Are food prices worrying you enough? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Are food prices worrying you enough? 

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In this issue:
» Is the CAG crying wolf over spectrum scam?
» IT majors on a shopping spree
» US irked over restrictions in Indian energy sector
» ALM mismatches may derail India's infrastructure dreams
» ...and more!


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00:00
 
Are you already heaving a sigh of relief with onion prices coming down? Probably it is too early for you to do so. For prices of food items are expected to keep spiraling through most part of this year. After onions, the food item that may stretch your budget may be wheat. Natural calamities in the world's largest wheat producing geographies have rendered severe shortage in supplies of the grain. So much so that the U.N. Food and Agriculture Organization (FAO) has already raised an alarm over it.

First it was drought in Russia. Then there were floods in Australia. And now again there is drought in China. In fact two third of China's wheat producing regions are facing the worst drought in over 200 years. The futures market for wheat in the US is already seeing 30-month high prices. Thus whether or not there is any further monetary tightening it may be a while before the surge in food prices is arrested.

You as a consumer may not be severely affected by the surge in food grain prices, dear reader. However, it is important that you acknowledge the far reaching impact of the same. Alarming rise in food prices has the potential to thwart the government's investment plans. In addition it may lead to political and social instability of gigantic proportions as is being seen in the Middle East. Thus at least as an investor looking at long term trends, the fact that prices of food commodities may continue to remain volatile must be taken into cognizance.

Do you think the rise in food prices can have an impact on long term investments? Let us know your views or post them on our Facebook page

01:10  Chart of the day
 
The global dry bulk shipping rates reflected in the Baltic Dry Index (BDI) are considered as a benchmark for gauging the level of economic activity. As today's chart shows the BDI has recently slumped to its two year low levels. However, as against common interpretation, the reason for the same is not a drastic drop in economic activity. On the contrary, due to several natural calamities globally the cost of operating the fleet has gone higher than the freight rates. As a result, as per Bloomberg, ship-owners are expected to scrap more vessels than they have done in 28 years.

Data source: Reuters

01:45
 
As if the 2G scam was not enough, here seems be yet another one. It comes from the Indian Space Research Organization (ISRO). The deal is between ISRO's commercial arm Antrix Corp. and a private firm called Devas Multimedia Private Ltd. for allocation of scarce spectrum. Media reports claim that preliminary estimates by the CAG place the probable loss to the exchequer at about Rs 2 trillion. That's much more than the 2G scam

Interestingly, this scam has not involved the sale of any spectrum. The ISRO had to build transponders for Devas but no spectrum sale has taken place as of now. In fact, the government had decided in 2008 that it would be taking back the questioned 'S-band' spectrum that was required for this deal. Therefore the current tall claims by CAG seem to be a little unfair towards the current government. No doubt that there have been scams but making every deal an "opportunity loss scam" is not the right thing to do. We all know what happened to the boy who cried "wolf" too often. We hope that it is not the same way that CAG is headed to.

02:25
 
They have the cash and now they are ready to go shopping. We are referring to US$ 60 bn Indian IT industry. Buoyed by growing demand and better outlook, the IT majors are looking out for acquisitions to build up expertise and fuel future growth. In lines with this TCS has set aside as much as US$ 500 m to acquire companies in areas like healthcare in Germany. Cognizant too is looking to acquire companies in the consulting space.

Acquisitions by cash rich companies have become a trend in recent times. It would be good for the IT companies to build up their expertise and thereby strengthen their global presence. However, it would be better for them to be prudent and cautious while making acquisitions as mindless acquisitions could also work against them. But with companies like TCS, such possibilities are less likely.

02:55
 
Call it tit for tat, but India has restrictions on imports of solar-power technology from the US (and other countries), just as the US is trying to curb offshoring to India. Now the US is pained that restrictions are making it difficult for its firms to enter the Indian solar power market, which is indeed the fastest-growing in the world.

India is looking to add 20,000 megawatts of solar power capacity over the next ten years. This is in line with the country seeking to step up its electricity capacity to meet the demands of a growing economy while also developing clean-energy sources. But this opportunity is not benefiting US firms and that is what that country is worried about.

As the US Commerce Secretary recently said, "We're very concerned. We think that's the wrong way to go. We think there are different ways in which you might try to achieve the objective of supporting more manufacturing within India." Sounds good sir! But is your President willing to open up his arms wider for Indian firms to tap opportunities in your country as well?

03:30
 
It is a well documented fact that the US has been breathing heavily down China's back. This is to do away with the pegging of the Yuan against the dollar. The reason is not hard to find. The US' deficit has to contend with massive debt on the books. Thus, it is looking at currency devaluation as a way to prop up exports and narrow the trade gap. But China so far has shown no mood to relent. Whatever steps it has taken to let the Yuan appreciate have been gradual at best. This in some sense has also created a stir among its Asian peers. They have been seeing their currencies appreciate against the US dollar as the latter remains weak on account of subdued economic conditions in the US. Now India also seems to be a tad worried about China keeping its currency low. The RBI governor Subbarao has stated that China keeping its currency low hurts India in some ways. India already had an overall trade deficit of US$ 35.4 bn in the September quarter. What's more, it has a trade deficit with China too. Indeed, the rupee appreciating against the Yuan will raise the demand for goods from China and possible widen its deficit with the latter. But whether China will eventually toe the line remains to be seen.

04:05
 
An estimated US$ 1 trillion is required for investment in infrastructure projects over the next five years. But, where is this money going to come from? Banks are major financiers of infrastructure in the country. According to CARE, Indian banks have lent Rs 4.8 trillion for such projects as on November 2010.

However, mismatches between assets (loans) and deposits (liabilities) are making banks wary of providing additional funding to the sector. Typically an infrastructure loan takes 10-15 years to be repaid, while deposits have a maturity of only 1-3 years. Banks are already close to reaching their maximum exposure limits to the space. Resources are also short as deposit growth (16%) has grossly lagged credit growth (24%) in India. Plus, most road, power, port, telecom projects are big ticket proposals.

A shortage of credit to the sector could seriously get hamper GDP growth. Measures being followed to increase liquidity include take out financing. Bankers are also seeking permission to issue tax-free bonds to help fund the space. Similar bonds were issued by IDFC, L&T Finance. Another measure could be to raise the foreign investment cap in the corporate bond market.

04:30
 
Led by weakness in commodity and capital goods stocks, the Indian indices failed to make inroads into the positive territory in the latter half of the session today. The BSE Sensex was trading around 80 points lower at the time of writing this. The mid and small cap indices were down 2.5% and 2.9% respectively. The Indian stock markets were amongst the few losers in Asia. The European markets have opened a mixed bag.

04:45  Today's investing mantra
"I let our marketable equities tell us by their operating results - not by their daily, or even yearly, price quotations - whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it." - Warren Buffett
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12 Responses to "Are food prices worrying you enough?"

sid

Feb 11, 2011

Punwani
updated Feb 10,
2011 In my view Food Problems are self created by defaulting in taking the appropriate measures.
FOOD PRICES CAN BE INSURED IN FUTURE BY ASSURED SUPPLY
This needs a will to serve nation in true spirit by politician and government policy.
1) Government should allot large pieces of Land (say in excess of 100 Acres) to large corporates such as TATA, GODREJ, RELIANCE AND Like on 99 years Lease.
The land remains Government Porperty.
These large areas should be selected in remote uninhabited areas.
Govt. must provide infrastructure such as Rail Connection to plot for Access (if road networks does not exists)........
...........................................................
But where will the land come from? Poor farmers?
such acts will make the poor farmers more poor? who will buy their crops compared to corporates'?

There is a great difference between India and the West!
70% India lives in villages; their livlihood being the agriculture!!!

For India's problems' solutions we have to think and act in Indian way; not western or American way! (this is the western culture making mess in the world!):[]

Like 

sid

Feb 10, 2011

zephyrine goveas

More than the rising food prices, the politicising of the rise in food prices puts the investment at risk. Prices go up in every State, then why the opposition blames only the Central Govt.? What are the State Govts for? BJP ruled States have so far not allowed the GST bill to be introduced in Parliament. Vested interests in CAG leak reports and exaggerate losses.
Everything is done to pull down the progress of the country's corrupts'(swiss accounts)!!!:)

Like 

Mushtaq

Feb 10, 2011

According to a report in FE today India’s wheat production is estimated to reach an all-time high of 81.47 million tonne. Overall foodgrain is expected to rise to 232.07 million tonne this year, marginally below the record production of 234.47 million tonne achieved in 2008-09. Now it is up to the government to ensure that this does not get exported to other countries at high prices while the poor of India go hungry.....

Like 

Punwani

Feb 10, 2011

In my view Food Problems are self created by defaulting in taking the appropriate measures.
FOOD PRICES CAN BE INSURED IN FUTURE BY ASSURED SUPPLY
This needs a will to serve nation in true spirit by politician and government policy.
1) Government should allot large pieces of Land (say in excess of 100 Acres) to large corporates such as TATA, GODREJ, RELIANCE AND Like on 99 years Lease.
The land remains Government Porperty.
These large areas should be selected in remote uninhabited areas.
Govt. must provide infrastructure such as Rail Connection to plot for Access (if road networks does not exists)
2) 50% of Area to be used for production of serials. It will be responsibility of the Corporate to invest in Retails throgh witch the above production should be sold at 20% profit margin.
3) 25% of Area to be used for producing Vegetables and fruits (Seasonal)
20% Area for Flowers and export oriented Agro products
5% Area exclusively for re-search purpose.
All Plantation to be Advised / Supervised by Central Agency responsible for better crop re-search.
This way we create new Villages / Cities for future
The Food supply, guided by Center, is in hands of Private Corporates including Logistics for Supply, so no more storing of Grains by Govt. Agencies
Will create lot of jobs
Will ensure future supply of essential Food Items.
The number of Plots to be given on nominal lease (say Re 1/ per annum) will ensure Price Control.

Like 

Vinod K Huria

Feb 9, 2011

Gold prices will never crash. They may only decline a little based on demand and supply, valuations of stock prices, bank interest rates and commodity prices. Gold prices have the backing of the precious metal (gold), whereas stock prices do not have such fundamentals. Stock prices are only based on company credentials and market demand and supply.

Food prices drive the economy and do impact the prices of everything in the market, just as fuel (energy) prices impact the prices of products.

Like 

zephyrine goveas

Feb 9, 2011

More than the rising food prices, the politicising of the rise in food prices puts the investment at risk. Prices go up in every State, then why the opposition blames only the Central Govt.? What are the State Govts for? BJP ruled States have so far not allowed the GST bill to be introduced in Parliament. Vested interests in CAG leak reports and exaggerate losses. Everything is done to pull down the progress of the country.

Like 

sid

Feb 9, 2011

food prices worrying enough everybody! but the poor people (including the poor investor)the most!

If demand is greater than supply then only shopkeepers will benefit; rest of the public will suffer!

Therefore! OUR GREAT POLITICIANS!
:[] PLEASE CONTROL THE []: POOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOPULATION!
AND THE INFILTRATIOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOON!

CAG is doing its duty very well! Being a responsible media; your supporting of government on its failures isn,t fair sir!

Like 

gschandran

Feb 9, 2011

CAG seems to be interested in revealing nonexistant scams also.The media wants to sensationalise anything and everythind. The way they gave captions about sg scam(?) without trying to understand the explanations of ISRO chairman is ample proof.Some of the journalists consider themselves 'know alls" even in scientific space related matters and their national security risks!

Like 

taffazull

Feb 9, 2011

Even the commentator on DDNews(Morning newspaper review program)said that ISRO would have to pay a heavy penalty to some foreign firm for cancelling the contract.Will the govt recover the penalty from those reesponsible for entering into a penalty clause.If the State T.V. is making these comments how is the CAG to be accused of crying wolf.No clarification has yet come from the govt on the penalty aspect and I myself heard the ISRO chairman saying no loss has been caused YET. The word "YET" is all important and begs an answer.

Like 

James Mathew

Feb 9, 2011

Good work. Keep it up.

Like 
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