Drive safely, the weather could get worse! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Drive safely, the weather could get worse! 

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In this issue:
» Emerging market stocks can correct 30%...
» ...and gold can rise 30%
» PM finally concerned about inflation
» Jim Rogers' amusing advice for CNBC
» ...and more!!


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00:00
 
It looks like the stock market is not the favourite place for anyone these days. Every day brings some or the other disturbing news. Coup in a first country. Financial crisis in the second. High inflation in the third. And rising unemployment in the fourth. The cup of woes seems to be brimming over. A scam erupts. Another stock tanks.

In short, there's fear everywhere! The worst part is that the fear levels can rise further from here on. This is if one were to believe the 'Gloom, Boom Doom' report publisher Marc Faber. In a television interview, Faber has said that he expects global equity markets to correct from here on. In fact, he's put a number of 30% for the correction that could take place in emerging markets. Faber blames rising inflation and higher oil prices as factors that could bring about a global instability, thus causing stock markets to react negatively.

So what choice do you, the equity investor, have in such times? See, the world isn't ending anytime soon, so there's no reason for you to panic. You just have to be very careful on where you set your foot, on the kind of stocks you select for investment. Broader valuations for Indian markets are still not cheap compared to historical standards. But you can still find some quality companies trading at good valuations. The only thing is that the count of such companies is pretty small as of now!

So, are you investing currently or waiting for a further correction in stock prices? Share with us or post your comments on our Facebook page.

01:06  Chart of the day
 
Today's chart shows the P/E of BSE-500 index over the past three years. The average P/E of the index over this period has been around 19.2 times. And given the recent correction in stock prices, the P/E has fallen to less than the average. Does this indicate a time to buy stocks? Maybe. Maybe not. While the correction has brought down prices and valuations of stocks across the board, there are very few stocks that are available at good discounts to their intrinsic values.

Data Source: CMIE Prowess

02:03
 
Anyways, rising inflation has everyone worried. Well, maybe not everyone. People who have been stocking up on gold may just be safe. The Wall Street Journal reports that gold prices could rise 30% in 2011. With inflation an issue in most emerging counties and global food and energy prices seeing no respite, gold seems the best hedge as of now.

Currently, inflation is not a major concern in the US. The government has been increasing spending and implementing loose monetary policies. This is in turn flooding money into emerging economies and commodities. According to Ben Bernanke, the US is not seeing much pressure on the consumer prices front. We fear that he might be wearing rose tinted glasses. Rising commodity prices will cause some pressure. The US was once considered a safe haven for investments. But gold seems the only safe haven now.

02:38
 
Suppose one were to launch a brand new business channel on the financial markets during current times. Any idea what will be the focal point of such a channel? May be equities. After all, aren't all business channels focusing majorly on stocks and stock market centric news? However, Jim Rogers, one of the most famous investors, has a different take on the situation. He is of the opinion that rather than stocks, the business channel should focus exclusively on commodities. In fact, Rogers has even gone to the extent of saying that CNBC should rename itself as 'CommoditiesNBC'!

"I don't own many equities, because I don't know what is going to happen in the world economy. I expect more currency turmoil, more social unrest, more governments collapsing. So I am investing in currencies and commodities rather than stocks," the wily Rogers is believed to have said. He may well turn out to be right yet again.

03:16
 
This trading week marked another round of weakness for stocks in India. The BSE-Sensex closed the week down around 2.1% over last week's closing. India, along with Brazil, was in fact the worst performer among key global markets. On the other hand, the US market was among the key gainers. Crude oil prices also gained during the week, led by tensions in Egypt.

Data Source: CNNfn, Yahoo Finance;
Note: Country names represent their benchmark stock market indices

Coming back to the Indian markets, this week's losses were largely due to weakness in stocks from the FMCG and realty sectors. The BSE-FMCG and BSE-Realty indices lost 6.4% and 3.5% respectively during the week. Metal and energy stocks however managed some gains.

04:24
 
In 2010, we saw a series of scams and corruption rackets coming to light in India. We have also witnessed the protests against despotic rulers in foreign lands recently. The political landscape is changing globally. Intolerance against corruption is rising. Voices are being raised.

A bold assertion now comes from our former President Dr. APJ Abdul Kalam. According to him, the country's political-bureaucratic-judicial system requires an urgent 'chemotherapy' to deal with a 'cancer-like situation'. We second his views. If India's growth and development is to be sustained, urgent corrective actions are a must with regards to corruption.

04:57  Weekend investing mantra
"Don't be afraid to be a loner but be sure that you are correct in your judgment. You can't be 100% certain but try to look for the weaknesses in your thinking." - Walter Schloss
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16 Responses to "Drive safely, the weather could get worse!"

Piyush Upendra Singh

Feb 11, 2011

Although the number might just indicate a fair valuation of Infra, Realty & Telecom -- the gravity of the issues spearheaded by inflation is not ephemeral. The malady a very fundamental in nature, & the fact that government has not been able to mitigate at all add to the worries.

Nonetheless, a prudent investor a his own share of opportunity with fundamentally sound stocks. To sum it all: Bulls & Bears are sharing the stage for the moment.

Like 

VINOD K HURIA

Feb 9, 2011

The markets seem to be crashing. At least they are on the decline. Everyday one wonders whether the charts will look green today, and the red predominates. This is the story for the last two weeks.

Markets crash because everyone tries to quit the market when prices are falling. Do not get panicky when the SENSEX or NIFTY is on the decline. Because panic actions cause more decline. Stay invested or invest more on dips and make use of the opportunity.

Markets are unpredictable, and that is the beauty or the malice of stock markets. One needs to use his judgement to buy or sell at the opportune time. If one is making the expected profit, by all means sell the stocks. But if one is selling for the fear of falling stock prices without making a profit, stay invested. Profits are bound to come. It is matter of time and opportunity.

One should not press the panic button, when FIIs are withdrawing, or there are some rumours in the air. In India, when markets are bearish, some reason or the other is ascribed, as a post-facto explanation. Whether the reason is genuine or not is anyone's guess. So keep driving the market, by staying invested. Growth is a way of life and everything grows with time. The only concern is the rate of growth. Yes, safety is most important.

Vinod K Huria

Like 

sid

Feb 7, 2011

...and the forth pillar? MEDIA! is also full of corrupt people today! print and visual media is full of paid, false or useless, sensitive news!

THE PROBLEM IS THAT THERE IS A MAJORITY OF CORRUPT PEOPLE EVERYWHERE!

IF POPULATION AND INFILTRATION; THE ROOT CAUSE OF ALL PROBLEMS ARE NOT TACKLED IN TIME THEN THERE IS GOING TO BE A MESS EVERYWHERE!

Like 

PJS PALIA

Feb 7, 2011

Yes, I 'm investing now slowly everyday, hoping that mkts won't go below 5150 levels.Seek ur valuable advise.

Thanx

Like 

HEMRAJ BANTHIA

Feb 7, 2011

THERE CAN NOT BE ANY DOUBT IN SAYINGS OF DR. KALAM BUT WHO WILL ADMINISTER CHEMOTHERAPY AS MOST IN ADMINISTRATION AND POLITICS ARE SUFFERING FROM THIS DISEASE. THE BETTER OPTION WILL BE HIS EARLIER REMEDY THAT IS TO AFORESTION OF RESERVE FORESET AND INCREASING THE MINING ACTIVITIES TO GENERATE TRUE WEALTH AND GENERATE HUGE CARBON CREDIT REDUCING GREEN HOUSE GASES. THIS WILL BE LIKE YOGA WHICH CAN CURE CANCER WITHOUT CHEMOTHERAPY.

Like 

Mohan Singh

Feb 6, 2011

political-bureaucratic-judicial system has gone chemotherapy stage. It needs urgent operation together with chemotherapy and radiation. If qualified doctors(Politician in power) do not do it common man( eg. maoists) WILL DO NECESSARY OPERATION. Better corrupt politician and IAS start acting fast

Like 

V.P. Mishra

Feb 5, 2011

Actually Equitymaster's five minudte wrapup is extremely fine however when we want to undergo for subscribing hidden treasure etc. even 2900 seems to be on a higher side. If the team could reduce the subscrilption of hidden treasure to 1500 per year perhaps most of the viewers will be bdenefitted & would be in a position to grab the opportunity simultaneously, equitymaster too would viz-a-viz get good clientage. I don't know whether the team would give due cognizance to my above suggestion as I too am keen to become member but being a small investor I cannot spare more money on this account. My sincere wishes to the entire team of Equitymaster for enlightening us with such indepth study and write-ups. yuv mishra/5-2-2011

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Ashok Lele

Feb 5, 2011

In fact I am of the same opinion which Dr. Kalam expressed recently.Politicians are shameless who hardly bother about day-tday life of common person who cannot afford food - the utmost important need of anybody -Starvation & suffering from Tuberculosis malnutrition Then comes clothes & shelter (Three basic needs of any one whom the Govt. terms as AAM AADMI !. Ruling party in Centre may publish tall claims of 8 & 9 & 10 GDP, but all these things are meaningless unless citizens at lowest strata can earn respectfully. Thousands of examples of rampant money grabbing are noticed but nothing comes out except JPC JPC JPC !!! MERA BHARAT MAHAN ! ! !

Like 

Ganapathy Sastri

Feb 5, 2011

Indian markets are likely to face many headwinds:

MASSIVE Inflation and Massive Trade Deficits / Current account deficits. During the last two years it has been truly large and has not reflected in interest rates or in exchange rates. There will be a catch up. That means expect interest rates to go up by 300 -400 bp. Rupee will have a sharp fall as FIIs pull out.

Earnings of several companies have declined in the Dec 2010 quarter and this trend will accelerate.

All told the outlook for stock market is bleak even if the economy continues to grow at over 7% rate.

Like 

PORUS S.MISTRY

Feb 5, 2011

IF A 30% CORRECTION IS EXPECTED,WHICH WILL BE THE MAJOR AREAS WHERE IN A YEAR OR SO THIS CORRECTION'S BENFIT WILL BE EXPECTED THROUGH COMPANY WORKING RESULTS AS IT IS VERY POSSIBLE THAT THESE MIGHT BE ONLY MARKET PLAYS.HENCE CAN YOU THROW SOME HIGHLIGHTS ON THOSE COMPANIES AND POSSIBLE INVESTMENTS WITH THEM FOR FUTURE.

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