India in top 30 exporters' list
India has broken into the top 30 list of merchandise exporters with about $50bn worth of merchandise exports.india Updated: Jan 09, 2008 13:28 IST
The market was gently drifting downwards for the entire week, with no really good broad based news coming across for the markets.
The trucker's strike, while it did get resolved, caused uneasiness across the board. Continued uncertainty due to the lack of closure on the Iraq War front, the uncertainty around the oil price and continued weakness on the IT sector made for a rather desultory trading range of about 100 points on the BSE Sensex.
As far as the trucker's strike is concerned, one wonders as to why public policy is launched in our economy without proper prior consultation. If 9 out of 10 demands would be met by the government, surely it is easy to negotiate these obvious issues before hand, so as not to hold the entire economy hostage, to the extent that inflation, which is currently hovering around the 6 per cent, may be pushed up.
Some relatively good news came across from the WTO front, which reported that India has broken into the top 30 list of merchandise exporters with about $50bn worth of merchandise exports. This equals to about 0.8 per cent of the world share of exports, which is a rise of 0.1 per cent over the previous 0.7 per cent.
As a comparison, the top spot was USA with $693.5bn (10.8% share), China had $325.6bn (5.1 per cent share) and tiny Singapore had $125.6 billion worth of exports giving a 2% share of the world exports.
The other good point was that India's annual per cent change in exports grew at 15 per cent, was the second best, with China's best at 22 per cent annual per cent change. India also appeared on the top 30 list of importers of commercial services with a 27th rank, importing $15.5 billion
worth of services and having a 1% market share. The annual growth rate was a chart topping -14%.
On the general economy front, the news was not bad with a predicted growth rate of 6% this year based on a good monsoon. The fiscal deficit was again in the news from the Comptroller and Auditor General, expressing doubts about the government's aim of achieving the long term rate of 2%.
Last year, the fiscal deficit was 6.8 per cent of GDP or Rs 1,55,833 crore. In simple terms,
the government is spending more than it earns. Now the government earnings are not being used to create new assets, but to pay off old debt, one of the classical very early signs of a debt trap. Watch this space.
The Babble in the Ivory Towers
Last week we talked about agricultural insurance products. This week, let us cross over to the other side of the economy and talk about the importance of dividends to individual investors.
Quite a lot of research has been carried out on corporates and dividends, but not that much on the individual stock holder and dividends. In a recent discussion paper entitled "WHY INDIVIDUAL
INVESTORS WANT DIVIDENDS" from Tilburg University, The Netherlands, Ming Donga, Chris Robinson and Chris Veld explore how individual Dutch investors react to dividends.
The data is from 2002 and hence is after the massive bull run of the late 1990's and gives a good indication of how ordinary investors feel about dividends. The respondents indicated that they prefer to take their returns in the form of dividends rather than capital appreciation, partially because the transaction costs of cashing in dividends is lower than that of selling shares.
In addition, they would prefer to have stock dividends in case the company cannot pay cash dividends to no dividend at all. This should pretty well comprehensively nail down the
idea that investors are neutral to returns (dividends or capital appreciation).
An additional interesting point determined by the authors was that a large part of the dividend received by the investors is not consumed but re-invested and the author's doubt the efficacy of the recent moves in the USA to remove dividend taxes.
Dividend taxation is an example of double taxation, as the company profits are taxed and then dividends are again taxed on the individual income. So, from a conceptual perspective, there is
a case for the removal of individual dividend income taxation. The current American push for removal of dividend taxes is driven by the idea that the increased income will drive spending.
If, as it seems to be, investors are keeping their dividends in investments rather than spending, the impact may not be as desired.
In the heady days of the tech boom, dividends had become a dirty wood and capital appreciation was the name of the game. Companies with a good dividend record are now coming back to the limelight and from a general economy basis, having companies with a regular dividend stream makes it easier for countries, such as India, where there is an undue reliance on government securities as a way of investing. In addition, there is good evidence that companies with a good dividend record have it easier to raise fresh capital.
The World Babble
The world markets were no different to the Indian markets in the way that they drifted around with a downward trend. The DOW traded in a 200 point range and ended slightly down on the week. The S&P 500 and NASDAQ ended up in positive territory. The quarterly reporting season came to an end, and that is still giving a "feel good" feeling to the markets, but the general
US economic malaise has started to tow at the markets.
The US GDP growth of 1.6% for Q1 03 did not match expectations. While saying that, Reuters reports that inflows into the US from global fund managers are increasing while they are withdrawing from Asian markets.
Europe was slightly better off in the middle of the week with some very good corporate results from insurance companies, but the rally proved to be short lived and petered out at the end of the week with the same insurance, oil, auto and mine stocks leading the sag.
London followed the broad based European Index and ended up with losing the mid week rally at just a fraction above the start of the week numbers.
It was a bad week out in Asia, with Tokyo hitting a 20 year low, South Korea, Taipei, Singapore, Hong Kong all headed south with a vengeance, after the scare over SARS increased and the North Korean news that it has nuclear weapons hit the markets with a double whammy.
The dollar suffered against all the major currencies and was near the 4-month low against the euro, thereby reinforcing the downward trend. The North Korean news hit the Won as well as the Yen and the Yen hit a 4 year low against the Euro at Yen 132.7.
On the medium term, the USD-JPY combination is moving around the 120 yen mark, no surprises there, since the Japanese government will keep at this benchmark level, even if it means intervention in the market.
The oil markets spent the week heading lower amidst confusion about OPEC's statement regarding reducing the market supply but increasing the output ceiling. Oil stocks in the major consumer markets are at a high level and this is putting downward pressure on the price. Gold is also suffering from lack of support and is moving around the $333 figure.
The WTO further reported that merchandise trade grew by 2.5 per cent in 2002, up from a 1 per cent decline in 2001. This looks like a good number, but Western Europe and Latin America were sluggish and the WTO report does not expect growth to be better this year, mainly due to the Iraq War, the general global economic malaise and SARS.
China and India were the fastest growing export/import countries as compared to the other Asian countries such as Japan. Something of interest to the boffins in Bangalore, Egypt and China joined the WTO's information technology agreement, which removes all tariff barriers to IT products.
The World Bank announced a big grant for the Chhattisgarh state in India for poverty reduction, mainly in the agricultural and rural areas. One hopes that it does at least as well as what the WB report on poverty reduction in Sri Lanka said.
Next week promises to be another downward trending market, watch out for news on SARS, specially the mortality rate, since that may change it from being currently declared as a pandemic to an epidemic. I also expect any US economic numbers to have a rather disproportionate impact on the markets.
(Dr Bhaskar Dasgupta works in the City of London in various capacities in the banking sector. He also lectures at several British Universities. He holds a Doctorate in finance and artificial intelligence from Manchester Business School and is currently working on another doctorate at Kings College in international relations and terrorism.
He will be writing a weekly Monday round-up on markets and indicators.)