Dear Mr Tata, we disagree with you on this - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Dear Mr Tata, we disagree with you on this 

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In this issue:
» Real threat of a hyperinflation
» Mr Roubini still thinks 2013 as the year of perfect storm
» Loss making companies paying big dividends
» Smaller IT companies minnows no more
» ...and more!


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00:00
 
Our Prime Minister, Mr Manmohan Singh would be hard pressed to find one news article speaking in his favour these days. Even international magazines of repute have started taking him to task on his inability to carry out reforms. Thus, what better news for him than the fact that a corporate head of the stature of Ratan Tata has come to his rescue? Mr Tata has posted a letter on his Twitter account. And he has described as harsh, the blame that has been put at the Prime Minister's doors.

"Yes, it is true that our country has lost its growth momentum over the past 12 months that investment confidence has declined, that inflation has soared and that Government action has been too little, too late - but to single out and blame the Prime Minister is grossly misdirected", Mr Tata is believed to have said. (Full text here)

Make no mistake; we really respect Mr Ratan Tata a great deal. However, in this instance, his affection for Mr Singh is probably far too much for him to accurately assess his performance. Mr Tata seems to have given the sole credit of the reforms of 1991 to Mr Singh. However, at the same time he refuses to blame him for the current state of the economy. Isn't this approach a little two-faced? That such statements come from a leader like Mr Tata is even more surprising. Should one of his group companies fail to deliver, will he not, as a leader, take the blame for it? Then why this exception for Mr Singh.

Mr Tata also urges us to give full support to Mr Singh now that he has one last shot at reviving his image. Sorry Mr Tata, we think he has already been given too long a rope already and we see it as highly unlikely that he will achieve something over the next few months when he has failed to do so all this while. As it is, the damage that has been to the economy on account of his inaction cannot all be repaired in the course of the next few months we believe.

Do you think Mr Tata is right in his assessment of Prime Minister Singh? Share your views with us or you can also comment on Facebook page / Google+ page.

01:19  Chart of the day
 
Can you tell which invention has had the biggest impact on human population in the shortest period of time? As per World Bank, the invention is none other than mobile communication. In its latest report, the global institution has argued that the number of mobile phones in use has skyrocketed from less than 1 billion in 2000 to 6 billion in 2012. What more, the developing world today is more mobile than the developed world as it bypassed other communication devices to jump straight to mobiles. Today's chart of the day highlights the growth in mobile penetration of the BRIC nations, indeed showing how fast the growth has been. While India has amongst the lowest mobile penetration currently, it does boast of the fastest growth rate during the period.

Source: World Bank


01:56
 
Cost cutting has become the buzzword. In these times of slowdown and uncertainty, nearly every company is embarking on some form of cost cutting. The idea being to protect, if not improve their margins. And this is helping one sector in a big way. We are referring to the smaller and middle tier IT companies. This is true not just for the midsized Indian IT companies but also for the global ones. They are seeing several orders come their way as outsourcing clients are breaking down large deals into several smaller deals. So what is basically happening is that instead of awarding one large contract to one large company, they prefer to sub divide it into smaller contracts and give them to 3-4 smaller companies. Reason - it results in lower costs for the clients. Result- the smaller and midsized companies are seeing their outsourcing deal pipelines fattening up.

02:26
 
If people start losing confidence in the future purchase power of money, they tend to switch to real assets. This causes increases in asset prices. In other words, the purchasing power of money declines. Noticing such a trend, other cash holders may also panic and flock towards real assets. When such a self-reinforcing cycle sets in, it leads to hyperinflation. It must be noted that hyperinflation is not really a very rare event. It has struck various economies in the last century. Some remarkable instances would be Germany in the 1920s, Hungary after World War II and more recently Zimbabwe in 2008.

What are the usual conditions before an economy is hit by hyperinflation? As per an article in Zerohedge, one condition is government deficits in excess of 20% of government expenditures. Which are the countries that make it to this notorious list? The five countries that make it to this list are none other than India, the US, the UK, Japan and Spain. But Japan seems to be at relatively lesser risk given that it is a creditor nation and not a debtor nation. Even Spain, which is part of the Eurozone, cannot trigger a hyperinflation on its own because it doesn't have its own individual currency. So the only prospective hyperinflation candidates are India, the US and the UK. Where disaster strikes first is for everyone to wait and watch.

03:14
 
A generous dose of dividend is always mouth watering for shareholders. Even if you are a minority one. But one would usually expect that from a company generating healthy profits. Dividends from loss making companies are seen as an excuse to keep investors happy. They are also seen as a sweetener during tough times. Hence company managements too take advantage of this psychology to divert attention from poor performance. Moreover, for promoters the dividends can be an icing on the cake. One they get tax-free funds by way of dividends during the tough times. Many use them to buy more shares or release pledged shares. But for companies that are highly leveraged, steep dividend payouts during times of losses can be the death knell. Also cashing out huge dividends from profitable entities to invest into loss making ventures of the same group is a popular tactic. All we can say is that investors need to be wary of their dividend receipts as well. High payouts are not necessarily a sign of bliss!

Since the number of companies that investors can trust is few, at Equitymaster we are conducting a Corporate Trust Poll. Here we have asked our readers to vote for the corporate group that they trust the most. The poll is not over yet. So, we would urge you to go ahead and cast your vote.

04:01
 
Nouriel Roubini earned the moniker of Dr. Doom when he predicted the 2008 global financial crisis. And what is more, the economist has more gloomy predictions in store. This time the year is 2012 and Roubini has predicted a global 'perfect storm' for next year. There are five factors which are set to drive this. For starters, it is the worsening debt crisis in Europe. Then, tax increases and spending cuts in the US which will push the US economy into recession. Added to this is a hard landing for China and slowdown in other emerging markets. And last but not the least, a military confrontation with Iran.

And it goes without saying that quantitative easing measures by governments will not be the answer to all these problems. Some new means of kick starting growth will have to be thought of. If one were to gauge what is happening in the world economy right now, Roubini's predictions might turn true. Europe is still burdened by massive debt and growth in the emerging economies has certainly slowed down. So one will have to wait and see whether all this comes to a crisis next year.

04:41
 
Meanwhile, indices in the Indian equity markets have been trading strong today with the Sensex higher by more than 80 points at the time of writing. Heavyweights like Infosys and ICICI Bank were seen driving majority of the gains. Other indices in Asia also closed strong today with Europe too opening on a strong note.

04:53  Today's investing mantra
"When you buy something, ask yourself how much optimism is priced into the stock. If it is too much optimism, then it is probably a bad buy." - Howard Marks
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81 Responses to "Dear Mr Tata, we disagree with you on this"

T K Thomas

Aug 1, 2012

People who do not know speak loud. A Jesus was disowned by those who later disintegrated. Who is there who could even loosen the shoelaces of Dr. Manmohan Singh? If you or I cannot claim even 5% of what Singh has done, we do not have the right to throw stone at him. It is vested interests, especially those who are enemy of India who want our country to be brought down by such mischievous comments. Does Singh care? He is above all this. Can we take back our words? Sometimes such greats do not need to do anything, it is enough they live among us. Their character is what we need. If we do not have it, blame ourselves. We are not the most progressive nation on earth, then why some people feel jealous of us? Even the most progressive nation has its ups and downs. The greater you are the bigger the fall. Hence we are safe. We will survive this falsehood and hope this is a blessing in disguise. Those who did not allow Singh the right to perform may think twice. Three cheers to India and all Indians. Same to all nations of this world. Be a world citizen. Just for your knowledge: 'He who knows not and knos not that he knows not: is a fool, shun him. He who knows not but knows that he knows not is a simple man, teach him. He who knows and knows that he knows, is a wise man: follow him'. Best wishes and regards.

Like 

Mala Singh

Jul 31, 2012

Dont agree with Mr. R Tata, the PM is such a fine economist and if staying at the top he cannot help India to shine....then he is squarely to be blamed for it..

Like 

vin

Jul 28, 2012

frankly speaking Manmohan Singh does not deserve credit for the 1991 reforms as liberalizations were one of the preconditions for getting the loan from IMF . He was not the architect he was the contractor given the job of rebuilding India.
Strange The Man who should be given Credit For liberalization - NARASINMHA RAO has been given none - for without his backing MS would have been not been able to do anything as is the case of MS today- w/o sonia he is useless.
vin

Like (2)

sundar

Jul 28, 2012

tata himself a good politician. he has attended AGM of tcs and not tata motors. the day just before nira radia tape came up in the media, he announced that he was asked bribe to start an airline in 90s. first let him take blame for hype and alla gollah he had created in singur for a car which is selling one third of the plant capacity after 4 years of launch.

Like (1)

Ajay Puri

Jul 23, 2012

I dont agree with the Mr Tata's assessment. He is clearly having double standards for identical situation. If he is willing to give all credit to the PM for starting the reforms in 1991 then in the same parlance PM should take all the blame for the mess he has landed the country owing his inaction & ability to asserts as head of the Govt.PM through his inaction has made himself a laughing stock. Why to blame the opposition,intellact etc. A glaring example for all of us to see is Gujarat where the incumbent CM is delivering despite everybody gunning for his blood. Mr Tata himself has chosen to that State. Finally congrats to Equitymaster for their forthright comments

Like (1)

venkateswaran

Jul 22, 2012

a truthfull doing is rightthinkdoingright

Like (1)

venkateswaran

Jul 22, 2012

right time right think word is selfish .It is not now doing best is rightthink right time goto wrong

Like (1)

George Elava

Jul 22, 2012

One way Mr. Tata is right because as a gentleman he should deliver such a soothing comment. It is not the Prime Minister to be blamed but the congressmen and the President of the congress because the Prime Minister with his present health and simplicity can't keep up India's momentum of growth! So think about to replace him!!

Like (1)

Avinash

Jul 21, 2012

Mr.Tata surely has a soft corner for MMS, I wonder why. Unfortunately Mr.MMS believed that holding the UPA together was his sole task at the cost of his cabinet colleagues driving the economy downhill. Unfortunately it will take 2-3 years for all the bad to unfold, the same time as it takes the good initiatives/policies to unfold.
And the jury is still out in the open whether Mr.MMS was really the architect of the 1991 reforms.

Like (1)

manoj karani

Jul 21, 2012

realthing is no one directly blame congress or mr. manmohan singh for not acting on reforms because all media and intellucual is of congress hence comman man getting every day wrong story on their chanells that is big quastion how to solve it ?

Like (1)
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