c
m





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The monetary value of all the finished goods and services produced within a country's borders in
a specific time period, though GDP is usually calculated on an annual basis. It includes all of
private and public consumption, government outlays, investments and exports less imports that
occur within a defined territory.

m m

where:

" " is equal to all private consumption, or consumer spending, in a nation's economy
"m" is the sum of government spending
"" is the sum of all the country's businesses spending on capital
"" is the nation's total net exports, calculated as total exports minus total imports. (NX =
Exports - Imports)

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The gross domestic product (GDP) is the godfather of the indicator world. As an aggregate
measure of total economic production for a country, GDP represents the market value of all
goods and services produced by the economy during the period measured, including personal
consumption, government purchases, private inventories, paid-in construction costs and the
foreign trade balance (exports are added, imports are subtracted).

Presented only quarterly, GDP is most often presented on an annualized percent basis. Most of
the individual data sets will also be given in real terms, meaning that the data is adjusted for
price changes, and is therefore net of inflation.

The GDP is an extremely comprehensive and detailed report. In fact, reading the GDP report
brings us back to many of the indicators covered in earlier tutorial topics, as GDP incorporates
many of them: retail sales, personal consumption and wholesale inventories are all used to help
calculate the gross domestic product. Various chain-weighted indexes discussed in earlier topics
are used to create Real GDP Quantity Indexes with a current base year of 2000. (For further
reading, see The Importance Of Inflation And GDP.)

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Real GDP is the one indicator that says the most about the health of the economy and the
advance release will almost always move markets. It is by far the most followed, discussed and
digested indicator out there - useful for economists, analysts, investors and policy makers. The
general consensus is that 2.5-3.5% per year growth in real GDP is the range of best overall
benefit; enough to provide for corporate profit and jobs growth yet moderate enough to not incite
undue inflationary concerns. If the economy is just coming out of recession, it is OK for the GDP
figure to jump into the 6-8% range briefly, but investors will look for the long-term rate to stay
near the 3% level. The general definition of an economic recession is two consecutive quarters of
negative GDP growth.

While the value of both exports and imports are included in the GDP report, imports
are subtracted from total GDP, meaning that all consumer purchases of imported items are not
counted as contributions toward GDP. Because the U.S. runs a current account deficit, importing
far more than is exported, reported GDP figures have a slight drag on them. A related measure
provided in the report, gross national product (GNP), goes one step further by only counting the
value of goods and services produced by labor and property within the United States. (To learn
more, read a rrent Acco nt Deficits.)

The "corporate profits" and "inventory" data in the GDP report are a great resource for equity
investors, as both categories show total growth during the period; corporate profits data also
displays pre-tax profits, operating cash flows and breakdowns for all major sectors of the
economy.

The biggest downside of this data is its lack of timeliness; investors only get one update per
quarter and revisions can be large enough to significantly change the percentage change in GDP.

The Bureau of Economic Analysis (BEA) even supplies its own analysis of the quarterly data,
presenting several useful documents that condense the massive release down to a manageable
and readable size. They also provide an annual analysis of data that segments results down to the
industry level - a very useful tool for both equity and fixed-income investors who are interested
in particular industries related to their holdings.

A  

 GDP is considered the broadest indicator of economic output and growth.

 Real GDP takes inflation into account, allowing for comparisons against other historical
time periods.
 The Bureau of Economic Analysis issues its own analysis document with each GDP
release, which is a great investor tool for analyzing figures and trends, and reading
highlights of the very lengthy full release

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 Data is not very timely - it is only released quarterly.

 Revisions can change historical figures measurably (the difference between 3% and 3.5%
GDP growth is a big one in terms of monetary policy)
    
While quarter-to-quarter figures can show some volatility, long-term trends in GDP growth
remain the single most conclusive piece of information on the economy as a whole. This
indicator is a must-know for investors in all asset classes.

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&
Jyotsna Bhatnagar

Posted: Monday, Mar 29, 2010 at 2240 hrs IST


 Power Equipment | Chinese Imports

 It¶s the proverbial David in power eq ipment man fact ring, which has taken on the might of
p blic-sector Goliath Bhel. In j st one year of its existence, L&T Power, the f lly-owned
s bsidiary of L&T based in Vadodara, has not only managed to carve o t an identity of its own,
b t has also inspired several me-too companies in this sector. ÿ
 , MD and a
O of L&T
Power, is clearly a man in a h rry to grab the biggest pie in this fast-growing market. Uppal,
who has earlier steered global giants like ABB and Volvo, is now battling on two fronts²cheap
ahinese imports on one side and the PSU giant Bhel on the other. In a free-wheeling interview
with F
¶s 
    , he talks abo t the road ahead for t rnkey sol tion providers like
LTP.
xcerpts:

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There¶s huge scope, especially since we are entering a phase of exponential growth in demand.
Our total capacity is about 1,75,000 mw. We are targeting 800,000 mw-mark by 2030. This can
be done only if we add around 30,000 mw per annum. There¶s enough going around for all of us,
given that we¶re the second-biggest market for power plants and equipments.

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We¶re nowhere close to them. China , which has almost the same demographic size as India, has
installed capacity of around 800,000 mw, roughly four times greater than ours. The US has the
largest installed capacity of over 1 million mw, but China plans to surpass US with its target of
breaching the 1.5 million mw-mark by 2030.

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L&T decided to enter this space in 2006, because we realised that we need more manufacturers
in this space, in addition to Bhel. I feel that this decision, in hindsight, was a game changer.
While Bhel continues its 7,000-12,000 mw addition, entry of a player like L&T Power is already
enhancing indigenous delivery by 4,000 mw per annum. This will rise by another 2,000 mw by
2012 after our Hazira facility. I also feel that our entry has spurred many other private sector
players to follow suit.

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Most certainly! It¶s largely because we don¶t have a level-playing field, which makes Chinese
imports far more lucrative. If Chinese manufacturers want to export to India , they have the
advantage of nil duties as per our mega power project policy. But, if we want to export to China ,
our products face taxes and duties of 28-40% in China .

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Indian regulations, which ignore advantages to Chinese imports, skew the market towards them.
In a mega-power project, Indian equipment manufacturers still suffer taxes and levies, whereas
Chinese equipment is imported without any BCD, CVD or SAD. Also, Indian manufacturers
must follow IBR regulations, which happen to be conservative, and increase equipment weight
by around 10%, raising the cost. State assistance to Chinese exporters also widens the gap. In all,
Indian manufacturers suffer a disparity of around 14% of the product value. This, on top of the
advantage to Chinese exporters due to an artificially undervalued currency.


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Most certainly. We can emerge as a major employment generator with the potential to employ
over 100,000 trained professionals. Further, there¶s tremendous potential to spur more demand,
and therefore, more growth in the steel industry as well.

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,

We intend to corner a large share of the soaring demand by creating and enhancing our
dominance by becoming the most-preferred provider of products, services and solutions. Such
customer focus will be driven by cost competitiveness, on-time delivery and continuous
innovation. While we have already institutionalised innovation in our organisation, we are also
heavily investing in backward integration.

Super critical boilers - those which operate at high temperature and pressure - are going to cost
less in 2011 as India¶s second largest boiler maker, the Rs.1,046-crore Cethar Vessels, is set to
reduce price drastically and ignite a price war, a top company official said Friday.

³We will bring down the price from Rs.1.25 crore per megawatt to Rs.1.08 crore in 2011,´ the
Tiruchirapalli (Trichy)-based company's chairman K. Subburaj told IANS.

Currently the prices of super critical boilers are being quoted for Rs.1.75-1.80 crore per MW.
If one goes by Cethar Vessel¶s proposed price, the saving per megawatt will be a whopping
Rs.67 lakh and for a 660 MW project the savings will amount to around Rs.442 crore.

Cethar Vessels' production technology is from US-based Riley Power, which in turn has got the
know-how from Siemens. With the tie-up, Cethar Vessels can make boilers with capacities of
600 MW, 660 MW, 800 MW and 1,000 MW, according to Subburaj.

The company¶s plant has an annual capacity of 8,000 MW and it is in the process of expanding it
to 12,000 MW, Subburaj said.

Cethar's pricing strategy is expected to put pressure on others like Larsen and Toubro, Thermax
and BGR Boilers.

Asked whether there will be a price war in the super critical boiler segment, A. Manjunath,
managing director of Ansaldo Caldaie Boilers India, said that BHEL (Bharat Heavy Electricals
Ltd) is the benchmark for the Indian players and that if BHEL announces a price cut, it will be a
matter of concern for the industry.

According to him, cost is a fact while pricing is a strategy for any company. ³In the case of super
critical boilers, the involvement of expats will be high and hence the cost will be high. Pricing is
determined by the market forces,´ Manjunath added.

However, he discounted the possibility of excess capacity in the Indian market with new players
setting up operations and mega orders going to China. ³The cake is big for every player to have
his share,´ he claimed.

Another industry official told IANS on condition of anonymity: ³I have no idea of Cethar
Vessel¶s pricing basis. The design variations between different brands are marginal and the input
cost for all the manufacturers will vary only marginally.´

Subburaj insisted that the pricing strategy is not targeted to wean away power project promoters
who have ordered Chinese equipments.

³Big Indian private players may go for Chinese make and the Indian public sector units like
NTPC may opt for BHEL. There are several smaller power project promoters who will be
looking for Indian make power equipments,´ he said.

Cethar Vessels, through its subsidiary Cethar Energy, is planning to put up projects of 2,000 MW
thermal power in Tamil Nadu, Andhra Pradesh or Orissa.
Œ

  



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With huge amount of generation investment underway, supply chain rushes to keep pace
It¶s raining orders for power sector equipment companies and allied supply chain industries.

The order books will swell further, as the government has allowed National Thermal Power
Corporation and Damodar Valley Corporation to place orders for another lot of Rs 40,000 crore,
reserved for domestic companies only.

Public sector Bharat Heavy Electricals Ltd is already sitting on an order book of Rs 1,24,000
crore and is struggling to double its manufacturing capacity to 10,000 Mw before the end of this
year and to 20,000 MW by 2011, just to meet the current delivery timelines.

Larsen & Toubro¶s joint ventures with Mitsubishi Heavy Industries of Japan for super-critical
boilers and steam turbine generators are only in the construction phase, but the company has
already bagged a 2x800 Mw steam turbine generator order from the Andhra Pradesh Power
Development Corporation and Rs 4,000 crore worth of orders from the Jaypee Group for a 2x660
Mw power project at Nigrie in Madhya Pradesh.

L&T is investing around Rs 1,700 crore in the joint ventures with Mitsubishi at Hazira in Gujarat
and another Rs 1,600 crore in building manufacturing capabilities for other allied power plant
equipment and solutions.

While the order inflow in the entire first quarter of 2009-10 for L&T was Rs 9,500 crore, it
bagged another Rs 12,000 crore in August. ³L&T expects another Rs 10,000 crore orders in a
month, mainly from the power sector. Infrastructure and oil and gas sectors will also support the
order inflow,´ A M Naik, chairman and managing director, said. The engineering major¶s total
order book position was Rs 70,030 crore at the end of 2008-09, a growth of 23 per cent over the
previous year.

Sources said so far orders for about 45 supercritical units of about 45,000 Mw capacity have
been placed by various power project developers. Of this, a majority are with overseas players,
mainly Chinese companies. BHEL has tie-ups with Alstom and Siemens for manufacturing
supercritical boilers and turbines. L&T-Mitsubishi, JSW-Toshiba, Bharat Forge-Alstom and
Ansaldo-GB Engineering joint ventures are also building supercritical capacities in India.

Pune-based energy and environment solutions major Thermax¶s order book has swelled to Rs
3,230 crore for the June quarter, 22 per cent more than the Rs 2,649 crore in the corresponding
quarter of last year. Last week, the company teamed with US-based SPX Corporation to set up a
joint venture for manufacturing air pollution handling systems for power plants, a niche area
which lacks many manufacturers in India.

³Each of the boilers coming up in the country will require Rs 75-100 crore for setting up air
pollution handling systems. We expect revenues of about Rs 500 crore in the medium term from
this joint venture,´ said S Unnikrishnan, managing director and chief executive of Thermax.

So, too, with ABB India, the Bangalore-based power solutions provider. It has an order book of
Rs 76,223 crore, more than that of L&T. It mobilised Rs 21,116 crore of orders in the quarter
ending June, and the majority are for electrical equipment and solutions.
Industry sources said due attention and investment have to be done in the transmission and
distribution (T&D) sector to handle power evacuation issues once the new power plants start
generation. ³Inadequate T&D capacity will cause grid stability issues once the large power
projects start generating,´ said Rakesh Sarin, managing director of Wartsila India, a
manufacturer of 25 Mw to 350 Mw flexible power solutions. Wartsila foresees huge growth
potential in the coming years in this segment, he said.

Orders are also flowing for engineering, procurement and construction players and other Balance
of Plant players. Even relatively smaller players such as BGR Energy, IVRCL Infrastructures
and Simplex Infrastructure have a huge order backlog. BGR Energy has Rs 12,500 crore of
orders at hand and IVRCL Infrastructures and Projects has Rs 15,000 crore worth, mainly from
the power sector.

Similarly, power transmission players such as KEC International, Jyoti Towers and Kalpatharu
Power Transmission are also having an unprecedented order backlog, said sources. Kalpatharu¶s
order book is at Rs 4,800 crore, including Rs 2,000 crore from overseas, and the company
expects a growth of 25-30 per cent for the year. The RPG Group-promoted KEC International,
one of the largest power transmission players in the world had, last week, bagged a major order
worth Rs 780 crore. Its order book position, the best in its history, was close to Rs 5,155 crore
for the quarter ended June. The company is confident of keeping the momentum in growth in the
years ahead, according to its managing director and chief executive, Ramesh Chandak.