Who plays the key role in your investing decisions? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Who plays the key role in your investing decisions? 

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In this issue:
» SEBI's cupboard of reforms far from being empty
» Can Indian markets justify premium valuations for long?
» India is poorer than you thought
» India's road building on a fast track
» ...and more!!


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00:00
 
In the recently concluded Investor Survey 2010, we asked our readers - Who plays the key role in your stock picking decisions? And the response we received was encouraging. A majority - around 72% - voted for the 'Self' option. This suggests that small investors are getting more independent in their investing decisions.

Source: Equitymaster Investor Survey 2010

After years of facing numerous scams and stock market cycles, it is good that individual investors have decided not to leave anything to chance, or to their brokers!

After all, investing in stocks in not rocket science. You just need to carefully study companies and make informed decisions. There are numerous companies in India that have brilliant long-term prospects. You only need to turn over lot of rocks to identify them, especially now when broader valuations look fair (and not attractive). And the best guide you have in your search is your intelligence and independence.

00:41  Chart of the day
 
Insurance companies are considered to be among the investors with the strongest hands, and longest vision. This is considering their source of fund inflows (insurance premia) that is long term in nature as well. Indian insurance companies like LIC have been big investors in the stock markets in the past. And their weightage of holding in large Indian stocks is on a rise. Consider today's chart of the day. It shows how India's insurance companies have gradually increased their stake in large Indian companies, represented by the BSE-200 index. And the signs are encouraging indeed!

Data Source: CMIE Prowess

01:08
 
Are the memories of the
Ranbaxy-Daiichi deal still fresh in your minds? We bet they are quite fresh at least in the minds of the minority shareholders in the company back then. After all, they had received a very raw deal. It should be noted that the two companies had entered into an agreement whereby Daiichi was to take management control of Ranbaxy. And that too at a significant premium to the market price of Ranbaxy at that time. However, it was only the promoters of Ranbaxy that were able to convert all their shares at a huge premium. In contrast, only 20% of the minority shareholders benefited from the premium.

And mind you, this is not an isolated incidence. There have been many such instances where differential treatment has been meted out to promoters and minority shareholders. Thankfully, market watchdog SEBI has not turned a blind eye to these events. A panel set up by SEBI has proposed increasing the acquisition threshold from the current 15% to 25%. What more, once a buyer buys 25% of a listed Indian company, it should make an offer to buy out the remaining 75% stake instead of the current 20%.

We believe that this would indeed be a very sensible move as it would put a complete end to <>Ranbaxy like episodes in the future. And this is not all. Several other minority shareholder friendly revisions are also being looked into. Clearly, looks like SEBI's cupboard of reforms is far from being empty yet. And we certainly like it that way.

02:13
 
It is a fact well known that India did not suffer much as the developed world or even China in the global financial crisis. A domestic consumption driven economy and lesser dependence on exports is what tilted the balance in our favour. Little wonder then that the country seemed an attractive investment destination, now to the point that broader stock market valuations have now become fair to expensive.

Therefore, the question that springs up in mind is whether Indian markets will be able to justify premium valuations over its Asian peers. What do you say? Share with us, or post your comments on our Facebook page.

02:39
 
Eight states in India have more poor people than 26 of the poorest countries in Africa. The states include Bihar, Uttar Pradesh, West Bengal, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, and Rajasthan. This shocking review is according to a new measure of poverty developed at Oxford. It is called the Multidimensional Poverty Index (MPI). This shows that these states are poor, not because they lack money. It is because they lack even the most basic standards of living. The new indicators to measure poverty include education, health, housing, nutrition, and assets. Access to basic services like drinking water, sanitation, cooking fuel and electricity are also included. If we use the MPI, it turns out that more than 50% of the world's poor live in South Asia, and only over a quarter (28%) in Africa.

India has had great progress with rapid GDP growth, higher income and less poverty measured in cold monetary terms. However, in terms of actual human development, we are still one of the world's poorest. Hopefully, our government pays heed to such measures and allocates money to where it is most needed - education, health, and sanitation.

03:24
 
No one will disagree that India's infrastructure leaves a lot to be desired. And the first thing that comes to mind when we mention infrastructure is - roads. So, it comes as welcome news that the National Highways Authority of India (NHAI) is awarding road projects at a record pace.

As per a leading business daily, it has awarded 63 projects worth Rs 569 bn spanning 5,564 km since May last year. Going forward, it has another 60 projects connecting 5,937 km in the pipeline. Compare this with the NHAI's performance in FY09, when it could grant only 6 projects spanning 600 km.

Of course, it is one thing to award projects and quite another to execute them in time, within cost and up to the desired quality. But there are positive indications here as well. The average highway completion period has come down from 36 months to 24 months. Let's hope it doesn't slip going forward!

04:01
 
The growth opportunity that India presents has not lost on the foreign investors as yet. They continue to pour money into the Indian markets. As per latest data, FII investments into India have touched almost Rs 390 bn in 2010 till date. This is nearly half the sum (Rs 830 bn) that they poured into Indian stocks in the whole of 2009.

Data Source: SEBI

So, is this flow of foreign funds good or bad for the Indian markets? Well, the answer depends on whom you are asking this question. A short term trader would love to see these FIIs come in droves and take stock prices up. But a long term investor, gradually building his portfolio, would hate seeing stock prices surge due to the force of huge foreign money!

You see, India is one of the fastest growing economies in the world. So one cannot do but live with large inflows of foreign funds eyeing good returns. But in good times, what we generally forget is that these very funds flow out in hordes when crisis strikes. And this tends to hurt sometimes, and hurt big.

04:43
 
Anyways, Indian markets faced another day of volatility today. The BSE-Sensex was trading with losses of around 20 points (0.1%) at the time of writing this. Selling pressure was specifically seen in stocks from the realty and IT sectors. Most other key Asian markets were also trading weak today with the exception of China, which closed with a 2.1% gain.

04:57  Today's investing mantra
"October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February." - Mark Twain
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15 Responses to "Who plays the key role in your investing decisions?"

gurmeet singh

Mar 4, 2011

Definately,reservation shd b thr.But its base should changed i.e. criteria should change 4 reservation it shd b on the basis of income, government never realise that by using reservation frm last no. of decade where they have reached.

Like 

Murali Krishnan K

Jul 22, 2010

There is nothing wrong in this proposal. This seems better than 'caste-wise' reservation, where 'merit' is not given a place. Here, among poor, if the candidate is better qualified, skilled, why not he be given a chance. This will lift that poor family up. Reservations are welcome so long as they do not compromise on the 'quality'.

Like 

Selvaraj Kuppannan

Jul 21, 2010

This is a very good idea. Given the rate at which the population grows god only knows how India is going to find employment to all. Introduction like this will make economically poor people to get engaged with the nations development. Neglecting these section of people would lead to a greater catastrophe in anti social activities. Only way to divert this low skill labors is to make them engaged in some activities, which can be developed by training. The innovative steps like this should be encouraged for low skill high labor work, mainly for manufacturing work.

Other area I would like to focus is on Agriculture. Introduction of National Rural Employment Gurantee Act creates an unbalance in the Agriculture industry (from my knowledge as I am closely associated with it). People who were predominantly working in farms are now in to this scheme. Many a time when I travel in the roadside I see people in this scheme are sitting under the tree and do nothing. This has become a wide spread criticism. There is no accountability from the authorities. Consequently there is less number of people for farm work. This leads to less farm activities and productivity and we are talking about food inflation, demand increase etc…

Please create a scheme like this for agriculture, and encourage use of machineries, at least the accountability will be taken care by farm owners and this provides better farm productivity and meets the demand and inflation. Balancing the resources for the over all national development is the key thing needed for India at this point in time.

We should remind one thing, an estimation show that in next 20 to 30 years time frame India is going to have 50% more population. How we are going to feed, meet employment and provide shelter to these many people. If these tings are not taken care, we are going to see widespread anti social activities in India. This is more dangerous than any thing else.

Someway or other we should start including skilled, low skilled, reserved, upper-class, lower class, educated, non educated and all sorts of people to national development. We should not waste human productively and human resources should contribute to the national development.

We talk about wasting of petrol, water, food, what about wasting of human resources…it is again a national wasted. These needs to be addressed by providing opportunity for all.

Like 

Nabeel

Jul 21, 2010

Sir,

Unfortunately, even we don’t like to say loudly, it is truth that our system is more supportive to rich. Therefore, the gap between rich and poor is widening more. We know that qualifications and skills make one eligible for competitive jobs, for that education is necessary. Government is withdrawing their responsibility of offering quality education to all and opening the doors for foreign education institutions and private institutions. So, this made financial health as additional criterion for quality education.

There is a multiplier effect. Poor lack education therefore they don’t have qualifications and skills. This makes them ineligible for jobs. Finally they forced to live in poverty. This cycle continues to next generations. Opposite is happening to rich also.

Different ways of reservations are highly required to poor and backward societies in all fields for the creation of just society. So, Govt move to ensure reservation for poor is a move to be supported.

Like 

Manoj Kumar

Jul 21, 2010

What we should be worried about is not whether the Indian stocks would be able to justify their premium over other Asian peers but how we are going to manage if the world economy is indeed going into a depression mode. Would we be able to continue with our India story going on in the same breath of will we have to cool our heels for some time.

Like 

Mukta Rajeev

Jul 21, 2010

Typically our government can think of eating readymade a baked pie. Why can't they work out a longterm commitment where the industries are involved in training the students / labors and then absorb them depending on their performance? At the most they can be given a stipend. But what will happen to their vote bank and the applause from the naive, illeterate masses????????

Like 

praveen bhargava

Jul 20, 2010

The Ranbaxy-Daiichi deal was a pure business deal.It was not an open offer from the one side.It was a pure profit earning deal between the two.One offer and the other one accepted the offer.In this deal both the party gained a lot. The original owner got a huge amount of money in exchange of their life time establishment in the form of RANBAXY.The other party got a well established medical firm of India with a through away price to the other party and a strong foot-hold in a ever increasing market of its products in foreign country as big as India.
In such type of deal with so much stake and gain for both side THE MINOR SHAREHOLDING OF THE RANBAXY in so many different hands are not at all could be justified to say that they have not been contacted or get a chance to involve in this type of huge deals.
SEBI may make rules/guidelines in the other situations like open offer for purchase/sale of shares of a particular company by some other party to get a handful of stake/holding in the company and not otherwise.In a free economy every one is free to make big deals as of RANBAXY to get a majority holding or to control a company of his choice as in other parts of the free economy world like Europe or Amrica.

Like 

Mohan

Jul 20, 2010

"Reservations"
Already reservations are 69% in Tamil Nadu and 73% in Karnataka, its going to cross 100% sooner than later.

As a first step, why don't the govt remove the creamy layer in all the reservations to help the real poor?

Like 

k v s rao

Jul 20, 2010


Better to create environment especially for poor to aquire skills at free of cost than to provide jobs.

Also need to see the facilities not to be mis-used.

Like 

KRISHNAKANT BATAVIA

Jul 20, 2010

INDIA WILL FALTER AND FAIL TO JUSTIFY HIGHER VALUES.

Like 
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