Reveal your Swiss bank details, or else... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Reveal your Swiss bank details, or else... 

A  A  A

In this issue:
» Marc Faber predicts more gloom
» India's GDP growth slows to multi-year lows
» Can Nano lead Tata Motors out of trouble?
» Diamond exporters turning stock brokers
» ...and more!

The world's only superpower is in no mood to tolerate financial thievery. But we in India can only hope of seeing people having loads of black money brought to task. While the US government has recently summoned UBS to provide it the bank account details of hundreds of clients to the US government in connection with tax evasion charges, we wonder if the Indian government would ever ask for such disclosures. And we continue to do so i.e., wonder!

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And in this, we have an unusual supporter - Yoga guru Swami Ramdev. As reported in The Hindu, the guru has asked the Indian government to approach the Swiss authorities on details of Indian money stashed in the Swiss accounts! He says, "This is one sureshot way through which one will know who is honest and who is not. According to one estimate, money ranging from Rs 50-75 lakh crore (US$ 1-1.5 trillion) is parked in Swiss bank accounts. So I dare them (political parties) to reply to this question. If they can't reply that means the ranks of these parties are all dishonest, corrupt and they themselves have money deposited in Swiss bank accounts." Jai ho!

Marc Faber, publisher of the Gloom, Boom and Doom report has been a long time critic of the way the global financial system works. After the bust that he had projected long back, he now believes that the financial industry is in for an even bigger contraction. "Financial professionals have been in paradise for the past 25 years," he said at an event hosted by CLSA in Tokyo. Faber, incidentally, also believes that the safe haven of gold can be a mirage for investors as the yellow metal has reached extremely high waters and is expensive relative to other commodities.

Sources: CMIE, Bloomberg
As Faber maintains a gloomy view on the global financial system, the weakening Indian economy continues to bring shivers to investors and economists. As reported by Bloomberg, India's GDP expanded by 5.3% during the quarter ended December 2008, which is the slowest pace of growth since the last quarter of 2003. This growth was lower than the 6.1% expected by economists, something that we carried in an earlier note today morning.

Economists now believe that this is still not the worst performance that India can see in the current downturn. "The economy hasn't bottomed out yet. We expect the trough in the second quarter of 2009," said one economist from Nomura International to Bloomberg. India is already facing the demons of rising fiscal deficit and lower credit ratings as the government tries to pump-prime the economy through its stimulus packages. While a GDP growth of 7.1% in FY09, as projected by the government, makes India still the second-fastest growing economy in the world after China, the fact remains that this growth is not enough to generate jobs in a country where the number of people looking for employment increases by more than 10 m each year.

The weakness surrounding the Indian economy has also seeped into the rupee, as the same touched 50.96 per dollar at the time of writing. This is rupee's all-time low against the greenback. Apart from the slowing economy, this pressure on the currency is on the back of concerns that foreign investors will step up sales of local equities after the credit rating agency Standard & Poor's said it may cut India's credit rating to junk.
Source: Trend Software

The rupee has already been the third worst performing Asian currency over the past one year in depreciating by almost 21%. Economists now see it falling further given that economic and fiscal deficit pressures are not likely to subside anytime soon. Declining exports and the subsequent concern that it will widen India's current-account deficit has also added to pressure on the rupee.

Giving in to uninspiring economic news, stocks in India closed weak today. While the benchmark BSE-Sensex traded deep in the red throughout the session, better than expected result announcement from Tata Steel at the fag end helped the index pare some losses. The Sensex finally closed down by around 60 points down. Among other Asian markets, China and Singapore closed down by 1.8% and 1.4% respectively. Stocks in Europe have also opened on a weak note.

Let's set aside gloom for some time and talk about the excitement that is clearly palpable in India. Never before has an impending product launch generated as much buzz as is being witnessed currently. Everyone right from the dealers to vendors to the company personnel themselves is rubbing hands in anticipation. Well, we'll lift the lid on this one. It's the launch of the compact car Nano that we are talking about.

After garnering a worldwide attention for its looks and price tag and of course a delay of six odd months, the car will be finally seen on Indian roads sometime in April. Initially though, the car will come out of the production facility at Pantnagar (Uttaranchal) till the time a fully dedicated Nano plant becomes up and running in Sanand (Gujarat). Tata Motors, on its part is leaving no stone unturned in ensuring that the car is sold at as many dealerships as possible across the length and breadth of the country. It is also tying up with few of the big banks for attractive loan packages. With so many stakeholders involved, the success of the product may just be the ideal booster for the beleaguered company as also the Indian economy.

Diamond exporters are the newest set of businessmen who are opening up to the advantages of diversification. As per an Economic Times report, in a bid to diversify their revenue streams, many mid and large sized diamond exporters are taking to becoming stock brokers. Well, you read that right!

Many of them plan to take up licenses with the stock exchanges in the face of dwindling demand for precious stones, especially from their major customers in countries like the US and Japan which are in the midst of severe recession. It may be noted that while they do not plan to give up their traditional business of diamonds, they are looking to stock broking as a way to offset the lull in their diamond business. But what defies logic is their choice of the business of stock broking for this purpose, as the business of broking is currently doing equally bad, if not worse.

"GM lays its future on Washington's doorstep," cries a headline on The New York Times. The company, the world's second largest automaker after Toyota, yesterday reported a deeper-than-expected quarterly loss as revenues plunged by more than a third. The company, which has been kept afloat with emergency loans from the US government, posted a net loss of almost US$ 31 bn for the full year ended December 2008. This was the company's second biggest annual loss in its 100 year history (the earlier record loss was of US$ 39 bn in 2007). The company is now staring at a possible bankruptcy unless it gets a 'going concern' certificate from its auditors.

The promoters of mid and large cap companies in India have been behaving differently of late. As per a leading business daily, promoters of such mid caps as GTL Infrastructure, Havell's India, Mascon Global, and Opto Circuits have been converting their warrant into shares, while their large cap counterparts such as GE Shipping, Tata Power, Punj Lloyd, Indiabulls Real Estate and India Infoline have not. There could be many reasons for the trend:
  • Midcap companies might be in urgent need of the funds;
  • Promoters might find their stocks under-priced; or
  • Promoters might have paid more than the required 10% upfront payment at time of initial allotment.

Whatever be the reason, the promoters' stake in the company increases on conversion which is a positive sign for the minority shareholders. After all, the management is likely to look after shareholder returns when their own well being is at stake too.

04:58  Today's investing mantra
"Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception." - George Soros
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