Markets' vote of trust and more... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Markets' vote of trust and more... 

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In this issue:
» UPA wins, democracy loses
» China's optimism
» Crude's demand erosion
» Trump's India plans
» ...and more!

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 00:00    UPA wins, democracy loses
The most awaited event in the Indian political history in recent times finally culminated yesterday as the UPA rode home comfortably. This was in stark contrast to the tight finish that was being expected ever since the announcement of a trust vote became public. At the end though, it left a bitter taste, especially in the mouth of those people who take great pride in the country's democracy. The nation watched its reputation blow up in tatters as a group of MPs waved wads of crisp notes to the speaker of the house and leveled allegations against the rival party members of bribing and coaxing them to change their vote. Although the allegations have not been proved, the country's standing has definitely taken a beating.

Moving on to the positive side of things, winning the trust vote would mean that the UPA would not only be able to go ahead with the nuclear deal but it would also bring out of the closet reforms in other sectors, notably the financial sector. On the nuclear deal, BHEL, India's biggest power equipment maker is believed to be one of the foremost beneficiaries as it plans to triple its spending in the nuclear components space (as reported on the Bloomberg). The market too took a note of this as the company's shares edged nearly 11% higher today.

Today's movers and shakers...
Company % gains
RCOM 12.5%
Siemens 12.1%
ICICI Bank 12.0%
HDFC 11.6%
Tata Com 11.6%
BHEL 10.8%
 00:40    In the meanwhile...
The UPA government's victory in the vote of trust yesterday seems to have gone down exceedingly well with the markets as the Indian benchmark, <>BSE-Sensex rallied an incredible 838 points. Gains of 10% and more were recorded by a lot of blue chips especially from the beaten down sectors like banks, engineering and real estate. The Indian index also picked up positive cues from its Asian peers. While Hong Kong closed with 2.7% gains, stocks in Singapore rose 3%. European markets are currently trading strong on the back of gains in banking stocks.

 01:14    Chinese the most optimistic, says a survey
This one might not come as a surprise to many. But we thought we would mention it anyway. As per a survey conducted in some 24 countries and published in the International Herald Tribune, China came head and shoulders above the rest in terms of the optimism its citizens share with respect to the current state of their nation's economy and the direction in which it is heading. A full 82% of the people surveyed were happy with their motherland's economic state and 86% felt it is heading in the right direction.

Important to add that Australia, the next most optimistic nation, was a full 25% behind the dragon nation with Russia occupying the third slot. However, the results were little less impressive when the same set of people were quizzed about their own economic status, highlighting the prevailing rich-poor gap in the country. The citizens also showed rising prices as their primary concern indicating that it is not just in India that the people are worried about inflation but elsewhere too.

On India, may be the country was not a part of the survey otherwise there was no reason it should not have been high on the pecking order given the kind of economic growth it has experienced in recent past, second only to China. Furthermore, given the kind of mess it finds itself into, America came quite lower in the list with only 20% of its citizens surveyed expressing satisfaction at the country's state of economic affairs. Europeans too, with the exception of Spain were largely an unhappy lot. The survey is another indication of the growing economic clout of emerging nations like China and Russia and how these nations are getting richer at the expense of their American and European counterparts.

 01:56    Another day, another debacle
With the Wall Street biggies like Citibank and JP Morgan Chase faring a shade better than expected, it was being believed that subprime troubles are indeed on a wane. But it did not take long for water to be tossed on those hopes. Yesterday, Wachovia, another of the US' big banks posted a loss for the second quarter that was a lot more saddening than expected. The firm lost in the region of US$ 9 bn, forcing it to slash dividends and sack a sizeable workforce.

What is more, as per reports, it is likely to get worse before it gets better, pointing to a prolonged recovery for the world's largest economy. While the Fed is indeed going all out to rescue firms engulfed in the subprime mess, it risks stoking further inflation, which has already touched record highs. However, it is proving to be an opportunity in disguise for the nouveau rich Sovereign Wealth funds, which are increasingly funding the capital requirement of the embattled financial institutions in the US.

 02:30    Global oil demand growth could be cut to half
Oil has fallen 11% last week, the most in more than three years. This fall was not without reason. According to a leading brokerage firm, incremental demand for oil in the year 2008 could fall by as much as 47% as consumers in US cut back on their demand in view of rising inflation and slowing growth. Already, International Energy Agency has cut its incremental demand estimates by a good 1 m barrels. The news might come as a huge sigh of relief to policymakers across the globe as they battle the demon of inflation.

However, given the kind of control that OPEC enjoys over production, any similar cut in output might not have the desired effect on prices. Such a step though would mean that it is risking a structural fall in demand as people start moving to alternate sources of energy and dump the fossil fuel altogether. Already, concerns are becoming louder in the US over its dependence on imported crude and a slew of measures that could reduce the same are being proposed. In India and China though, demand is rising at a brisk pace on the back of electricity shortages and increased use of automobiles.

  • Also read - Identifying a refinery stock

     03.09    Trump Jr. sets his sight on India
    While China remains the world's fastest growing economy, the nation had to play second fiddle to India when it came to growth rate on the millionaire front. Yes, that's right! In 2007, India recorded a rise of 23% in the number of people that turned millionaires. What more, with a booming economy and rising income levels; the list is only likely to grow bigger in the coming years. Eyeing this huge opportunity, Donald Trump Jr., whose father made a multi billion dollar fortune investing in real estate, has set his sight on the Indian luxury home market.

    As per LiveMint, Trump Jr. is looking to pump in US$ 1 bn in a privately held fund where an Indian family will also buy some stake. Trump Jr. joins high profile firms like Deutsche Bank and Lehman Brothers that are betting big on the Indian real estate market. Given that prices across the country are likely to fall anywhere between 20% to 25% over the next 1 to 2 years, the timing could not have been better for Trump. Buoyed by wealth generated in equities and rising income levels, real estate market grew at a rapid pace in the past five years. But in a lot of pockets, prices have reached unsustainable levels and with interest rates also touching multi year highs, significant correction seems to be imminent. In the long term though, growth is likely to remain intact as India creates more homes for its huge middle class and increased urbanization takes shape.

     03.57    Diverse views on the Indian rupee
    In India, perhaps not many know about Barclays Bank, the UK based firm that has only recently tried to grow its India operations. But this has not stopped the firm from making a strong comment on the Indian rupee, hinting that it may fall to a 20 month low by the end of this fiscal. In percentage terms, this amounts to a 7% decline. As per the firm, India's growing budget deficit is likely to keep global investors away and this in turn will put pressure on the company's current account deficit, as the country will find it hard to match outflows with inflows.

    So far, foreign investors have pulled out US$ 7 bn, a stark contrast to the year 2007, where they had pumped in more than US$ 17 bn. Meanwhile, the bank's European counterpart expects the rupee to strengthen by the end of the year, betting on the fact that interest rate hikes by the RBI will attract more foreign capital, as relative returns turn attractive. The diverse set of views is likely to confuse investors looking to invest in companies, especially in the outsourcing space. However, this alone should not be the investment criterion and attention should be paid to whether the company under consideration has some strong competitive advantages and sustainable operations. While forex fluctuations might influence near term performance to some extent, in the long run one's returns will most likely be determined by business fundamentals.

  • Also read - Depreciating rupee and IT firms

     04.55    Today's investing mantra
    "If You Spend 13 minutes per year trying to predict the economy, you have wasted 10 minutes." - Peter Lynch
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