»5 Minute Wrap Up by Equitymaster

On This Day - 20 AUGUST 2011
Do you still believe in 'Brand India'?

In this issue:
» Personal Computers become obsolete
» Gold sees the longest winning streak since 2007
» Can China's appetite for metals derail India's growth plans?
» Is US debt still good for the RBI?
» ...and more!

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What exactly does 'Brand India' signify for you? Well for many it signifies youth, vitality and exuberance. An image that would come to most people's minds would be of the young Indian cricket team that won the 2011 World Cup. However, increasingly 'Brand India' is signifying something else, that's darker and murkier. Corruption and scams have rocked the nation many times over. But, now there is growing unrest in this country against this menace. A voice we believe that cannot be ignored.

But, would you still bet on India given the other options you have globally? Well, we think so. And who better to corroborate our analysis on 'Brand India' with than Sir Martin Sorrell. He is the head of WPP, the world's largest advertising and marketing communications conglomerate. He believes that 'Brand India' is far stronger than 'Brand UK' or 'Brand US'. 'Brand UK' has been marred with the recent riots in London. Shops were looted, violence erupted and buildings were set ablaze in the poorer neighbourhoods of the city. The police's inability to handle the violence raises fears ahead of the Olympic Games next year. 'Brand US' is also under tremendous pressure. The vote on the debt ceiling and the subsequent rating downgrade by S&P contributed to a global selloff. The lack of further monetary stimulus to the economy is adding to fears of a slowdown and anaemic growth. Sorrel interestingly quips "You can't just go off steroids without feeling some pain." 'Brand Euro' is also jittery with most economies in a debt crisis not showing any signs of recovery. Their default may even drag down stronger nations like Germany and France.

India remains one of the fastest growing economies in the world. Corruption is a concern; but the same is prevalent in most emerging economies. The Anna Hazare movement is breaking new ground and challenging the way things are done. But, is the over 20% YTD (year to date) fall in the Indian stock market justified? Well, maybe not but it provides a compelling opportunity to pick up good stocks in a growing economy.

We continue to believe in 'Brand India' in light of its strong fundamentals and domestic growth story. Have you lost faith, or do you still believe in its core strengths? Share your views with us or post your views on our Facebook page.

 Chart of the day
Mumbai, the capital of the state of Maharashtra has the glory of being the financial capital of the country. Maharashtra is also one of the busiest business hubs in India. However, on the flip side, it boasts of having the highest number of dormant firms. Three states and one Union Territory: Maharashtra, Andhra Pradesh, Tamil Nadu and Delhi together account for almost 70% of the registered companies suspected to be dormant or defunct in the country. Maharashtra leads the way with over 35,000 firms which are completely non-operational.

Data source: Business Standard

In a world of customization and specialization, there is little place for wholesale bulk orders. This is the truth that PC (Personal Computer) manufacturers are now coming to terms with. PC giants, Dell and HP (Hewlett Packard) are now restructuring their core businesses to limit their focus on the traditional PC business. The reason - PC business has been declining. This in turn has been brought about by the surge of smartphones, tablets, laptops and other devices that allow the user the freedom of mobility while working. Remember, the standard PC is still fixed at one place. In addition to this, with the growing popularity of cloud services , customers are no longer satisfied with just receiving a huge order of desktop PCs. They want machines that can automatically connect to the cloud servers. And provide additional services. As a result, there has been a decline in the overall growth of the PC market. This has prompted manufacturers to look at hardware and services beyond PC. But the big question now is can they be equally successful at it? If yesterday's fall in HP's stock prices is any indicator, then it does appear that its own investors do not think HP can do well without its PC business. (HP recently announced plans to spin off its PC business). But this shift is essential. Otherwise the company's long term growth would come into question. But will it be successful at it or not? Only time will tell.

As global economy witnesses a sense of gloom creeping in, the yellow metal sees the longest winning streak since 2007. Gold is set for its seventh weekly advance. Versus other investments fetching negative return, the gold has been the only consistent performer over several years. It has recently touched dazzling levels of above US$ 1,880 an ounce in New York.

As far future prices are concerned, the general consensus is that it will continue to advance. Are the bets reasonable or is too late to be a part of the gold rally? We believe that gold is going to glitter even more. Our conviction regarding gold prices stems from the lack of confidence in the leaders to handle the European or US debt crisis . Further, we expect the limited supply of the precious metal to keep the prices firm.

We live in a metal intensive world. Much of our GDP growth is driven by mining metals from the earth's crust and then moulding them into shapes that help improve our productivity and standard of living. Thus, a shortfall in the availability of metals could seriously derail growth prospects. While an eventuality of this kind does not seem to look India into the face right now, it cannot be completely ruled out either.

A leading business daily has argued that China's growing appetite for metals could make things difficult for India. It should be noted that in recent years, there has been no effort on India's part to increase or even start production of certain types of metals. This was because China used to flood the markets with these metals and that too, at a very low cost. But things have changed now. The dragon nation has started putting restrictions on the exports of a few metals as its own domestic consumption has increased a great deal. And things are only likely to get worse from here. Thus, it is important that India takes the issue of metals security quite seriously now. It should not only try and increase domestic production but also enter into strategic tie ups with resource rich nations. Any further delay in the same could have negative repercussions on the India growth story.

The RBI may have been one of the best central banks globally. But the regulator does not seem to be doing a very great job when it comes to managing money. What else can explain the fact that it had parked nearly 52% of its forex reserves in US Treasuries at the end of FY11? True the downgrade of the US' sovereign rating has come into light only recently. But the true value of the US debt papers is not something that the RBI has been oblivious about. In fact it has been the most vocal in criticizing the US Fed's cheap liquidity policies. We wonder what then had led the RBI to follow the herd. That too when the bank has invested just 7.5% of total foreign exchange reserves in safe haven gold! We believe that given the poor intrinsic value of the US Treasuries, the RBI should lose no time in setting its asset allocation right. Investing some part of the reserves in Indian infrastructure would in fact be a far more lucrative opportunity.

It was yet another disappointing week for the global stock markets. Major markets across the globe closed the week in the red. The US stock markets were down 4% during the week (fourth consecutive week in the red) on fears of another recession and rising concerns over the European debt crisis. High risk aversion and the prevailing confidence crisis amidst global uncertainties have taken a huge toll on the markets. European markets also suffered heavily during the week due to lingering debt worries. In Europe, Germany was the biggest loser (down 8.6%) as slowdown in GDP growth worried investors and triggered a massive fall.

Indian stock markets too faced the brunt of heavy selling with the BSE Sensex closing lower by 4.1% during the week. Weak global cues and fears of slowdown due to rising interest rates overweighed investor sentiments.

Source: Yahoo Finance, Kitco

 Weekend investing mantra
"There is only one side of the market and it is not the bull side or the bear side, but the right side." - Jesse Livermore

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