|»5 Minute Wrap Up by Equitymaster|
On This Day - 24 DECEMBER 2009
We may now have fewer Enrons and Satyams.
In this issue:
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Competitive business scenario, greed for bigger bonuses and desire to impress investors with supernormal profits has often thrown ethics out of the window. But things could change soon. And for good.
Mr. Deepak Parekh, the chairman of HDFC group and member of the team leading Satyam's saviour has some important suggestions in this regard. In an interview to a business daily, Mr Parekh suggested that corporate governance must be voluntary. It should come from the top management, and it should percolate down to the entire organization. Given that the organization he has built is best known for its ethical practices without compromising on growth and profits, one cannot take his comments lightly. Mr. Parekh suggested that companies flouting laws should be delisted. Also, SEBI must force the promoters of those companies to pay back the money to the shareholders. This could set a precedent for action against unethical managements.
We believe that if SEBI takes Mr Parekh's suggestions seriously, India could see fewer Enrons and Satyams in the days ahead.
It requires only a walk down the streets of any major city in India to see the poor level of sanitation and waste management in the country. It is thus difficult to believe that more than one third of the Rs 336 bn funds allocated towards urban infrastructure are going towards these. To overcome the resource constraint and introduce urban reforms, the government had launched the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in FY06. It aimed at improving urban facilities in 63 identified cities. However, the pace of execution has been dismal to say the least. Out the 351 projects sanctioned under JNNURM till November 2008, only 22 projects have been completed till date!
Rogers opines that since no new large gold mines have been opened in decades and the 100-year old ones are depleting soon, the supply of gold is restricted. At the same time, central banks that have huge gold reserves above ground are less interested in selling than in the past.
Certainly not if few experts are to be believed. The current rise in gold prices could be in part because of a fall in dollar but it has to also do with a lot of other reasons. The most prominent among these is a general disbelief in paper currencies and the current vulnerable global economic climate. Thus, even if the dollar were to rise from here, one can rest assured that gold prices may not move in the other direction. The case for gold being a very important part of one's portfolio is stronger now than ever before. And mind you, it is just not based on the weakening of the US dollar. Gold bugs can thus breathe easy.
The growth that these economies witnessed even during the years afflicted by the credit crisis have left most of the developed world spellbound. Stocks markets too have reflected that. In the year 2009 so far, the MSCI Emerging Markets index has soared 68%, stacking up quite well with the 24% advance for the Standard & Poor's 500 index. The pace and volume of FII flows into India this year says it all. However, there is also a negative side to this newfound fascination of global money managers with emerging markets. For Indian investors, this means higher valuations. And higher valuations mean lesser opportunities to buy good stocks at good prices.
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