Tata admits his 'mistake' - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Tata admits his 'mistake' 

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In this issue:
» Tatas may have gone too far, too fast
» India Inc.'s choice of a government
» SBI chief believes the worst is over
» Slowdown's benefiting India's medical tourism
» ...and more!

That the Tata Group is struggling to keep two of its most high profile members, Jaguar-Land Rover (JLR) and Corus, afloat has been very well documented by the media. But what has perhaps made its first public appearance is a statement by the Group Chairman, Ratan Tata that the period during which these companies came into the Tata fold may not have been very opportune after all. In an interview published in a leading British daily, Times Online, Mr. Tata has admitted that he may have gone 'too far, too fast'.

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Source: Trend

It is worth remembering that the Corus transaction undertaken by one of his group companies, Tata Steel was one of the most expensive steel deals ever. Even with JLR, had the group waited out, they could have gotten the company even cheaper considering the turmoil the global auto industry is in currently. "If one had known there was going to be a meltdown, then yes (Tata went too far), but nobody knew. Both the acquisitions were made, I would say, at an inopportune time in the sense that they were near the top of the market in terms of price," is how the affable Tata chose to put it across. Perhaps having a more realistic look at valuations could have helped. As Warren Buffett says, "Predicting rain doesn't count, building the ark does."

The current week will mark an important chapter for Indian politics and stockmarkets considering that results of the General Elections will be announced this Saturday (May 16th). While the political parties will draw up permutations and combinations (sophisticated terms for 'horse trading') after the results are announced, corporate India will be hoping for stability. And as per vibes emanating for India Inc., which is reeling under the global downturn, companies would like to see a government led by either the Congress or the BJP.

Source: CMIE

As the Federation of Indian Chambers of Commerce and Industry's (FICCI) President H.P. Singhania has put it, "Coalition government is inevitable. But in my view it should be led by one of the national parties." Former President of Associated Chambers of Commerce and Industry of India (Assocham) Anil Aggarwal has also indicated that a favourable government led by one of the two largest parties will bring about a sigh of relief for India Inc. India Inc isn't expecting a stable government without reason. After all, the Indian economy has become a trillion dollar one after good, consistent growth in the past ten years, which has seen both the BJP and Congress-led governments complete their terms.

While industry leaders have a good reason to see a government which completes a five-year term at the Centre, astrologers have something else to predict. And if they are to be believed, the new government formed after May 16 would not last for more than 18 months and there are strong indications for another general election in late 2010 or early 2011. And as per the astrology mumbo-jumbo, this is because of Jupiter changing its position and entering a new zodiac sign - from Capricorn to Aquarius! Now, did you understand that? We didn't, but we continue to pray for stability at the Centre.

Anyways, while astrologers are not predicting good times for Manmohan Singh and L.K. Advani, they see the stars of Pranab Mukherjee and Narendra Modi to rise over the next few years.

After a robust performance during the previous week, Asian markets opened this week on a weak note. Today, except for gains in Japan and Korea, weakness was seen across all other key markets. India's BSE-Sensex closed around 200 points lower.

The last two months have been particularly splendid for stocks across Asia, given that the benchmark indices across several nations have surged by almost 50% (since March 9th). While indices in Singapore and Hong Kong have risen by around 53% apiece during this period, even the Indian benchmark BSE-Sensex has not been left far behind given that it has clocked gains of nearly 45%.

Compared to this, gains in the US and Europe have been tepid, given that while the US Dow Jones index has risen by 31% during this period, the UK's FTSE is un just around 26%. Return of risk appetite among global investors, led by a flush of liquidity release by the central banks, is the key reason for the sharp movement of Asian markets during the said period. How far does this rally sustain remains unknown, especially considering the economies across Asia are still reeling from slowdown in exports to the US and Europe and even internal demand has slowed down considerably.

As far as the Indian markets are concerned, they seem to be factoring in a revival in demand given that a few industries have seen increased sales over the past few months. Moreover, the quarterly result season till now hasn't been as bad as was expected earlier, given that companies have shown improvement in margins despite some slowdown in sales.

For whatever reason the US President Obama seems to be intent on punishing US companies that ship jobs overseas and reduce investment and job creation in the US, a report from The Wall Street Journal shows that the US already has a highly punishing tax regime that makes its firms uncompetitive vis-a-vis their western counterparts.

Image Source: The Wall Street Journal

The chief of India's largest banking company, SBI, believes that the worst is over for the Indian economy. Mr. O.P. Bhatt was speaking for an interview with The Economic Times. His optimism is underlined by the fact that some economic indicators have turned positive over the past few months, signifying a rebound. As he says, "Steel production has increased, cement prices have risen, and the auto and housing sectors have picked up, too. The Indian telecom sector is the fastest growing in the world. In the rural segment, there was perhaps no decline in demand at all." He expects SBI to grow by 25% in FY10, both on the deposit mobilization and lending fronts.

Further evidence that the Indian economy is on an uptick was received in the form of rising cargo movements across country and container movements in ports. As per a leading daily, truck rentals that were seen falling for four straight months till February 2009, have gone up by 10-12% in the months of March and April and cargo traffic at major ports also increased by more than 1% in March, ending a five month decline. Improvement in cargo, which many believe are being driven by good harvest and buoyant spending in rural and semi-urban India, is also likely to give a fillip to the CV (commercial vehicle) demand in the country, which after falling by 26% in the last fiscal is expected to go up by 7-10% during FY10.

However, there are others who dismiss the improvement as a temporary phenomenon, driven largely by the accounted and unaccounted for spending during polls. Hence, jumping to conclusions on the basis of just a couple of months of buoyancy may not be the wisest thing to do.

A Hindustan Times report suggests that severe recession in western economies has led to buoyancy in medical tourism in India. Middle class patients from the West are now heading to India as a way to save amid pay cuts and layoffs in their countries. The report quotes statistics from the consulting firm Deloitte which indicate that around 4.5 lakh medical tourists had visited India in 2007-08 and that the industry was expected to grow by 35% in 2008-09.

While this may bring some sigh of relief for Indian hospitals, the Indian hotel industry continues to face lower occupancies and room rates given that leisure tourism has taken a hit. As per industry reports, while business travel continues, slowdown and flu scare has severely hit the leisure and family travel segments.

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04:49  Today's investing mantra
"The genius of investing is recognizing the direction of a trend - not catching highs and lows." - Anonymous
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1 Responses to "Tata admits his 'mistake'"

Prasad Vishnubhatla

May 11, 2009

Are Indian markets celebrating too soon of a possible recovery of Indian, especially Global ecomonic recession ? b r
Today's dent of 200 points in Sensex looks more a profit booking coorrection afte r 450+ points leap last week. Western economies, US, UKEurope sti ll are facing recession pressures. Job Losses in UK are 600k+ each month is a sign of cont inuing ecomonic pres s ures. I read one advise few weeks bac k from Equitymaster (straight from hip / honest truth...one of them) that the current u pswing should be taken as an opportun ity to exit....is this still

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