A definite multi-bagger...
In this issue:
» A simple business that's resilient to slowdown
» Stocks in India on a roar
» America's big headache getting bigger
» See who's the most corrupt of all
» ...and more!
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----------- Equitymaster Research -----------
Small Caps Remain One Of The Surest Ways To Multiply Your Wealth...
Read On...
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From a humble start in 1946 to now being the largest dairy co-operative in India, Amul has continued to taste success year after year. In the year FY09, for instance, when the entire Indian economy was feeling the heat of slowdown, Amul managed to grow its sales by 28% YoY - faster than the 23% YoY growth recorded in the previous year.
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This performance also comes at a time when the international dairy markets are facing slump in demand. A very simple business model and focus on domestic market has insulated Amul from the turbulence in global dairy trade. Over the years, not only has it grown its business several fold, it has also been able to shield its members - the farmers - from all the turbulence in global dairy trade. The co-operative has helped to appropriately diversify the rural economy, thereby protecting rural India from the worst impact of the current economic crisis. It is already providing the best employment option for displaced workers from urban manufacturing sector, who after losing their jobs due to recession, have started reverse migration from cities back to villages.
Following its core philosophy (provide products at an affordable price), it continues to enhance the product mix through introduction of higher value products. At the same time, it has maintained the desired growth in existing products. The company has targeted revenues of Rs 270 bn by the year 2020. And given the pace it has been growing over the years, this seems quite achievable.
But the fact is that, you need to contend yourself by consuming the quality products that the company has to offer. Amul is not listed on the stock exchanges. But if it were, it would have definitely been among our top picks for all kind of market situations.
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Within India, where the broader markets have seen 13 straight weeks of gains, stocks from the capital goods and metal spaces lead the rally this week. The benchmark index - BSE-Sensex - has in fact completed its longest weekly wining streak since August 2005, this time fueled by hopes of fast track reforms from a stable government. The Sensex has moved by up 85% since its lows of March 9, and around 57% since January, thereby being one of the best performers among all global markets.
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Now, the fact is that Sensex is trading at 20.4 times trailing 12 months earnings of the companies that make the index. This is almost double the 11.6 times that it was trading at in March and makes a case for caution. The fact is that Indian markets are so shallow that spurts of fund inflows, especially from the FIIs, have led to skyrocketing share prices at the speed of thought. While one can still make a case for picking up good quality stocks at fair valuations, those eyeing gains in the short term might be in for a shock.
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The fact remains that although the free fall that accompanied the collapse of the Lehman Brothers has definitely subsided, any expectations of an economic recovery will have to be quickly quashed as there still existed a nationwide distress and millions of households still wrestled with unemployment and lost income.
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Gross' concerns are very valid given that China, by far the largest purchaser of US government bonds, has cited its concerns in recent times that large bulging US deficit due to excessive spending from the government could impact the prices of bonds that it holds - around 82% of China's US$ 2 trillion of foreign reserves are in US government bonds.
The equation in simple terms is like this - excessive spending by the US government will lead to high inflation in the future which will then result in higher interest rates. And when interest rates rise, bond prices fall. That is China's concern.
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Weekend investing mantra |
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6 Responses to "A definite multi-bagger..."
L.Gopalakrishnan
Jun 7, 2009Would like to know how much foreign reserves of India are in US Bond Market. What could be the implication of it for the economy of India.
L.Gopalakrishnan
naren
Jun 6, 2009This clearly demonstrates that investment is an art wherein patience and god's grace are most essential for success
Prakash Hegde
Jun 6, 2009Agreed that AMUL's sales are growing fast, but before we say it is the best investment, we need to see how profits are growing and how profitable is it (Return on Equity). Or are they just growing by pumping more money into business?
kamal kr das
Jun 6, 2009Yes absolutely.I agree with your views.In fact the brand "Amul"is the most familiar as well as reliable to the people of India since its inception.
C.Srihari.
Jun 6, 2009Broad in coverage, yet pithy and moderate. Peg to core valuations ensures that investors dont lose either their heads or an opportunity.
Sameer Surkund
Jun 8, 2009I have become a addict and fan of the 5 minute wrap-up.I hope you continue to give us this crisp and insightful information always.