|»5 Minute Wrap Up by Equitymaster|
On This Day - 23 JULY 2009
This will drive stock prices in 2009-10
In this issue:
Just to put the numbers in context, a whopping 70% percent of those who participated in the poll seem to be bullish on China. Europe and the US are however still continued to be perceived risky with 44% identifying the former as the biggest risk and 20% the latter. Although there are no statistics mentioned for India, we believe it to be a significant number. Otherwise, what would explain the huge jump in our benchmark indices over the past few months?
And mind you, equity rallies have their own ways of stimulating an economy (like by way of enabling companies to raise growth capital). So, if the rally does hold up, economic growth could very well exceed the 5%-6% rate that we have come to expect of India in the medium term. If it doesn't, not much damage would be done because we will anyways grow at the original rate.
All in all, equity investing at the current juncture seems to be a low risk proposition from a long-term perspective. Have you made sure that you are in the right stocks?
As per Bloomberg, Duggal's US$ 4.6 bn Indian Equity Fund, which targets overseas investors, rose a whopping 78% this year, the best-performing Indian equity fund with assets of more than US$ 500 m.
He continues to believe that the Indian economy's inherent growth potential remains intact. He expects FY10 results for India Inc. to grow by less than 10% but FY11 to witness a growth of 15% to 20%. These earnings are now made more attractive due to stability the new government will provide. As a result, as he says, "One could argue that India's trading multiple could be higher." In fact, valuations are in line with 10 year averages and lower than 5 year ones.
But despite all these positive vibes that emanate for India, it is pertinent that you do not lose sight of the fact that the world is still a very uncertain place to invest in. And given that, as Ajit says, "India is still hostage to flows of short term money from hedge funds," it is important that you do not give in to the greed that might lead the markets to high levels in the short term.
In such a scenario, what should you do? Invest in companies with strong business models and visionary managements, but only after you have kept aside enough cash for emergencies and to live comfortably.
Even for Bharti, around 60% of net addition to its mobile subscriber base has come from outside the 30-40 main cities of India. Focus on value added services and e-commerce services for large corporate and SMEs will also be the key focus areas for the company and the sector going forward.
Now, Warren Buffett has also indirectly sounded his view on the sectors. Buffett, whose Berkshire Hathaway has held a 20% stake in one of the bigger rating agencies Moody's, has now sold around 4% stake in the latter. While Buffett has long defended investing in Moody's, he has also always maintained that he does not rely on credit ratings to make his own investment decisions.
Readers would do well to recall that immediately after taking over the Transport Ministry, Mr. Nath had set a target of completing 20 km of road construction per day taking the annual figure to about 7,000 km per annum. Yes, he has reiterated that getting investments for developing roads will not be a hindrance going forward. But what is the point if the execution remains poor. After the kind of delays and execution issues that are present in the power sector in a country where millions are deprived of electricity, this statement by Mr. Nath is just another example of the government taking two steps forward and then one backward.
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