Punters can play longer - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Punters can play longer 

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In this issue:
» SEBI proposes extended trading hours
» KPMG, Deloitte to present Satyam findings
» McDonald's is lovin' it
» We'll have 6 more airlines
» ...and more!

SEBI has proposed that the trading hours on the stock exchanges be extended. It is seeking market feedback on the proposal over the next three weeks. The NSE, which has licensed its benchmark S&P CNX Nifty Index to the Singapore Exchange, is actually pushing for such a move. Its main argument is that investors don't want the gap in the opening time between the two exchanges. Nifty futures start trading on the Singapore Exchange at 9 am Singapore time, or 6:30 am India time. Indian stock markets open at 9:55 am local time and shut at 3:30 pm, about the same time as the close of futures trading in the Singapore. Thus for this gap to be removed, the markets here in India would have to open at 6:30 am instead of the current 9:55 am.

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Many investors, both large and small, don't seem to be too happy with such a proposal. They believe investors and fund managers would be better off spending more time in research and analysis, which can be best done only when the markets are closed. Also, the cost to brokerages would shoot up as they would then require two shifts to match Singapore's opening. Of course, 6:30 would be just too early, considering that markets would then open even before many receive their morning newspapers. At this rate, we'll be trading 24x7 someday. This won't mean much to 'investors', but the 'punters' will get extended playing hours.

In a blockbuster movie released few years back, one of the characters says to the protagonist, "With great powers come great responsibilities". If there is one nation that should take this dialogue to heart, it is China. The Economist is running a brilliant article on how China, the world's fastest rising economic power should start behaving more responsibly. Examples have been cited of how the dragon nation has started wielding its financial muscles by not taking a backward step against nations it wouldn't have dared to see eye-to-eye a few years ago. Powerful presidents are being given the royal snub and meetings with strong trading blocs are being postponed at the drop of the hat. The article is also critical of the country's stand on various international issues, terming it as 'anti-development'. However, China is not the only nation in the firing line; the magazine has also expressed concern over the inability of other economic superpowers like the Japan and the EU to come to terms with the dragon nation's growing economic clout and believes that they should give the country its place in the sun. All in all, we should accept that we are living in an era where the world order is changing and the sooner we do it, the better it will be. Furthermore, for it to be accepted as a responsible superpower, China also has to shed some of its 'ultraleftist' tendencies.

The two global audit firms, KPMG and Deloitte, are set to report their findings on the scandal hit Satyam. They are expected to give a clearer picture of the shocking revelations about cooking the financials of the company, under former MD Ramalinga Raju. As reported in a leading business daily, while Deloitte looked at Satyam's UK and other European operations, KPMG looked at the rest. Given that the board of Satyam is looking for a strategic investment into the company, a sense of the true financial health of the company will be all the more important for Satyam's current management and potential bidders such as Tech Mahindra, L&T, Spice and iGate. Thus, all eyes now lie on KPMG and Deloitte and what they have to disclose.

One of the main causes of the global financial turmoil is the wide acceptance of 'e-money'. In a very interesting note put up on the RBI's website, the central bank's governor Dr. Subbarao himself has commented on the evolution of e-money in India and the reason why it has not blown defaults out of proportion. According to him, the growth of non-conventional forms of retail payment systems in India reveals an interesting trend. The share of cheques in the total value of economic transactions (including through cash) declined from 5.2% in 2001 to 3.9% in 2008. However, the value of funds transferred through electronic means in the entire payment system increased phenomenally from about 2% a decade ago to about 74% in 2008. The number of transactions in the retail system, inclusive of cheques, electronic payments and cards is a humungous 7 m transactions per day, accounting for more than 95% of total transactions. Due to the Indian culture of saving first and spending later, credit cards had a somewhat lacklustre beginning. In fact, credit card outstanding still comprises not more than 5% of the total loan portfolio of banks. It is probably this cautious pace of reforms that has hedged the Indian financial system against the global catastrophe.

Recently, there were reports that JP Morgan Chase, a TARP bailout beneficiary, has plans to increase outsourcing to India by 25%. As per a leading business daily, it has not gone down well with the US Congress. A team of 43 Congressmen have written a letter to the company's CEO asking for an explanation. In their letter, they have asked "How should these American workers, many of them your consumers, be expected to have hope for a better future when the very companies they contributed to through TARP outsource the jobs they desperately need?" While their outrage is understandable, companies are desperately trying to survive the downturn by cutting costs. As they say, desperate times call for desperate measures.

At a time when companies across the globe are facing tough times on account of the recession, McDonald's is 'lovin' it. The fast food chain is witnessing an average growth of 15% YoY in same store sales during the past few months in India. The company, which has 155 restaurants across the country, is looking at investing Rs 1.5 bn to roll out additional 40 restaurants by December 2009. McDonald's and other fast-food restaurants have benefited in recent times as consumers are increasingly opting for low priced fare.

Around a decade back, Warren Buffett had written in the Fortune magazine how the money that had been made since the dawn of aviation by all of America's airline companies was absolutely zero. The Indian aviation sector seems to be heading the same way. Despite existing airline companies in India posting a combined loss of over Rs 100 bn, 6 new regional airlines may take off this year. As per a leading business daily, they are: Star Aviation, Zav Airways, King Airways, Sky King Aviation, Premier Airways and a cargo carrier. The ministry of civil aviation hopes that this will provide regional connectivity and reduce air fares. That's good news for the consumers, but we expect the companies to continue to suffer in the days ahead.

The economic slowdown has prompted the media to focus its attention on the MBA, the poster child of the recent boom. Some business dailies carry stories of how corporate excellence is often preceded by top tier management education. Others focus on how the slowdown has meant that salaries for students from these elite institutions have fallen below what the students earned prior to their MBA. It might be useful to remind oneself here to take a long term view of one's career. After all this is not the first economic cycle the world has gone through. It won't be the last either. Those who create value in their workplaces will end up doing well over time.

The Indian markets ended marginally lower today as the benchmark BSE-Sensex ended with a 35 point loss while the NSE-Nifty Index ended flat. However, other Asian markets such as Japan (down 0.3%) and China (up 0.7%) ended on a mixed note. Stocks in Europe are currently trading in the red. In addition, US futures declined on speculations that the plans of the Federal Reserve and the Bank of Japan to buy bonds won't revive the economy.

04:51  Today's investing mantra
"Being early on the way down looks a great deal like being wrong, but it isn't. It turns out you won't be able to accurately tell who's been swimming naked until after the tide comes back in." - Seth Klarman
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