There Is More Money to Be Made in India - The 5 Minute WrapUp by Equitymaster
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There Is More Money to Be Made in India

Aug 10, 2016

In this issue:
» Sovereign Gold Bonds Gain Momentum
» Why engineers in India are unemployable...
» ...and more!
Radhika Pandit, Managing Editor of ValuePro

In a world where the US and European economies are struggling to grow and China's prospects have somewhat dimmed, what does the outlook for India look like?

Noted investor Marc Faber touched on this in a recent interview with The Economic Times.

First, there is a general view that the Fed will hike rates. This has been doing the rounds for quite some time, and at every chance, the Fed has decided not to raise rates. Given that the US presidential elections are just around the corner, Faber does not expect any action from the Fed anytime soon. But he also says the Fed will be wary of raising rates simply because the US economy is not out of the woods yet.

Which brings us to the state of the global economy. Faber remains bearish on the world economy. For one, much of the growth in the recent past was driven by China's rapidly expanding economy. China is now slowing down. The developed world - US, Europe, Japan - remains sluggish and largely driven by loose money policies of their respective central banks.

Where does India fit in? Faber is actually quite bullish on India even if you assume pessimistic growth rates. For instance, even if India doesn't grow 7% per annum, but rather 4-6%, it is still better than the US growing at 1% and Europe not growing at all.

That is why, with a ten-year time horizon, Faber would rather invest in India than in the US.

Of course, this does not mean one should invest in some random company on the Indian stock markets. The fact remains that many quality companies are trading at very expensive valuations. Yet, many others are trading at reasonable valuations, which can certainly be considered. That is, if one is willing to capitalise on India's growth story and put money in Indian stocks for the long haul.

It's a view that Faber is following too. When he looks at India, he is looking at individual companies and putting money in the ones trading at attractive valuations.

GST is expected to be an immediate growth trigger for India. Now that the bill has been passed, the hope is that it will bring uniformity to India's tax structure and give that extra fillip to India's GDP. But there is still a lot of work to be done. And the biggest test - whether the government can effectively implement GST - remains to be seen.

All in all, Faber suggests that, despite challenges, India is likely to grow much faster than many other global economies.

Speaking of the GST, my colleague Vivek Kaul, has brilliantly explained what you probably did not hear about GST from the mainstream media.

I strongly recommend that you download Vivek's free report on the GST: 'What the Mainstream Media DID NOT TELL YOU About GST.'

Do you think India will grow faster than 4-6% per annum? Let us know your comments or share your views in the Equitymaster Club.

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03:01 Chart of the day

The Sovereign Gold Bond (SGB) Scheme was launched in November 2015 to quench the country's insatiable affinity for the yellow metal and thereby curb its import. Starting with a lukewarm response, the demand for SGBs has slowly gained pace. Benefits such as low expense ratio, annual interest income of 2.75%, and exemption from capital gains tax if held for the full term of eight years make it score over the gold Exchange Traded Funds (ETFs). Therefore, since their launch, SGBs have garnered Rs 22.9 billion in four tranches whereas gold ETFs have seen an outflow of Rs 9 billion over the same period.

Moreover, as the fourth tranche of SGBs was distributed through the stock exchange platform of the BSE and NSE, higher participation by retail investors led to a spurt in demand. Even firm gold prices resulting in a 20% appreciation in the bond value has further added to its attraction. SGB is definitely a more tax efficient and profitable vehicle to invest in gold with the added advantage of not having to bother or spend to keep it safe. However, steps such as distributing the bonds through the more ubiquitous post offices as well as selling the bonds on-tap rather than for limited time period will go a long way in making the scheme a bigger success.

Sovereign Gold Bonds Gain Momentum


While India has tasted success in prudently managing its fiscal deficit, it still needs to go miles if were to realise its dream of Make in India. India has recently signed multibillion-dollar orders with the likes of Boeing, Airbus, Alstom and General Electric to make parts for helicopters, jet fighters and locomotives. But lack of trained and experienced personnel is proving to be a major stumbling block. As per Aspiring Minds, an Indian employability assessment firm, more than 80% of engineers in India are unemployable. Lack of specialisation means that the companies will have to spend more to train personnel. Therefore, if India has to capitalise on the demographic dividend to acquire manufacturing prowess, it needs to have more specialised and vocational courses to impart the right training skills to the country's youth.

Here's an article where Vivek Kaul has discussed the importance of Skill India.


After opening the day weak, Indian equity markets continued to fall and are trading well below the dotted line. At the time of writing, BSE Sensex was trading lower by 220 points and NSE Nifty was trading down by 77 points. Both mid cap and small cap stocks are trading lower by 0.8% each.

04:56 Today's investment mantra

"For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Radhika Pandit (Research Analyst) and Madhu Gupta (Research Analyst).

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