Dawn of a new world order? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Dawn of a new world order? 

A  A  A
In this issue:
» India, China to propel the next recovery
» Met department predicts poor Monsoons
» Indian auto majors set for US debut
» Housing and car finance to get cheaper
» ...and more!

Recession may be crippling economies across the globe especially those of the developed world, but the BRIC countries (Brazil, Russia, India, China) appear to be on track to recovery. Does this mean that these four nations are in a sense decoupled from the developments in the West? Maybe not, as the slowdown in these economies have made clear.

-------------------------- Don't Miss --------------------------
Tell Your Friends about The 5 Minute Wrapup!
And Get This Guide Free - The most profitable approach to stock picking
Click here


However, the Economist has something interesting to report in that the business cycles of America and Europe (which have converged) and those of India and China (which have converged) have decoupled. Not only that, these nations are not as dependent on exports as they are believed to be (in comparison to the other developing countries) and in fact, have a large domestic market to turn to if the export markets slow down. Further, the financial systems of the BRIC nations are not as liberalised as that in the developed world, which has proved to be a blessing in disguise as the global financial crisis has shown. Moreover, their governments have also increased government spending and loosened monetary policy all of which is expected to be beneficial. Thus, it is apparent that the clout of Brazil, Russia, India and China has increased considerably and the likely possibility of them having a major say in global matters can certainly not be ruled out.

GDP percentage change on previous year
Source: The Economist

Moreover, the Organisation for Economic Co-operation and Development (OECD), the club of developed countries is pinning its hope on the BRIC countries to power the next recovery. However, we remain cautious of any claims that the developing countries can manage to remain isolated from the world economy and grow on their own. Investors burnt their fingers really badly the last time such claims were made not so long ago.

Once upon a time, the US auto industry was the poster boy of American industrial might. Given the license quota raj, most Indians could not even dream of driving the prized vehicles, let alone compete with their makers. How times change! Today the US auto industry is in shambles and Indian auto major Mahindra & Mahindra's (M&M) small trucks will be available in the US by the end of 2009, while Tata Motors' Nano will debut in 2011. In all likelihood, they will succeed too. According to an article on CNNMoney, the US auto makers are in an all out cost cutting mode, leaving their dealers interested in signing up new car manufacturers. In fact, M&M already has tie ups with 350 dealerships in its kitty. Interestingly, the company already has a strong presence in the US as one of the biggest tractor manufacturers.

Of course, mere presence is not enough. Both M&M and Tata Motors will have to match the high quality standards the US consumers are used to. And they have to do it at an attractive price. But the fact remains that the present situation was unthinkable a couple of years ago. Just goes to show how far some Indian companies have traveled over the years.

A couple of days ago, Finance Minister Pranab Mukherjee had urged public sector banks to reduce their lending rates. The largest of them all has responded. As per a leading business daily, the State Bank of India (SBI) has cut its benchmark lending rate (BPLR) by 0.5% to 11.75%. This is likely to have a ripple effect, with other banks and financial institutions also lowering their rates.

It may be noted that the bank had previously cut the BPLR by 0.75% with effect from January 1, 2009. Of course, this means that the bank's NIMs will go down. In order to take care of that, it has also reduced the deposit rates by 0.25% earlier this month.

There is more good news for prospective buyers of houses. According to Crisil Research, home prices in India are all set to plunge further by 10% in the second half of 2009. Home prices have already corrected by 18% to 20% from the levels set in early 2008, on the back of the global recession, slow domestic growth, lack of job-security and oversupply. Lease rentals of commercial spaces are also expected to decrease by 38% in 2009 as compared to last year’s prices. However, property developers believe otherwise. According to them, property prices have already bottomed out and there is no scope left for a further decline. In fact, they see a revived interest from home-buyers for new projects. Time will tell which point of view turns out to be correct.

Clearly, if there is one Indian group that is thinking not one, not two but ten years ahead, it has to be the Tata Group. And the company executives have been saying this in no uncertain terms. “If the past two decades have been of cost and global competitiveness, the next will belong to innovation,” is how one of the executives chose to put it across. Make no mistake, Tata Nano, one of the group’s most revolutionary product in recent times, was one such outcome of the innovation initiative. And if the seriousness with which all the group companies are pursuing this latest initiative is anything to go by, we believe that many more Nanos could spring forth from the group’s research labs. Hence, late next month, when Ratan Tata, the Chairman of the group would be giving away awards to 12 winners of Innovista, an internal competition that has been conceived to extend whole hearted support to innovation, it may well have laid the ground work for the genesis of the next ‘Tata Nano’.

The India Meteorological Department expects a ‘below normal’ performance of the monsoons in India this time. Relative to historical patterns, India has already had a deficiency in rainfall till the 17th of June. Now, July too has been forecasted to have rainfall of only 93% of the long period average for the month. This would have a significantly adverse impact on the agriculture sector as July is crucial for kharif sowing. Over and above that, if the rains have further mischief in store in the form of ill-distributed rains, both time-wise and region-wise, things will get even worse for agriculture in India. The only hope is that the department has got its forecasts wrong, like it often does.

The BSE-Sensex stumbled marginally lower today on the back of a sudden bout of selling activity towards the end, but not before spending most of the trading session above the dotted line. Losses were particularly severe in the auto pack. However, most other Asian indices ended the day in the positive while European indices are trading weak currently.

04:53  Today's investing mantra
"I put a heavy weight on certainty. If you do that, the whole idea of a risk factor doesn’t make any sense to me." - Warren Buffett
The 5 Minute WrapUp Premium is now Live!
A brand new initiative of Equitymaster, this is the Premium version of our daily e-newsletter The 5 Minute WrapUp.

Join us in this journey to uncover the sensible way of managing money and identifying investment opportunities across various asset classes including Stocks, Gold, Fixed Deposits... that over time can help you realize your life's goals...

Latest EditionGet Access
Recent Articles:
Were You Lured By Mr Market's Bait?
August 23, 2017
Mr Market lured investors into believing they'd bitten into a crash. Did you take the bait?
Why Hasn't Warren Buffett Rung the Bell Yet?
August 22, 2017
It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.
How Unique Are the Companies You Invest In?
August 21, 2017
One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.
You've Heard of Timeless Books... Ever Heard of Timeless Stocks?
August 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

Equitymaster requests your view! Post a comment on "Dawn of a new world order?". Click here!

2 Responses to "Dawn of a new world order?"


Jun 25, 2009

it was a brief bunch of knowledge and it should have been at least 15 minutes wrap up so that much more information would have been added.thanks for the article.


samitinjoy sinha

Jun 25, 2009

It seems to be interesting!!!!!!!!!

Equitymaster requests your view! Post a comment on "Dawn of a new world order?". Click here!


Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407