India: Appealing or junk? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

India: Appealing or junk? 

A  A  A

In this issue:
» S&P downgrades India's sovereign rating
» Indian companies willing to hire more Americans
» A brilliant cue to profitable stock picking
» Another stimulus package props up markets
» ...and more!

00:00
Worried that despite valuations being attractive in India, FIIs are not making a beeline? Is the India growth story dead and buried for perhaps the most influential set of investors? Well, we would like to talk about something that will allay your fears to a great extent. Thomson-Reuters Corp, a provider of financial data and information polled around 32 money managers, which collectively manage about US$ 1 trillion - to put things in perspective, this is just about the size of India's GDP - on the most appealing amongst the nine Asian regions currently including Singapore, Japan, Thailand, Turkey and Korea.

----------------------- Equitymaster Poll -----------------------
Which corporate group's financial statements you trust most?
Make Your Opinion Count! Click here.

--------------------------------------------------------

China, of course, emerged on top with nearly half of those polled favoring the dragon nation, courtesy the 'non-inflationary' fiscal resources it has at its disposal to keep the economic growth chugging along. However, one fourth of these investment managers were of the opinion that India has more investment appeal than the other Asian regions. This is in sharp contrast to the FII investments in the country in recent times, wherein as per Mint, some US$ 6.5 bn has been pulled out since mid-September.

So, while interest in India as a top investment decision has undergone a resurgence, foreign money seems to be biding its time. It is perhaps waiting for the near term clouds that have gathered in the horizon to clear up.

00:53
While fund managers raise hopes, credit rating agencies are washing them out. Standard & Poor's (S&P) has downgraded India's long-term sovereign credit rating from stable to negative today, citing the rationale that the country's fiscal situation has deteriorated to unsustainable levels. We wonder if this will continue to hold India's appeal in the eyes of the foreign investors.

01:07
US President Obama has some daunting tasks ahead of him. In addition, he has set for himself a target of reducing US's fiscal deficit to half by 2013. Interestingly, even if he manages to do so, the deficit will still be higher than what it was 2008 (US$ 455 bn). This is because estimates have pegged the deficit to soar to US$ 1 trillion plus for each of the several next years assuming that nothing changes. As reported on CNN Money, US' total debt currently stands at US$ 10.8 trillion which does not take into account any tax changes and the newly passed US$ 787 bn economic stimulus package.

This means that the Obama administration will have to do a lot in terms of curbing expenses some with a heavy price attached to them. The problem is that nobody has any clue as to when the crisis will end and the possibility of a further deepening of the crisis cannot be entirely ruled out. Thus, while Obama's pledge at the moment does carry some hope, execution of the same will be the most tricky and difficult part.

01:51
Seized by the wave of anti-offshoring sentiment in the US, the Obama government may have passed a legislation restricting the issue of H1-B visas, which allow US companies to temporarily hire foreign workers in a specialty field, particularly technology. However, the same is not dissuading the Indian offshoring giants - Infosys and Wipro - from seeking to deliver services in Uncle Sam's land. Even if that means hiring more Americans!

As per the Wall Street Journal, Infosys had received 4,559 H1-B work visas while Wipro was granted 2,678 by September 2008 (last data available), making them the largest recipients of the same in the world. The Indian technology giants that have been long derided by some US politicians for taking US jobs away are now laying the groundwork to boost the number of jobs they create onshore. This is largely to make sure they can still do business if the US government's legislation restricts their ability to send Indians to the US to work.

02:30
Just like Warren Buffett, this man is not worried if the stock market is closed for five years. His investing style does not really depend on how the stock market does. As he says, "If I'm right, these very undervalued companies will be taken over, liquidated or refinanced, and that's where you make your money."

Well, removing the veil, we are talking about the legendary investor and fund manager, Marty Whitman, who is also the founder of the Third Avenue Value Fund (TAVF). From inception in November 1990 through October 2007, this fund has returned an annualised average of 16.8%. This when compared to the S&P 500 returns of 12.3% is fairly good.

In his first quarter 2009 letter to investors, Marty Whitman explains where his TAVF is finding the best buys "in what he calls 'net-nets'. The concept of 'net-nets' was introduced by the pioneers of value investing "Benjamin Graham and David Dodd in their 1962 masterpiece, Security Analysis. Simply put, 'net-nets' are companies where the market value of the current assets (an estimate of liquidation value), exceeds the market value of the company's equity (market capitalisation) minus all liabilities. As reported, such stocks currently make up around 75% of Whitman's common stock portfolio.

Coming from Whitman, this really is a brilliant cue to profitable stock picking.

03:21
Bharti Airtel, which was ranked India's sixth most admired corporate in a recent poll we conducted on our website, believes that India is ready for a big revolution in the telecom space. This was outlined by the company's CEO and joint-MD Mr. Manoj Kohli in an interview with Mint. He was talking about the 3G (third generation) services, where he expects the roll-outs to be faster than what 2G has seen.

Mr. Kohli says, "The biggest revolution, which I believe India will have, is instead of laptops, people will use handsets. I think India is already seeing big leaps and in the next few years 3G will help us take the big leap."

While we agree with these statements given the leap that India has already seen in the telecom space over the past few years, we continue to doubt the government's intentions as it has been slow in releasing the spectrum required for launching the 3G service.

03:58
The term anti-nationalisation probably got most popularity during the era of late British Prime Minister Margaret Thatcher. Despite being under the British rule for more than a century, we Indians accepted the nationalisation of our banks pretty amicably in the 1970s. However, our American friends seem to be rather confused with regard to the terminology for the government bail out of their banks.

In an article in Mint, American economist Paul Krugman has sought to bring in more clarity to the debate. According to him, the case for nationalisation stands undisputed since the banks in question would have gone bust long back without government support. He further states, that while banks must be rescued, the US government cannot afford, fiscally or politically, to bestow huge gifts on bank shareholders.

Finally, the economist gets tongue-in-check by calling nationalisation as American as the apple pie! Any more doubts?

04:32
Thanks to the announcement of the third stimulus package by the Finance Minister, in the final hour, the India markets managed to recover from the steep lows witnessed for most part of the trading session today. In line with other Asian indices, the benchmark BSE-Sensex closed with losses of 22 points (0.2%), incidentally being the lowest loser in the region. The European markets have opened largely in the negative. The stimulus package that has offered rate cuts on excise duty and service tax is expected to further pressurise the government's finances.

04:53  Today's investing mantra
"Risk is a part of God's game, alike for men and nations." - Warren Buffett
The 5 Minute WrapUp Premium is now Live!
A brand new initiative of Equitymaster, this is the Premium version of our daily e-newsletter The 5 Minute WrapUp.

Join us in this journey to uncover the sensible way of managing money and identifying investment opportunities across various asset classes including Stocks, Gold, Fixed Deposits... that over time can help you realize your life's goals...

Latest EditionGet Access
Recent Articles:
This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)
August 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
This Company Beat the Business World's 'Three Killer Cs'
August 16, 2017
And what it has in common with beating the stock market too.
Let's Hope This Correction Continues
August 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...
Insider at It Again. This Time Stealing from Buffett and Berkshire
August 12, 2017
What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?

Equitymaster requests your view! Post a comment on "India: Appealing or junk?". Click here!

  

MOST POPULAR | ARCHIVES | TELL YOUR FRIENDS ABOUT THE 5 MINUTE WRAPUP | WRITE TO US

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407