There was no other way to deal with the crisis!
In this issue:
» How technology can bring cost of services down
» Has infrastructure sector turned attractive?
» The manner in which Euro crisis is affecting Indian realty
» Is it the turn of airline sector to get FDI status?
» ...and more!---------------------------------------- Have an enriching Saturday! ----------------------------------------
Can Europe find a solution to end the current economic crisis?
Will the new economic reforms drive the stock markets?
Are we paying a price for bad democracy?
Get answers for all such complex issues straight from Jawahir Mulraj.
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Amidst all this chaos, an article in the businessinsider.com points out how almost all the policymakers and economic experts seem to be showing hardly any realism at all. It talks about how it would be next to impossible for Germany, the saviour of last resort to come to the rescue of troubled nations as well as financial institutions as the sum involved would be too large. And what about funding from China? Well, with the Chinese banking system showing signs of trouble, even that option looks like a remote possibility.
Thus, life seems to have come full circle as far as the Euro zone is concerned. Restructuring and bankruptcy, the very phenomena which the region wanted to avoid all along looks like the only feasible option worth undertaking. In fact, the path which was being followed by policymakers had a dead end from the very beginning, the only difference being that right now, it is smack in front of their faces. Thus, be it a nation or a company, a period of high leverage beyond a certain threshold will have to be followed by a period of deleveraging. Anything else just doesn't work. It is one of those unwritten rule of nature perhaps. This is also the reason why we insist on buying companies with bare minimum debt and some strong competitive advantages.
Do you think deleveraging is the only solution to the crisis or is there any other way? Share your views with us or you can also comment on our Facebook page / Google+ page.
01:14 | Chart of the day | |
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Source: The Economist |
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So there is no denying that there are ample reasons for the negativity surrounding the infrastructure sector. But we believe that in times of panic, investors have a tendency to be shortsighted. The reactions at such times are often extreme and disproportionate to what the events call for. You could say that such is the current situation of the infrastructure companies, as many of them trading quite below their book value. Value investors may want to scoop up some fundamentally stronger ones amongst them for the long term.
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Besides IT companies, even firms headquartered overseas have been major drivers of the demand for office space. And with the high level of uncertainty in the global markets, these firms are now cautious on buying more office space. All of which means that demand for office space is expected to remain subdued in 2012. So, while 2009 saw around 19.6 m sq. feet of office space leased out across the top 7 cities in India, this figure soared to 31 m sq. ft in 2010. This calendar year is likely to see a modest growth to around 35-36 m sq ft. But in 2012, this number is likely to drop to around 31 m sq. ft of office space. As far as the IT sector is concerned, a deadly cocktail of recession in the developed world and heavy volatility in the rupee has made it wary of investing in office space. All in all not a very bright scenario for the real estate sector in India.
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Indian stock markets witnessed a fall of nearly 4% this week. The markets were very volatile on concerns of weakening rupee, euro zone crisis and poor fundamentals. Amongst the other world markets, Germany led the losses (down by 5.3%). The German debt agency failed to find buyers for its 10-year bonds. All other markets were on the losing end too with China losing the least (down by 0.8%).
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Source: Yahoo finance, kitco, CNNfn |
04:54 | Weekend investing mantra |
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5 Responses to "There was no other way to deal with the crisis!"
Tikam Patni
Nov 28, 2011Why look elsewhere? India is on the same track as Greece and some others. Leverage, leverage and leverage. And beyond all means. The MG NREGA, Food Security Bill, PDS, Subsidies, Land acquisition bill, The Mining Bill, Right to Education etc etc: nice vote catching names, but all with a common purpose of loot and leverage.Some how get votes, get elected and enjoy the loot for life.
hemant shah
Nov 27, 2011What else but deleveraging? In India there is a saying which translates in to : spread your legs only as much as your sheet can cover.
Overspending and unaffordable life style choices has resulted in to all this.Back to basics and Gandhi of " selfreliance" can only be the Mantra for individual or a nation.So go back deleverage and start living within your means is the only answer.
You can not possess something for which you have not worked or put in efforts so be productive.
Like Buffet says about gold ,it does not generate any income or productive asset, laid back European culture and USA spending habits are to be contained and cycle has to reverse.
sunilkumar tejwani
Nov 26, 2011yes, only way is open to retire debt. But sadly, the very people who destroyed euro nations are once again called to solve the problem,Goldman Sachs and company. These are nothing but financial criminals in the guise of Investment Bankers. Pedlars of debt are time and again called upon to suggest the solution. The boys from Goldman Sachs are working over time to suggest newer ways of debt and more debt to solve the existing problem. It is like suggesting sweet drinks to a diabetic.
In return the guys from Goldman Sachs will earn fat pay packets to keep their toxic jobs and ideas.
GOD SAVE THE EURO ZONE. WHERE THE ANGELS FEAR TO TREAD...
shome suvra
Nov 26, 2011Leveraging can bring in some restrictive covenants for the Companies.A firm can take advantage of leveraging if the return on capital employed is greater than the cost of debt where with infusion of more debt, if permitted, ROE can be increased.Capital expenditure which is an important growth driver can be funded from the retained earnings if the co can afford it.A project should be executed just not when it is profitable but when it does not pay to wait for the further profitability.
Narasimha Rao
Nov 29, 2011Infrastructure sector:Value investors may want to scoop up some fundamentally stronger ones amongst them for the long term.
This is appreciated and i agree.
But it would be kind of you to guide your Subscibers to (Stock select) etc. to suggest which ones to buy: LANCO, GVK Power or NCC or GMR Infra.
Regards
Narasimha Rao