What's bothering the stock markets?

Aug 8, 2009

In this issue:
» India's dismal literacy levels
» Rain gods threaten to bring in new problems
» Prices of sugar rise to record levels
» Chinese officials look suspiciously at stockmarket gains
» ...and more!!

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The Indian markets began the week on a strong note with the country's benchmark index, the BSE-Sensex, almost touching the level of 16,000. After this brief tryst with optimism, the markets lost steam by the end of the week, as the index closed lower by over 3% compared to the previous week. In fact on a week on week basis, Indian stocks recorded their first decline in over a month.

Note: Country names are representative of their benchmark stock indices;
Source: Yahoo Finance, Kitco, CNNfn

So what's bothering the markets? Quite a few concerns actually. Some of the key ones include high valuations, unfavourable global cues, poor monsoon and high food prices. As for the performance of other key global indices, most of the key Asian markets declined on a week on week basis. The pack was led by China (down 4%) followed by India (down 3%). Russia and Brazil led the pack of gainers, with gains of 6% and 3%. The miscreant playing monsoons seem to be number one on most people's minds. But more on this later on in today's WrapUp.

 Chart of the day
Before that, in one of our recent 5 Min., we had talked about how the passage of the Right to Free and Compulsory Education Bill, a program that will provide free education to every child in India aged between 6 and 14 years, can be a valid reason to bet on India's future. Today's chart of the day shows the importance of this program. As the chart shows, India has the highest illiteracy among its BRIC peers - reason enough for the government to speed-up its initiatives in providing universal education.

* Proportion of population of age 15 and over that can read and write;
Source: The World Factbook

Getting back to monsoons, just as it appeared that the Indian economic growth was beginning to hit its stride, the rain gods have thrown the proverbial spanner in the wheel. No, we aren't writing the obituary just yet but if the present trend in monsoons continue to persist, then we might have some serious trouble on our hands. As per reports, monsoons in India were 64% below normal for the week ended August 5, worse than the week before, where it was 18% below the 50-year average. And already, various brokerages have begun number crunching to assess the potential damage that could be in store.

While Morgan Stanley halved its earlier forecast of India's agricultural growth to 1.5% in FY10, Kotak has estimated an 18% fall in summer-sown foodgrain production and a 13% drop in total foodgrain output in 2009-10, as per reports from the Wall Street Journal. Well, in a country where majority of the population is still dependent on agriculture and where 18% of the GDP is still accounted for by agriculture, we do not need economic experts to tell us the negative fallout of below par monsoons. What we need to know is whether steps could be taken in the future that could soften the impact of poor monsoons. The situation calls for a long-term approach and the government seriously needs to think beyond schemes like the farm loan waivers which although beneficial in the short run, do nothing to improve the longer term scenario. Perhaps, the sum of Rs 60,000 crore could have been better utilized.

It's not that crop shortfall in India will only hurt the Indian public. With the country being leading producer of quite a few agri-commodities and where even a difference of a few thousand tonnes make prices skyrocket, global consumers are feeling the pinch as well. Take sugar for example. As per Bloomberg, prices of white sugar have risen to a record in London on concerns that poor monsoons in India would affect sugar output in the world's second largest producing nation. This will not only lead to less Indian sugar reaching foreign shores but will also reduce the already available supply as the country imports more. Looks like it's going to be 1976 all over again. Readers would do well to remember that between 1966 and 1974, the price of sugar rose a breathtaking 45 fold! While the gains may not be as high this time around, anything close to that and a few experts like Jim Rogers would then surely be laughing all the way to the bank.

Berkshire Hathaway, Warren Buffett's investment holding company, yesterday posted its best quarter in nearly two years, with a net profit growth of 14% YoY for the quarter ended June 2009. Recovering stock markets boosted the value of its equity investments and derivatives bets and indeed, Berkshire's stock price has made a smart recovery along with that. From a low of about US$ 70,000 per share a few months back to US$ 108,000 now. Readers will do well to recollect how fear stricken investors had managed to somehow find multiple excuses to exit the stock at the time. Thus giving in to common fallacies that investor's fall prey to quite often, a subject we recently dealt with in the latest issue of our Women's Weekly column.
Despite Barack Obama's bleak view of the unemployment scenario in the US, the US jobs report lent some cheer to the country as it showed that the pace of US job losses slowed more than forecast last month. As reported on Bloomberg, US payrolls fell by 247,000 after a 443,000 loss in June. What is more, the jobless rate dropped to 9.4% from 9.5%. Predictably, while the US stockmarkets gave a huge thumbs up to this data, the White House is cautious about jumping the bandwagon. It still maintains that the jobless rate could soar to 10% given that many companies are still cutting costs and a rebound in hiring is unlikely before 2010. This data could very well highlight that the worst of the recession may be over. But a sustainable recovery is another matter altogether and we believe that one will wait for a while longer before any clearer picture emerges with respect to the same.

Over the past few weeks there has been a lot of talk going around about the reliability of China's GDP numbers. Unfortunately for China, concerns have been cited with respect to the surge in its stockmarkets as well. As a result, Chinese officials intend to scrutinize gains in the stock prices in a bid to lend some stability to the market. As reported on Bloomberg, the benchmark Chinese index has surged 79% in 2009 with real estate prices also staging a comeback. This has raised concerns that loans actually given for infrastructure development are being diverted towards speculation in the stockmarkets.

Vice Finance Minister Ding Xuedong has said that the government will monitor asset prices and create an internal mechanism to stabilize the stockmarket. However, we are not really sure how that will be achieved with so much liquidity sloshing around in the Chinese markets. Certainly, the government has a challenging job on its hands in terms of striking a balance between keeping an eye on the markets and not putting the brakes on economic growth.

 Weekend investing mantra
"It is far from certain that the typical investor should regularly hold off buying until low market levels appear, because this may involve a long wait, very likely the loss of income, and the possible missing of investment opportunities. On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value. If he wants to be shrewd, he can look for the ever present bargain opportunities in individual securities" - Benjamin Graham

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10 Responses to "What's bothering the stock markets?"


Aug 17, 2009

anexcellent wrapup encompassing all the factors very succinctly.
the markets have been pushed up and the monsoon seems to be hellbent on beaking the back of bull be it on the farms or the stock market.
A.Sreenivas reddy


Prasanna Ogale

Aug 10, 2009

Sir your article title is 5 Min Wrap Up but you are really unwrapping many things in those 5 mins.Your articles are simply superb,informative,eye openers.We can imagine how much pain your team is taking to present
these articles for readers like us who dont wish to allocate more than 5 minutes.
We wish your reader base grows up and you might have to change the definition of 5 Minutes.All the Best.



Aug 9, 2009

I strongly believe its high time we be serious about our education system. Such programs must be run by the people themselves, like in a village the Panchayat should be made accountable & responsible to make sure the education policy is established & run properly, as we have been seeing in the past people are expecting our politicians to perform and do something when in power, this gets the man/women in power to run the school properly & provide quality education.
And in semi urban & urban areas there should be public private partnerships which run schools & then we do have some innovative ideas like the Teach India Program initiated by Times Of India.
Its time we start becoming more serious & implement & execute good programs like these, else we would loose out to other countries in no time, we are already late !!


Mr. Sharma

Aug 9, 2009

Hello Equity Master,
The 5 Min wrap up is outstanding and in just few paragraphs it cover entire globe. Itís really great newsletter.
It will be good if you can add coming week hints about Indian stock market more precisely especially like sector specific or stock specific. One paragraph about this will definitely boost the outcome.




Aug 8, 2009

anexcellent wrapup encompassing all the factors very succinctly.
the markets have been pushed up and the monsoon seems to be hellbent on beaking the back of bull be it on the farms or the stock market.



Aug 8, 2009

The surge in sugar prices and the sharp jump in stock prices is due to the easy liquidity made available by RBI, which instead of creating consumer demand has created market for buying stocks.After the departure of Dr.Reddy and assumption of charge by Dr.Subba Rao he started to play to the tunes of both the finance ministry and interested industrial groups and allowed himself to be bullied.In spite of criticism from media and ministry Dr.Reddy stood his ground and saved the economy.RBI must look for long term solutions and not for short term measures.The long term measures will always face criticism while doing good for the country.Dr.Subba Rao might have realised this now and does not know how to come out of this easy liquidity situation due to the large government borrowing programme.The media and economists unanimously demanded the budget to give concessions and never suggested to the FM to raise taxes and reduce expenditure to bridge the budget deficit.Government must tax the wealthy and high profit making companies instead of increased borrowings.The huge stimulus package announced by China also went to the stock market and we all will face the music of high inflation in not too distant future.



Aug 8, 2009

though the service is great,but would suggest you to include "whats cooking in" the falling stock and the only rising stock....i mean any inside story of a particular stock and why the extremes are playing in it...........


ullaspriya m shah

Aug 8, 2009

the reason narrated in your five minute wrap for negetive return of laST week in stock market shall be applicable but you have not pointed out the sector rise before profit booking by the operator or investor.It is appropriate to mentioned the rise of sector alongwtih its reason so that people can understand that the time of profitbooking is near.The sector especially AUto has climed more then 40% in last 30/45 days and its prices has been towered due to its june qtrs number,this is enough to book profit and divert the fund from this sector to another one.As per my observation this profit taking is a technical one ony enough money has been receieved by the operator or mutual funds from this basket selling.
I am requestingfor such phenomenon to be given in 5 minute wrap ata specific time so that all can be benefitted.
Whenever such selling happen TV anchors and other advisers are diverting the things as they want or as they are paid for.No one has ponted out this type of selling may ahppen if moonsoon deficiate in last 15 days.
Even foreing anchors does not told such things may happen if moonsoon fails.
Now kindly brief the effect of moonsoon deficiate on sugar stock well in advance or fertilizers stocks.


Vilas Havanur

Aug 8, 2009

All articles are quite informative and adding to knowledge.



Aug 8, 2009

I do not entirely agree with the chart regarding literacy rate among the BRIC Countries. While the BRC countries are having their medium of instruction as their mother tongue or the national language - which is invariably a single language, India is a multi cultural, multi religious, multi lingual country with the medium of instruction varying from State to State and at different levels of education. If we are to consider the literacy with respect to the ability to speak, read and write in their own language, I think, we Indians especially at the poorest level will not be lagging behind those people in the other three countries. So, the comparision is not exactly based on a level playing field. However, I agree that the literacy rate of around 60% overall with a Government determined to uplift the Aaam Aadmi and which has been ruling this country almost without interruption - except for a small period out of the 61 years of self governance is pathetically dismal, and at least now we have a minister in Charge of Education who is wise and sensible enough to think of the entire country rather than segregating them into claases based on caste, religion and backwardness criteria. All Kudos to Mr. Kapil Sibal for his visionary thinking

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