A calamity in waiting for your stocks - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

A calamity in waiting for your stocks 

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In this issue:
» Will the Third Front come to power?
» BJP's give-it-all-away manifesto
» Indians amongst the most taxed
» India no longer the world's gold bug
» ...and more!

"After the elections, the Third Front will come to power and formulate a new economic and independent foreign policy," believes the Communist Party of India's general secretary Prakash Karat. He was speaking at a public meeting in Agartala yesterday. "For the first time, the possibility of forming a secular government minus the BJP and the Congress was brightening and we are determined to defeat both," Karat added.

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Given the unpredictability in their economic thinking, the Left supported Third Front will likely create havoc in India's economy, thereby leading the stockmarkets to go for a toss. However, if the reality becomes so i.e., the Third Front actually comes to power by some way or the other, we really cannot anticipate the kind of decimation that sentiments and stockmarkets might see fearing India's economic future till the time this coalition remains in power.

Remember, some of the parties in this coalition have set for themselves just one agenda while going into the elections - getting their top leader the chair of the Prime Minister of India! So while you feel sleepy but can't do so out of fear, while your vision of a world-class India gets hazier, while you shiver thinking of the future of India's economy under this coalition of self-minded politicians, remember this has happened earlier as well.

The fractious coalitions of regional leaders that ruled India during 1997 and 1998 were unable to provide any kind of stable governance. And now, while the BJP led NDA seems in a mess, the Congress led UPA faces anti-incumbency. So Third Front isn't wrong in fancying its chances of leading the Indian political system (if the system will exist then).

Click here to let us know if the Third Front does come to power, what will be the level Sensex will reach.

In the meanwhile, in its election manifesto released late last week, the BJP has promised low taxes and interest rates to the electorate alongside a tough posture on Pakistan. It has also promised to retrieve Indian money illegally stashed abroad, generate employment through massive infrastructure projects and give cheaper farm loans to cushion Indians from the global financial crisis.

Among other promises, the manifesto talks about cutting interest rates on housing, giving tax exemption to citizens above the age of 60 and also waiving personal income tax for defence personnel and pensioners. Given that there are no major tax proposals in lieu of the spending that has been promised by the party, will we be looking at a bigger government deficit if it comes to power? We need to wait and watch.

We recently attended GAIL's analyst meet in Bangalore. The company continues to invest in building its infrastructure, nearly 60% of which will go to the natural gas pipeline segment. The demand for natural gas in India exceeds supply by a wide margin. As newer supplies of natural gas come into the market, GAIL will be the dominant national transporter.

It is also aggressively expanding in the city gas distribution space and has formed a 100% subsidiary, GAIL Gas for the purpose. It will also hold the natural gas trading segment. GAIL doesn't expect its tariffs to face any downward revision. While its petrochemicals business is facing the brunt of the slowdown, this provides the company a margin boost it needs on top of its fixed return transmission business.

With commodity prices at a low, one would think cash rich Indian companies would snap up overseas assets like mines and oil blocks. But that's not happening. Firstly, raising finance is not easy. Then, there is the fear of failure. As they say, it is better to fail conventionally than to succeed unconventionally. In contrast to RIL, ONGC and SAIL, state owned Chinese companies like Chinalco are pumping billions of dollars to buy Australian minerals.

As per Reuters, Indian companies have obtained stakes worth only US$ 171 m in the first quarter, a fall of nearly 86%. In China, the figure is US$ 21 bn, an increase of almost 33%. We believe, this contrast between India and China is because of how the respective governments think. India is far less aggressive than China when it comes to resources and infrastructure. And perhaps also far more bureaucratic.

That you are reading this newsletter online may not seem anything of a privilege to you. But the fact is that you are part of a small and rare group of people in India that is now on the decline. As per an Economic Times report, India has just seen its number of Internet users drop by 3 m in a year to 47 m in January 2009. Even as people in the rest of the world are fast realising the Internet as a part and parcel of their daily lives, India seems to be moving backwards. Some of the reasons for this are believed to be the strict policing of cyber cafes following misuse by terror groups to send threatening emails and spread propaganda, as well as the poor progress India has made in broadband connectivity.

Cyber cafes too are on the decline; the number of cyber cafes in India has dropped from 235,000 in 2006 to 180,000 in 2008. In some small towns or villages, it is a normal thing to have local police visiting cyber cafes every other day demanding a bribe. Another discouraging rule is that one needs a no-objection certificate from local police to open a cyber café in most parts of the country. In fact, in Maharashtra, it requires the approval of local health department because of the word 'cafe' in cyber cafe! With such archaic rules in place, it is not surprising that India be left behind.

There's no denying the fact that we Indians, like all others around the world, are truly going through taxing times. The Asian edition of the US business magazine Forbes has to add to this, though in a different sense. In its annual global ranking of countries in terms of their tax climate, India scored a relatively low rank of 23rd least friendly tax climate in this year's Tax Misery Index, topped by France with the harshest taxes across the world. It may help to know that India was ranked 35th least tax friendly jurisdiction in the 2008 list!

It's been almost two weeks since the launch of the petit Nano but the obsession of the media with the car just refuses to die down. And it's not just domestic media we are talking about. Even international papers have not gotten over the euphoria. The Wall Street Journal, one of the world's leading business dailies, has dubbed the Nano as 'India's new Ambassador'. Just as the Ambassador car was a symbol of a post-Independence India, socialist and impervious to change, the Nano represents a new India, where consumers and companies have more freedom to invest, build and borrow as they please.

Adding further, the paper says that the very same pool of talent that help global companies fix computer bugs and set up telecom networks has now come together to create the world's cheapest car. This amply highlights the fact that the country's economy is no longer riding on outdated, imported technology, the pedigree to which the Ambassador belonged, but is actually being driven by path breaking innovations such as the Nano. Indeed, way to go India.

Asian markets maintained their winning streak in this new week, possibly on the back of comments from the US Federal Reserve Chairman Ben Bernanke that the policies to unfreeze credit markets are working. Today, while stocks in Hong Kong closed up on an average by 3.1%, those in Japan and Korea were up 1.2% and 1.1% respectively. The Indian benchmark, BSE-Sensex, closed with 1.8% gains (about 190 points) after having opened the session almost 3% up.

India can no longer pride itself as the world's biggest gold importer. The country has stopped importing the precious metal as people sell their scrap jewellery and coins to exploit high world bullion prices. After miniscule imports in January, as per gold dealers, there were no gold imports recorded in February or March. Newspaper reports suggest that this is the first time in more than a decade that India has not imported gold.

If you thought that mobile numbers are too lengthy to remember, get ready to stretch your brains given that your next mobile number might be of 11 digits. Considering that the Indian mobile market has grown by leaps and bounds over the past few years, the Department of Telecommunication is now considering an 11 digit long mobile number system to fit in the rising base.

04:46  Today's investing mantra
"October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February." - Mark Twain
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2 Responses to "A calamity in waiting for your stocks"

Senthil Ganesh Chandraraj

Apr 8, 2009

In a long time, I have fallen in love with the way the newsletter is presented. Whoever is behind this idea deserves a golden hat. The crispness of gathered newsit's content- heavinessthe simple blackwhite approach is something I have fallen in love with. My congrats for this refined approach.


kuppuswamy krishban

Apr 6, 2009

i find the topics away from the beaten pathwell researched.please keep it up. the thought of so called "third front" is frightening to say the least.the chinese govt would have achieved what they wanted without spending a yuan.

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