This could halt the Bull in its tracks - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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This could halt the Bull in its tracks 

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In this issue:
» How much damage control can the government do?
» Commodity prices may extend their rally in 2010, believes Roubini
» India's hotel industry continues to face tough times
» The Airlines blink
» ...and more!!


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00:00
 
The Indian monsoon has always been infamous for its vagaries in terms of quantum and geographical distribution. This year, the cumulative rainfall for the period June 1 to July 29 stood at a mere 353.2 mm as compared with the long-term average of 437.4 mm for the period. To state the facts, while only 38% of the total 500 plus districts in the country were blessed with normal or above normal rains, rest 62% remained neglected by the rain god. This along with the late arrival has already caused an irreversible damage to the kharif crops which will result in dismal agricultural production. A significant decline in the production of kharif crops like paddy, coarse grains and pulses is expected and which suggests that a sharp rise in food prices is in the offing. Not to forget the irreparable damage it would do to the income of farmers in the immediate future. While the government has assured to provide full financial and strategic aid to the drought-hit states, we are not sure how much damage control it can do? Furthermore, at a time when most investors are looking towards global factors to justify the current rally on street, this seemingly ignored factor has the potential to halt the bull in its tracks.

00:37  Chart of the day
Retailing has played a major role the world over in increasing productivity across a wide range of consumer goods and services. In the developed countries, the retail industry has developed into a full-fledged industry where the organised sector accounts for almost 80% of the total retail trade. In contrast to this, in India, organised retail trade accounts for merely 3% of the total retail trade and is expected to grow at the rate of 30% to 40%. This is as per industry reports dated 2007. Currently, India is the fifth largest retail market in the world. The market size in 2008 was estimated at US$ 511 bn (Source: IBEF, CB Richard Ellis' findings). Organised retail now accounts for 5% of the total retail market, still very low as compared to developed or other developing nations. These figures reveal the relative underdevelopment of the retail industry in India and huge opportunities that can be capitalised upon.

Source: IBEF

01:02
 
Dr Doom is a moniker that sits rather lightly on Nouriel Roubini. After all, he is the one who has successfully predicted quite a few crises in the past with the recent financial crisis being his crowning glory. However, at a recent conference in Australia, he appeared to have shed that reputation for perhaps the first time in many months as he sounded a bullish note. According to excerpts of his presentation that were presented on Bloomberg, Roubini is of the view that commodity prices may extend their rally in 2010 as the global recession abates. Indeed, commodity prices have gained most in four months on July 30 as there is a growing belief that the worst of the global recession is behind us and consumption of commodities such as metals and crops will rebound. However, how long will the rally last is anybody's guess? Roubini's sense is that the global economy may perhaps slip into recession again by end 2010 or 2011 as government debt makes recovery difficult and lack of job growth becomes apparent. Amidst such confusing signals, will it not be best to invest in companies that irrespective of whether commodity prices are high or low, keep giving stable returns? We certainly think so.

01:51
 
President Barack Obama has a warning for all those who thought that the recovery process has started in the US. He is of the opinion that it would take many more months for the US to get out of recession. This is not to say that all is gloomy for the world's largest economy. The GDP figures released show that the US economy has shrunk modestly in the second quarter, which is a positive as it shows that signs of stabilization are beginning to set in. However, the reason why the President is cautious is because the job scenario continues to worsen and while the unemployment numbers have yet to be released, he seems pretty sure that the data will not be something to cheer about. However, there are some good developments to savor as well and the GDP data released is one such development. While Obama has attributed this to a better than expected showing in GDP as a result of the gargantuan stimulus package announced by his administration, the next few quarters will probably give a clearer picture about the health of the US economy.

02:32
 
While Ben Bernanke has a supporter in Warren Buffet who feels that without him a second great depression could easily have ensued, some people feel differently. Anna Schwartz, an economist who works with the National Bureau of Economic Research in New York, believes that Bernanke has mishandled the crisis. The present crisis resulted due to cheap loans being available which resulted in excesses in business. Schwartz faults Bernanke for misreading the crisis and for the Fed's monetary easing programme. The common view is that the great depression was caused by a lack of liquidity. However, the recession today is not due to a lack of liquidity but due to a credit crunch as lenders are not sure who is solvent and who is not. To prove her stance, Schwartz points out that the government has done nothing till date to thaw credit.

03:05
 
The hotel sector in India continues to face the effects of the slowdown. With corporates trying their best to cut costs wherever possible, occupancy levels of premium segment hotels, especially at business destinations have fallen significantly. In a recent survey across six major cities of India, Crisil reported that average occupancy levels have fallen to about 56% during the month of June 2009, lower by nearly 9% on a year on year basis. In the process, hotels have cut their average room rates by about one-fourth. While these figures will not bring any cheer to India's hotel industry, it would be a good opportunity for you to make the most of it during the long weekend in mid-August. Make sure to bargain with your travel agent!

03:34
 
Flyers who must have been perturbed by the proposed strike of domestic airlines, can relax at least for the time being as the strike has been called off. Jet airways and Kingfisher along with six other private airlines, had declared to suspend domestic operations for a day (18th August) in order to pressurize the government for a bailout. But a few low cost airlines like Indigo and Spicejet withdrew from the decision because a complete bailout package was not on their minds, unlike the full-service carriers. All they were demanding was a rationalisation of tax on aviation turbine fuel, which accounts for 40% of their operational cost.

They were also demanding a reduction of the parking and airport charges, which are 50% to 60% higher than international standards and drive up their costs by US$ 250 m annually. Though we don't know how this story will unfold, in our opinion, it is a lot wiser to have a dialogue with the government, rather than alienate thousands of passengers by causing so much of inconvenience to them.

04:12
 
It is a well known fact that the Chinese economy depends a great deal on exports. So it should not come as a surprise that it will seek to vigorously protect the sector from any signs of protectionism. As per the Wall Street Journal, China has launched complaints in the World Trade Organization against the European Union (EU) and the US. The EU has imposed high tariffs against Chinese screws while the US has banned Chinese poultry. It may be noted that when China joined the WTO in 2001, Chinese exports grew extremely fast and such hiccups would hardly have mattered back then. In fact, the EU has imposed over 140 antidumping duties against China since 1979. But now things are different. A large section of the Chinese population depends on world trade. In our opinion however, it is also about the coming of age of China as a power in world trade, if not as a world power generally.

04:39
 
In the meanwhile, the BSE-Sensex was trading higher by about 130 points (up 0.9%) as buying activity intensified in stocks across sectors. Most of the Asian markets have also closed in the positive today. Europe too has opened largely on a positive note.

04:52  Today's investing mantra
"Investors should be wary of new issues - which means, simply, that these should be subjected to careful examination and unusually severe tests before they are purchased. There are two reasons for this double caveat. The first is that new issues have special salesmanship behind them, which calls therefore for a special degree of sales resistance. The second is that most new issues are sold under "favorable market conditions" - which means favorable for the seller and consequently less favorable for the buyer." - Benjamin Graham
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6 Responses to "This could halt the Bull in its tracks"

Debdas Chatterjee

Sep 10, 2009

May I get daily intraday tips? through your midcap offer by sep.16th pl. get assure .

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M.KALIAMOORTHY

Aug 4, 2009

daily tips for intraday share trading

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mdbangard

Aug 4, 2009

Excellent coverage in the most lucid form. Also, this 5 minute reading gives you all that you need to go thru the day.

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SUSHIL LOHIYA

Aug 4, 2009

Really Sound experience within jst 5 mins.Make it continue

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SK SRIRAM

Aug 3, 2009

Excellent report and very useful. Thanks.

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T S EKNATHBABU

Aug 3, 2009

SIR FROM YOUR ANALYSIS RAINFALL SHORT MAY CAUSE DAMAGE
TO MARKET AND ALSO PRESIDENT OBAMA SPEECH MARKET FACE LITTLE PROBLEUM AT THIS PROFITABLE SCRIPT MAY SELL AND EARN MONEY IT IS MY OPINON AND ALSO YOUR ARTICLE VERY SUPER THANKS

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