Stocks set to witness a major correction - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Stocks set to witness a major correction 

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In this issue:
» How fast will the Sensex touch its previous high?
» Or will it really touch it so soon?
» With GM, an era ends...and a new one starts
» India's risky for offshoring, says the Black Book
» ...and more!!

00:00
 
In an interesting interview to Mint, Ruchir Sharma, the head of emerging markets at Morgan Stanley Investment Management, has said that what's happening right now in the markets is nothing but a cyclical bull market within what is still a structurally a bear market. As far as India is concerned, he opines that Indian markets can exit this bear market regime a lot quicker than the developed world. "I think valuations have already moved now from being cheap in March or late October, to being sort of relatively fair to slightly expensive... If you are looking for a true new bull market... I think the base for that will be set by the middle of the next year," he said. And that's when he feels that the bull market rules will come back into play, and the Sensex will once again be free to touch its highs of 21,000.

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00:35
 
Wait before you jump with joy over Mr. Sharma's prediction for the Indian markets! Noted investment gurus Jim Rogers and Marc Faber are of an opposite view when it comes to world markets. And their opinion is that the current rally is a result of liquidity that has been created by the printing of money at the drop of a hat rather than any concrete measures to beat the crisis. In fact, the fundamental problems remain largely unsolved.

Therefore, besides believing that equity markets are set to witness a major correction, they expect the next crisis to emerge in currencies given that many countries have shifted more of sour debt from banks onto their own balance sheets. Coming from both these renowned gurus, it is indeed pertinent to take note of their opinions since they are strikingly similar.

Even we are of the opinion that the large scale printing of money to bailout banks will come back to haunt governments in the form of higher inflation.

01:14
 
"What's good for GM is good for America," said Charlie Wilson, the former Chairman of the US auto major General Motors (GM), once among the largest employers in the world and now battling for survival. From becoming the first American corporation to pay taxes of over US$ 1 bn 53 years back, to filing for bankruptcy today, GM has indeed covered a rugged path to self created doom.

Whether what Wilson said was exactly what he meant or not, it certainly stood for the way most GM top executives have been thinking for the past five decades. During this period, the world's greatest automobile company has frittered away its reputation and market share with an unending string of flawed management decisions and arrogance towards customers and the government that would be hard to make up.

GM shares: For less then a dollar now
Source: Yahoo Finance
And to compound the problem, the company invested too often foolishly as well as agreed to outrageous labour agreements and compensation packages for top executives. Given these misadventures, its product superiority disappeared steadily over the years, and so began its decline that continues still today. The company's market cap, which at its peak in 2000 stood at around US$ 50 bn, now stands at less than US$ 500 m!

How it is possible that such an industrial giant could not find a competent management team in 50 years and turn things around is a question that will continue to worry management gurus and strategic thinkers for years to come. We hope that GM's fall serves as a key lesson in managerial stewardship to all those blue chip Indian companies that are aggressively looking for growth at the cost of anything...almost anything!

02:19
 
Well, whatever may happen after the company files for bankruptcy today, we hope that the end of an old GM lays the ground for the birth of a new one, for anything else would lead to a cascading impact on the US economy given that the mass layoffs at GM will considerably add to the unemployment burden that the country is already facing. As for the bankruptcy's impact on India, there are though some reasons to cheer. As reported in The Economic Times, GM India's officials believe that the company's global restructuring could throw up substantial opportunities for Indian component companies shopping for cheap overseas assets. Furthermore, there are hopes that the company will now get a 'good' management at helm that will lead to better times for the employees and customers in the future. We also hope so!

02:52
 
If what was good for GM was also good for America, the question that might legitimately be raised is that if bankruptcy is the cure for GM, would bankruptcy also be in order for the US. Remember, like GM, even the US has seen declining manufacturing supremacy over the past many decades, and whacky splurging by governments and consumers. Borrowing to invest may still make sense, but borrowing to consume is what the Americans have been used to for so many years now.

Isn't that the fast track to doom...bankruptcy in the case of GM and possibly for America as well? In fact, President Obama, in a recent interview with the leading American cable television network CSPAN, said that the US is already in deep problem now. "We 're out of money," said Obama. He added, "This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades."

So, does that mean that the US is on the verge of bankruptcy? It certainly is on the verge, but will it ultimately fall into it seems highly unlikely. After all, the US is not anymore an emerging economy and it has the ability to print money to meet interest and principal obligations. If the US were to go bust, the world would go bust!

03:46
 
Stocks in India traded strong today, possibly taking cues from other Asian markets as also cheered by the GDP growth figures released last weekend. The BSE-Sensex was trading around 1.3% up at the time of writing, though trailing the BSE-Midcap and BSE-Smallcap indices that were up by 2.8% and 3.4% respectively. Among other Asian markets, Hong Kong and China closed with gains of 3.9% and 3.4% respectively.

04:02
 
If you have been one like us, boasting about India being the preferred choice of American and European corporations for offshoring, think again. As per the Black Book of Outsourcing published by Brown-Wilson Group, the national capital region comprising Delhi, Gurgaon, and Noida has earned the dubious distinction of being the worst offshoring destination within the country. And what is worse, Mumbai and Kolkata follow as the second and third riskiest offshoring hubs within India. The other domestic cities named in the global list of 25 riskiest offshoring destinations include Bangalore, Hyderabad, Chennai, Pune and Chandigarh. On the other hand, China our competitor leads the count of safest destinations along with Mexico.

The reasons the Black Book has given for ranking Indian cities so high among riskiest locations are issues like terrorism, pollution and geopolitical issues. It's high time we fix these problems, or we may stand to lose the competitive edge in one of the few fields we call ourselves among the world's best.

04:42  Today's investing mantra
"Partly, it's habit. Partly, it's just that stocks mean business, and owning businesses is much more interesting than owning gold or farmland. Besides, stocks are probably still the best of all the poor alternatives in an era of inflation - at least they are if you buy in at appropriate prices. " - Warren Buffett (on why he holds stocks even in times of high inflation)
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4 Responses to "Stocks set to witness a major correction"

Braja Bandhu Behera,Advocate,Orissa High Court

Jun 1, 2009

The stock market may go up or may cross the earlier high or come down and touch earlier low,that is not the question,but the main problem for the stock maket is some cheator,lootera and fraud STOCK BROKERS WHO ARE CANCER TO STOCK MARKET.SAMEER GEHALAUT,GAGAN BANGA AND RAJEEV RATAN OF INDIABULLS CHEATED AND LOOTED LAKHS OF INNOCENT INVESTORS WITH THE KNOWLEDGE OF SEBI,CDSL,NSE AND GOVT,BUT EVERY BODY REMAIN SILENT AGAINST THEIR MONEY POWER,BEING IAM AN ADVOCATE OF ORISSA HIGH COURT THEY HAVE ALSO CHEATED ME AND BY FRAUDULANT MEANS THEY HAVE TAKEN A AWAY MY SHARES WORTH RUPEES ONE CRORE FROM MY DP ACCOUNT.I AM WRITING REGULARLY TO CBBHAVE,CHAIRMAN SEBI,MD,CDSL AND GOVT,BUT NOT SERIOUS ABOUT IT.
THEREFORE UNLESS GOVT TAKE STRONG ACTION AGAINST INDIABULLS THEN THE STOCK MAY COLLAPSE.
BRAJA BANDHU BEHERA,ADVOCATE

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K. Chandrakumar

Jun 1, 2009

The 5 Minute wrapup is a very useful consolidated news. I read it regularly and I feel something amiss if I can't read it somedays when I am busy. Keep up the good work!

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Antaryami Dash

Jun 1, 2009

It's really extreme and knowledgeable.

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shaikh javed yusuf

Jun 1, 2009

respected sir i am interested in general motors stock,so what is your opinion about this stock,please kindly refer to me.

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