Investing in India - 5 Minute WrapUp by Equitymaster
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How politicians dupe us on the black money issue... 

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In this issue:
» NRI investors drag ICICI to court for investment losses!
» Swiss launch a movement to accumulate gold
» Can Buffett consistently beat benchmarks in near future?
» Correlation between crude and Sensex returns
» ...and more!


00:00
 
The poll rhetoric of bringing back all the black money into India within a period of 100 days turned into a long forgotten promise. Only after the Supreme Court rapped Centre for being lethargic, did the NDA government disclose a few names couple of days back. However, after receiving flak for creating a protective umbrella for the rest, the NDA government handed over the entire list containing 600 odd names to the Supreme Court today morning.

So, will this bring an end to the black money trail and rescue India of the cancer that it has been breeding?

To be quite honest, if you ask us, we reckon this entire exercise of naming and blaming is merely done for public appeasement. The very thought of tracing black money and punishing the guilty is like searching for Rapunzels in real world.

The logic is straightforward. This saga of bringing back the black money is on since ages. So, it is wishful to believe that account holders have not moved their money by now and are waiting for the government to act. As a matter of fact, an article in FirstPost succinctly highlights how the Indian National money with Swiss banks has vanished over periods. In 2006, Indian money in Swiss accounts stood at Rs 414 bn. It came down to Rs 140 bn in 2013. In fact, Swiss banks themselves have been asking their suspect account holders to move their money for safety purposes.

As such, this entire exercise of creating a list to trace the money is futile. If either the NDA or the UPA government was indeed serious of punishing the black money culprits, they would have not indulged in this public tamasha. Instead, they would have directly taken action back doors and left no time for culprits to act or react.

Did Obama made the matter public as to when he was going to execute Osama? Matters of national and security affairs are never made public. They are executed back doors. And the reason execution will never happen in India is because no political party is crystal clean. Execution may embarrass all parties. Hence, the best strategy is to indulge in blame game and fool the public. And the best way to do it is name small bullion traders and Timblo's of the world (read unknown faces).

Do you think the list shall contain names of top politicians and corporates? Certainly not! Naming is just done to calm our nerves. There is no benefit to aam aadmi here as there is limited possibility of that money getting traced and used for national development. Perhaps, the only beneficiaries could be TV anchors and controversy-hungry journalists since money matters attract maximum eyeballs in Indian drawing rooms.

The point we are trying to make is that one should not live in false expectations of more transparency and clean economy post this move. It may take uncanny political will to prove us wrong on this. However, if we are indeed proven wrong, let us tell you we shall be more than happy!

Do you think the black money malice can ever come to an end in India? Let us know your comments or share your views in the Equitymaster Club.

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02:25
 
Have you lost money by investing in funds guaranteeing healthy returns? At least that is what a group of NRI investors who had invested in ICICI Venture Fund are claiming. These investors have sought damages to the tune of US$ 103 m for losses that they have suffered. Their bone of contention is that the fund invested in many real estate projects that failed to take off. Thus, this was not line with the 'assured returns' guaranteed by the fund's marketing teams. Not surprisingly, ICICI Venture has denied these claims and has termed them as malicious and baseless. The matter is pending before the Mauritius Supreme Court. Who will ultimately prevail is anybody's guess and is for the Court to decide. What one can learn from this is to be circumspect of any funds or schemes that 'guarantee' returns. Should you come across a fund that does that, it would make sense to dig a little deeper and check its track record. More importantly, investing in sector specific funds has its own share of risks. And in a sector such as real estate, the risks are even greater.

02:55  Chart of the day
 
With Modi's Government at the helm, the Indian economy seems to have regained its confidence. And while a lot of it has been accredited to the new Government, it would be unfair to ignore the tailwind of low commodity prices. This is especially true for crude oil. Crude oil is a commodity that does not decide the fate of just the oil sector. Especially in India, it has a direct bearing on fiscal health due to subsidy system. Even the recent reforms like diesel deregulation have seen the light of the day due to the fall in crude prices. Had the crude been at high levels, the reform would have been unlikely, on account of potential increase in inflation and resistance from all the quarters. Lower crude prices are also positive for other associated industries such as paint, chemicals etc. Further, crude being a major import item, less outflow of forex reserve is likely to keep rupee strong. Decline in the crude prices has further kept inflation under control. This has increased chances of a rate cut that may boost the prospects of rate sensitive sectors and act as a trigger for stock markets.

With crude prices having such far reaching implications, no wonder the stock markets are cheering this fall. In fact, the relationship between the two has mostly been inversely proportional. As suggested by an article in Economic Times, eight out of eleven times, whenever crude has corrected by more than 20%, Indian stock markets have offered average returns of 17% in the following three months. As the chart suggests, since 2001, a decline in crude prices has been followed by gains in Sensex almost 80% of the times. However, crude prices are just one of the many factors. While falling crude prices may have a short term positive impact on Sensex returns, a long term recovery and performance is unlikely to sustain without well timed reforms. We hope that the Government will make good use of such opportunities to fulfil its promises.

Correlation between crude and Sensex returns


03:30
 
Warren Buffett has had a stellar track record so far no doubt. But even he is open enough to admit that it's getting harder and harder for him to live up to his past performance. Not for anything else but for the enormous amount of money he now handles. You see it's easy to beat the markets when you have only a few hundred million dollars to manage. However, when that figure swells to tens of billions of dollars, there aren't simply those many opportunities that can move the needle of performance substantially.

An article on Firstpost.com highlights this point beautifully. It talks about how Buffett broke his own cardinal principle of not investing in technology by picking up a substantial 7% stake in IBM a few years back. And so far at least, it has looked like a mistake on Buffett's part. IBM is down around 9%-10% from Buffett's purchase price even after all these years. And even the IBM's CEO is finding it hard to explain the unprecedented change in the tech industry.

So, has Buffett bitten off more than he can chew simply because he wants to outperform the indices? The investment savvy that he is, it would be foolish to bet against him on the basis of this just one example. Therefore while it may not be possible for him to give the same performance we are used to seeing from him, he should still be able to beat the index over the long term according to us.

04:05
 
Mark your calendar. November 30, 2014 can be one of the most significant days in the history of gold prices, if the Swiss have their way. In fact the day can be a game changing one for the gold market globally. The Alpine country is set to vote on that day on the so-called "Save our Swiss Gold" initiative. The motion calls for the Swiss central bank to hold at least 20% of its assets in gold. This will effectively prohibit the economy from selling any gold in future and bring back all its reserve of gold back in the country.

The Swiss central bank is currently sitting on assets worth around half a trillion dollars. Also, Switzerland is one of the richest and most conservative countries in Europe with a long history of love for gold. It was among the last nations to abandon gold backing for its currency, the Swiss franc. Now how will the Swiss new found love for gold impact gold prices? Well, if the motion gets approved, the country would end up purchasing 1,500 tonne of the precious metal. This is the minimum it would need to comply with the citizen demand. To put things in perspective, China purchased 1,176.4 tonne of gold in 2013 according to the China Gold Association. Thus the Swiss would put China to shame with the "Save our Swiss Gold" initiative. And that clearly means that the demand for gold will certainly outstrip supply for a temporary period. The impact will be cushioned to some extent as Switzerland will have time to reach the 20% limit in five years. However, for gold buyers, the move could certainly unfold a long term trend in the prices of the precious metal.

04:30
 
In the meanwhile, the Indian stock markets continued to trade firm in the post noon trading session. At the time of writing, BSE-Sensex was trading up by 161 points (0.6%). Majority of the sectoral indices were trading in the green led by realty and auto stocks. Stocks from pharma and banking were among the few stocks trading weak today. All the Asian stock markets were trading in the green led by Korea and Japan. Even the European markets have opened the day on a strong note.

04:50  Today's investing mantra
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently". - Warren Buffett
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29 Responses to "How politicians dupe us on the black money issue..."

DVVSATYANARAYANA MURTHY

May 17, 2016

Indian DNA is itself imbibed in corruption from times immemorial when traitors in India compromised the security of Indians by joining hands with our enemies for large bucks and property. India will remain corrupt for ever and ever and the lives of Indians will become worse with passing years except for those who had amassed black money in India or abroad. More black money is stashed in INDIA than abroad. Look at the properties of Bureaucrats, Government Employees (indulged in taking large bribes), POLITICIANS, FILM ACTORS, CRICKETERS ETC. EXCEPT FARMERS WHO ARE DYING EVERY DAY NO ONE IS ABOVE CORRUPTION IN INDIA IN SMALLER OR IN A BIG WAY.

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Ravi Ramesh

Dec 1, 2014

Since Independence, all the sincere and eligible citizens are paying timely taxes without expecting how these tax money is being spent. On the other tax evaders, stock hoarders, mixing of low rate articles to produce adulterated awaiting and inviting black marketing.

BLACK MONEY is not only question to be solved, we should highlight the above points and create certain measurement to catch hold of such persons.

Our aim should be clean government, clean market opportunity, clean administration and clean atmosphere.

Like (1)

AJ

Nov 9, 2014

It is really sad that we Indians are quite happy with scandalous statements from our favourite politicians whom we at private curse and blame for all our damn and shame. In reality we create them and blame them. In India we have umpteen laws which cannot be complied in full by any law abiding citizen. They are created so that black money are generated. Who to blame????

Like (1)

vijay

Nov 5, 2014

I came across senior CA during train journey from agra to delhi who confessed in confidence that major bulk of black money has already come in india in 2008 and 2009 through formation of wholly owned subsidiary of foreign registered company and invested in real estate and shares. he claimed that he advises and manages the same.I donot really know how much black money is still left abroad

Like (1)

Vidyanand

Nov 1, 2014

I believe for ages the Indian citizens have been fooled by this greedy political and business houses.The swiss bank money matter is just an eyewash.I believe the actual black money is within the country that why many of the business communities are opposing new regulations like LBT as lot of black money is stashed by these small looking retail community's by virtue of non payment of taxes.One most simple way to bring this money back in economy is to Introduce plastic money.In a matters of weeks all the stashed money will come out,only there has to be sufficient willingness of civic bodies to do it.

Like (1)

vineet shende

Oct 31, 2014

black money ...... this just to tale the world that how much we indians are BE-IMAN .... the politicians has not just made this country feel shame but also bringing embarrassing situation for the country ... but who cares the pride of the country ....all of these politicians just want to take political advantage out of every thing by fooling the people .somebody tale them,please don't tale the world that we are not honest.it is true that people having account had already moved their money to some where else

Like (1)

manzoor shaikh

Oct 30, 2014

i fully agree with equity master that it is totally a tamashaa to appease voters.and i also deny Deepak's hope that it may be happening back door because let me tell you these culprits have paid huge election funds to both these parties, then how can you expect that these politicians will work against the interest of these culprits.and let me tell you that what kejriwal has said ambani runs the govt.is absulutely correct.only i will replace ambani with corporate houses.

Like (1)

v.padmanabhan

Oct 30, 2014

I think the black money stashed outside by any indian rich people, will not come out, as most of them, by now, would have withdrawn the money from their accounts and would have invested it in gold, silver, real estates, etc.,

Like (1)

v.padmanabhan

Oct 30, 2014

I think the black money stashed outside by any indian rich people, will not come out, as most of them, by now, would have withdrawn the money from their accounts and would have invested it in gold, silver, real estates, etc.,

Like (1)

krishna Murthy

Oct 30, 2014

We hope this will contain the future looting of money from the country. Thanks to NDA, where as UPA had looted the money of the poor people.

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