|»5 Minute Wrap Up by Equitymaster|
On This Day - 9 JULY 2010
Are stocks a tough nut? They're about to get tougher...
In this issue:
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Take the US for example. A recent report states that 40% of the profits of the S&P 500 companies in the US come from outside the country. That's great for the US, more so considering that the country is staring at the prospect of years of subpar growth.
But what about India? For our country, we consider the high reliance on domestic demand a huge positive. Yes, an overwhelming majority of Indian companies' profits come from within India itself. Quite in contrast to the US!
That may change in the years to come though. Many large Indian companies have made huge foreign investments in single and swift strokes. This has changed their revenue and earnings profiles forever. JLR, Corus, Novelis, and Zain are just a few examples. And it doesn't look like this trend is about to go away anytime soon. For all the talks of India's domestic potential, the lure of gaining global prominence seems too tempting to resist for many Indian promoters.
And so, in that way, the long term dynamics of Indian companies look set for a sea change. Earnings from external markets may gain levels of importance more than ever before. As for our stock markets, this change will mean a transition from a regular analysis of 'global market sentiment' to 'global earnings forecasts'. Stock market analysis is about to get a whole lot tougher!
Still, the need for reforms is bigger now than ever before. Reforms will bring with them strong economic growth which will then make the huge debt burden bearable. In its absence, Europe can easily hurtle towards total collapse. Thus, the magazine believes that the political leaders in Europe should seize the moment and build a coalition for reform. After all, the world does need an economic force as strong as the European Union.
We do not think so. This is after seeing tonnes and tonnes of grains getting wasted in the open in Punjab's fields. On asking what led to this, we got to know that the off-take from the government last year was poor. This was given that the Food Corporation of India did not have sufficient storage space for a large part of the produce. And it still isn't building more such space at the speed at which it is required.
This is perhaps the most tragic irony for this country. While millions of people struggle to manage one meal a day, tonnes of food grains rot in the open, just because of government apathy! And then they blame the rain gods!
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