|»5 Minute Wrap Up by Equitymaster|
On This Day - 16 OCTOBER 2010
Cut the hype! - says SEBI to investment bankers
In this issue:
------------------- Win A FREE TRIP to USA! -------------------
And 'hard selling' is the very term used by a recent Mint report to describe the modus operandi of investment bankers peddling IPOs.
The implications of this hard selling for the average lay investor can be misdirection at best, and large losses at worst. We've already tasted a sample of this during heydays of January 2008 when a large hyped up IPO ended up in tragedy for a large mass of investors. Many investors are still licking their wounds inflicted during that time.
An executive director from SEBI recently warned bankers against 'planting news articles' and 'making forward-looking statements' in advertisements by companies coming out with IPOs. SEBI, astute as it has proved to be, realises two important things more than anyone else. One, the future is highly vulnerable to the vagaries of the business cycle. That is the hard reality. Precise and confident predictions about the near term future of a company are nothing but displays of arrogance. And two, that the future is also especially vulnerable to vested interests turning and twisting it to suit their needs. An exceptionally rosy and bright future is not very difficult to paint. Especially in times when the general business climate is good.
Skepticism is the investor's best friend. And its doses need to be doubled in times like these. The coming week will start with a large and extremely hyped up IPO, and many more will probably follow. The last thing you want to do is take everything thrown at you at face value.
It should be noted that these plans are not the outcome of a growing outcry over outsourced jobs. Instead, it is a well thought out long term strategy that significantly predates much of the recent outburst. The timing of the report though wouldn't have been more apt. It will help immensely in driving home the point that it is only through globalisation and free market fostering that living standards of people can be improved. A certain Sally's parents in the US may have lost their jobs in a textile company to cheap imports from India. Sally will be able to make up for it by landing herself a plum position in say a TCS or Infosys. And there surely be many more such Sallys to come. Call it the shift in the winds of globalisation if you want.
It is interesting to note that they are now more focused towards consulting and implementation services, which indicates a revival in discretionary spending on the part of the clients. For now, it seems that good times are back for the IT industry. These good times will however be marred by the adverse impact of the currency movement as well as the need to employ and retain workforce.
India, so far, chose to stay in the sidelines. Infact, the RBI governor had stated that the central bank would intervene if it believes that inflows are 'lumpy and volatile or if they disrupt the macroeconomic situation.' And because of the persistent rise in the rupee of late, the RBI intervened in the foreign markets in the week gone by. RBI's intervention is estimated to have been in the range of US$ 400 m. To add to that, state-owned oil companies bought dollars worth over US$ 1 bn for making payments for oil imports. This then took the total market intervention to US$ 1.5-2 bn. Indeed, the RBI is going to have quite a task on its hands of controlling inflows at a time when the developed world shows no signs of recovering soon.
Gains in markets across the world were on the back of positive market sentiments, which in turn was on account of receding worries over the global economy coupled with good corporate earnings that were announced during the week. India and Japan were the top underperformers this week, with their benchmark indices ending lower by 0.6% and 0.9% respectively.
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