Tata Group bags this honour once again

Jul 26, 2011

In this issue:
» RBI raises rates yet again
» Copper prices could head upwards
» Will oil reach US$ 120 a barrel mark?
» Should ratings be the sole criteria in policymaking?
» ...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...


 Chart of the day
Scams and scandals in the past have always been associated with the ilk of politicians until the Satyam scandal sent shockwaves not just in the business world but also in the investor community. Accounting fraud was at the core of this scandal and what made it all the more disturbing was that auditors, who are responsible for determining the authenticity of accounts, were involved as well. This, more than anything, shook the trust of investors. After all, how do you now trust the genuineness of the accounts that India Inc. is publishing?

In light of this, we conducted a poll to get a perspective on which companies enjoy the maximum trust and credibility for transparency of reported financial statements. The results were quite interesting.

The corporate group, which the financial investors think is the most trustworthy, is the Tata Group with Infosys coming a distant second. More than 60% of the participants showed their confidence in the Tata Group. Others like Infosys and HDFC group trailed far behind in terms of share of votes.

Interestingly, in an earlier poll that we had conducted in 2009 to gauge which is the most admired corporate, the results were similar. Then too, the Tata Group bagged the highest honours and Infosys had to be content with the runner-up position. This itself shows that if the management quality is superior, an honest presentation of the financials is a given.

More than anything, this poll displays that investors have become savvier when it comes to investing in stocks of companies. They have realised the importance of management quality and good business fundamentals before making investment decisions. Certainly, Indian companies can no longer take investors for granted and will have to tighten their focus on good corporate governance practices if they want to command strong valuations going forward.

You can view the results from the poll conducted on the most trustworthy companies in India by clicking here. Further, why don't you also share your views and comments on the results of this poll?

Data Source: Equitymaster Poll Survey

That the RBI is not yet done with liquidity tightening was well anticipated. The first monetary policy for financial year 2011-12 was therefore expected to make borrowing costs dearer. But another 0.5% hike in repo and reverse repo rates today do not just make the rate steep. They feature India amongst the emerging economies where leverage is a huge deterrent for companies and individuals. This certainly is not all bad news in a scenario where excess debt has caused economies to go bankrupt. Or has led to even the likes of the US to consider a debt default. However, the prohibitive rates will certainly ensure that the RBI's downward revisions of GDP and credit growth become a reality. In fact we will not be surprised if more such downward revisions follow.

The latest hikes put the repo and reverse repo rates at 8% and 7% respectively. This is while the 10 year GSec yield is at 8.2% and 5 year AAA bond yield is 9.6%. Thus, the gap between short and long term borrowing rates has narrowed considerably over the past 2 years.

There is no doubt in anyone's mind that the Eurozone is indeed facing some very serious challenges. And it is doing whatever it can to tide over the same. One particular action that has caused quite a bit of stir has to do with ratings agencies. Apparently, their independence has been restricted by some of the European policymakers. And quite expectedly, it has not gone down well with ratings agencies. In an editorial in FT, Deven Sharma, the President of S&P, one of the world's premier ratings agencies, has argued that such a step is likely to prove counterproductive. To criticise ratings firms for creating or deepening Eurozone's problems is to confuse symptoms with causes, he is believed to have said. A better approach, according to him, would be to avoid making ratings the sole criteria for policy decisions. While we are no fans of ratings agencies, we believe Mr Sharma could well be right here. Problems of Eurozone are of their own making. And to blame ratings agencies for the same is indeed taking it a bit too far. Trusting ratings agencies blindly is not the solution either as the subprime crisis has shown. At best, it can be considered as an opinion and the investors would be well advised to do their own independent research.

Copper prices witnessed happy times till last year. This was on the back of the huge demand from China. However, in recent times, prices have corrected sharply. This was again thanks to China as fears of slowdown started to hit the prices of most commodities. Considering the fact that China consumes nearly 40% of the global copper, it is little wonder that the prices of the red metal are determined by the fortunes of the country. But one wonders as to where copper is headed. Considering the fact that copper is mostly used in the construction industry, it appears that its prices would continue to trend upwards. The reason for this is that despite the slowdown in China, construction activity in the country is still quite high. Though it has slowed down in bigger cities, however, it still continues to be strong in the smaller provinces. In fact China has largely been drawing down on its existing copper inventories. This is the reason why the demand has not reflected in the prices. But once the inventory is finished, it would come back to the markets to buy more. And that would send the prices of the metal back up.

Traders appear to be optimistic on oil prices. The biggest bet now stands at US$ 120 per barrel for oil. This is on premise that growth in emerging markets will outweigh the debt crisis in Europe, slowdown in the US and extra supplies from Saudi Arabia. The IEA has gone back (retreated) on its promise to release more oil from its stockpiles. And that has been well captured by option markets that now indicate higher chances of rise in oil prices. While we believe the price to remain high in the near term, the level of US$120 a barrel seems stretched. We should not forget that the triggers which pulled down oil price prospects in April are not off yet. Infact, they are only gaining more momentum. The US seems to be at the brink of a financial calamity on account of debt limits with the decision makers still a long way from any deal and deadline just a week away. The Eurozone debt concerns continue to fester. And the main point on which they are placing their bullish bets, the much expected overriding growth in Asian economy, remains shadowed by policies to curb inflation. Last but not the least, any surge in oil prices will pull down the global economic growth feeding a negative for oil price itself.

Time seems to be running out for the US as the Congress still has not reached common grounds on the issue of raising the debt ceiling. As per President Obama, a default by US would be catastrophic and could push the country into a second depression. However, the American corporations don't seem to be doing so bad. As per Wall Street Journal, earning at companies in the S&P 500 are the highest they have been in the last four years. All but a quarter of the companies listed on the index have outperformed analysts' predictions. While this is great news for investors, it is not so for American job seekers. This is because the gains which these corporates have shown come mainly from international markets. Naturally, American corporates would look to expand their operations in these markets, backed by hiring of overseas workers.

Manufacturing had been the driving force behind America's Industrial revolution. But with the shifting of manufacturing out of the country, new jobs will not be created. What is more, President Obama's Quantitative Easing (QE) programmes, have certainly had no impact whatsoever in reducing the persistently high unemployment rate in the country.

Markets are trading weak post announcement of 50 basis points rate hike by RBI today. At the time of writing, the benchmark BSE Sensex was down by 282 points (1.5%). All sectoral indices were trading in the red led by realty and banking stocks. The Asian markets are all trading firm with Taiwan and Hong Kong leading the pack of gainers.

 Today's investing mantra
"The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers." - Warren Buffett

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4 Responses to "Tata Group bags this honour once again"


Aug 6, 2011

Surely Dhirubhai Ambani's groups cant be trusted. They made fortunes by illicit means from the start. Nothing marvelous than pulling strings here and there through corrupt politicans.


Nikhil Shah

Jul 28, 2011

It is unfortunate to see Ambani's in top 10. They should be 100th and 101st in terms of most trustworthiness.

However, they would be ranked 1st (hands down) in terms of the most corrupt business practises.



Jul 27, 2011

The TATA group is winning laurels ENTIRELY due to the past legacy of the great Jamshedji and Jehangirji. Unfortunately, the CSR of the founders have been wholly shelved by the current managerial honchos.



Jul 26, 2011

Hello equitymaster team, I guess from the next time the survey can ask to rank the companies on corp gov rather than selecting one company. Because i trust more than one company in the list but i can vote only for one company, so i guess this gives more points to leader. To better know the mind of retail investors, it would be appropiate to rank them rather choosing one.

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