Wholesale inflation in India has come out at 4.78% for November, and it appears that analysts are somewhat surprised. Sonal of Nomura writes:

India’s WPI inflation rose more than expected by 4.78% y-o-y in November from 1.34% in October (Consensus: 4.20%), led by higher manufactured product prices. We believe that core inflation is starting to rise.

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

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

Monthly Trade Data

Above is a chart from a Goldman report. Both import and exports were in free fall since Oct’08. Export growth rate went negative in Nov’08 itself, while imports went negative in Jan’08. While both are still negative, the fall has been arrested and values are rising since Aug'08. The interesting data will be Nov’09, when the whole cycle completes a year.

An interesting chart from the Citi report. This clearly shows that growth forms a large part of valuations for MSCI global companies. What is worrying is - the growth component in valuations is more than even in Dec07 or Dec06, the earlier market peaks.

Infosys (INFY) just isn't growing anymore, as you see in this chart from an Isec report. If you look at total active clients, this number peaked 2 quarters ago. Now, the global economy is contracting, so this is perhaps a result of this. But it's interesting to note that the potential market for Indian IT isn't the limitless ocean it used to be.

Total clients are not growing, and billing rates are headed down (since clients are renegotiating):

Click to enlarge

A report by Citi tries to make this interesting point - how low can corporate earnings go in India? The chart shows relation of overall corporate earnings to IIP. In 1997-99 slowdown, corporate earnings growth touch 0% to slightly negative twice. In 2001, corporate earnings will come down to -14%.

For those who don't know Anirvan Banerjee, he is perhaps the leading global expert on business cycles. He heads research at something called Economic Cycle Research Institute (ECRI) in New York. If you want to know where the global economy is headed, then one of the best people to go to is Anirvan. And he just said something that should make all of us in India very concerned.

This is something he said to a paper  Monday:

Infosys (INFY) and Wipro (WIT) are quoting at around 16x forward, and twice have even gone down to 13.5x forward.

This chart shows that there is no valuation premium for India’s IT leaders over the rest of the Indian market. Is that fair? Perhaps not. While other sectors like real estate and construction, capital goods and so on powered the last bull market, it does appear fair to say that India’s finest companies should command no valuation premium to the market.

Indian market risks look weighted on the downside.

1Q09 earnings look generally disappointing. Looks like FY09 earnings growth could end up close to 10%, or definitely less than 15%. Which means forward PE could trend down to around the historical low of 11x. So where does the market go?

It seems it is proving very hard to kill this bull. Indian markets have come back strongly in the last few weeks, an d performance data of mutual funds and FIIs both is beginning to look decent once again.

The BSE Sensex is up 11% over last one month, and is up around 26% over a 12 month period. Most funds have risen in line with that. All domestic mutual funds are up over the last one month, with gains ranging from 4% to 18%. While funds are still down over last 3 and 6 months, the drops don’t look so bad anymore. Over last 3 months, funds are down around 3 to 5%, and over last 6 months the are down around 5 to 20%, with most clustered around -10% for 6 months. Over last one year, fund returns look good. While BSE Sensex is up 26% over last 12 months, funds are up anywhere from 10% to 50%. The large funds like Reliance Growth or HDFC Growth Fund are up around 35-40%, over ahead of the market.

A Reuter’s report last Friday said the Asia head of a PE outfit was leaving within a year of joining. This firm apparently has had difficulty closing large buyouts amid high prices for deals and a dearth of sellers in markets like China and India. Compared with rivals such as The Carlyle Group and Warburg Pincus, this firm arrived late to Asia. The report says the firm found that competition for assets was fierce.

While not exactly at this degree, there are parallels to this story in India. The surge in Indian PE/VC deal market in the last 24 months has attracted many new foreign players.

The last 2-3 days of market activity may suggest that bullishness is returning to the markets, but real economy numbers have no cheer at the moment.

A recent Citi report says this about the aviation sector:

A recent Morgan Stanley report makes this interesting point - shares prices and corporate earnings have a reflexive relationship. That share prices are correlated to earnings is old stuff, haven't someone quite state the reflexive bit.

Interesting bit of data (click to enlarge):

Reuters Estimates finds that for the fourth quarter of 2007, earnings for the S&P 500fell 20.4% (negative) compared to a positive 11.5% when the fourth quarter started (October 1st). This apparently is the worst in 6 years.

While not too many brokers are saying it yet, there is a good chance that a bear market even in Indian equities is well and truly on. One might say that after almost a 5000 point, or around 25% correction, it already to late to say it.

 But Sensex is at a shade under 16000 levels at the moment. And there is a good chance that it may rarely cross 16K levels in 2008.

Number of PE deals has risen sharply, and exits will rise too within a year or so. That’s when performance of PE funds will come into sharper focus

The commodity story refuses to die away. It is now the turn of oil, which is nearing an unprecedented $100 per barrel mark. With oil at that level, oil stocks globally are also at valuations which would have been unthinkable even a few months ago.

While much of the oil sector in India is hobbled by government controls, private sector stocks are participating in the global oil price boom. However, investor frenzy over private sector oil stocks seems to be creating rather massive pricing anomalies in stock prices. So much so that if you were a value investor with a long term outlook, PSU oil stocks would perhaps be representing a good percentage of your portfolio.

I was checking some data, and came across this intriguing set of numbers. These are the top 10 companies in the BSE Sensex.Together, they carry 65% weight in the index.

Now check the sixth column. Barring one, Reliance Comm, all the others have fallen farther from their peaks than the Sensex. Now, part of the explanation has to be that all of them did not peak the day Sensex peaked. Infy (INFY) is one such example. IT companies have fallen over the last few months with rise of the rupee. So these companies did not participate in the latest Sensex run.

This chart from a recent Citi report shows both sales and earnings for Sensex companies could be slowing down:

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

Most Indian broking firms are currently looking to raise money and in some cases, are looking to find strategic investors. Are these companies attractive to either the strategic or the retail investor?