Coming soon: The 'Slumdog Millionaire' fund! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Coming soon: The 'Slumdog Millionaire' fund! 

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In this issue:
» Now, a fund called Slumdog Millionaire
» Top strategist is worried about rising yields
» Indian mutual fund industry on a high
» Are drug peddlers dealing in Gold?
» ...and more!

------------------------ Stock markets are on a tear... ------------------------
Beware of enthusiastic TV anchors and unscrupulous brokers!
This is the time to lay the foundations for a wealthy future. Not the time to speculate in momentum stocks.
Our recommendation - go out and invest in blue-chip stocks that are available for dirt cheap.
To know how you can go about picking the right stocks for your blue-chip portfolio, read on...


Now this is something that will easily qualify as the biggest naming coup in the history of Indian financial markets in recent times. As per Bloomberg, Helios Capital, a Singapore based hedge fund plans to start an India focused fund and has decided to name the fund 'The Slumdog Millionaire' fund! If this isn't amusing enough, the firm is intending to raise US$ 50 m for an India long only fund called 'Jai Ho' fund. It should be noted that 'Jai Ho' is the title of the Oscar winning song from the movie Slumdog Millionaire, which set the Oscars on fire earlier this year by scooping up eight awards.

Interest in Indian stock markets, which are already up 54% since the start of 2009, is on the rise and Helios Capital has really come up with an innovative way to capitalize on the same. The name will surely make it stand apart from its rivals. Will this also translates into a stand out performance? Only time will tell. "We want to find slumdogs from the Indian equity markets who have the potential of becoming millionaires", is how the founder of the fund chose to put it across. That potential though will come from some under-researched and ignored small cap stocks, a job that we have done with a fair degree of success for our subscribers.

Forget infrastructure, if India has to put itself on a sustainable long-term growth path, it will have to take care of this problem first. And if a recent report by the United Nations Children's Fund or UNICEF is to be believed, the problem has only gotten worse in the aftermath of the global financial crisis. We are referring to the number of chronically hungry people in India, which as per the UNICEF stood at 230 m in 2007-08 as opposed to 210 m in 2004-06.

And it's not as if the world body has only facts to highlight, it has also offered a simple solution. South Asian nations, where the problem is especially rampant, spend around 10% of their GDP on defence. If they divert a small portion of it towards education, these countries will be a lot better place to live in. We couldn't have agreed more.

Edward Yardeni, who was once dubbed as the best economic forecaster in the US and also the one to correctly predict the US bull market of the 1990s, believes that there is a real threat that the US may just not get out of the recession any time soon. And that threat has emerged from the rise in the 10-year bond yield in the US from 2% towards the end of 2008 to a six-month high of 3.75% last week. It should be noted that this rise in yield will also lead to higher interest rates on other forms of debt such as housing loans. And this would thwart any real attempt at recovery because with rising rates, defaults will rise, leading to housing prices -which hold the key to an economic recovery - remaining depressed.

"It's not going to take much of a backup in bond yields and mortgage rates to really weaken whatever recovery we've got up ahead," is how the savvy economist chose to put it across. Markets are worried that without the Fed stepping in, the US Government will not be able to fund its huge deficit. But if the Fed does eventually step in, inflation will rear its ugly head. As someone put it, "The US seems to have been caught in a vicious cycle."

At US$ 2 trillion, China's forex reserves stand head and shoulders above that of any other nation. Hence, it was only expected that besides US Government bonds, it would also be keen to scoop up other assets. And what better time to do it than now, when the developed world is embroiled in a financial crisis of an unprecedented magnitude and assets are available on the cheap. Thus, when GM, the troubled auto car maker put its famous 'Hummer' brand on the block, there were few prizes on guessing who had the wherewithal to complete the deal in a snap. And everything went as per the script.

GM has agreed to sell the 'Hummer' brand to China's Sichuan Tengzhong Heavy Industrial Machinery Co in a deal that is estimated to be worth US$ 500 m. While the deal will give GM the much needed cash and will also secure more than 3,000 US jobs, it will give the Chinese company greater muscle to increase its share in the Chinese sports utility vehicle market that grew 25% last year on rising affluence.

It may not exactly be the best place to seek counsel from but we aren't worried as long as we restrict it to matters financial. We are referring to some "very suspicious" 174 tonnes of gold compound that were recently exported to the Dominican Republic, a country that has emerged as a key destination in the cocaine trade between South America and the US.

Perhaps, the drug peddlers have gotten the whiff that the dollar is not a safe haven anymore and are hence, increasingly dealing in gold. If that's indeed the case then they are not alone. A lot of experts around the world have been sending the same feelers, thanks to the massive printing of the greenback by the US Fed. But dethroning a currency that still accounts for a lion's share of the world's GDP may not be easy. The process though may have already begun.

It has been contested and that too with a fair degree of success that the current rally in equities, especially in the emerging markets is a result of a huge surge in liquidity. And this isn't a bad thing at all. Greater liquidity enables credit starved sectors to spring back to life. And when this happens, goods and services are produced at a faster rate, thus leading to a rise in the country's GDP.

Rising Liquidity
Image Source: LiveMint
But what is worrisome is the fact that over the past few months, liquidity, i.e., money supply, has grown at a lot faster rate than the real economy can absorb. And the excess liquidity is finding its way into the asset markets, leading to rally in equities and other assets like commodities. Furthermore, by supporting prices of commodities such as oil, the excess liquidity drives up inflation, making real economic growth a rather difficult task.

The world is thus confronted with a million dollar question. Will the current surge in liquidity pull the world out of the economic crisis? Or will it only prolong the pain by giving rise to inflation? Unfortunately, even we don't have an answer to the question. Only time will tell.

Whatever the doomsayers may say about a global recovery being still far off, mutual funds in India are having none of it. As reported in a leading business daily, in a month (we are talking of May here) which saw the Sensex rise by 28%, the average assets under management (AUM) of the Indian mutual fund industry has risen by 16%. Thus, this strong growth enabled Indian mutual funds to mop up Rs 6 lakh crore for the first time. Of course, the reason for this phenomenal performance has been attributed to the recent surge in the stockmarkets and continuing flows to the short-term debt funds. Not just that, the plunge in the stockmarkets in the past one year meant that valuations of many good, strong companies were very attractive giving the smart investor the golden opportunity of picking up some of these stocks at bargain prices. Thus, recession or no recession, Indian mutual funds are certainly making hay while the sun shines.

Most Asian markets ended in the green for the fourth consecutive day today amid signs that the recession is easing. Sensex, the Indian benchmark however, bucked the trend and ended in the red, albeit marginally. Most European indices are also trading weak currently.

04:44  Today's investing mantra
"In 44 years of Wall Street experience and study, I have never seen dependable calculations made about common-stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give to speculation the deceptive guise of investment." - Benjamin Graham
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3 Responses to "Coming soon: The 'Slumdog Millionaire' fund!"


Jun 3, 2009

To me it's nothing but a marketing gimmick to attract funds from the foreigners.The western world loves to project India as a" Slumdog".



Jun 3, 2009

Why cut defence expenditure ? Remember we have Pakistan. Get the Swiss black money on priority basis as promised by the Congress etc.and we will return to bliss, with our rivers flowing with milk & honey.


Dr. Rajesh Mittal

Jun 3, 2009

The 5 minute wrap up is a very enlightning and illuminating series of mails aimed at enlightening the small and novice investor.
It gives a greatdeal of insight into various financial and investment matters and that too put so simply.
It is an appreciable work. Keep up the good work.

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