Read more on this in Buffett's next letter...
In this issue:
» Higher oil prices: Boon or a bane?
» FM feels it is time for fiscal consolidation
» Will the new borrowing program help RBI?
» Good time to buy real estate sector?
» ...and more!
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These principles are simple. Invest in a company that is fundamentally sound. It should have stable earnings over a considerable period of time. The company's earnings should be sufficient to take care of its debt repayments. The company should be earning decent returns on its equity as well as on its capital. It should reward its shareholders either by paying out a dividend or by utilizing its retained earnings in fuelling future growth for the company. And most importantly, the company should have a rock solid management.
In addition to these, the company has to have the pricing power or is the market leader in its field or sector. A natural question that comes into mind is- are there any companies in India that meet this criteria? As per Buffett, there definitely exists a huge opportunity even in the Indian markets. And in his own words, he is scouting for opportunities here. We agree with Buffett on the point that the Indian markets do present a huge opportunity for the intelligent investors. However, it is important to remember that these opportunities could be multi-baggers only for the patient investors. This means that one has to look at buying and then holding on to the good companies for a long term horizon. This would definitely help an investor in maximizing his gains.
So which opportunities in India would appeal to Buffett? We are as eager as you are to read his next annual letter to the shareholders to see whether any gem finally made it to his illustrious list of investments.
Which stock in your opinion meets all of Buffett's criteria? Share your comments with us or post your views on our facebook page.
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* Data for 2010
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Rewind two decades back. Do you recall the 1991 economic crisis in India? Our government was pretty much close to default then. Our currency dived significantly and we were forced to open up our economy. Of course, it worked out well for us. And so far, India's deficits have been largely masked by the robust growth that the economy has witnessed over the years. But we need to take some proactive steps to avoid a repeat of the 1991 crisis.
The government's aim of achieving a fiscal deficit target of 4.6% of GDP for 2011-12 is a step in the right direction. It plans to take advantage of the buoyancy in revenue, both direct and indirect taxes. However, achieving this fiscal target could be difficult given the likelihood of higher subsidy bills, especially on fuel.
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We believe it is too early to answer this question at the moment. Although the valuations are at historic lows the concerns pertaining to sector are exacerbating. Increasing inflation means the interest rates are likely to remain high in the near term. Even the liquidity issue is not likely to be resolved soon as apart from banks even PE investors are reluctant to provide money. Especially amidst the corporate governance issues that came on to the floor recently. Thus, getting lured by the attractive valuations could prove to be fatal as more pain can be on the cards from here on. Unless the interest rate cycle softens and the real estate prices come at more realistic levels we do not see a meaningful comeback at least in the near term.
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04:55 | Today's investing mantra |
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14 Responses to "Read more on this in Buffett's next letter..."
R Srikanth
Mar 29, 2011I think Symphony Ltd. will fit the criteria. It is going to be a future star in the bourses.
Muthuswamy Rajasekar
Mar 29, 2011According to me Asian Paints and IDFC would meet the value investing ethics of Mr. Buffet
Ramgopal
Mar 28, 2011Tata Motors, Tata Steel, TCS, Infosys, Thermax, Axis Bank, L&T, are a few long time multibaggers
N.Baskaran
Mar 28, 2011I am a strong believer of Growth Story.Our energy requirement ,Penetration of Communication to deeper India and the expansion of Financial Service will definitely give good wealth creation opportunity for the long term investor.
Money has to flow from Richer Domain to Needy Destination who are really interested in growing.Year 2012 is the start of New way of doing business in India.Best of luck for the optimistic folks.
Satish
Mar 28, 2011I dont agree with Ramji completely. Although there are companies in India like what Ramji said, US has lot more such companies than India has. One can just compare the Lehman and Satyam debacle, which is the prime difference between US and Indian markets. The role Indian govt. is playing in the markets is much more better than US. Last but not the least, whether its India or US or any country for that matter, what is important is to find the fundamentally strong stocks and adhere to long term investment, as Buffet said.
WSS
Mar 31, 2011I am searching, hold on