When crash will mean more cash for these companies - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

When crash will mean more cash for these companies 

A  A  A
In this issue:
» The biggest problem facing Indian infrastructure
» PIMCO's Gross remains bearish on global economy
» The solution for a slum free India
» China beats India hands down yet again
» ...and more!!

---------------- Your views are invaluable. Make them count! ----------------
Participate in the Equitymaster Investor Survey 2010 and make your invaluable views count! And as a Thank you from our side we will gift you our exclusive guide - 'How To Plan Your Equity Portfolio'. Go ahead and Take the Survey Now!


It does not look like a very good time to be an equity investor or for that matter, investor in risk assets like commodities. There is far too much pessimism around these days, most of it coming from some pretty respectable macro observers. But what we heard today really takes the cake. Strategists at RBS, one of the world's largest banks too have joined in the pessimism. However, they are not just pessimists but ultra pessimists. They believe that the current downturn has the potential to destroy the equity cult. In other words, equities could fall so much that they will lose much of their relevance. Hmm, very strong words indeed.

However let us not talk equities here. Sure, the Indian equities will also feel the heat. But the correction we believe will have to do more with sentiments than pure fundamentals. For the latter remain as strong in India as ever. If anything, the near term weakness will present a very good opportunity for investors to profit from the long term story. Furthermore, one section of the Indian economy could benefit immensely from developed market meltdown. One where commodities form a key part of input costs and where revenues come predominantly from the domestic markets.

It is quite likely that a deflationary environment prevails in the developed world for quite some time. In other words, their economies could continue to remain weak. And this in turn could mean lower prices of a lot of key commodities. Thus, operating margins of companies in India which use a lot of these commodities may not fall as sharply as a lot of market analysts seem to be predicting. And this in turn could give a big boost to their earnings as well as stock prices. So, while the rest of the world around us goes into a deep correction mode, these companies could well end up flourishing more than ever.

01:01  Chart of the day
There are various ways to gauge a country's technological prowess. How about the ability to develop fast, powerful supercomputers? We are living in an information age after all. Thus, what better show of technological strength than this. Today's chart of the day makes an attempt to do just that. It demonstrates what percentage of the world's most powerful top 50 supercomputers has been developed by what nation. And the US seems to be losing its edge here as well. Just at the turn of the century, more than half of the world's most powerful computing beasts came from the world's most powerful nation. But cut to the present and US dominance has been diluted to a great extent. Same goes with Japan. On the other hand, France and China are shining brighter on the supercomp firmament than ever. Infact, the dragon nation had nothing to boast of in the year 2000. It now sits pretty, enjoying a good share in the game of terabytes. Nations labeled as 'Others' seemed to have done not very badly either. Another US bastion comes crashing down we guess.

Source: The Economist

It is no secret that India has huge infrastructure problems. In fact, the notoriety of India's creaky infrastructure is now world famous. With the significant opportunity costs that India has to bear by having inadequate infrastructure, it is not surprising that it is a much talked about problem too. Thus you may very well ask that if the problem is getting so much attention, why is progress on this front so slow? A. M. Naik, chairman of L&T, one of India's largest engineering and construction company in a recent interview elaborated on the core of the problem. India is a very densely populated country. Each time any kind of infra project is executed, a lot of people along the way need to be displaced.

These people, mostly poor villagers, are never too happy about moving. They resort to filing court cases and bring stay orders on the project, causing project timelines to go for a toss. Mr. Naik suggests that the government should adopt legislation guaranteeing people living in the path of infrastructure projects to get alternative housing or receive a fair-market price for their homes. However, the new law should prevent homeowners from blocking land acquisitions by going to court. He is of the opinion that they should instead be permitted to quarrel only about the sale price, pointing out that a similar law exists in the US. These insights, which come from someone who is in the thick of action, surely deserve serious consideration by the authorities.

World largest bond fund manager Pimco's Bill Gross has touted his 'new normal' view for more than a year now. But he complains that while more and more financial experts are using this phrase nowadays, very few understand the idea behind it. These experts use this phrase to predict that the global markets will soon return to the way they were before the financial crisis, a new version of the good old (normal) days! But as per Gross himself, the 'new normal' is a period of extremely reduced economic growth. And this he expects to be led by 'deleveraging, reregulation, and deglobalization'.

In short, Gross's outlook on the global economy remains bearish. He in fact believes that the global bond markets are priced for near depression! Getting over the crisis by issuing more free cash (that caused the crisis in the first place) is not what he thinks is the right way to go for governments! We second that thought.

India's ambitious plans to provide shelter to urban and rural poor needs a reality check. Who better to offer an expert view on this than an economist specializing in property rights for poor? Comes in Peruvian economist Hernando De Soto. He is currently advising the Indian government on urban housing. This is part of the latter's agenda of slum-free India. Mr Soto believes that the key to empowering power is offering them property rights. This will help them legalise their ownership. Besides preventing exploitation of land owners, the rights will enable the poor to borrow against the title. Mr Soto also believes that migration to cities cannot be prevented. What instead can be done is making the cities more livable.

India and China have a lot in common. Besides being the fastest growing economies and a population of over a billion each. Both are keen on acquiring energy assets around the world. Precisely because of the energy needs of a large and rapidly growing economy. Unfortunately, the dragon nation is doing a better job than India in this regard. As per a leading business daily, India lost out to China in energy contracts to the tune of US$ 12.5 bn last year alone. It is not surprising. China has foreign currency reserves to the tune of US$ 2.4 trillion. Compare that to India's US$ 250 bn.

Public sector exploration companies in China spent a record US$ 32 bn last year on overseas assets. India's single acquisition was made by ONGC for US$ 2.1 bn. Moreover, China doesn't have moral dilemmas about shaking hands with tin pot despots and autocratic regimes. India, with its democratic and foreign policy burdens, has its limitations. Nevertheless, India's oil minister has travelled to many such countries - Nigeria, Angola, Uganda, Sudan, Saudi Arabia and Venezuela - this year. Clearly, the Indian government has its task cut out.

The US Government recently passed the landmark financial reform bill. The bill's most important aim is to avoid a repeat of another financial crisis. But will it be able to achieve its objective? A New York Times columnist has argued and rightly so that the financial reform bill may not be able to avoid another financial catastrophe. This is because the next crisis will be completely different from the previous one and hence, the tools that the financial reforms bill is likely to have under its disposal may prove inadequate.

It is in the nature of financial crises that they are a regular feature with the only difference being in their frequency and magnitude. After all, we have been through this before and we will go through it again. Thus, while the bill may help us equip ourselves better for the next one, it won't be able to stop it in its tracks.

Meanwhile, the Indian stock markets appeared in deep correction mode right from the beginning today with the Sensex trading lower by around 210 points at the time of writing. Heavyweights like Reliance and ICICI Bank were causing the maximum damage. Other Asian indices also closed deep in the red today whereas Europe too is experiencing heavy selling pressure currently.

04:52  Today's investing mantra
"I have no idea whether people get friendlier or crazier. That is not my game. My game is simply to buy something worth a dollar for 50 cents. Then if they go crazy in the right direction it helps me and if they go crazy in the other direction I just buy more." - 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:
This Company Beat the Business World's 'Three Killer Cs'
August 16, 2017
And what it has in common with beating the stock market too.
Let's Hope This Correction Continues
August 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...
Insider at It Again. This Time Stealing from Buffett and Berkshire
August 12, 2017
What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?
The '26% Secret' to Buffett's First Billion
August 11, 2017
This is what led value investors Mohnish Pabrai and Warren Buffett to their first million and billion.

Equitymaster requests your view! Post a comment on "When crash will mean more cash for these companies". Click here!

5 Responses to "When crash will mean more cash for these companies"


Jul 1, 2010

I appreciate the comments and articles covered under this, but what I have seen that your comments are always critical, whereas Economy has and will remain progressive. Why not cover some positives instead for a change ?


jasbir singh

Jul 1, 2010

thanks for sending your valuable approaches to me its really giving me boosting to high as i can . all of your information are precious for me.


Yoginder Saxena

Jul 1, 2010

No much crash can efect Indian Growth Story, afer every economic melt down in US or Europe, Indian stock market will again on new high and creat a history in global economy.


Amitabh Mukerji

Jul 1, 2010

Reg. land acquisition for infrastructure projects. Metro Rail construction in Delhi had a special law allowing land for the metro to be taken from anyone at a fair price. This could be a model for all projects.


pavan boddupally

Jul 1, 2010

Regarding your item of infrastructure and land acquisition. I liked to draw your attention that land acquistion act of andhra pradesh already provides for compulsory acquistion of land and the land owners can only demand higher compensation.Before thinking of aping US law we should look into our own law. pavan

Equitymaster requests your view! Post a comment on "When crash will mean more cash for these companies". 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