|»5 Minute Wrap Up by Equitymaster|
On This Day - 18 MARCH 2010
"When that sell-off happens, it'll be a great time to buy"
In this issue:
When asked about his view on the impact of the global recession on the Indian markets, Ajit said, "As long as we have short term hedge fund money coming in, there will be a knee-jerk reaction. The Dow will crack from 10,700 back to 8,000. People will have a selloff of all stocks. And India will get killed and crushed, because the money that's coming in is basically short term money still. So there will be a selloff. When that sell-off happens, it'll be a great time to buy!"
Ajit also said, "People ask - should we wait? Are we too late? My opinion is if you don't have anything invested in the stock markets, start investing. If you have Rs 100 to invest, start with 20 this year. Make it 30 next years...just keep on buying. And when that crack comes, buy a lot more. And if the crack doesn't come up, the 20-30 you have invested will go up in any case."
Our view is no different from Ajit's. We too believe trying to find cheap and good quality stocks and investing in small amounts despite the market conditions is a good way to gradually build a strong long term portfolio. But you have to be very careful in your stock selection. Buying a 'hot stock' just because everyone else around you is buying it can be highly risky.
If you missed out on The Equitymaster Investment Summit 2010, don't lose heart! We're bringing out a special Limited Edition Investment Summit twin CD pack. In it you can listen to investment strategies and insights by Ajit on the world economy, India and the biggest risk it faces, the 'must-haves' in your portfolio, ' the 5 categories of investment to build your wealth'....and so much more. To get your copy, please click here.
Looks like the fizz is back in the IPO markets. However, investors subscribe to them at their own peril. Recent issues, we believe, could have been attractively priced so as to lure investors back into the primary market. Thus, after having achieved their objective, the investment bankers could once again resort to unreasonable pricing. Hence, going forward, every IPO should be analyzed even more thoroughly to check whether a track record is in place and that valuations incorporate a sufficient margin of safety.
According to estimates by global energy think tanks, 1% increase in global economic growth now results in growth in oil consumption of anywhere between 0.31% to 0.51%. In fact, global oil intensity - oil demand growth divided by economic growth - has declined by about 2% every year over the last decade. And now the decline is becoming faster.
The reason behind this change is the crude price spike of 2008, rising efficiency, conservation measures and a greater emphasis on alternate energy. Important to note that despite this relative decline, in absolute terms crude oil consumption will keep growing. From around 85 m barrels per day today, it is set to grow to 110 m barrels per day in the next 10 years. It will continue to be the most important commodity in the world.
What is more, in reference to China's policy of pegging the Yuan to the dollar, Rickards believes that the Chinese central bank's balance sheet resembles that of a hedge fund buying dollars and short-selling the Yuan. Obviously China needs to raise interest rates and curb excess liquidity to prevent rampant inflation. But whether China pays heed to all these concerns remains to be seen given that the dragon nation has sent signals that it has a mind of its own. China also has long term problems in terms of wasteful allocation of resources by state-owned enterprises and the country's human rights record.
As far as statistics go, the annual wholesale price inflation (WPI) accelerated to 9.9% in February 2010. In fact, the finance minister expects it to top 10% by the end of this fiscal. With GDP growth nearing 8% in FY10 and expected to crossover the 9% barrier in the next 2 fiscals, there could be no better time to ensure that India does not fall into a surplus liquidity trap like economies in the West.
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