1. EMERGING
MARKETS
Are they
reliable ? And
why china is
different
A Perspective – on Stress
Testing of growth
assumptions
AJAY GOHIL
CHINA
RUSSIA
BRAZIL
INDIA

2. Emerging Markets story
– Is it reliable ?
• BRIC is now BRI – China has safe guarded and
decoupled
• Brazil , Russia , China – the current account deficits –
may be troubling
• Russia ( with bovonenkovo shale oil discovery of 50 Bn
barrels and brazil with jupiter and lula pre salt
discovery – seems to be avoiding the disaster)
• India faces the biggest challenge of ENERGY SECURITY
– unless like China ( 1100 TCF ) or Russia / brazxil like
oil findings , india will be subject to the massive shocks
created by oil economies
• Indian Manufacturing and farm efficiency is the lowest

3. Amazing India – Incredibly suppressed
• Agriculture Production Despite 1/4th the agriculture productivity of the
world , and despite fed only 25% of the global average of fertilizers and
chemicals n nutrients . Despite the 40-50% losses in post harvest storage ,
logistics problems – India is still , No1-2 Agri crop produces like Rice,
Wheat , Cotton , Sugarcane , Soybean, Corn
• Milk production – despite Indian milk production is the highest globally (
140 Mn MT – global production 708 Mn MT), there exists no world
globally competitive dairy farm company the size of LACTALIS, SAPUTO.
MINGNIU, MEIJI, FONTERA , NESTLE , DANONE , US DIARY etc – the result
is a large scale inefficiency of the system
• Electricity – Despite india has 267 Bn MTs of the coal reserves of high-
moderate quality , still we have ADANI importing the coal in a bid to get
high price for electricity to constrain the country perenielly in to the
depression state of economy
• Solar Energy – despite the sun god spreads 2500 W/m2 energy every
minute on ISC .. County does not have YINGLI, SOLARTECH, HANWAH like
orgs to create the massive infrastructure

4. Key risks in emerging markets
 Not decoupled Highly co-related to global
markets performance
 Very HIGH systemic inefficiencies and lack
of basic infrastructure
 the growth is stunted
 Very low Per capita income , per capita
consumption
 very high cost to serve , even though
bundled to a sizeable market opportunity
 Very high cost of capital ( cost of debt is
worrisome / equities underperformed
US/EU
 CDS /FCCB ratings are downgraded
 Currencies depreciated disproportionately
on the US QE tapering news
KEY RISKS OF EMERGING MARKETS

5. Despite EM
economies now
occupies the 50% of
the World GDP on PPP
basis … still the
sensitivity of the
capital flow. High
reliance on the
Foreign funding.
Extremely high
sensitivity of the
export
competitiveness ,
trade problems and
high cost of
borrowings have
resulted in stuntted
growth
STUNTED GROWTH

6. Emerging Markets are highly vulnerable to ….
 Except CHINA. The other Ems
are highly vulnerable to
currency shocks .. Wrt to the
global capital contraction and
tapering effect of QE
 The basel 3 capital
requirements are JUST
enough to prevent the BANK
RUN
 The EM economies are
COUPLED with the Developed
markets economies , but
interestingly CHINA has
decoupled

7. China is different

8. China growth story seems more robust
than other emerging markets

9. China – has created the advantages across the board
• >45% of the global GDP growth depends on
china
• Almost all commodities – china has 50%
market share in both consumption and
production ..
• Massive capacity BUILD UP – a strong cost
leadership advantage – A savior in low GDP
scenario.
• Massive Consumption center – A call option
in High GDP growth scenario..

11. Inflation comparison- China seems to have the right
mix of economic parameters
Country GDP growth % Inflation % Current Account
deficit/ Surplus
CHINA 7-8% ~ 5-6% $ 240 Bn ( 2% of
GDP)
INDIA 5-6% 10-15% - $ 100 Bn ( ~ 5% of
GDP)
RUSSIA 2-3% 4-5% 2-5% of GDP
deficit
BRAZIL 2-3% 8-10% 2-5% of GDP
deficit
The china has ample reasons to cheer about – on either side of ECONOMIC scenario
..china has bought the BUTTERFLY SPREAD – put and call options to secure the
advantages …

12. New Frontiers
Financial Services

13. Financial Services
Finance
• Alternate Assets
• Max Capital spread (
ROCE – WACC) and
Equity spread (ROE
– CoE)
• Islamic Finance
• Structured finance
• HNWI global very
high scope
• RA/ RE / NR funds
to outperform
• Banking sectors

14. Financial Services
Challenges continue for Global Financial service
Industries
 Return on Capital vs Return of capital
 PE conundrum - Huge dry powder / Hangover of the
vintage years with all PE players
 Global capital stock has increased to 300 Tn $ ..but the
avenues for attractive returns are yet not available
 Global de-leverage under progress – requiring debt
restructuring
 CHINA Rebalancing – slow down ( sub 8% GDP
growth),voracious energy needs , massive undertaking
of Big CAPEX projects - drove many M&A deals across
continents ( CNOOC- NEXEN 15 Bn$/ Petrochina –
SINPOEC – S Aramco / MECO deals 10 Bn$ for
Intergrated petchem projects – CHINA – Rosneft /
Gazprom 400 bn$ 30 yrs gas supply deals / Investments
of 500 Bn$ in W africa / tanjania /mozambique in Oil &
gas assets -
 Switch from the major Investments driven economy
to consumerism
 China economy is tremendously under stress
regarding the performance of the private equity capital
– massive dry power and Exit multiples deteriorated –
there is a CAPITAL TRAP
 China GDP slowdown and capital efficiency erosion –
in 2008 , every 1 $ credit resulted in 0.85 $ economic ,
which is now only 0.15 $
 China SHADOW banking system as source of worry
,.while Stock market capitalization is 9 Tn $ almost the
size of GDP .
Why worry about CHINA
 China 50%:50%:50% - china has become
50% of the global consumption hub and
50% of global production center and 50% of
the global GDP growth provider – meaning
in all scenario of good time / bad time/
moderate time – the china factor will play a
role in every economic activity
 Chinese corporates have made big brands
and entered the fortune 500 space rapidly –
Sinopec, Petrochina, Huawei, Lenovo, ICBC,
ABC, CITIC, CHALCO, Wuhaha, Easternhope,
 Security Paranoia – China flexing muscles
big time across PACIFIC borders – inducing
the DEFENCE paranoia – driving the fears of
world wars.
 Many Countries have now become simply a
SUPPLIER to china .. Their economies are
too much china dependent – Arg
/Aus/Mozambique/ Tanjania

15. Financial Services
Challenges continue for Global Financial service Industries
 Rise of the HNWI , Mass Affluent, SWF, Investment, Saving
 AUM – has grown tremendously , so too the dry powder – Carlyle has grown
the AUM from 18 Bn$ in 2003 to 190 Bn$ in 2013, n Dry powder sits at 50 bn$ ..
 What is the definition of SAFE ? – can US economy considered to be SAFE – can
Japan and china can take over the global financial markets
 Can the continuously HIGH TWIN DEFICITS of US ( Fiscal 0.8 Tn$ and Current Account
deficit of 1 Tn$ ) be sustainable – given the already high mounted debtedness?
 Chinese companies – not lagging behind in R&D/ Asset acquisitions / M&A/ IPOs/PE
– Chinas CITIC is now global leading the Sovereign Wealth fund ( SWF) ..Many
companies are recognised for the quality and very high critical component provider
– in CHINA APPLE has only 5% market share while new born XIOMI is fast catching
up Cos like CHERY , DONGFANG has become a force to reckon with – west ward
acquisition of Renault

16. Alpha LIONs on prowl – seeking alpha – Alternative Investments / innovative financial
instruments to rise fast enough
INDIAN COMPANIES – very soon have
to compete on the best benchmarks –
as the opening up fo the financial
markets would make them compete
with the global players

17. How to generate better returns ? – Alternate Assets – Investment strategies – AUM
diversity – creating new platforms
CORPORATE PRIVATE EQUITY
GLOBAL MARKETS
REAL ASSETS
ADVANCED SOLUTIONS
No more cash, stock , bond.. The
complexity is the name of game

18. Massive Global opportunities in Market solutions / structured finance / Energy funds
ABG and MECO can
jointly create the
energy fund / PE
investment opportunity

19. Delivering
best
performance
is possible for
Indian cos

20. 
 US – the profits continue to increase as % of GDP as
Tax % of GDP is 3-4%,Net interest as % of GDP fallen
from Highs of 5% to 2.5% ,Compensation to decline
from 54% to 52% of GDP , Also Depreciation from
16.5% to 15.5%
 US Equity Market has out performed the other
markets in last 5 years despite tailwinds of twin
deficits