Markets anticipate PM's 100 day agenda - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Markets anticipate PM's 100 day agenda 

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In this issue:
» Markets post record turnover
» Sectors most likely to witness reform
» Student abroad heading back to India?
» Indicators of a revival
» ...and more!

Prime Minister Manmohan Singh has recently emphasised that the new government must deliver quick results. And the Prime Minister's office seems to be following up. As per PTI, it has asked the various ministries to chart their agenda for the first 100 days in office. A dossier will be ready even before the swearing in ceremony is completed. While many of the items will be from the Congress manifesto, the unfinished reform programs from the previous term will also be included. Dr. Singh will review the progress on a quarterly basis.

No wonder then that the markets have not lost much ground after the historic upswing on Monday. Yesterday, FIIs put in money to the tune of Rs 48 bn. Domestic investors also participated to register the highest ever turnover on the Indian bourses. The combined turnover in the cash and F&O segments on both NSE and BSE was Rs 1.6 trillion.

One of the problems with markets rallies of the kind we've seen this week is that they sweep a lot of investing mistakes under the carpet. At such a time, protect yourself by holding genuinely good quality businesses. Be sure to pick the right stocks for your portfolio.

There was a time, not long back, when the 'American Dream' was shared not only by Americans but just as fervently by many ambitious students back here in India too. Getting an MBA from a good university abroad and using that as a starting point to get a job in that country was the norm. Well, that dream seems to have been shattered. And the sorry state of the US is now forcing many into realising the potential back here in India. An Economic Times report gives some perspective on the situation. According to a University of California study that surveyed 1,224 foreign nationals from India, China and Western Europe, almost 86% Indian students and 74% of Chinese students believed their home countries' economies will grow faster in the future than they have in the past decade. And with that, many students are either looking homewards, or have already come back to India. Looks like India may not have to contend with a brain drain problem again for a long time to come.

The shipping industry is one of the best places to look at for picking up signals on global economic activity. The steel industry constitutes one of the major shippers of dry cargo. Hence, tracking the Baltic Dry Index, which is the benchmark for freight rates of dry bulk carriers, helps gauge the health of the steel industry. The index had crashed to its 22 year low last December as steel producers cut production. As per a leading business daily, the index has gained 47% this month on the back of revival in steel consumption from the automobile industry.

The Baltic Dry Index
Image source: Bloomberg

Talking of economic indicators, the advertising industry perhaps plays a similar role in the domestic economy. And the signs here are encouraging as well. Ad agencies report that several companies from sectors like telecom, FMCG and pharma are now upping their ad spends. As per a leading business daily, FMCG players are likely to increase their ad spends by 30% to 50% this year. As a result, ad agencies are receiving requests for pitches. In turn, they are hiring more.

Now that the Prime Minister has made it clear that reforms would continue, the question is: Which sectors will witness reforms and to what extent? The power sector is likely to be among the first sectors to press on with reforms. As per Business Standard, officials in the power ministry are already working on reviving the IPO of the National Hydroelectric Power Corporation (NHPC), which was put on the back burner last September. In fact, follow on offerings are likely in Power Finance Corporation (PFC) and PowerGrid Corporation.

As per the Wall Street Journal, industry body FICCI believes pensions and insurance reforms will be on top of the agenda. The key issue in pension reforms is giving more authority to the pension regulator, which will lay down the groundwork for increased participation from fund managers. The key issue in insurance reforms is allowing foreign insurance companies to increase their stake up to 49% from the current 26%. FICCI also believes that private-sector participation in defense work will also be made easier.

As far as the downstream segment of the Oil & Gas industry is concerned, we believe that the decontrol of fuel prices will not happen any time soon. Given the emphasis that the UPA puts on the common man, the government will think several times before ushering in market determined fuel prices at a time when food prices inflation continues to be high.

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It is a company that Messrs Warren Buffett and Charlie Munger feel has the widest moat of all the companies that exist on earth today. Quite certainly, it is hard to come up with a name that has managed to grow as fast as this firm in recent years. Ironically, its very size could prove to be its undoing if urgent steps are not taken. It is the internet giant Google we are referring to. As per the Wall Street Journal, attrition is on the rise at the company and typical of tech firms, the key reason seems to be the feeling among employees that they are not able to make much of an impact to the search giant's fortunes, now that the firm has matured a lot. Interestingly, Google seems to have come up with an algorithm that would identify which ones of its 20,000 employees have the highest probability of quitting! They need not look further than their Wall Street counterparts to witness the kind of damage overreliance on models can bring about.

The threat to Google is not just from inside. Competitors are also working furiously to dethrone the internet giant. And the ones to fire the latest salvo are its archrivals, Microsoft and Yahoo. Over the next few weeks, both of these firms are likely to come out with new versions of their internet search engines. While Microsoft will aim towards organizing search results better so that the amount of time a user spends on searching is minimized, Yahoo is hoping to improving answers to search queries with technology that better classifies data spread throughout the web, said the Wall Street Journal. Surely, they have a lot of catching up to do. According to research firm, both Microsoft and Yahoo have reported slight drop in their search engine market share for the month of April. At 64.2%, Google is way ahead of both and it is this gap that they are looking to bridge.

As per an article in the Wall Street Journal, many US companies are associating with Bollywood content for advertising and promotions. Their target customers: the 2 m strong Indian American community. We wonder if businesses are trying to grab the attention of this small but affluent segment of the American population or if it is purely the after effect of the hype created around the Oscar winning 'Slumdog Millionaire'?

Trading on the Indian bourses today was marked by volatility throughout the day. The benchmark index, the BSE-Sensex ended the day with losses of around 240 points (1.7%). The NSE-Nifty closed lower by about 60 points. Incidentally, stocks from the mid-cap and small-cap space had a field day today, the BSE midcap and small cap indices ended higher by 6.3% and 9.1% respectively. While other Asian markets ended the day on a mixed note, European indices were trading in the green at the time of writing.

04:46  Today's investing mantra
"An argument is made that there are just too many question marks about the near future; wouldn't it be better to wait until things clear up a bit?...face up to two unpleasant facts: The future is never clear [and] you pay a very high price for a cheery consensus. Uncertainty actually is the friend of the buyer of long term values." - Warren Buffett
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