»5 Minute Wrap Up by Equitymaster

On This Day - 10 JULY 2010
When will we stop swimming to airports?

In this issue:
» A solution for our urban traffic woes
» India may have a bumper harvest this year
» Airline stocks: Good investments?
» Decontrol of sugar price may follow soon
» ...and more!!

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Our search for quality companies led us recently to the union territory of Chandigarh. And while this beautiful city boasts of being the capital of both Punjab and Haryana, we had quite an intriguing experience during our travels.

And that experience can be summed up in just two words. Chandigarh Airport.

The airport of this commercially significant city was nothing short of dismal. While its aesthetical appeal, or lack of it, could even be ignored for a moment, many other basic functional aspects of the airport were distressing to say the least. Water logging right at the airport's entrance made a pre-flight dip in the water mandatory. The top management of a leading PSU bank were also seen paddling through the water, suits in hand and pants rolled up. Distasteful food. A breakdown of the baggage scanner. The seemingly lax security. All cost us a lot in terms of loss of time and productivity.

The good news is that a new terminal is supposed to come up adjoining the old airport. This will presumably relive the plight of passengers at such a critically important piece of India's infrastructure machinery.

But in some ways, the transition from the old to the new at Chandigarh Airport is quite symbolic of the transition that the whole of India is currently in the midst of. This is the transition from a country which lacks many basic infrastructural requirements to a country that functions smoothly without any hiccups at such basic levels.

While the transition is sure to happen, it is the time it takes that will determine the real and opportunity costs that its citizens will have to pay along the way. The government sure needs to step up the gas!

 Chart of the day
The traffic situation in many congested metros seems to be getting worse by the day. With many of our metro cities being very low on planning, there's very little room for road expansion on some of the busiest roads in India. As today's chart shows, the ultimate solution for our traffic woes may lie in the form of a 'congestion charge'. Quite like the one in Central London, where post the introduction of this charge, traffic snarls in the area reduced while at the same time public transport got a fillip. This is because the charge goes towards raising funds for investment in the public transport system, which is after all a mass and much more efficient means of commuting.

Data Source: Earth Policy Institute

The rain gods seem to be smiling upon India. Poor monsoons last year wreaked havoc on agricultural production then. This in turn created food shortages, and sent food prices soaring. All of which pushed inflation to higher levels. But the scenario this year is different. Although the month of June was a bit wobbly, renewed monsoon rains in India have raised hopes of bigger harvests in the coming months. In fact, the agriculture minister Sharad Pawar has voiced his optimism by saying that India is likely to have a bumper food grain production this year.

This is judging from the way the sowing operations are taking place and reports of good monsoons from states. Sugar is a strong example. Last year, sugarcane planting in Uttar Pradesh fell by 17%. This then led to a 44% drop in sugar output as a result of which sugar prices shot up. Not just that, India was also forced to import large quantities of sugar. However, this year, the area under sugarcane in UP has risen by 15%. Not just sugar, but even rice and cotton planting are expected to pick up momentum. Indeed, good monsoons and fall in food prices will go a long way in dousing inflation in India.

There's finally some good news in store for Indian airline companies. Or so it seems. As per the Centre for Asia Pacific Aviation (CAPA), these companies are expected to fare better this fiscal. This is as compared to their poor performance in the past two years. CAPA's belief stems from the fact that airlines are seeing a recovery in demand. This is being led by a general improvement in economy and steady passenger traffic.

Anyways, how this recovery is going to impact the stocks of airline companies is still not known. We know that despite being a great example of human innovation, the airline industry in general makes very little money on a sustainable basis. Sometimes, things get really bad. Like in the past few years when companies have to battle against high fuel prices and weak passenger traffic. Adding to that was intense competition that left most Indian carriers in deep turbulence.

Even as we see now, there is no respite against competition for all players. Travel anyways remains a commoditised service where customers are extremely price sensitive. Little wonder then, we remain cautious on the sector.

Good times also seem to be returning for private fuel retailers. We are talking about companies like Reliance Industries and Essar Oil. These earlier had to either shut down their outlets or continue with a marginal existence. This was when public sector retailers like HPCL and BPCL were selling fuel at low (regulated) prices as compared to them.

These firms are now planning to restart some of their outlets. This is following the deregulation of petrol prices. They are looking to expand in cities that proved to be unviable earlier, thanks to the government's regulated pricing mechanism. The important point to consider here is the level of decontrol the government would like to have for the industry. If it gets back to controlling prices in the future, it might again be bad for the private players.

'Decontrol' seems to be the word of the season. First it was oil prices, now it is sugar. Sugar prices have been controlled through monthly sales mechanism and subsidized sugar purchases by the Government. The Government also fixes the prices at which sugar cane is bought by the sugar mills. However, sugar prices have been falling consistently since January this year. In addition to this there are expectations of a better crop production in 2010-11. This has prompted the Agriculture and Food Ministry to propose the decontrolling of sugar prices. The news came as a sweetener for the sector which witnessed stock prices jumping by almost 4% to 6%.

The past week turned out to be a brilliant one for stock markets across the globe. This was after a terrible performance in the previous week. Most Asian markets gained on a weekly basis, with Japan leading the gainers, China being a close second. Sentiment was positive after US retail sales grew at the fastest pace in four years (4% growth year to date) and the IMF raised its forecast for global economic growth. Good retail sales showed a revival of spending in the US, the biggest consumer for Asian exporters. China's benchmark index posted strong gains of around 4% among world indices; it also stated that it will stick to a fairly loose monetary policy. The Japanese markets gained by about 4.1% this week on the back of positive US numbers, boosting shares of top Japanese exporters.

The Indian markets ended on a positive note with an over 2% gain. It started off the week flat with the Bharat bandh being enacted and the RBI rate hike but closed positive towards the end of the week. The key reasons for the same were the IMF upping global GDP growth as well as raising its growth forecast for India.

Source: Kitco, CNN Money, Yahoo Finance

 Weekend's investing mantra
"The four most expensive words in the English language are, 'This time it's different'." - Sir John Templeton

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