World's best forecaster bullish on India? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

World's best forecaster bullish on India? 

A  A  A
In this issue:
» Tirupati Devasthanam trust has the answer to India's currency woes
» Marc Faber believes ratings downgrade for India possible
» Are economists any useful?
» Is Indian BPO industry under threat from robots?
» ....and more!

To correctly predict 10 years back that US stocks would be the worst performing asset class for 10 years is one thing. And to arrange 11 asset classes in the order in which their returns will pan out and being nearly spot on with respect to the same is entirely another thing. That's Jeremy Grantham for you.

Clearly, it will not be out of place to call this man one of the best forecasters in business. One would be tempted to dismiss this prediction of Mr Grantham as a one off event and a stroke of luck. However, once we know that he has focused on asset bubbles his entire career and has an illustrious track record to boot, the scepticism does vanish. And we become eager to know what asset classes is he bullish on and bearish about over the next few years.

As daily wealth points out, things don't really look good on this front. However, there's a silver lining in his predictions, especially for Indian investors we believe. The only paper asset class Grantham is bullish on over the next seven years is the stock in emerging markets. As per him, no other asset class is likely to perform as good as emerging market stocks.

While Grantham has focused on Asian stocks in general, his views on Indian equities would be somewhat similar we believe. And mind you, his prediction was made a couple of months ago as per us. And hence, Indian equities would have gotten even more attractive in the interim.

Indeed, it would take a brave man to bet on Indian equities at the moment. But as observed by James Grant, you either get good news or cheap stocks but never both. Going by the environment, it is certainly not the one where good news is pouring in from all quarters. On the contrary, there is despondency everywhere. And thus, there is a greater likelihood of finding cheap stocks.

Therefore, investors would do well to take into consideration both Grantham's long term views on the Indian market and Grant's philosophical take on how to find attractive stocks. There are, no doubt, a lot of bad quality stocks out there that deserve the treatment they are getting from investors. But quite a few good quality ones have also become cheap on account of near term concerns with respect to the economy. These are the ones one should focus on as once the economy gets back on track; they are quite likely to reward the shareholders for their courage and patience.

Do you think this is the right time to buy good quality stocks hit by near term headwinds? Please share your comments or post them on our Facebook page / Google+ page

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01:10  Chart of the day
There's a long list of things that are blamed for the current state of the rupee. Gold imports. High dependence on foreign crude oil. India's low export competitiveness. High fiscal deficit etc, etc. Today's chart of the day puts one more name to the list and quite interesting one at that. It highlights how the rupee has shown a high level of consistency in falling just the year before India's general elections. The logic is that since elections in India are mostly black money funded, politicians liquidate their holdings in Swiss and other foreign banks and bring money into India to fund the elections. The data is hard to argue against we believe. Perhaps time to bring in not just huge economic reforms but electoral reforms as well according to us.


The government believes that gold is reason for India's problems. We have never and will never agree with this view. And interestingly, we recently came across a view that reiterated our belief in gold. It in fact suggested how gold can become the solution to India's problems. We are referring to the recent interview with Jamal Mecklai of Mecklai Financial Services published in the Economic Times. Mr Mecklai suggested that the one stop solution to the falling rupee and current account deficit is the gold reserves lying with the Tirupati Devasthanam trust.

As per media publications, the temple trust is not just the richest in the country, but also owns gold running into thousands of tones. If the government and the RBI can convince the temple authorities to park the gold with State Bank of India (SBI) for a long tenure it would be a golden move. SBI could offer the trust a percentage of annual interest on the gold besides safe keeping for free.

Further, SBI could hold may be a third of it and sell the rest in the market. While this will immediately reduce gold imports, it will ease the current account deficit and currency problems to quite an extent. Further since the temple trust is unlikely to need back the gold in the short term; SBI can buy back the gold from the market at an opportune time. While the solution may not be as easy to execute as it sounds, it is certainly not impossible!

If an economist does not tell where the economy is headed, what's the point of having him in the first place, right? But such compulsions often force economists to keep doling out data after data and forecasts after forecasts. And they may often be useless for investors. And sometimes even misguiding!

An article in Money News highlights a similar point. The author believes that economists often tend to distract investors from what's really important. He explains his point with the help of the US jobs report. In the US, about 4 million people leave the job force every month and about 4 million enter it. The jobs data actually reports just the net difference, which is about 150,000 jobs. If you put it in the context of the total US labour pool of 150 million, that's a mere 0.1%. Add to that the fact that the data is often inaccurate. Often the numbers get revised and bench-marked multiple times. All in all, it seems like a pretty useless exercise. But economists tend to create such a hue and cry about it that it tends to mislead investors.

We couldn't agree more. It is very important to read economic data with a pinch of salt. And investors should certainly not read too much into short term economic data. They often don't mean much.

Arnold Schwarzenegger's blockbuster movie series "Terminator" was based on the premise that machines would take over the human world. The idea was that machines would become smarter and would be able to do human work. The fiction appears to be becoming a fact. IT company, IPsoft has actually come up with something called the cognitive technology. It relies on artificial intelligence to manage computer networks. The technology works like a human brain and assimilates and processes information to do the work. The implications of this technology are huge. Companies can use it to save labor costs. This of course would mean that a large part of BPO (business process outsourcing) operations could be done with the use of this technology.

Already companies like Infosys Ltd have tied up with IPsoft for using the cognitive technology to provide the infrastructure management solutions for the global clients. Other companies could follow suit. This means that we are on the brink of a completely disruptive technology. Technology that could change the face of the IT services industry in India. It would make them leaner and probably more profitable. The victims here would of course be the human force who would become redundant. The only way out for them is to improve and expand their skill sets to take on higher end jobs rather than wait for the machines to take over.

Considering the consistent slide of the rupee against the dollar and the slowing economic growth, a downgrade in ratings for India seems imminent. At least legendary investor Marc Faber certainly thinks so. Faber is of the view that the rupee depreciation is the symptom of a much larger disease and not the disease itself. The real problem with India is poor government policies. Faber is disappointed with the Indian government. He believes that the country's bloated bureaucracy has retarded economic growth in the last 20-30 years by at least 3% per annum in real terms. Indeed, the fact that India has still managed to do quite well despite the government is a miracle as per him.

Faber's solution is that there has to be a move towards higher interest rates to stem the slide of the rupee. This is bound to causes short term pain. But it is necessary from a longer term perspective. We agree with Faber that India's problem is more the government and the arbitrary nature of its policies. By failing to tackle corruption and implementing significant reforms, the government has only dug its own grave. The slowing economic growth, rising inflation and sliding rupee are only symptoms of its malaise. So unless the government does not pull up its socks, more of such pain is only likely to continue going forward.

Taxing the super rich at higher rate has always been a matter of major debate. Many like Warren Buffett have advocated this. However, there is a one section of the society that feels otherwise. They contend that while the rich may have diminishing marginal utility of money they should not be burdened with higher taxes because of government's inefficiency in managing its own budget. While the matter will always remain a case for open debate, the Indian government seems to have adopted Warren Buffett's views in this regards. The government plans to levy a tax of 35% on super rich. Super rich class means people who tend to earn more than Rs 100 m a year.

It may help to remember that in the last budget government had imposed a surcharge of 10% on people earning more than Rs 10 m. Thus, it appears that government is targeting the super rich to fill in its coffers. While targeting them may seem to be a good idea to finance the fiscal gap, the expenditures are on a meteoric rise. If the food security bill does get a nod, the deficit is likely to worsen further. And then you never know the government may perhaps target upper middle class by taxing them at a higher rate. While paying tax is a duty of every citizen what seems to be annoying is the way the government utilizes the tax payer's money!

Meanwhile, indices in the Indian stock markets seemed to be in a rebound mode with the Sensex higher by 244 points at the time of writing. Metal stocks seemed to be the ones enjoying the maximum gains while realty counters were experiencing weakness. Amongst global indices, while Asian stocks closed lower, Europe was trading in the positive at the time of writing.

04:52  Today's investing mantra
"I make a guarantee the first day of class every year that if you're good at valuing companies, the market will agree with you. I just don't guarantee when. It could be a couple of weeks or it could be two to three years"- Joel Greenblatt
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10 Responses to "World's best forecaster bullish on India?"


Sep 30, 2013

This is Reg. the declaration/Notice Reg. Gold of Indian Temples. More advisable is to IMMEDIATELY implement the "ETHANOL" blending with Petrol & Diesel, which will not only save the FOREIGN EXCHANGE but also will be a great help to the millions of farmers to get reasonable Returns.
Govt. had adopted the policy & the directives also given, but till date the IMPLEMENTATION is very very poor. Just assume 8% blending will save MILLIONS of $.




Aug 27, 2013

with due respects to mr Mecklai, he has earned alot of enemies by his suggestion. shocking he doesnt talk about BLACK MONEY LYING ABROAD, BUT WANTS TO LOOT TTD.
aap party is unknown, & cant dream of coming to power.
Indias problems is the sole making of congress, if the looted money is brought back, we need to pay no taxes,.
any amount of discussions & deliberations, will only lead to paralysis, with corruption, & corrupt congress in kursi, in delhi.



Aug 22, 2013


Like (1)


Aug 22, 2013

Almost every part of your capsule today is worth commenting about. The best forecaster is right, but for unknown reasons for him. I can provide a reason. India's next election will be a disaster in terms of results. That will require another mandate in a couple of years at which time, a party of literates with a kind heart and sensible governance standards to end corruption (namely, the Aam Aadmi Party) will take over power. That will start a glorious chapter for the country. That is why I believe 2016 to 2020 we will see a massive surge for the country's economy, and resultantly, for its markets. Most importantly, the common man investors, who disappeared at the sight of capitalistic and greedy operators, will return to the markets.
Other points: Regarding Tirumala: Not just one temple, but every temple, church, mosque and other religious institutions are sitting on huge pile of wealth which is not being used for people's needs and progress. To keep hoarding it in God's name will surely not liked by the God himself.
The depreciating rupee in election year is another wonderful analysis to show how criminal our current politicians have become. If you want to see the most notorious criminals, you can find them in the hoardings that come up every other day in all cities, praising the political leaders, wishing them on birthdays etc.

Lastly taxing the super rich. First Mr PC the FM disclosed either inept governance or intentional relief to rich when he said there were only 42000 odd tax payers in the Rs 1 crore plus category! Just the number of owners with houses valued above Rs 1 crore or those with cars valued more than Rs 25 lakh category could easily be around 500,000. So, shall we say the government has been quite lenient to the rich and beating on the backs of bending middle class? Super rich tax rate should be 50% not 35 and those tax evaders need to be brought to book, immediately.

Like (1)


Aug 22, 2013

Falling rupee, and CAD are now a days become part street talks every where. Every day after market close, we could hear steep fall or bouncing back of Indian Share market. simultaneously, we could hear the steps taken by ministry of finance and RBI. It appears to me that all these measure will bring short term results. We need to address the fundamental problems of Indian economy. As is said in the article; let the rupee fall as it wish, because the situation warrant a free fall. As is rightly said "we can not fill a hole with darkness". Do not forget that if economy is affected; all are affected. Do not play cheap politics with growth development. Hope that the government will take measures to perfect the means; the end will take care of itself

Like (1)

Sudhir Apte

Aug 22, 2013

If politicians start bringing in their salted away francs or dollars then their supply will increase and rupee will appreciate. If you imply that before they bring in their dollars they deliberately manage to devalue the rupee so that they will get more bang for their buck then its truly devious. But I dont put it beyond our politicians whose crooked intelligence must be ranking somewhere right at the top in world rankings of such people.

Like (1)

Nittur Guruprasad

Aug 22, 2013

Why TTD's Gold. Is RBI doesn't have any reserves? RBI also benefited in same manner; they get away from the present crisis; More price for its reserves and it can buy at lower price.

Black money always an issue; Good thing even if all that comes out once in the name of elections and dollar impact.

Like (1)


Aug 22, 2013

excellent report.
i am 80 yrs.oldman and interested in equities for the last 40 years..have not seen such good report.
SEBI objected to P notes .It wanted to know the main persons,which everyone knows were indian in money in other countis.Had they taken action to bring back that money,there would not have been any problem.

Like (1)


Aug 22, 2013

There was one Ghajni who looted the wealth of Somnath Temple but he was an invader...and now, eyes are turning to Tirupati Devasthanam wealth ...! to meet with a situation so efficiently brought in by our inefficient political cjars...! Instead of turning eyes on temples, why not confiscate the wealth accumulated in the last 5 years by the politicians and sell that will be several times more than the present current a/c deficit...
The massacre this week - is it not a direct reaction to the our PM's speech at RBI History volume releasing ceremony.. Was it needed to make direct attack on RBI Governor stating, "Future Governors of RBI will ......and in particular Mr Raghu Rajan, "
and thus openly bringing about the rift between Finance Ministry vs RBI..

Like (2)


Aug 22, 2013

even jeremy will be proven wrong once he meets our politicians,we r doomed bcz of them and we prosper inspite of them.our companies can prosper anywhere in the world but india,conditions are improved for them abroad vis-a-vis pseudoliberal india

Like (1)
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