India's secret wealth worth Rs 27 lakh crores! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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India's secret wealth worth Rs 27 lakh crores! 

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In this issue:
» MNC promoters finding hard to exit
» India could gain from global turmoil but...
» Marc Faber says investment in US treasuries beats logic
» America will miss Charlie Munger commentary
» ...and more!

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00:00
 
The whole world watched, presumably with its mouth wide open, as treasure worth an estimated US$ 22 bn was unearthed in one of India's temples recently. In fact, the wealth count could go up once the last remaining vault is also opened. Clearly, this is a mindboggling amount by any stretch of imagination. However, if the Wall Street Journal is to be believed, this treasure could just be a tip of the iceberg. India's real treasure is not in the secret cellars of its temples. But it lies in steel cupboards and in bank lockers across the country. If you haven't guessed it by now, we are referring to India's gold holdings in private hands. The ones that are stashed away by the country's housewives and other private owners.

The journal further goes on to add that India's private gold holdings are an estimated 15,000 tonnes. However, as per some experts, these are very conservative estimates and the actual number could be twice of this. Mind you, even 15,000 tonnes is not a small number. At current gold prices and after knocking off 20% value to account for dissimilarities in terms of purity, India's total gold reserves are worth an impressive US$ 600 bn. That's a cool Rs 27 lakh crores in rupee terms!

Just to put things in perspective, India's total gold would be enough to pay for all of India's oil imports for the next six years. Alternatively, it could fund as much as half of India's total infrastructure spending targeted for the next five year plan. However, this may not be all. The value of India's gold reserves looks all set to swell further as Governments across the world continue to print vast amounts of money. Clearly, by keeping a fair amount of their savings in the form of gold, Indians have proved themselves to be one of the most astute savers in the world.

Do you think we should keep a decent amount of our savings in gold? Share your views with us or you can also comment on our Facebook page.

01:06  Chart of the day
 
Today's chart of the day highlights the sectors that have received the most amount of FDI over the last decade. As clearly seen, the services sector is head and shoulders above the rest. It should be noted that the FDI inflow into India during the period amounted to a total of US$ 130 bn. While the number has grown over the years, it is still a pittance as compared to what China has attracted or continues to attract. Furthermore, India's situation is strange as there has been a tendency towards portfolio inflows rather than trade inflows.

Source: The Financial Express

01:30
 
Minority shareholders have gained importance with a slew of regulations brought out by SEBI in their interest. And promoters of companies are realising that these shareholders can no longer be just ignored. The delisting of MNCs is a classic case in point. Many MNCs looking to delist their subsidiaries from the Indian bourses have realised that the process is not as simple as it once was. For starters, as per delisting regulations of 2009, it is has been made mandatory to receive shareholders' approval through the postal ballot method. The delisting proposal is passed as special resolution and only if two-thirds of the votes are cast in favour of the proposal. Moreover, only public shareholders can cast vote meaning that promoters cannot just divest their stakes and reap rich rewards at their own convenience.

Shareholders, themselves, are becoming more savvy and aware of the market situation and are contesting the price which promoters are offering for buying out their stakes. Taking note of the fact that certain MNCs chose to delist their subsidiaries by paying a hefty premium, subsequent delisting proposals have hit a roadblock as the asking price of shareholders has been too high for parent companies. Indeed, parent companies and promoters will have to rethink their rationale for delisting and come out with some solid reasons if they no longer want their companies to be part of the Indian stock exchanges.

02:15
 
When it comes to currencies and commodities there is one investor whose opinion is hard to ignore. So when we came across Marc Faber's views on the US dollar in his Gloom, Boom and Doom report, we were not surprised by his conviction. That the fate of the US dollar is now sealed is anybody's guess. However, Faber has emphasized on the irrationality of investing in US Treasuries. Fed chief Ben Bernanke's obsession with more monetary easing (QE3) seems to worry Faber the most. That QE3 is not ruled out lays the ground for the dollar to lose its purchasing power completely. Hence investing in US Treasuries at this point is the most 'mind boggling' act according to him. Ironically that is exactly what China has been doing! However, in such a scenario Faber believes that there cannot be a better haven than gold. In fact, he stresses that the risk lies in not owning any gold than the possibility of a short term correction in its prices. Not just dollar but as most paper monies lose their value, investors would be better off hedging their risks with some gold.

02:52
 
The global financial crisis has affected every country and financial market. The situation has been worsened by the likes of the European Union (EU) countries where mountains of debt have weighed heavily on global financial markets. Countries like Greece are suffering due to the lack of governance, greedy politicians and inept regulators. Unfortunately, these evils have consumed even the larger countries like the United States. At times like these, one cannot help but admire a man who has always opposed these things. Despite the fact that most of them were bundled under fancy names and products like collateralized debt or high frequency trading. The man we are referring to is none other than Charlie Munger. Mr Munger has earned himself a terrible reputation for his outspoken and lambasting ways. But if companies and government pay heed to his statements, then they may not end up making the mistakes like the ones they have made. And then maybe they would not end up in the mess that they are in currently.

03:26
 
Guess who stands to gain from the waves of economic crisis engulfing the global majors? Even as Eurozone struggles with the debt crisis and the US deals with issues of unemployment and breaching the debt ceiling, India and China are entrenched in relatively sweet spots. India's estimated growth at 8% in FY12 versus a global annual growth of 3.2% will help attract more capital flows and investments. In other words, the western world's loss would be our gain.

The weak global demand can set inflation at easy levels by keeping commodity prices low. What is further expected to work in our favour is the small 13% share of exports in GDP which insulates us from global setbacks. The domestic consumption has a share of 60% in India's GDP. Such a strong domestic orientation was largely the reason of resilience in the previous financial crisis. Even now, equity valuations, acquisition trends and a conducive foreign investment policy environment are expected to keep capital inflows coming.

But then doesn't it sound too good? Well, here is the catch. The gains will materialize only if the crisis does not blow up into something bigger. The party could be spoilt if there is a default by the Eurozone countries as India still depends a lot on capital inflows to fund its ever rising current account deficit.

04:18
 
Meanwhile, it was a lacklustre week for the world stock markets. All the major world indices ended the week in the red. France was the biggest loser (down 4.8%) during the week followed by Hong Kong (down 3.7%) and Brazil (down 3.3%). In Asia, China was the best performer and closed the week on a flat note. Japan was down 1.6% while Singapore lost 2.1% during the week.

The US stock markets were down by 1.4% during the week. S&P's warning that it might downgrade the US debt rating within next three months dented investor sentiments. Further, worries about the US and Europe debt trouble continued to haunt the markets. However, blockbuster earnings from search engine major, Google Inc, brought in some respite with Dow Jones closing on a flattish note in the last trading session.

After advancing for three consecutive weeks, Indian stock markets finally snapped its winning streak and were down by 1.6% during the week. Lack of positive cues from the global markets, unsatisfactory IIP data, deficient rainfall figures and disappointing start to the earnings season showered concerns on the markets. Further, bomb blasts in the city of Mumbai also rattled investor sentiments.

Source: CNNfn, Yahoo finance, Kitco


04:56  Weekend investing mantra
"Most businesses change in character and quality over the years, sometimes for the better, perhaps more often for the worse. The investor need not watch his companies' performance like a hawk; but he should give it a good, hard look from time to time." - Benjamin Graham
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28 Responses to "India's secret wealth worth Rs 27 lakh crores!"

Mohan

Jul 24, 2011

Do u think the great UPA is sitting idle now? Already they must have developed schemes to loot this wealth slowly and slowly like Termites and export it to their secret Swiss Bank accounts. See in near future people will talk about where this gold has gone. Then this will be a bigger story than this 2G scam.

Like (2)

Mohan

Jul 24, 2011

The gold found out in temples today and the gold in peoples lockers etc argole their own property. Why r we calculating what this gold will buy for us for the next so many years etc. There is plenty more money lying in Swiss Banks, all looted by the great likes of Gazni and exported clandestinely to these Swiss Banks. Indian Government has to bring this back to India and let Indians live a decent hassle free life. Will this government do it?

Like (2)

Ved from Victoria Institutions

Jul 21, 2011

It is not gold that makes a nation great, but quality people. As for the value of the gold in the temple, if they are opened to the market, the gold value will come crashing down. It fact, it would become dirt cheap.

India currently doesn't have quality. Gold is not going to fill that gap. Quality comes from being with or under quality persons. Indian leaders are just straw quality-celibate, non-celibate or experimenting with celibacy.

Like (3)

Sarat Palat

Jul 19, 2011


I do believe that gold should be a part of our savings. Taking into consideration the easy liquidity, the rate of inflation in the country, very low risk comparing to shares and stocks, Gold should be a part of the saving portfolio.

Like (2)

sd

Jul 19, 2011

USA has 8000tn of gold. Inflating the commodities is their game. One fine day when the bubble suits them, they will dump a portion of their gold & pay off their debt. After all Obama has an election to win next year.

Like (3)

ROSHAN KUMAR

Jul 18, 2011

Sir I believe that instead of looking towards import of oil. We should consider our country infrastructure and other issues to compete at International Level.

Oil no matter watever $/bbls it is...Indian consumers will not move back.

Like (2)

S.K.DAMANI

Jul 18, 2011

Well Well.
How about starting a GOLD for insfrastructure building.
Govt. can start a scheme. Individuals can give their gold to Bank / RBI for a period of 10yrs. and earn TAX free return of 6% - 8%p.a.
This Gold can be than given to IMF and get funds for infrastructure.
I would like guidance on only one query:
Can any one guarantee that the Gold would be returned in the said 10 years? (Can we give our savings to the politicians??
By the way Gold is likely to go up much more higher in future also: till such time the Dollars are printed.
Feed back thoughts are requested.
Thanks.
Damani

Like (2)

Vijay N

Jul 18, 2011

In these times of nerve wracking global uncertainty, Gold, upto an extent of 10% of a portfolio, would make great sense. Not just with growth prospects in mind but with the hedge against a collapse of any other asset class.

Like (2)

Chandra N S

Jul 18, 2011

Hopefully, UPA II Politicians & neo-MBAs won't read this article.

If they do, there is all the likelihood of the first community nationalizing the existing Gold.

The second community will then help the first community to sell it off to foreign countries at dirt-cheap price. Well, the first community is rich enough to pay commissions to second community.

Like (2)

Manohar Adsule

Jul 18, 2011

Well,We Indian belive in saving and keep apart some of our saving for uncertain future.This is because we are taught to do so,appearntly it is turning a golden oppetunity to inest in gold.

Like (3)
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