays Research

41

Barclays | Asia Themes

Trunk infrastructure also needs to improve


Sub-optimal growth of heavy infrastructure has been a critical drag on manufacturing.
While certain sectors have enjoyed success in phases, the inter-linkages of various sectors
such as power and mining means a laggard sector has held the entire industrial complex
back. For instance, electricity generation, water services and mining activities some of the
basic, yet critical, utilities saw higher investment during the 1980s and 1990s, but have
slipped substantially in the last five years. In fact, capacity increasing investment in the
utilities sector has been declining as a proportion of GDP since the mid-1990s, and the
subsequent loss of momentum in this sector can be seen as a consequence of this trend.
For several critical areas including electricity generation, delays in approval and slow
implementation of plans have been widespread, and recently the problem has been
compounded by lack of fuel availability. The inability of the government to raise coal
production (under government monopoly) has meant that power plants have been lying
idle, and as such the government both central and state has continued to substantially
underperform compared with its own targets. Another area of contention in heavy
industries in India is the large regional disparity, both in terms of demand and supply. In the
case of electricity, the bulk of generation facilities (more than 60%) are in either the western
and northern parts of the country. Grid linkages have improved, but the lack of an adequate
power base in the eastern part of the country has led to a high concentration of
manufacturing industries in the western part of the country.
With the coal sector having been cleared by the judiciary post the investigations into
practices in the sector, the government appears to be moving towards the denationalisation
of the sector. While it is unlikely that private companies will be allowed to engage in
commercial mining immediately, we think the government will incrementally create the
conditions that open up the sector. This will unlock further provisions for Indias coal sector
and other mining areas to expand, and potentially see more private investment coming in.
In this context, we believe developments in oil and gas production, which has risen
substantially in India in the past 10 years, are instructive. Higher output by this industry has
been partly driven by the greater involvement of the private sector, which has happened
alongside the expansion of capacity by the public sector units (PSU) that dominate the
sector. This is also seen in the actual investment in the sector, which has exceeded
expectations in the past 10 years, and current refining capacity stands at 215mn tonnes.

FIGURE 122
Coal mining output improving after three poor years

FIGURE 121
Significant power capacity additions in past 10 years
230

600

210

550

190

500

170

450

150

400

130

350

110

300

90
Sep-99

Sep-02

Sep-05

Sep-08

Sep-11

Electricity: Installed capacity (wt bn)


Source: CEIC, Barclays Research

5 November 2014

Sep-14

250
Sep-99

Sep-02

Sep-05

Sep-08

Sep-11

Sep-14

Coal production (12m rolling sum, ton mn)


Source: CEIC, Barclays Research

42

Barclays | Asia Themes

Urbanisation
Growing smartly
Urban areas have powered Indias growth over the past two decades and now generate
c63% of Indias GDP up from c45% in 1990. We believe Indias high population density
and low GDP per capita indicate that urbanization trends have significant scope to
accelerate further. Even if past trends are maintained, we estimate that urban India could
have 35% of the countrys population and contribute 70-75% of its GDP by 2020.
FIGURE 124
Urban India powered last decades growth* acceleration

FIGURE 123
Share of GDP produced from urban regions

% YoY

%
90
85

Urban

Rural

8.0

84

7.0

80

78

76

1.8

6.0
5.0

75
70

63

65

3.0

60

2.0

55

1.0

2.3

2.6

4.0

65

2.0
1.8

5.7
1.6
3.4

2.7
1.4

50
United
States

Western
Europe

Latin
America

China

1950-51 - 1970-71 - 1980-81 - 1990-91 - 2000-01 1970-71


1980-81
1990-91
2000-01
2009-10

India

Source: McKinsey Global Institute (2012), Ministry of Urban Development


(MoUD), Barclays Research

Note: *Chart shows contribution to total GDP growth.


Source: RBI, MoUD, Barclays Research

Compared with the disappointing progress in rural infrastructure, recent developments in


urban infrastructure have been somewhat more positive, at least in pockets. The growing
population and persistent migration to cities have put pressure on existing urban
infrastructure. While it is not possible to address all of urban Indias infrastructure needs
immediately, we believe some moves are taking place that could help to ease those
pressures in the coming years.

FIGURE 125
Faster urbanisation is positively correlated with rapid GDP growth globally
12
China

20yr avg gdp growth

10
8

India

6
4
2

Germany

USA

0
0

10
15
20yr chg in urban share of population

20

25

Source: World Bank, Barclays Research

5 November 2014

43

Barclays | Asia Themes

Smart cities the way forward


One of the key themes of Prime Minister Narendra Modis election campaign was to use
urbanisation as a catalyst for growth. Apart from improving infrastructure bottlenecks, the
government plans to set up 100 smart cities, which would involve upgrading the
infrastructure in existing tier 1 and tier 2 cities, and setting up new urban centres in order to
manage the pace and quality of urbanisation. For instance, among the facilities proposed for
these cities is to ensure availability of facilities such as underground parking, adequate
digital connectivity, smart power grids, a piped gas network, adequate public transport
facilities and environmentally-friendly surroundings, in order to enhance quality of life.
According to a report on Urbanisation in India by the McKinsey Global Institute in 2010, in
the next 20 years, India could have 68 cities with a population of over one million up from
42 in 2010. Some interesting case studies for smart cities under construction in India are
New Raipur (Chhattisgarh), Dholera Investment region (Gujarat) and Lavasa (Maharashtra),
which have been constructed from scratch with plans to integrate technology in day-to-day
management of the city infrastructure.
The Delhi Mumbai industrial corridor, which could be Indias largest infrastructure project,
includes plans for seven new city townships across the states it passes through, in order to
facilitate better urbanisation of these areas. Similar projects in Andhra Pradesh, Gujarat,
Rajasthan and the North East are also expected to be announced in the next few years.

FIGURE 126
India already has several smart cities under construction or being proposed
City
Ajmer
Allahabad
Dholera
Kochi smart city
Lavasa
Naya Raipur
Shimla
Varanasi
Vizag

State

Partner

Status

Rajasthan

US

Brownfield

Uttar Pradesh

US

Brownfield

Gujarat

Japan

Greenfield

Kerala

Greenfield

Maharashtra

Greenfield

Chhattisgarh

Greenfield

Himachal Pradesh

France

Brownfield

Uttar Pradesh

Japan

Brownfield

Andhra Pradesh

US

Brownfield

Source: Factiva, Barclays Research

5 November 2014

44

Barclays | Asia Themes

Public service delivery


Improving delivery of government services is a key challenge
Since coming to power, the Narendra Modi-led government has slowly been cutting back
on red tape and bureaucratic hurdles for getting access to government services. Whether
via the policy of self attestation of documents or encouraging wider use of UIDAI
identification, we believe the government has made concrete progress in improving
accessibility.
In a major announcement in October, the government relaunched the direct benefits
transfer scheme for cooking gas subsidies, which was put on the backburner by the
previous government. This process of directly transferring subsidies into a consumers bank
account would help to reduce leakages, and make the subsidy scheme more effective.
Similarly, the prime ministers Jan Dhan Yojana, or financial inclusion scheme, has been
successful in opening new bank accounts and providing market-based insurance for
millions of households that had previously not been part of the financial system. Since the
programme was launched in late August, almost 68mn bank accounts have been opened,
and the governments target of 75mn bank accounts by 26 January 2015 appears
achievable, with an eventual target of 150mn bank accounts by 15 August 2015.
Another key focus of the new administration has been improving public health and
sanitation outcomes. The lack of sanitation facilities has been a serious impediment in
improving health according to the Ministry of Drinking Water and Sanitation, and the focus
is shifting towards preventive health care, rather than curative health care. The launch of
the prime ministers Swachh Bharat (Clean India) campaign also appears to have been
successful. Similarly, the availability of clean drinking water has improved in recent years.
However, even for these projects the implementation rate had been only around 70-75% of
the target in recent years, with targets being scaled back on a consistent basis. Similar
trends can be seen in some related projects. While sanitation facilities have been upgraded,
more than 50mn households still need access to better sanitation facilities, according to the
governments own estimates.
Corruption and transparency While the policy paralysis that affected the previous
government appears largely to have been reversed, we believe the new government needs
to undertake more efforts to improve transparency and reduce the potential for corruption.
Progress is already being made in this area, with the government introducing open auctions
for coal mining licences, and is likely to follow a similar model for other public resources in
the future.

Rule of law needs to be addressed


While landmark legislation such as the Right to Information Act has improved government
transparency, we think the focus on improving delivery of justice needs to be addressed,
along with police reforms to provide a stable rule of law.

5 November 2014

45

Barclays | Asia Themes

EQUITY RESEARCH
Appendix: Methodology
EQUITY RESEARCH
India Equity Strategy
Bhuvnesh Singh
+91 22 6719 6314
bhuvnesh.singh@barclays.com
BSIPL, Mumbai
Vijit Jain
+91 (0) 22 6719 6211
vijit.jain@barclays.com
BSIPL, Mumbai
Rachna Biyani
+91 22 6719 6248
rachna.biyani@barclays.com
BSIPL, Mumbai

All per capita GDP figures used in this report are constant 2005 US$-based figures, as reported
by the United Nations Statistics Division. We have analysed the 1960-2012 data on per capita
income to identify countries that achieved the transition from less than US$1,000/capita GDP
to US$1,000/capita (like India) and countries that achieved the transition from
US$1,000/capita to US$2,000 in real GDP during the 1960-2012 time horizon.
We examined eight key economic data points: 1) household consumption; 2) government
consumption; 3) gross fixed capital formation; 4) gross domestic savings rate; 5) net
exports (goods and services); 6) inflation rate (based on GDP deflator); 7) lending rates; and
8) manufacturing footprint in GDP. We then analysed the trends for these indicators across
the subset of 20 countries that achieved the transition from cUS$1,000-1,100 to
cUS$2,000-2,200/capita for these parameters, during the course of that transition.
FIGURE 127
Countries that made the US$1,000-2,000/capita transition in past 50 years (1960-2012)
Country
Belize

Population
(mn)

Start
Year

per capita
GDP

Target
Year

per capita
GDP

0.3

1962

1,007

1980

2,065

Cabo Verde

0.5

1995

1,041

2006

2,178

Bhutan

0.8

2001

1,042

2012

1,972

Swaziland

1.2

1973

1,055

1992

2,013

Botswana

2.0

1972

975

1982

2,099

Armenia

3.0

2001

986

2007

2,110

Bosnia and Herzegovina

3.8

1995

719

1998

2,042

Congo, Rep.

4.4

1968

1,010

1982

2,064

Georgia

4.5

2000

1,019

2012

2,084

Turkmenistan

5.2

1997

1,108

2007

2,056

Azerbaijan

9.4

2002

1,046

2006

2,100

Dominican Republic

10.4

1961

1,025

1977

2,004

Tunisia

10.9

1968

1,061

1990

2,034

Sri Lanka

20.5

2000

1,052

2013

2,004

Angola

21.5

1995

1,045

2006

1,991

Malaysia

29.7

1961

1,028

1978

2,069

Morocco

33.0

1973

1,004

2006

2,080

Korea, Rep.

50.2

1960

1,107

1971

2,131

67.0

1984

1,018

1994

2,105

1,357.4

1999

1,051

2007

2,203

Thailand
China

Note: per capita GDP figures in constant 2005 US$ terms.


Source: United Nations Statistics Division, World Bank, Barclays Research

5 November 2014

46

Barclays | Asia Themes

ANALYST(S) CERTIFICATION(S):
In relation to our respective sections we, Bhuvnesh Singh, Balaji Prasad, M.D., Somshankar Sinha, Anish Tawakley, Venugopal Garre, Sahil Kedia,
Hitesh Das, Chirag Shah, Rahul Bajoria and Siddhartha Sanyal, hereby certify (1) that the views expressed in this research report accurately reflect
our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was,
is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

FICC: IMPORTANT DISCLOSURES CONTINUED


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EQUITY: IMPORTANT DISCLOSURES CONTINUED


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Materially Mentioned Stocks (Ticker, Date, Price)
Axis Bank (AXBK.NS, 03-Nov-2014, INR 445.25), Overweight/Neutral, D/J/K/L/M/N
Bharti Airtel Ltd. (BRTI.NS, 03-Nov-2014, INR 395.75), Overweight/Neutral, D/J/K/L/M
Havells India Ltd. (HVEL.NS, 03-Nov-2014, INR 290.75), Overweight/Neutral, J/K/N
HDFC Bank (HDBK.NS, 03-Nov-2014, INR 910.70), Overweight/Neutral, A/D/J/K/L/M/N
Just Dial Ltd. (JUST.NS, 03-Nov-2014, INR 1529.85), Overweight/Positive, J
Lupin Ltd. (LUPN.NS, 03-Nov-2014, INR 1359.35), Overweight/Positive, J
5 November 2014

47

Barclays | Asia Themes

EQUITY: IMPORTANT DISCLOSURES CONTINUED


Maruti Suzuki India Limited (MRTI.NS, 03-Nov-2014, INR 3286.85), Overweight/Neutral, D/J/K/L/M
Oil & Natural Gas Corp., Ltd. (ONGC.NS, 03-Nov-2014, INR 404.55), Overweight/Positive, D/J/K/L/M
Shree Cement (SHCM.NS, 03-Nov-2014, INR 9127.25), Overweight/Neutral, J
Tata Motors Ltd. (TAMO.NS, 03-Nov-2014, INR 531.40), Overweight/Neutral, A/C/D/J/K/L/M/N/O
Tata Steel (TISC.NS, 03-Nov-2014, INR 489.15), Overweight/Neutral, D/J/K/L/M/N
Other Material Conflicts: Barclays Bank PLC and/or an affiliate is advising Klesch Group Limited in relation to its potential acquisition of assets
belonging to Tata Steel Europe Limited.

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Guide to the Barclays Fundamental Equity Research Rating System:
Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below)
relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverage
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Stock Rating
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investment horizon.

5 November 2014

48

Barclays | Asia Themes

EQUITY: IMPORTANT DISCLOSURES CONTINUED


Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12month investment horizon.
Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month
investment horizon.
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Below is the list of companies that constitute the "industry coverage universe":
Asia ex-Japan Autos & Auto Parts
Ashok Leyland Ltd. (ASOK.NS)

Bajaj Auto Ltd. (BAJA.NS)

Bharat Forge (BFRG.NS)

Brilliance China Automotive Holdings Ltd.


(1114.HK)

BYD Co., Ltd. (1211.HK)

Cheng Shin Rubber Industry Co., Ltd. (2105.TW)

CUB Elecparts (2231.TW)

Dongfeng Motor Group Co., Ltd.


(0489.HK)

Exide Industries (EXID.NS)

Geely Automobile Holdings Ltd. (0175.HK)

Great Wall Motor Co., Ltd. (2333.HK)

Guangzhou Automobile Group Co., Ltd.


(2238.HK)

Hankook Tire Co., Ltd. (161390.KS)

Hero Motocorp Ltd. (HROM.NS)

Hyundai Glovis Co., Ltd. (086280.KS)

Hyundai Mobis (012330.KS)

Hyundai Motor Company (005380.KS)

Hyundai Wia Corp. (011210.KS)

Iron Force (2228.TW)

Kia Motors Corporation (000270.KS)

Macauto Industrial (9951.TWO)

Mahindra & Mahindra Ltd. (MAHM.NS)

Mando Corp. (204320.KS)

Maruti Suzuki India Limited (MRTI.NS)

Motherson Sumi Systems (MOSS.NS)

Nexen Tire Corp. (002350.KS)

Tata Motors Ltd. (TAMO.NS)

Agricultural Bank of China Limited (1288.HK)

Axis Bank (AXBK.NS)

Bank Central Asia (BBCA.JK)

Bank Mandiri (BMRI.JK)

Bank Negara Indonesia (BBNI.JK)

Bank of Baroda (BOB.NS)

Bank of China (Hong Kong) Ltd. (2388.HK)

Bank of China Limited (3988.HK)

Bank of Communications Co., Ltd. (3328.HK)

Bank of East Asia Ltd. (0023.HK)

Bank of India (BOI.NS)

Bank Rakyat Indonesia (BBRI.JK)

Bank Tabungan Negara (BBTN.JK)

BS Financial Group (138930.KS)

China CITIC Bank Corporation (0998.HK)

China Construction Bank Corp. (0939.HK)

China Merchants Bank Co., Ltd. (3968.HK) China Minsheng Banking Corp., Ltd. (1988.HK)

TVS Motor Co., Ltd. (TVSM.NS)


Asia ex-Japan Banks

Chongqing Rural Commercial Bank (3618.HK)

CTBC Financial Holding (2891.TW)

Dah Sing Banking Group Ltd. (2356.HK)

Dah Sing Financial Holdings Ltd. (0440.HK)

DBS Group Holdings, Ltd. (DBSM.SI)

DGB Financial Group (139130.KS)

E.Sun Financial Holding (2884.TW)

Federal Bank (FED.NS)

First Financial Holding (2892.TW)

Hana Financial Group (086790.KS)

Hang Seng Bank Ltd. (0011.HK)

HDFC Bank (HDBK.NS)

HSBC Holdings PLC (0005.HK)

ICICI Bank (ICBK.NS)

Indusind Bank (INBK.NS)

Industrial & Commercial Bank of China Ltd.


(1398.HK)

Industrial Bank of Korea (024110.KS)

ING Vysya Bank (VYSA.NS)

KB Financial Group (105560.KS)

Kotak Mahindra Bank Ltd. (KTKM.NS)

Mega Financial Holding (2886.TW)

OCBC Group (OCBC.SI)

Punjab National Bank (PNBK.NS)

Shinhan Financial Group (055550.KS)

SinoPac Financial Holdings (2890.TW)

Standard Chartered PLC (2888.HK)

State Bank of India (SBI.NS)

UOB Group (UOBH.SI)

Woori Finance Holdings (053000.KS)

Yes Bank (YESB.NS)

Airtac International Group (1590.TW)

BGR Energy Systems Ltd. (BGRE.NS)

Asia ex-Japan Capital Goods


ABB Ltd. (ABB.NS)
Bharat Heavy Electricals Ltd. (BHEL.NS)

Crompton Greaves Ltd. (CROM.NS)

CSR Corporation Ltd. (1766.HK)

Cummins India Ltd. (CUMM.NS)

Dongfang Electric Corp., Ltd. (1072.HK)

Doosan Heavy Industries & Construction


(034020.KS)

Harbin Electric Co., Ltd. (1133.HK)

Havells India Ltd. (HVEL.NS)

Hiwin Technologies Corp. (2049.TW)

KEC International Ltd. (KECL.NS)

Larsen & Toubro Ltd. (LART.NS)

Lonking Holdings Limited. (3339.HK)

5 November 2014

49

Barclays | Asia Themes

EQUITY: IMPORTANT DISCLOSURES CONTINUED


Sany Heavy Equipment Int'l Holdings Co., Ltd.
(0631.HK)

Shanghai Electric Group Co., Ltd.


(2727.HK)

Siemens Ltd. (SIEM.NS)

Sinotruk (Hong Kong) Limited. (3808.HK)

Thermax Ltd. (THMX.NS)

Voltas Ltd. (VOLT.NS)

Weichai Power Co., Ltd. (2338.HK)

Zhuzhou CSR Times Electric (3898.HK)

Zoomlion Heavy Industry (1157.HK)

Cadila Healthcare Ltd. (CADI.NS)

Cipla Ltd. (CIPL.NS)

Asia ex-Japan Healthcare & Pharmaceuticals


Apollo Hospitals Enterprise (APLH.NS)
Dr. Reddy's Laboratories Ltd. (REDY.NS)

Fortis Healthcare (FOHE.NS)

Glenmark Pharmaceuticals Ltd. (GLEN.NS)

Lupin Ltd. (LUPN.NS)

Ranbaxy Laboratories Ltd. (RANB.NS)

ScinoPharm (1789.TW)

Sun Pharmaceutical Industries (SUN.NS)


Asia ex-Japan Internet & Media
Alibaba Group Holding Ltd. (BABA)

Baidu, Inc. (BIDU)

Changyou.com Ltd. (CYOU)

China Mobile Games & Entertainment Group


(CMGE)

CJ CGV (079160.KS)

CJ Hellovision (037560.KS)

Ctrip.com International Ltd. (CTRP)

Daum Communications (035720.KQ)

E-Commerce China Dangdang Inc. (DANG)

Info Edge (India) Ltd. (INED.NS)

Interpark INT (108790.KQ)

JD.com (JD)

Just Dial Ltd. (JUST.NS)

KT Skylife (053210.KS)

MakeMyTrip (MMYT)

Naver Corp. (035420.KS)

NetEase, Inc. (NTES)

Perfect World Co., Ltd. (PWRD)

Qihoo 360 Technology Co., Ltd. (QIHU)

Qunar (QUNR)

Sina Corp. (SINA)

Sohu.com Inc. (SOHU)

Television Broadcasts Ltd. (0511.HK)

Tencent Holdings Ltd. (0700.HK)

Vipshop Holdings Ltd. (VIPS)

Youku Tudou Inc. (YOKU)

YY Inc. (YY)

ACC Limited (ACC.NS)

Adaro Energy Tbk PT. (ADRO.JK)

Aluminum Corporation of China Ltd. (2600.HK)

Ambuja Cements (ABUJ.NS)

Angang Steel Co., Ltd. (0347.HK)

Anhui Conch Cement Co., Ltd. (0914.HK)

Asia ex-Japan Metals & Mining

Banpu PCL (BANPU.BK)

BHP Billiton Ltd. (BHP.AX)

Bumi Resources Tbk PT. (BUMI.JK)

China Coal Energy Co., Ltd. (1898.HK)

China Hongqiao Group Ltd. (1378.HK)

China National Building Material Co., Ltd.


(3323.HK)

China Resources Cement Holdings Ltd. (1313.HK)

China Shanshui Cement Group Ltd.


(0691.HK)

China Shenhua Energy Co., Ltd. (1088.HK)

China Steel Corp. (2002.TW)

Coal India (COAL.NS)

CST Mining Group Ltd. (0985.HK)


Hindalco Industries Ltd. (HALC.NS)

Fortescue Metals Group Ltd. (FMG.AX)

Harum Energy Tbk PT. (HRUM.JK)

Hindustan Zinc Ltd. (HZNC.NS)

Hyundai Steel Co. (004020.KS)

Indo Tambangraya Megah Tbk PT. (ITMG.JK)

IRC Ltd. (1029.HK)

Jiangxi Copper Co., Ltd. (0358.HK)

Jindal Steel & Power (JNSP.NS)

JSW Steel (JSTL.NS)

Korea Zinc Co., Ltd. (010130.KS)

Maanshan Iron & Steel Co., Ltd. (0323.HK)

MMG Limited. (1208.HK)

National Aluminium Co., Ltd. (NALU.NS)

NMDC Ltd. (NMDC.NS)

POSCO (005490.KS)

Sesa Sterlite Ltd. (SESA.NS)

Shree Cement (SHCM.NS)

Steel Authority of India (SAIL.NS)

Tata Steel (TISC.NS)

TB Bukit Asam Tbk PT. (PTBA.JK)

UC Rusal (0486.HK)

Yanzhou Coal Mining Co., Ltd. (1171.HK)

Asia ex-Japan Oil & Gas


Bharat Petroleum Corp., Ltd. (BPCL.NS)

Cairn India (CAIL.NS)

China Resources Gas (1193.HK)

China Steel Chemical (1723.TW)

CNOOC (0883.HK)

ENN Energy (2688.HK)

Formosa Chemicals (1326.TW)

Formosa Petrochemical (6505.TW)

Formosa Plastics (1301.TW)

Gail India (GAIL.NS)

Hindustan Petroleum Corp., Ltd.


(HPCL.NS)

Indian Oil Corp., Ltd. (IOC.NS)

Kumho Petrochemical (011780.KS)

Kunlun Energy (0135.HK)

LG Chem (051910.KS)

Lotte Chemical (011170.KS)

Nan Ya Plastics (1303.TW)

Oil & Natural Gas Corp., Ltd. (ONGC.NS)

Oil India (OILI.NS)

PetroChina (0857.HK)

Petronet LNG (PLNG.NS)

Reliance Industries (RELI.NS)

S-Oil (010950.KS)

Sinopec (0386.HK)

SK Innovation (096770.KS)

TSRC Corp. (2103.TW)

Asia ex-Japan Telecom Services

5 November 2014

50

Barclays | Asia Themes

EQUITY: IMPORTANT DISCLOSURES CONTINUED


Advanced Info Service (ADVANC.BK)

Axiata Group (AXIA.KL)

Bharti Airtel Ltd. (BRTI.NS)

Bharti Infratel Ltd. (BHRI.NS)

China Mobile (0941.HK)

China Telecom (0728.HK)

China Unicom (0762.HK)

Chunghwa Telecom (2412.TW)

DiGi.Com (DSOM.KL)

Far EasTone (4904.TW)

HKT Trust and HKT Limited (6823.HK)

Hutchison Telecom HK (0215.HK)

Idea Cellular Ltd. (IDEA.NS)

KT Corp. (030200.KS)

LG Uplus Corp. (032640.KS)

M1 (MONE.SI)

Maxis (MXSC.KL)

PCCW Limited (0008.HK)

PT Indosat (ISAT.JK)

PT Telkom (TLKM.JK)

PT XL Axiata (EXCL.JK)

Reliance Communications Ltd. (RLCM.NS)

Singapore Telecom (STEL.SI)

SK Telecom (017670.KS)

SmarTone Telecommunications Holdings Ltd.


(0315.HK)

StarHub Limited (STAR.SI)

Taiwan Mobile (3045.TW)

Telekom Malaysia (TLMM.KL)

Total Access Communication (DTAC.BK)

Distribution of Ratings:
Barclays Equity Research has 2600 companies under coverage.
45% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 54% of
companies with this rating are investment banking clients of the Firm.
40% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 46% of
companies with this rating are investment banking clients of the Firm.
13% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 41% of
companies with this rating are investment banking clients of the Firm.
Guide to the Barclays Research Price Target:
Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will
trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price
target over the same 12-month period.
Barclays offices involved in the production of equity research:
London
Barclays Bank PLC (Barclays, London)
New York
Barclays Capital Inc. (BCI, New York)
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Barclays Securities Japan Limited (BSJL, Tokyo)
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Banco Barclays S.A. (BBSA, So Paulo)
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Seoul
Barclays Capital Securities Limited (BCSL, Seoul)
Mumbai
Barclays Securities (India) Private Limited (BSIPL, Mumbai)
Singapore
Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)

5 November 2014

51

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