|»5 Minute Wrap Up by Equitymaster|
On This Day - 1 FEBRUARY 2010
You'll be happy to see this bubble burst
In this issue:
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A double dip depression in the US. A bubble economy in China. Yet, India is said to be one of the fastest growing economies of the world. Don't you want to learn more about investing opportunities in India? Know what 2010 holds in store for you as an investor? What are solid investment opportunities? How much should you invest in gold? In real estate?
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As per his recent interview with DNA Money, he does not see prices going higher in commercial, shopping or retail spaces. But he has warned about prices in the residential sector. He says, "...they are shooting up very fast and we have to look at the affordability aspect in India."
Mr. Parekh is no outsider to these grave pricing issues faced by property buyers in India. In fact, he has been very vocal in the past about the greedy nature of realty companies. Whether it is the issue of overpricing, or the misnomer of 'super-built up' area as against the simple concept of 'carpet area', he has been against it all.
But are the realty companies listening to Mr. Parekh's warning? Currently on a high after the government saved them from an acute liquidity crisis last year, these companies do not seem to be mending their ways. And the ultimate sufferer is the aam aadmi who continues to dream of that affordable house he can call his own! He, then, will be very happy to see the realty bubble burst.
What is you view on property prices in your area of residence. Share with us.
"The youth have time on their side, so they can take on a risk of 80% but a retired man cannot do that. So only that part of the savings, which is required over the long term, can be risked," Bhave is believed to have said. Indeed! Investing in equities is a long-term exercise. Thus, those who are risking the money that they need in the short term by investing in equities should do so at their own peril.
Mr. Bhave also showed an astute understanding of the short-term market trends when he quipped that the direction of the Sensex cannot be an indication of where the economy is headed in the short run, though over a period of 20 years, the direction of the stock market can be an indication of the economic progress of the country. Again, very well said indeed!
Looks like he has really done his homework quite well and has his heart in exactly the right place atleast as far as equities are concerned. Be prepared for some more investor friendly moves by the SEBI in the near future!
Central banks wield much more influence than we think. Low interest rates affect financial markets more than the economy. Policy makers can be out of touch with reality for long periods. Asset classes are more efficiently priced than individual stocks. And developed countries, including the US, are past their prime compared with developing countries.
We agree with much of what he has to say. As for the antidote for these observations - investors must think on their own and not get carried away by all the surrounding hype. Applying logic, knowing one's limitations and patiently avoiding the herd has worked since the founding fathers of value investing first wrote it down. It remains the individual investor's best defense.
In his recent interview with CNBC-TV18, Premji said that there is a genuine sense of optimism floating among companies. Many of the business leaders have used the past 18 months to make their companies leaner and far more productive. Not just that, the focus has also been on building closer intimate partnership with customers. All this has contributed to the belief that the economic revival is for real. That does not mean that companies have once again gone on a capex binge. The idea has been to sweat assets and get more productivity out of them.
What needs to be noted according to Premji is that majority of businesses had downscaled in the last one and half year. So the capacity which they had built-up three years back is now enough to carry growth into this year. As a result, there is sufficient capacity that has removed the need to invest massively in capital assets for the time being. Premji is also optimistic on the Indian IT sector that he believes will now pick up. Overall, he seems to be more confident about the business environment. This certainly comes as a welcome relief after what various doomsayers have had to say in recent times.
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