Are You As Confident As Our PM? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

Are You As Confident As Our PM? 

A  A  A
In this issue:
» Will the PM's confidence transpire into reality?
» Stocks across Asia crash on economic concerns
» If economy is down, can stocks go up?
» Buffett selling energy, buying healthcare stocks
» ...and more!!


---------- Only till the 19th of August... -----------
Just for another 48 hours... until August 19th 11.59 pm to be exact... we'll be offering you a chance to sign up for our midcap stock recommendation service at a rock bottom price - 50% off. And that's not all...If you sign up now, you will also get access to a report we are releasing on the 19th on a midcap opportunity that could triple your investment in 3 years. For full details, click here.

----------------------------------------------------

00:00
 
Politicians are generally a confident lot. Or they have to show themselves as being confident as any. This is especially true when it comes to talking about the country's future. Read for instance Prime Minister (PM) Dr. Manmohan Singh's statement on Independence Day - "We are rapidly moving forward. We have faith in ourselves. We have political stability. Our democracy is an example for the whole world. We are gaining in economic strength. Most importantly, we have confidence in our youth...I am sure that they will take our country to a new glory."

Total confidence, isn't it? These comments can be seen in light of Dr. Singh trying to allay fears emanating from the global economic meltdown, unending terrorism and the swine flu to assert that India had the strength and resilience to overcome all obstacles.

But what about the action? The last time we heard his ministers 'talk' about action was when they were spelling out their 100-day plan. Now even that has come a cropper! Of course, one cannot judge a government's abilities through a 100-day plan, but can any politician in power explain our blemished history in meeting targets set for a period as long as 5 years! Or at least, how do we know who's accountable for the failures of the past in meeting the 'confident' targets that were set at the start of all the 5-year plans?

Now the Prime Minister and his team-members are confident that the Indian economy will bounce back and 'witness a 9% growth' by this year end. We remain utterly skeptical. Apart from the fact that the global economy remains in tatters and that it has clear implications for India as well, we also have to contend with weak monsoon this year that is likely to cut short recovery in consumption demand from rural areas.

Has the Prime Minister's office taken this into account while preparing his Independence Day speech? Or are they still shooting in the dark assuming that Indians, who have been fooled 'confidently' in the past, can be fooled with equal confidence in the future as well?

01:33  Chart of the day
Bloomberg reports that China's car sales grew by almost 71% YoY in July, which is the largest gain since January 2006. This was led by tax cuts and government subsidies that have spurred demand in the world's third largest economy. Today's chart of the day shows how the car market in China has taken off since 2002, when the country was producing just around 1.1 m units. Compare this to 6.7 m units produced in 2008 and you'll arrive at an average annual growth rate of 35%. As against this, car production in India has grown by around 17% annually during this period.

Data Source: International Organization of Motor Vehicle Manufacturers

02:06
 
Stocks in India traded weak today. The BSE-Sensex, led by selling in realty and metal stocks, was trading down by around 540 points (3.5%) at the time of writing. Selling was also seen in mid and smallcap stocks as the BSE-Midcap and BSE-Smallcap indices were down 3.2% and 2.3% respectively.

Overall, stocks have gotten expensive in India after the sharp run up seen since March. While corporate profitability during the June quarter has surprised us on the positive side, we remain concerned about the sustainability of the same. While investors can still find valuable stocks for long term investment, such a universe is shrinking by the day. At these times therefore, you need to take every step with utmost caution.

02:33
 
After closing the last week in the positive, stocks across Asia closed in the red today, led by the benchmark indices in China (down 5.8%), Hong Kong (down 3.6%) and Japan (down 3.1%). An 'unexpected' decline in the US consumer confidence index and lower than expected GDP growth in Japan are said to be the culprits of today's fall.

Interestingly, this sharp fall in Asian markets today comes just in the wake of economists' observations that the worst is over for the global economy given the rebound in US and European regions. And guess what? These rosy observations come at a time when the economies of the US and Europe continue to shed jobs on a mass scale and consumers, wary of splurging all over again, are saving more than they are spending.

Further, as these consumers go on a saving spree thereby leading to less demand for products that companies make, a lot many of the companies are going bankrupt. The proof - US bankruptcy filings rose 38% year on year (YoY) in April-June 2009 period, according to data released last weekend.

03:21
 
What if someone told you that the worse the global economy was to get, the more stocks could go up? As implausible as that sounds, we're sure you will be left a little less unconvinced about that on hearing the rationale for the same. Renowned investing guru Marc Faber said recently in an interview that since the central banks the world over have become nothing but 'money printers', it won't be surprising if the stocks go up despite the economy going down as a deteriorating economy will spurn central banks to print more and more money in the guise of 'stimulus packages' and supporting the economy. And as we have seen in the case of China, such money can very easily find its way into the stockmarkets.

Thus, opines Dr. Faber, "They're (central banks) dangerous to the health of the global economy". With many of their policies directly leading to the Nasdaq bubble and the housing bubble, it does not seem very farfetched to think that their policies hold the potential of directly creating yet another bubble.

04:11
 
Few years back when Warren Buffett, the Oracle of Omaha was quizzed on his buying equities in a leading MNC healthcare company, his simply one line reply was that in a world where the population is ageing, buying fundamentally strong companies in this space makes immense sense. We in India wouldn't really feel the enormity of his statement because we happen to be living in a country with supposedly the youngest population in the world.
But the developed nations seem to be a different kettle of fish altogether with rapidly ageing populations and spiraling health care costs. Little wonder, Buffett has still kept the theme close to his heart as was evidenced in his piling up of shares in drug and consumer product behemoth J&J during the quarter gone by. Besides J&J, he also bought shares in another health care company. On the other hand, Buffett seems to have turned a little bearish on energy and power stocks as he lightened his position in Conoco Phillips and utility operator Constellation Energy. Thus, this stock maneuvering of his would have indeed caught the fancy of scores of money managers and investors alike.

04:57  Today's investing mantra
"According to our view, the high prices paid for 'the best common stocks' make these purchases essentially speculative, because they require future growth to justify them." - Benjamin Graham & David Dodd
The 5 Minute WrapUp Premium is now Live!
A brand new initiative of Equitymaster, this is the Premium version of our daily e-newsletter The 5 Minute WrapUp.

Join us in this journey to uncover the sensible way of managing money and identifying investment opportunities across various asset classes including Stocks, Gold, Fixed Deposits... that over time can help you realize your life's goals...

Latest EditionGet Access
Recent Articles:
How Unique Are the Companies You Invest In?
August 21, 2017
One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.
You've Heard of Timeless Books... Ever Heard of Timeless Stocks?
August 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Why NOW Is the WORST Time for Index Investing
August 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)
August 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

Equitymaster requests your view! Post a comment on "Are You As Confident As Our PM?". Click here!

5 Responses to "Are You As Confident As Our PM?"

Girjaprasad Kantharia

Aug 19, 2009

The Prime Minister has successfully completed his first five year term,
and he is now in his second term. Against all odds arising out of the
global meltdown, Dr.Manmohan Singh has steered the nation to a slow but steady path of development And so it is simple logic that he shall
continue to maintain this growth trajectory throughout his second term in office keeping in mind his experience of the first term.However, he shall need all the good wishes and backing of each and every countryman in this endeavour.

Like 

B.KERALASSERY

Aug 18, 2009



OUR P.M. IS GREAT AND HE NEEDS THE SUPPORT AND
CO-OPERATION OF ALL TO CONVERT TALK INTO ACTION

Like 

Chandra

Aug 17, 2009

I thought Buffett bought Conoco Phillips less than a year ago. If that is true, then I wonder the long term strategy that Buffett believes, has gone in this case.

Like 

ashok lele

Aug 17, 2009

I am not at all confident as our respected Prime Minister is.Problems facing our nation today are much more severe in magnitude than they were in past.Having respect for great Economist (Dr.Manmohan Singh) if you take cognisance of day today contradictory statements by various honourable ministers they provide you laughing jokes.According to me utmost priority is to be given to eliminate rampant corruption in all the fields . Improper planning will lead us to hell (eg. Thermal power stations - as on today coal supply is not sufficient & more thermal power station are innaugurated everywhere with wide publicity! for ministers .Population control is absolute necessity of the day which is grossly neglected at all levels.May that allmighty GOD save our beloved Nation -Bharat !

Like 

mithun waghela

Aug 17, 2009

it was excellent!

Like 
  
Equitymaster requests your view! Post a comment on "Are You As Confident As Our PM?". Click here!

MOST POPULAR | ARCHIVES | TELL YOUR FRIENDS ABOUT THE 5 MINUTE WRAPUP | WRITE TO US

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407