Time to short stocks? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Time to short stocks? 

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In this issue:
» Brace yourself for a currency crisis
» India gives up its top ranking
» Another crisis stares US
» India Inc's dividend moves
» ...and more!

00:00
 
While George Soros does not expect the US dollar to lose much value, Jim Rogers, his erstwhile partner has a different view. Rogers believes that the dollar is overvalued and after the recent artificial rally in the greenback where it edged higher against most currencies, it could perhaps be time for a currency crisis. Rogers also sounded negative on equities in general and US equities in particular. "The market in the US went up very powerfully for nine weeks in a row so of course it's time for a correction. Fundamentals haven't changed if you ask me. I don't see the stock market as a great place to be in the next two to three years", Rogers is believed to have said in an interview to Bloomberg..

While he may not like equities, we are of the opinion that Indian equities, particularly in the Mid Cap space, are trading at very attractive valuations from a long-term perspective. In fact, we have even come out with a special report titled Multi-bagger MidCaps!

00:35
 
India Inc. is increasingly turning its attention to the domestic market to enhance performance. Take the case of Tata Steel. The steel behemoth has pinned its hopes on the Indian market to pull it out from the slump it has gotten itself in. As reported in a leading business daily, while the company expects steel prices to hover at around half of last year's peaks, it is confident of growing sales in India by one-fifth in the current fiscal. This is based on expectations that the steel demand in India will grow at 5-6% this year, which given the perilous state that the global economy is in, the company feels is not so bad at all.

But Tata Steel is not the only company finding the Indian market attractive. Indian IT players have joined the bandwagon too. With recession in the US, Europe and Japan forcing overseas clients to trim technology budgets, Indian IT companies are scrambling to raise their share of the Indian software and IT services market. Infact, as reported in a leading business daily, IT stalwarts Infosys and TCS are aiming to earn US$ 1 bn in revenues from the Indian market in the next three to four years. Since many of the sectors in India are looking to step up their IT spending, Indian software majors, who are realigning their focus accordingly, will stand to gain immensely in the future.

01:20
 
The housing collapse drove the US banking system to the brink of collapse. Soon, there might be a credit card collapse to deal with. According to the New York Times, Americans will have huge problems paying off their credit card debt. Credit card defaults generally move in tandem with unemployment rates. But the extent of US household debt in the recent past means that credit card losses are now starting to outpace layoffs. According to recent stress test, the top 19 US banks could expect around US$ 82 bn in credit card losses by the end of 2010. However, if unemployment crosses 10%, the damage could be far worse - to the tune of US$ 186 bn. And if that happens, all the talk of a recovery and pull back will be to no avail.

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Small Caps Remain One Of The Surest Ways To Multiply Your Wealth...
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01:46
 
Public sector banks, with that nationwide reach and a special focus on the semi-urban and rural areas, were expected to have an upper hand over their private sector counterparts when it came to garnering low cost deposits. But as has been the case in FY09, these banks have seen their share of total low cost deposits fall. This is attributed to depositors shifting a part of their balances from current and savings bank accounts to term deposits given that banks paid higher interest rates on the latter for a major part of the fiscal.

Share of low cost deposits in total deposits (%)
Image source: Business Standard

The fall in these low cost deposits (also know as CASA for 'current and savings accounts') has led to pressure on these banks' net interest margins (NIMs) as well. SBI, India's largest bank, for instance has seen its NIM decline from 3.1% in FY08 to 2.9% in FY09. Now with the stock markets showing some promising signs, the banks might see an even greater dilution in their low-cost deposit base given that depositors might shift their funds to mutual funds and other capital market linked instruments.

02:33
 
While the US investors may be facing the worst year for dividend cuts since 1938, their Indian counterparts may not be that unfortunate. If the trend from the results announced is any indication that is. As per a leading Indian daily, the Indian corporate sector may be able to maintain its last year's dividend payout of a little more than 18% this year as well. This conclusion was formed after taking into consideration the dividend declaration by around 193 companies that have already announced their FY09 results. The paper further reported that while the payout will be more or less subdued from the software services companies, it could be higher in the case of banks and financial services companies. This is in complete contrast to the unprecedented slashing of dividends by the US financial sector companies as they look to preserve capital in the aftermath of the heavy erosion.

03:02
 
Prior to leaving for his teaching assignment at Stanford, Deputy governor of the RBI, Rakesh Mohan has said the economy has stopped deteriorating due to the timely intervention by the central bank. By absorbing Rs 1 trillion from banks, it has offset the surplus money lying with them due to lower credit growth. He has also given a clean bill of health for the Indian banking sector emphasising the fact that they are well captialised and have manageable nonperforming assets.

03:17
 
It's time for MNCs that have a presence in India to stand up and take notice of their Indian operations. A report in a business daily highlights how the growth reported by the Indian arms of MNCs with respect to growth in revenue and profits in the January-March quarter of this year has comfortably exceeded the growth figures reported by their parent organizations. That too across sectors such as auto, cement, FMCG and engineering. Many attribute this to India's rural demand which has held up quite well in the face of a global slowdown. For example, HUL reported a 5.1% YoY growth in net sales for the March quarter compared to a 1% decline in its parent Unilever's sales. ACC grew its topline by 14% YoY compared to an 18% fall in its Swiss-based parent Holcim's sales. Maruti Suzuki and Siemens too were witness to the same phenomenon.

03:46
 
"The Bandra Worli Sea Link may finally open this year after 10 years in the making", reports a leading business daily. It symbolizes the crawling pace at which infrastructure gets built in India. Unlike China, which excels at creating infrastructure, projects in India get delayed due to bureaucracy, disputes, litigation and general apathy. Then there is the question of money - India needs US$ 500 bn by 2012 for infrastructure, as per a leading business daily. In the past few years there was hope that the private sector is going to participate. With the financial meltdown, those hopes have also evaporated. The government's financial condition doesn't leave much scope for spending either. In terms of a solution, a stable government and firm policy will help in the medium term. Over the long term however, we need a change in our mindset.

04:03
 
India has fallen from its top spot last year to third place in the latest round of the Nielsen Global Consumer Confidence Survey. The survey now pegs India's Consumer Confidence Index at 99, which is 15 points lower than the last survey. The global index too has fallen to 77 from an 84 in the last survey which was done in October 2008. In India only 28% of the respondents said that the economy was not in recession thus implying that as many as 72% feel India is in recession. On a more optimistic note, over half of these respondents said that India would come out of recession in the next one year. However, only 37% said it would be a good time over the next 12 months to buy things they need and just 3% said it would be an excellent time to buy. Looks like it will be a while before malls see again the kind of traffic they saw during the hey days of 2007.

04:36
 
In the meanwhile, after languishing around the break even for most part of the morning, the Indian benchmark BSE-Sensex took off during the latter half and ended with strong gains of a little over 4% today. It also emerged as the top gainer amongst major Asian indices, majority of whom ended the day in the red. Most European indices, however, are trading in the positive currently.

04:50  Today's investing mantra
"Regardless of the impact upon immediately reportable earnings, we would rather buy 10% of Wonderful Business T at X per share than 100% of T at 2X per share. Most corporate managers prefer just the reverse, and have no shortage of stated rationales for their behavior." - Warren Buffett
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1 Responses to "Time to short stocks?"

Achyutha H

May 12, 2009

DearSir:If some one (may be God only) can take action to get back all the Indian money kept in foreign countries' banks, we will have sufficient funds to finance all the projectsneed not go to IMF, WB,ADB etc with a begging bowl. India is a rich country with resources,intelligent people etc but we have poor(in attitude) and selfish politicians and other powers-be.
Thanking you for your kind attention. Dr H.Achyutha,Retd Prof of Civil Engg, IITMadras,Chennai

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