Bankers'confidence and more - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Bankers'confidence and more 

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In this issue:
» Crude price withdraws
» Subprime pain may prolong
» Financial community loses an icon
» Indian steel prices and more...

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00:00 Investing fraternity loses one of its foremost icons
John Templeton believed to be the pioneer of global investing has passed away. He was 95. The man though will continue to live in the hearts of thousands of investors through his priceless investment wisdom. Among his contemporaries, probably only Warren Buffett comes close to him in terms of popularity. Investors used to come in huge numbers during his annual meetings to hear the legend dish out investment wisdom. Money magazine in 1999 called him arguably the greatest global stock picker of the century. Templeton's eponymous growth fund was a pioneer in global investing, being among the first ones to give Americans access to investments in companies abroad. When World War II began in 1939, Templeton borrowed money to buy 100 shares in each of the 104 companies selling for $1 a share or less, including 34 that were in bankruptcy, according to a biography on his foundation's Web site. Only four turned out to be worthless after Templeton held each for an average of four years. During the 90s, he sold his business to Franklin Resources. Till then, it had grown its assets under management to US$ 20 bn and had managers of the caliber of Mark Mobius. We will greatly miss you Sir Templeton.

00:37 Indian steel prices an aberration
Fresh from receiving an UN award, Indian steel secretary R S Pandeywas gave an interview to one of India's leading business dailies. Among other things, he discussed the domestic steel price scenario and the capacity addition that is likely to take place in India in the coming years. On domestic prices and the difference in price gap between Indian and Chinese prices (domestic prices in China are believed to be lower than the price at which they export), he had the following to say "India is the only exception as we have seen a decline since April. Therefore, the gap between the domestic prices of steel in China and India has narrowed. In my meeting with major steel producers last week, they told me prices would not necessarily be hiked in August. We are also taking administrative measures to stabilise the retail market."

It should be noted that while primary steel producers have not raised prices in recent months, prices had continued to rise at the retail level thus raising concerns. As shown in the chart below, average prices of HR coils (Gobindgarh) have risen by more than 10% between Feb and June this year.

Speaking about rising demand and domestic capacity addition he further added, "Ultimately, we will have to increase domestic capacity. Fortunately, all incumbent players are busy adding capacities. Projects are on stream for SAIL, RINL, Tata Steel, JSW, Ispat, Bhushan Steel and others. The country's steel-making capacity will be 124 million tonnes, more than double the present capacity, by 2011-12 ."

  • Also read - Steel Industry: Key growth drivers

    01:33 India risks squandering its demographic dividend
    As per reports, nearly half of India's population is under 25 years of age and it is this very enormous swathe of humanity that will ensure that we continue to remain among the fastest growing economies for quite some time to come. However, growth comes from rising income levels and incomes don't just fall from trees straight into the laps of people. It has to be earned through use of skill and knowledge and it is the inability of the government to provide these two attributes that threatens India's long-term economic growth rate. As per a study conducted by research firm IIMS Dataworks and published in Mint, India has failed to match the decline in poverty that other countries were able to achieve through their high economic growth. In other words, what is needed in India is greater economic inclusion so that benefits of higher growth percolates down to the lowest strata of society. The report states that only India is home to 310 m of the so-called poorest of the poor but an estimated 76.6 m people across the country are low-income workers, struggling to make ends meet. While many of the current generation of these low-income workers are not likely to escape their low-income situation, more government help is required to raise living standard. However, all is not lost and India could still do a lot for the upliftment of the poor given that there is proper political will. The report goes on to add, "In India's case, unlike so many emerging and developing economies, the country's economic prospects are sufficiently bright for this to be seriously contemplated as a practical course if there is political will to proceed along these lines".

    02:30 Bankers unanimous about the India growth story
    As is customary, India's leading bankers met RBI recently in a pre-credit policy meeting. While the central theme of the talk was indeed the inflation and crude prices, the bankers seemed to have also urged the central bank to have a relook at the loan waiver scheme and alternate methods to bring inflation under control rather than resorting to CRR and repo rate hike. On the loan waiver, one of the bankers was of the view that as previously expected, the scheme is not having a positive impact on the balance sheet of banks. This is mainly on account of the fact that entire amount that is overdue is not being paid. The topic of liberalization of accounting norms for house loans was also touched upon in the meeting. However, given that what is happening in the US is a result of lax accounting standards, the RBI will be in no mood to relent on this issue. Concerns were also raised on the issue of rising cases of loan default especially on the retail front. Notwithstanding these minor blips, there was believed to be complete consensus among bankers that the India growth story remains intact on account of the strong fundamentals. This must be indeed music to the ears of investors, who've seen their wealth erode at a brisk pace these past few months on the bourses.

    03:17 The crude price cheer
    Crude oil has slipped by US$ 9 in just two days; its lowest level in nearly 2 weeks and the news must have led to a huge sigh of relief to economies worldwide. Reports that crack in the US demand has begun to show have already started flowing thick and fast and investors were further concerned that a government report expected to come out on Wednesday will in all likelihood indicate lower demand for fuel over the previous weekend. Furthermore, worries over supply disorders in the Middle East also toned down after the pronouncement of the Iranian president in the form of a dim possibility of an armed conflict between Iran and Israel or the US. On the demand side, although developing economies like China and India have started guzzling more oil, the US is still the runaway leader in oil consumption and hence, a demand slowdown here will still have an impact on global demand, thus helping ease oil prices. However, what remains to be seen is whether this is just a temporary relief or the black gold has surely run its course.

    03.46 ...but sub prime continues to disappoint
    Ben Bernanke, the Chairman of the US Federal Reserve gave a speech yesterday before the Congress. While he did outline a series of steps that the Fed is considering taking to pull the US out of its recent troubles, the one that is likely to have the maximum impact is his announcement of continued extension of low interest loans to Wall Street's investment banks. This, we believe, is another way of saying that the sub prime imbroglio is far from over and would comfortably extend into next year. This is indeed bad news for investors across the globe as they were hoping for a quicker recovery of the US from the crises and a revival in the US consumer spending. However, that is unlikely to be the case this year and maybe for some time next year. What will lend some comfort though is the chairman's comment that the markets have improved somewhat since March. Record high crude prices and weak consumer sentiment arising from the sub prime turmoil have dented consumer sentiment in the world's largest economy and has led many to believe that it might be heading towards a recession.

  • Also read - Subprime hits Indian shores

    04.16 In the meanwhile...
    The Indian stock markets were in rip-roaring form today, with the Sensex edging higher by nearly 5% in a session that witnessed strong gains all around. Amidst positive global cues, the Sensex opened with a positive gap of 413 points. From thereon there was no looking back as the indices continued to scale higher with every successive hour. The momentum continued in the final trading hour as well, resulting in the indices closing comfortably above the dotted line. The overall market breadth was positive with gainers outnumbering losers by a ratio of 6.7 to 1 on the NSE. Reliance Infrastructure (up 11%) and Jaiprakash Associates (up 10%) led the pack of gainers on the BSE Sensex, while Hindalco (marginally down) was among the select few that were at the receiving end. As regards global markets, while the Asian indices closed firm, the European indices too are currently trading firm.

    04.41 Left does the inevitable
    Once the UPA government had decided to go ahead with the nuclear deal, an issue that had become the bone of contention between the Congress and the Left parties, it was only a matter of when and not if. That when happened today. The Left parties have formally ended their four-year-old relationship with the UPA government and have handed over the letter of withdrawal of support to the President. Not only this, they have also given the President a separate letter asking the President to summon the Congress and direct the Prime Minister to seek a trust vote. Given that the Congress has already mustered up support from SP, the chances of early elections seem to be remote.

    04.55 Today's investing mantra
    "I thought, I'm only going to be on this planet once, and only for a short time. What can I do with my life that will lead to permanent benefits?" - Sir John Templeton.
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