|»5 Minute Wrap Up by Equitymaster|
On This Day - 18 NOVEMBER 2009
'India staring at a multi-decade bull market'
In this issue:
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So, is there any such bull market taking shape anywhere in the world right now? If one were to listen to Rakesh Jhunjhunwala, one of India's most successful investors, there is a multi decade bull market making its presence felt right here in India. "India is on the verge of unprecedented multi decade growth. Choice of asset class will decide the return. I have allocated 100 per cent of my portfolio to equity asset class", Rakesh opined at a recent seminar. He further added that investors should look for long-term growth prospects and growth-drivers of companies where they invest, rather than getting carried away by short-term apprehensions. Indeed. We couldn't have said it better. While the Indian economy is likely to grow at strong rates well into the future, it is only those companies that constantly churn out products that meet the needs of India's large populace, and also do it profitably will survive. Hence, investors should always be on the lookout for such companies.
However, before one uncorks the bubbly and starts celebrating, there is also a sobering fact. While volumes may show signs of easing up, realizations are likely to remain under pressure. Since there is still a widespread fear amongst consumers in the developed markets, they have resorted to down-trading and hence, cheaper goods are finding more demand as compared to mid-priced and higher priced brands.
Thus, the overall impact on the revenues of a firm exporting from India may not be that significant. And it's not just apparels. Even exotic fruits are finding very few takers with people buying more of bananas, apples and oranges. Looks like the celebrations may to have to wait for some more time.
Also, with voices getting louder in the US to stop forking out any more taxpayers' money to bail out ailing banks, it only makes sense that they get acquired by bigger entities. But since most US financial institutions in the US are not in the best of health themselves, the cash rich Chinese banks obviously seem as one of the best fit. Thus, a pact is being negotiated between the Chinese and US regulators whereby Chinese financial institutions will be given the permission to buy into small and medium sized banks in the United States.
By inviting China, the US authorities are trying to kill two birds with one stone. Helping turnaround the sick banks and at the same time sending out the message to the communists that they are indeed not averse to see a red flag fluttering at the headquarters of few of their financial institutions. After all, now is not the time to peeve one of your biggest lenders.
But is US$ 500 m too big a penalty for the crime (fuelling the trillion dollar crisis) that the bank committed along with its peers? We ask.
As the Wall Street Journal reports, "Across Wall Street, banks have regained their profitability, but not their public standing. With big banks minting money while many ordinary Americans are struggling, the financial industry has become the object of derision." Some have in fact gone ahead branding Goldman as the great vampire squid wrapped around the face of humanity.
Buffett has said that he never lost confidence in capitalism, even in the darkest hour of the financial crisis and that the US is still the best place in the world to invest money. Gates seconds Buffett's view and opines that while the US' complex financial system has churned mistakes, the fact that the country still relies on innovation, is able to create new companies and that its people are willing to take risk and invest means that there is a lot going on for the country. He probably has a point. Unfortunately for him, the US carried its innovative abilities in finance a bit too far, the consequences of which have had serious repercussions not just on the US but the rest of the world.
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