»5 Minute Wrap Up by Equitymaster

On This Day - 20 AUGUST 2010
India's public enemy No. 1

In this issue:
» Rising middle class key to rebalancing global economy
» India and China's fight for supremacy
» Changing consumption heralds changes in the oil industry
» Indian job market expected to double in 5 years
» ...and more!!!

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Indians are an ambitious lot. And so is India. It is rather ironical then that our ambitions to move forward and progress at a fast pace have time and again been stifled by one indomitable monster - corruption.

It is a monster that has made a habit out of rearing its ugly head time and again. And it seems to especially make an appearance when we as a nation set any substantial target for ourselves.

Just two recent examples are enough drive home the point.

At the outset, Prime Minister Manmohan Singh said that India hosting the Commonwealth Games (CWG) would "signal to the world that India is rapidly marching ahead with confidence." When the organizers of the CWG recently called a press meet to talk about how prepared New Delhi was, it ended up instead fielding questions about how much they paid for toilet paper. The only signals the CWG have ended up sending out are that of mass corruption and mismanagement.

A while back, transport minister Kamal Nath set the ambitious target of building 20 km of highways in the country everyday. That intended pace has now come to a screeching halt. Why? No prizes for guessing. The CBI unearthed a scam in highway tendering in May. Since then, the authority has managed to award merely 2 projects spanning just 164 km. This roughly works out to a pace of just 2 to 3 kms per day. Dismal by any count.

Till when will the monster of corruption keep playing havoc with our dreams? And just why is corruption so very deep-seated in our country?

What do you think is the solution to the pervasive scams and corruption in India which are severely slowing down India's progress? Share with us your views or post your comments on our Facebook page.

 Chart of the day
They say that age equals experience. And that with age comes wisdom. Today's Chart of the Day exhibits the age of some popular Indian large-cap companies. In a way, the longer the history of a company, the more the information an investor has to work with. He can see practical illustration of the company's business model in action, and the results it has been able to achieve therein. Afterall, seeing how a business has performed during past upturns and downturns in the economy does say a lot about the quality of a company's business.

Source: CMIE Prowess
Age calculated from the year of incorporation

China's latest claim to the second largest economic size in the world after the US is a historical landmark. The nation which is now competing with the US, held the same position after India centuries ago. But today China is not just an economic super power. It is also world's most-populous country, the biggest exporter, the biggest car market. In addition to being the biggest carbon-emitter and the biggest consumer of energy. An article in Economist that captures India and China's fight for supremacy caught our attention.

What was most interesting was the fact that China despite its economic prowess is an insecure nation. Its growing aged population and anti-Communist sentiments are seen as a major threat. India's democracy and young populace, in particular, scare the dragon nation. But we could not agree more with the conclusion of the article. That both India and China would be better off channelizing their resources together rather than competing with each other.

The Asian Development Bank (ADB) has released a report on the emerging middle class in Asia. It sees the region's rapidly rising middle class, led by India and China, to be the key to rebalance the global economy. A growing middle class, ADB thinks, will make these regions (especially China) more consumption-driven rather than relying heavily on external demand.

As far as the Indian middle class is concerned, ADB believes that it remains vulnerable to global economic shocks. This is given that over 75% of the country's middle class remains in the US$ 2-4 daily consumption bracket. As such, this segment is at risk of falling back into poverty in case a major economic crisis strikes.

We see India's rising middle class as both an opportunity and a risk. Opportunity in light of the huge consumption boom it promises. And risk in terms of the big unemployment challenge it can throw up.

Seasonal patterns of global crude oil use are changing with growing demand coming from China, India, Saudi Arabia, Brazil and Indonesia. The traditional peak season used to be the winter of northern hemisphere during January-March. But no longer. As per FT, this year the peak has already arrived due to consumption from the emerging nations. The new peak will bring about changes in the oil industry. Low demand periods allowed refineries to undergo maintenance. They helped to build inventories to meet peak consumption later. But now the industry will have to adjust the new refining and logistical challenges. The message is loud and clear. The world economic order has changed. Be it the sharp contrast in economic growth between the developed and the emerging nations. Or be it the use of basic commodities like crude oil.

Who would be the biggest beneficiary of India's growth? The answer is the people. More growth would obviously translate to more jobs. As per a leading recruitment agency, the Indian job recruitment market is expected to double in the next 5 years. India's job recruitment market currently stands at Rs 10 bn. As per the agency, this is expected to grow at 20% each year and double to Rs 20 bn in the next 5 years. This growth would be fuelled by increasing intensity of economic activity in India's smaller towns and cities.

Chinese businessmen have been long harbouring the impression that their Indian peers are not equal to them. This has compelled India Inc. to send out a stern message to the Chinese to change their mindset particularly if they want to enhance their growth prospects in India. Chinese companies have been told not to proceed with a 'perception of imbalance' and a feeling that Indian firms were less competitive than those in other countries. Moreover, the Indian industry associations are also prompting China to make its market more accessible to Indian companies in certain sectors. Take the case of pharmaceuticals for instance, which are highly competitive. These do not even figure in the list of India's significant exports to China. Same is the case with Indian IT. It has not yet met much success in the Chinese market. Will China bow down to this message delivered by India? Only time will tell.

After opening in the red, markets continued to stay in negative territory on profit booking. The BSE-Sensex was trading 31 points lower at the time of writing this. Stocks from the healthcare and consumer goods space witnessed some buying interest while IT and banking stocks saw some declines. Sentiments were negative in the rest of Asia, with all major markets in the red. China and Japan were top losers, down 1.7% and 2% respectively.

 Today's investing mantra
"I have owned one stock since 1969, two since 1988 and one I started buying in 1986 or so. That's my portfolio. Six stocks. I once owned 17, but that was way too much." - Philip Fisher

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