|»5 Minute Wrap Up by Equitymaster|
On This Day - 1 OCTOBER 2010
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So what are insiders saying these days?
Well, while we should outright confess that we do not have any such company specific information, the actions of the insiders of corporate India speak loud and clear. As per a Bloomberg report, insiders of the 30 companies that make up the BSE Sensex made at least 110 stock sales last quarter, worth a combined US$ 21 m. The last time the number of sales was this high was the fourth quarter of 2007. And the Sensex tanked 23% in the following 3 months.
Insiders include company officers, directors and others at the top management level. For the Sensex companies, they as a group have increased their stock sales by 200% during the past three months compared to the same quarter a year ago. Further, their sales have outnumbered their purchases by a ratio of 14 to 1.
Insiders are usually considered to have the best quality information about companies they themselves help run. Thus, many consider them to have the most accurate picture of the fair value of a company. With such aggressive selling on their part, you wouldn't be very out of the line to stop and think before plunging into this seemingly ever rising market.
So what are you doing with your equity investments these days? Are you selling into the rally, or simply buying more hoping prices will rise higher? Share your comments with us or post your comments on our Facebook page.
Infact, Indian companies are already making a beeline for Europe. Acquisitions in Europe by Indian companies were up nearly 8 fold in the first eight months of the current year as compared to same period last year. Given the kind of niche technologies and skill sets on offer, the number will most likely swell in the near future. Not everything will work in the favour of Indian companies though. Europe is known for its tough environment laws and high cost for doing business. Plus, there is the risk of possible regulatory or policy changes that could overnight turn an attractive acquisition into an unattractive one. Thus, while the opportunity is there, Indian companies should tread with caution.
But the strength of the Indian economy lies elsewhere. It lies in the spirit of entrepreneurship amongst Indian youth. One which is not constrained by the government's patronage as in China. It lies in the increasing mass of educated Indian youth ready to join the workforce. This, against a large mass of aged Chinese waiting to retire. Also it lies in the relative security and transparency of knowledge based services. The last one most importantly is expected to herald India to a new growth phase ahead of its Oriental neighbour.
While all this sounds hunky dory for those looking for jobs, this is bound to create pressure on profitability for the companies. This is considering that good times also bring with them high employee turnover that then leads companies to raise salary levels to retain key employees.
Even if these reports paint a positive picture, the US government will have to monitor the economic scenario for a few more months. This is before it can say with confidence that the economy is recovering. Meanwhile, the Fed has stated that it is willing to take more steps to spur growth. The US still has to deal with a persistently high unemployment rate. And the burden of absorbing all the unemployed into the workforce once the economy recovers. The next few months will therefore be crucial for the US.
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