|»5 Minute Wrap Up by Equitymaster|
On This Day - 21 AUGUST 2010
Doing what other investors aren't doing today...
In this issue:
---------------------------- Exclusively for Serious Investors... ----------------------------
Yes, euphoric was the word. But how could one have known that it was the time to be selling stocks? Afterall, everyone around was recommending to buy stocks. No one could get enough of them. The 'India growth story', and 'India decoupled' were being dished out by the second. You wouldn't want to miss out on India's growth now, would you?
And that's how it always is. Be greedy when others are fearful, and fearful when others are greedy, said arguably the world's greatest investor. A simple principle alright. But definitely not easy.
If you were one of those who thought that stocks were too expensive in January 2008, you might want to give a long hard look at them again today. That's because many of them have left far behind their highs touched during that period. Take the BSE Auto index for example. While the Sensex is still not close to its lifetime high of about 21,000, the former hit a record high of 8,924 this Thursday. And that's not the only group of stocks that seem to be in fashion these days. There are many others. The buoyancy in prices fueled by the 'domestic consumption theme' as many like to call it.
So while others may be getting greedy on many a glimmering stock, you might just want to make way for fear instead.
Elections in India are anyways decided by agriculturists, whose farm incomes are tax exempt. Then, high levels of poverty and tax evasion keeps the other majority outside the direct tax net. So, it is unlikely that the small taxpayer will be a government priority when it comes to tax reforms. Small taxpayers like us would prefer proper service deliveries from the government. Whether it is on the healthcare front, or electricity or education.
But unfortunately corruption is inherent in the government machinery. And even the simplified tax rules maybe twisted. Therefore low taxes may not help unless compliance issues are addressed.
They have also realised the value of saving for a rainy day. More than half of 18-29 year olds have curtailed spending since the crisis began. The youth have also become more conservative investors due to market volatility. They are now cautious about unrealistic returns in real estate or tech stocks. Seems like we will be seeing a much more conservative and financially responsible new American generation in the years to come!
Another move than could improve the fortunes of food production is drawing foreign investment to the food supply chain. More importantly, food wastage has to be significantly reduced. As reported in the Wall Street Journal, India loses US$ 21 bn worth of farm produce after harvest every year because of wastage. Moreover, it has a storage-capacity shortfall of 35 m tonnes. Thus as far as inflation is concerned, the moot question is whether the government is up to the task of implementing some long term measures to bring inflation down or not.
Leading the pack of losers was France which ended lower by 2%. Germany, UK and US followed suit with losses of 1.7%, 1.5% and 0.9% respectively. China, India and Brazil ended the week on a positive note. While China and India ended higher by over 1%, Brazil ended the week with a gain of 0.6%.
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