Is India the 'place to be' for long-term investors?

In this issue:
» Will inflation cool off by year end?
» Does it make sense to give banking licenses to non-corporates?
» India Inc to go on a hiring spree in FY12
» Want land? Contact the babus
» ...and more!----------------------------- A Good Time To Sell Bad Stocks -----------------------------

It's never too late to get rid of 'bad stocks'.

After all, you never know how bad a market crash could get.

But what are these 'bad stocks'? How do you identify them?

For answers to these questions, and more,click here to read on...

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00:00

Should we invest? Should we not invest? It seems like most investors are asking themselves the same question. Unfortunately there are as many answers as the number of questions. And all seem perfectly rational.

A leading research house has recently stated that India is the place to be for long term investors. It has even given huge forecasts for the Sensex to go north of 22,000 levels by the end of the current year. It has based these assumptions on the fact that India has now identified its core problems and is publicly discussing the same. The core problem here refers to the infrastructure bottlenecks in the country. The research house opines that the first step to solving a problem is identifying and discussing the same. As Indian leaders have taken this first step, the problems will therefore be resolved and this makes India the ideal investment destination for long term investors.

Another school of thought begs to differ from this view. They feel that the problems in India go further than the infrastructure bottlenecks. The recent spate of scandals and scams has put a serious question mark on the governance in the country. Add to these ambiguous tax laws, rigid rules and regulations, policies that change overnight to suit populist views and the business environment becomes almost hostile. The recent cases of the Cairn-Vedanta deal as well as the POSCO deal go on to highlight these problems.

True that India has several problems. Some of these can be quantified as short term problems. But unfortunately they have been around for a very long time. At times like these, Indian politicians need to stop bickering among themselves. They need to wake up and take a solid stance on policy reforms that reinforces the belief and confidence in the business community. Once this happens, India would definitely yield the superlative returns that long-term investors seek.

Do you think India is a worthwhile investment for long-term investors? Share your comments with us or post your views on our Facebook page.

01:15		Chart of the day

The one promise that every government makes in their election manifesto is to reduce the income divide. Particularly the income divide between the rural and the urban population. There have been several stories that have been doing the rounds surrounding rural consumption and rising rural income levels. These should ideally get reflected in higher consumption off-take by the rural consumers. Hence, it may come as a surprise that this has not happened in reality. This is evident in the difference in monthly per capita consumption expenditure (MPCE) which is an indicator of the income divide. As per the data released by NSSO (National Sample Survey Office), the MPCE of an urban consumer is nearly 91% higher than that of his rural counterpart. Looks like the electoral promises are exactly what they are -words.

Data source: Mint

01:45

'Inflation to cool off' says Mr Montek Singh Ahluwalia. This would be the umpteenth time the deputy chairman of the planning commission has made such a statement in the last 2 years. However, in the last 2 years, inflation has continued to remain stubbornly high in spite of all the rate hikes and other measures to control it. As per Mr Ahluwalia, good agriculture output will help cool inflation by the end of the year. However, he has added a caveat here. Inflation will fall only if fuel prices remain at the current level. We are all aware that will be the case if the global economic slowdown continues.

There is no denying that inflation has come down in the last few months. However, this has been thanks to a high base effect and a tight monetary policy which is threatening to choke economic growth. We believe that high inflation is due to supply constraints and the lack of efficient and transparent distribution channels. Unless the government addresses these issues, inflation will continue to be a chronic problem.

02:25

Industrial houses like the Tatas, Birlas, Ambanis etc are all keen to enter the banking space. They are pushing for the coveted new banking licenses. However, the government and the RBI are still exploring this possibility, and have still not come to a conclusion. Mr C Rangarajan, former RBI chief and Chairman of the Prime Minister's Economic Advisory Council, believes that non-corporate entities should be given a banking license first. Depending on its success, one can then decide whether industrial houses should be given the go ahead. In order for corporate bodies to receive a banking license, a lot of safeguards need to be set in place. This is needed to prevent them from diverting funds for their own purposes. The RBI has taken its own sweet time to award a new banking license. Yes Bank was the last player to be awarded a license in 2004. We believe that these sensitive issues need to be addressed before any new entity gets the green signal.

03:00

You've got a new job. Yes, that's what your mail box could read if we go by the latest update about hiring in India. Indian companies are looking at hiring on a mass scale from July through March 2012. According to a study by a popular hiring website, 52% of the employers surveyed plan to hire new employees. In 2010, this number stood at 39% only. What is more satisfying to note for job seekers is that jobs will be produced across industries. Although IT (Information Technology) & ITeS (IT enabled Services) sectors will result in maximum employment generation, healthcare and banking and financial services as also automobiles and manufacturing sector too would provide ample opportunities. While this is good news for the employees, it could result in lower profits for the companies because of increased staff costs. Increased costs would add to the woes of corporate India which is already reeling under pressure of high interest rates and higher cost of raw materials.

03:35

Value creation is at the heart of any economic activity. And it does take great skill and efforts on the part of a firm to continue creating value for its shareholders year in and year out. But did you ever know how ridiculously easy it is to create value in the field of real estate. All you have to do is bribe your way toward regularising a certain piece of land and voila, a great amount of value is created! Yes, it is that easy. Little wonder, illegal regularisation of land is as commonplace as the menace of mosquitoes in India. One such instance down south has been brought to light by a task force set up for the recovery of Public Land. Concerning the city of Bangalore, the scam involves illegal regularisation of land to the tune of 5,835 acres! And this is not all. Applications of another 14,551 acres seem to be pending before the committee, to be regularised illegally that is. Clearly, the greed of our babus doesn't look like having any limit or whatsoever.

04:10

While India continues to battle with inflation due to high food prices, the irony is that the food ministry is facing the problem of plenty. For instance, the procurement of wheat and rice put grain stocks in the central pool to a record 65.59 MT by the middle of June. The total storage capacity available with the Food Corporation of India (FCI) and state agencies is around 63 MT. The present stock with the central pool is far more than the buffer stock and strategic reserve requirement. The reason for high procurement has been attributed to a rise in output of food grains. Indeed, India's inflation woes had been compounded by not just erratic monsoons a couple of years back but also due to inadequate storage facilities. Thus, even after strong growth in output, prices continued to remain high as lack of storage facilities meant that foodgrains were allowed to rot in the open. And this current problem of excess stock at the FCI seems to be a case of deja vu. Surely the government can ill afford to let food grains go waste if it is serious about bringing prices of food and overall inflation down.

04:40

In the meanwhile, the Indian stock markets continued to trade in the red. At the time of writing, the benchmark BSE Sensex was down by 108 points. Among the sectoral indices, the stocks in the technology and metal space were the biggest losers. Most of the major stock markets in Asia were trading in the red. Hong Kong, Korea and Japan were leading the pack of losers.

04:55

Today's investing mantra

"The individual investor should act consistently as an investor and not as a speculator." - Benjamin Graham