This bubble indicator gives real early warnings...
In this issue:
» A closer look at the NBFC IPOs is a must...
» Will the US dollar top the contest for the ugliest currency?
» Why India needs a sovereign wealth fund...
» Will Buffett pay for David Sokol's misdeeds?
» ...and more!
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India has remained largely isolated from these risks all this while. The economy does have its share of worries in the form of price rises and higher interest rates. Poor execution rate of infrastructure projects has been a dampener for long. So obviously investors have factored these into their return estimates. But notwithstanding these concerns, there is another risk that investors often tend to overlook. That of 'over-optimism'.
Power was a sector every investor wanted to get a pie of until the execution problems came to the fore. The start of the 11th 5 year plan period (2007-2012) boosted investor interest to the US$ 500 bn opportunity in this sector. And the success of the power sector IPOs in 2007-08 reflected that. Construction stocks were predicated to be the next mutibaggers until the 2008 subprime crisis hit. Until then every construction and real estate player received a warm welcome on the bourses.
Ironically, some of the initial public offerings (IPOs) of non banking financial companies (NBFCs) in recent months brought us back the nostalgia of the power and real estate IPOs. With the RBI guidelines offering more leeway to the NBFC sector, the fortunes for some of the players have never looked better. But others have not spared the opportunity to cash in on the over-optimism. Some of the new NBFC business may not be sustainable. Others may find acute difficulty in sustaining profits. And the rest do not need capital at all except to make the promoters rich. But all have queued up in the primary markets to lure investors. We believe that this is one of the earliest warning signals of risks building up in the sector. And investors would be better off being choosy than succumbing to the over optimistic sentiments about the sector.
Do you think the fortunes of the NBFC sector IPOs could turn out to be like that of the power and construction IPOs? Let us know your views or post them on our our facebook page.
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The end result of this court battle is anybody's guess. But some things are quite certain. The incident has dented Buffett's reputation and has also raised the need for tighter controls and corporate governance at his mammoth conglomerate.
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Going forwards as well, India's bilateral trade agreements with South Korea, Malaysia, Singapore, etc, and the Association of South East Asian Nations (ASEAN) will be beneficial. India has an ambitious target of reaching US$ 450 bn in exports by FY14. However, infra bottlenecks and the rising cost of credit continue to plague exports, especially those in the small and medium sectors. These need to be carefully monitored for India to achieve its longer term targets. With higher crude price, one more thing to be watched is the rising import bill.
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04:45 | Today's investing mantra |
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8 Responses to "This bubble indicator gives real early warnings..."
Krishna Kanth
Apr 21, 2011The euphoria & the unfound frenzy for the NBFC Stocks would recall those memories. But i find a crucial difference between that & this. The NBFC's businesses are operational & most of them are at least reportedly profitable. At least they are not long gestation projects like Real estate or Power.
As a duped investor of NBFCs twice, I can vouch that their business record is n't very assuring ethically & the credentials of many are dubious !!!
ABC
Apr 21, 2011There is no doubt about it, NBFC sector is going to be next bubble in the Stock Market.
Anil Seth
Apr 21, 2011An experiment that is India if it is to succeed we must have an honest banking system. The current banking system is based on mutual back scratching. The roll over of past due loans, the over valuation of underlying securities offered for collateral, the accomodation of favoured customers behind bent rules, the desire of the captains of the banking industry to earn their pensions over and above the 'meager' pentions offered by the Bank, all contribute in allowing the so called promoters of Real Estate companies and Power companies to project a financially sound position to the public based on the 'false' banking support.
They thenm go on to blowinto the bubble which eventually bursts, like it is going to happen in the Real Estate, Construction and Power Sectors.
While in the aftermath of the bubble burst the creative captains of these industry will LAUGH ALL THE WAY TO THE BANK AND JOIN THE ALREADY LAUGHING BANKERS.
KE SARA SARA, WHATEVER WILL BE WILL BE.
WAKE UP THE ANNA HAZARES OF THIS GREAT COUNTRY.
hemant damle
Apr 20, 2011I feel NBFC IPOs will also be same as of power and construction IPOs.
p.r varadarajan
Apr 20, 2011This is food inflation. Why not follow Gandhian Hazare's village model to avert migration to cities. This will enable rurual people live and be rich with dignity using rurual resources. Why no politician is interested in this model of rural development. Present population is capable of buying anything this rurual populace produce if it is affordable and of daily needs. I understand that the whole wholesale trade in food, fruits and vegetable are in the hands of State political mafia who hike the prices at their will. This is 100% true of Tamilnadu
D. Kapadia
Apr 20, 2011You have commented that Internet penetration in the country is very low compared to othe countries. This is mainly for the reason that the internet recurring cost is very high in the country. A middle class family find it difficult to pay monthly rentals for interenet along with other regular expenses. In other countries the recurring cost is low considering the standard of living there.
M.Krishnan
Apr 20, 2011I am unable to understand today investing mantra, can
somebody explain it, please.
R Sathyamurthy
Apr 22, 2011@M.Krishnan, WB suggests that too much diversification without proper analysis will be as much risky as it will be when one doesn't diversify and have concentrated holdings. His argument against diversification is that you may compromise on the quality of the stocks as you may not be able to track each company in your portfolio and that might result in even higher losses than a concentrated portfolio.
It should be noted that WB prefers concentrated holdings in high quality companies.