|»5 Minute Wrap Up by Equitymaster|
On This Day - 7 SEPTEMBER 2011
Can crisis bring out the best in businesses?
In this issue:
Take the Indian real estate sector. There is little that the sector can bank upon to improve the prospects of revenue growth and profitability. Although much of the woes are of their own making, builders are stuck with large inventories and no buyers. Critical resources like land, labour and capital have become increasingly inaccessible to the sector. In such tough times, the players have had no option but to realign their business strategies to deal with the crisis.
Using one builder's land and another's development and marketing skills have come handy in times of execution crisis. These have solved the problem of non-availability of huge tracts of prime land and avert the shooting land prices. With demand touching historical lows, real estate inventory is lying unsold for as long as 40 months in a few cases in Mumbai. Due to this, builders have also had to share capital with their peers. But all said and done, timely execution and realistic pricing could go a long way in solving the sector's woes. As far as demand is concerned it is only a matter of time before the interest rates reverse and buyer appetite improves. Also given the scope of urbanisation in the smaller towns and cities, we believe that real estate is a business that is here to stay. Provided done with efficiency, ethics and stakeholder friendliness.
In fact not just realty but several sectors like IT, auto and textiles that have witnessed investor apathy in recent times are likely to come back with a bang. Cost efficiency, sustainability and innovation are some of the techniques that are likely to bring out the best in them. It is for investors to spot the most promising players while the tide is against them.
---------------------------------------------- Video on Demand ----------------------------------------------
Our most recent WebSummit - Stock Market: Where to from here - is now available on demand!
It will be available only for the next few days... So we recommend you view this Free Video right away!
Speaking on the sidelines of an event recently, the RBI Governor opined that SLR must be brought down so that credit flow to the private sector is eased. However, he stopped short of mentioning the exact ratio. Like all the central bank policy actions in recent times, we support even this one. The cut in the SLR though should not be too much as it will then divert funds for development towards payment of interest by the Government.
We doubt that the pooling concept will have many takers. The move may benefit private producers, however, companies like NTPC will be at the losing end since around 85-90 % of its consumption is met through domestic coal. While we do need to be realistic about pricing coal, it can't be a single pronged price centric strategy. The sector needs to get rid of distortions like partial decontrolling of prices. The Government needs to set a regulator and work on supply side dynamics as well. We believe it should rather focus on policy reforms like easing entry barriers of private sector and a reform in the mining bill to begin with.
With the number of high net worth individuals rising at a scorching pace in India, the appetite for hedge funds is immense. Experts suggest that the Indian capital markets would receive at least US$ 2 bn in funds once the hedge fund option is made available to wealthy investors. Though these funds may seem attractive, they may bring in little merit to our economy, not to mention the extreme volatility caused by big speculative hedge funds.
In a bid to curb exports, Indian government had raised export taxes and freight rates on iron-ore. As a result, the average cost for Indian iron ore increased to US$100 per tonne, more than double the production cost in Australia and Brazil. Moreover, there is a ban on shipments from Karnataka, which account for one-fourth of India's annual exports, due to illegal mining swindle. The higher export cost led to a decline in margins of iron-ore producers. The government's steps to prevent iron-ore exports came in line with its plans to boost the domestic steel industry. India aims to increase its steel production capacity to 120 m tonnes by 2012 from 67 m tonnes in 2010. The decline in exports will enhance the supply of iron-ore in domestic market. This will lower the raw material costs for the domestic steel companies, in turn boosting their margins.
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement
Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.
This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.
This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, Canada or the European Union countries, the same may be ignored.
This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.
As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407