In this issue:
» Large caps emerge clear winners
» 'Silver Lining' becomes very expensive
» The windfalls from Direct Tax Code
» Smaller towns becoming hubs for hiring.
» ...and more!!

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00:00		Chart of the day

Whenever one has talked of emerging markets in recent times, China has always found a mention ahead of India. However, today's chart of the day has thrown up a rather surprising result. India has performed way better than China as far as the year to date returns from stock markets are concerned. In fact, India has trumped not just China but all of its BRIC counterparts. It is the only country where stocks have given positive returns so far this year.

Blame it on the FIIs. As per a leading daily, overseas funds have poured in a record US$ 12.4 bn into Indian equities in the first eight months of 2010. And they seem to be in no mood to slow down. Total inflows could rise to as much as US$ 16 bn by the year-end. Surprisingly though, domestic institutions do not seem to be so gung-ho about Indian equities. Their investment during the same period has amounted to just 5% of the money put in by FIIs. What more, they have turned out be net sellers in the past three months.

This then presents the biggest dilemma for a retail investor. Should he listen to the FIIs or side with the domestic institutions? We believe that both the FIIs and domestic institutions have their own sets of reasons for doing whatever they are doing. And so should an individual investor. According to us, there is just one way in which long term wealth in equities can be created. And it is to invest in companies that have a long track record of generating far more cash than they can consume internally. Buy into such companies at reasonable valuations and you can forever ignore what FIIs or other institutional investors are doing.

01:15

They continued to do so in the June 2010 quarter as well. In fact, in the June quarter, large caps managed to grow their sales and operating profits by 20% and 35% respectively. This compares to a less than 20% growth for their smaller counterparts. For the moment at least, it seems like larger companies have been able to better manage their operating efficiencies and capitalize on their economies of scale.

01:55

A high savings rate is considered a big positive at a time when even the most affluent economies are reeling under high debt. For India and China, savings to GDP ratio in excess of 35% has been the key reason for investors flocking to these markets. And the Indian government can ill afford to dis-incentivise high savings at this point of time. Even if that means collecting lower taxes and looking for other means to curb fiscal deficit.

The revised Direct Tax Code suggests exactly this. Lower effective tax rates, exemptions on pension schemes and fiscal sops on housing loans are expected to help the tax payer retain higher income. This is turn is expected to drive higher consumption and savings rate. Both of these are necessary for India to sustain GDP growth rates close to the double digit mark. While this move is in the right direction, the government will need to ensure that it cuts down on subsidies and keeps its balance sheet healthy.

02:47

It would cost you nearly Rs 2 m to buy a kilo of pure gold. And, the yellow metal is not even at its all-time high. But, another shiny metal has quickly reached epic highs. Silver prices zoomed to reach a record of Rs 30,760 per kilo in the bullion market yesterday, reaching historic levels. Its recent rally actually beat the increase in price of gold in the same period. On an average, 73% of the overall demand for silver's is for industrial usages while the remaining comes from currency, investments or jewellery purposes. There was a huge demand for the white metal, this week both from stockists, as well as industrial users. Seems like all that glitters is not always gold!

03:22

One of the features of the Indian growth story is its rather unequal nature. The urban centers have boomed. The smaller centers are yet to catch up. But that is fast changing. And so is the mindset of companies selling consumer goods. Good monsoons, government sops, higher disposable incomes and media penetration has brought the Indian hinterland into sharp focus. FMCG companies are driving deep into India for hiring field staff to sell shampoos, edible oil and even pizzas. HUL is hiring 25,000 'shaktimaans,' or sales and field staff, to sell its products in nearly 150,000 villages. Dabur intends to hire 200 'feet on street' and indirect employees through its stockists in villages and small towns. The list includes a host of other FMCG giants. Clearly, the much maligned trickle down effect of economic growth is at work here. The smaller centers are where the big opportunity now lies.

03:50

The Government is trying to 'secure' the people of the country by putting restrictions on import of equipment from outside India. They imposed a restriction on import of telecom equipment last year. The result was that operators did not have the equipment to meet their network rollout targets. Now, the target is the power sector. The government has stated that only locally manufactured equipment would be used in the central government's high capacity power projects. This would mean that any foreign supplier would have to set up shop within the country or tie up with a local manufacturer. This would also mean that the local manufacturers of power equipment will have to increase capacity. Considering that these things take time, there could be serious delays to the government's target power capacity addition stated in the 11th 5 year plan.

04:35

After opening the day in the red, Indian indices continued their downward journey on profit booking in heavy weights in the IT and banking space. At the time of writing this, the BSE-Sensex was trading lower by 81 points. However, most of the Asian indices are trading in the positive territory led by Japan, Singapore, and China. On the other hand, Europe has opened the day in the red.

04:50

Today's investing mantra

"All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies." - Warren Buffett