This can keep FIIs away from India - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

This can keep FIIs away from India 

A  A  A
In this issue:
» Positive news continues to emanate from US
» The top two impediments to India's growth
» Competition set to get intense in small car segment
» Decline in world trade volume comes to a halt
» ...and more!!


-------------------------- FREE WebSummit on the Stock Market ----------------------
All your questions about the stock market answered by Ajit Dayal, Director and President of Quantum Asset Management Company. Ask him about your investments, the global economic scenario, the China effect or whatever else is on your mind... and Ajit will answer them in his inimitable 'honest truth' style at the Equitymaster WebSummit 'Stock Markets: Where to from here?' The WebSummit airs on Monday, 31st August, 5.30 pm.
For Free Registration and a Free 50 page Gold Report, click here...
----------------------------------------------------------------------------------------------------

00:00
 
The impediments to India's growth are many but if one were to list the chronic ills afflicting the country, the top two would most definitely be poor infrastructure and corruption. Prime Minister Manmohan Singh, realizing this, has emphasized on the urgent need of a multi-pronged approach to curb corruption which besides hurting growth also dissuades investors from coming to the country. Also, the general perception is that the big fish who have amassed huge fortunes get away while the petty cases are meted out punishment quickly; something that Manmohan Singh wishes to do away with entirely with the need to focus on rapid, fair and accurate investigation of allegations of corruption in high places.

Certainly, the Prime Minister's intentions are in the right direction, but we remain skeptical about his efforts to actually bring about this change since corruption has been so deeply ingrained in the psyche of politicians. What is more, will he really get the massive support that he will require to cleanse the system? That is the million dollar question. But if the answer indeed turns out to be positive, India will surely be a much happier and prosperous country!

00:44  Chart of the day
Today's chart of the day illustrates the ratio of employee costs to sales for Indian companies. Over the last ten years, employee costs have been quite range bound, and even as it seemed like payrolls had risen quite rapidly during the boom years of FY05 to FY08, as can be seen, sales of companies in general had risen even faster, thus keeping the ratio low even during those years.

* Represented by 274 of BSE-500 companies that
have released their FY09 annual reports so far
Data Source: CMIE Prowess

01:09
 
Most observers now believe that the huge dose of liquidity that has been injected into the world economy will resurface in the future as inflation. Author and fund manager David Dreman is also of the same opinion. In fact, he believes that while the central banks had little choice in introducing stimulus packages during the meltdown, they are unlikely to stop stimulating even when it is no longer required. Hence, within three years, if not sooner, inflation rates in the US will touch 13%, a level last seen between 1979 and 1981.

In an article in Forbes, Dreman advises investors to buy stocks, buy real estate and sell bonds. He says that stocks provide a strong defense against inflation. He asks investors to favour oil, natural resources and cyclical stocks and avoid utilities and FMCG. He also says "real estate is likely to be one of the best investments in the years ahead. Buy a home if you don't already have one or a second home if you can afford one." In our opinion, Dreman's advice is sound, but would also include utilities in the Indian context, which can turn out to be sound investments if the underlying theme is that incremental supplies of resources will come through as is the case with the natural gas sector.

01:59
 
Meanwhile, positive news concerning economic recovery continues to emanate from the US. Close on the heels of a jump in consumer confidence, the country's durable goods orders and new home sales for the month of July have both come in greater than what was expected of them. Durables good orders, much like India's IIP numbers, are one of the most important indicators of the health of the US manufacturing industry and came in higher by nearly 5% over the previous month. However, on a year on year basis, the same was still down a significant 26%. It should be borne in mind that the US GDP will decline in 2009 is perhaps a foregone conclusion but if stats such as these do manage an improvement month after month, then the pace of decline could indeed be improved and what's more, the faster will be the journey to a positive growth number.

Not to mention that this has an implication on the Indian economy as well. With drought almost certain to shave off a few basis points from the country's GDP, a faster recovery in the US could mean a boost for the country's external sector, which could then make up for some of the growth lost due to the drought. So, being all ears to the economic data coming out from the US would be a sensible thing to do.

02:52
 
Stocks from the IT sector were in the limelight yesterday, with IT bluechips providing three of the top five gainers on the Sensex. But the recent run up in IT stocks seems quite unusual to veterans in the IT industry. According to a report in a leading business daily, Mr. V Balakrishnan, the Infosys CFO has been quick to point out that even though there were slightly better macro-economic indicators, the situation at the customer level has not changed at all when compared to the earlier quarter. Says Mr. Balakrishnan, "The velocity of our business has come down due to the spending pressure on customers. We have to wait and see how the coming quarter will pan out. For now, there is no reason (for us) to relook at the guidance we have given". Infosys has given a guidance of a QoQ degrowth of 1% to 2.8% for the September 2009 quarter.

A spokesperson from Wipro too had similar things to say, and expressed his surprise at the sudden bullishness of investors with regards to IT stocks in light of the fact that nothing much has changed in the company this month (August) compared to the last (July). The business environment remains tough for the companies' customers with no increase in their subdued spending levels. According to the company, if at all robust growth were to return, it will not be before at least 1 to 1.5 years from now.

It is not surprising to us though that the markets may well have run ahead of business on the ground. After all, it is an old habit of Mr. Market to keep attempting to accurately predict and forecast the future. And, as we all know, old habits die hard.

03:58
 
In a further sign that the world is getting in better shape, the decline in the volume of total world trade came to a halt in June 2009 as recently published data showed that world trade volumes increased by 2.5% when compared to the earlier month, i.e. May 2009. Interestingly, this is the biggest increase in a single month since July 2008 and a welcome sign indeed.

04:15
 
Indian compact car market seems to be getting hotter, with not only better car models, but also the intensity of the competition in the segment. The market which is growing at 20 -25% annually is attracting international player like Volkswagen, Toyota, Nissan and Ford, all of whom are expected to come up with a number of new launches in this segment of the Indian car market. The new players plan to differentiate their products through competitive pricing and additional features like added space, fuel efficiency and better performance. Seems like competition is set to go to a whole new level for existing players in the market.

04:45
 
With alternate bouts of buying and selling, the BSE-Sensex ended up staying close to the dotted line and was trading in the positive at the time of writing (up around 30 points). The gainers were led by the consumer durables and pharma stocks. On the global front, while key Asian indices closed mostly negative, European indices are trading mixed currently.

04:55  Today's investing mantra
"To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. In our view, though, investment students need only two well-taught courses - How to Value a Business and How to Think About Market Prices" - Warren Buffett
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:
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.
This Company Beat the Business World's 'Three Killer Cs'
August 16, 2017
And what it has in common with beating the stock market too.

Equitymaster requests your view! Post a comment on "This can keep FIIs away from India". Click here!

7 Responses to "This can keep FIIs away from India"

M.A.DAVE

Aug 29, 2009

OF LATE,ME A REGULAR,READER,WISHES TO POINT OUT...
CORRUPTION,TERRORISM,ETC CAN'T BE CURBED IN ONE DAY/MONTH/YEAR...POLICY-MAKER,MAY COME AND GO,-A STRONG FOUNDATION OF A GOOD POLICY-MAKER,IS THE NEED OF AN HOUR
-ONLY SUCH HIGH PROFILE IDEAS GERMINATED,CAN YEIELD RESULT,ONLY THINK-HIGH,ACHIEVE HIGH,LEADS A WAY... MY QUESTION IS WHY DO YOU NEED FII...? A QUALITY ,HIGH PROFILE ,INVESTORS ,FOR BETTERMENT OF OUR COUNTRY PROGRESS.
A VISCIOUS CIRCLE- IN OUR COUNTRY - PROMINATELY PREVAILING IN OUR COUNTRY IS SURFACED OUT ,AN ATTEMPT TO
ERADICT,HAS TO BE AT ONE POINT BEGIN WITH...
FAMOUS RAJIVE-GANDHI,SAID,ONCE,IF OUT OF 1 RUPEE,LET IT BE 1/4 REACH TO NEEDY, CONTENTION WAS ,NEED IS THE BASIS
OF THE HOUR... WHAT INDIA NEEDS IT...HAS TO SURPASS ALL
PREVIOUS REGIME ,,,HOW MANY 5 YEARS PLAN IN FUTURE ,HAS TO BE ACCOMPLISHED SUCCESSFULLY...? IN % WISE...

Like 

S N GUPTA

Aug 28, 2009

Unless big sharks like Maya Buta Mulayam and lallu are caught and punished how one think of removing corruption from public unless this is done I consider the comments by the prime mister is of no use

Like 

mdorairaj

Aug 28, 2009

I fully agree withthe views expressed by MrH.Gopalan
and would like to add our politicians are the cause
and emanating points for corruption.Ever politician whether it is south or north comes out gleefully escaping even a simple imprisonment after appeals either from High court or Supreme court. Unless a
concerted willingness and strong action against high
level corruptions(if there is a will there is a way)
routing out corruption will remain only in paper and
speeches.
Our PM is a honest man and has rightly identiifed the
root cause. Will he be allowed to take right steps
and action in our democracy?

Like 

N Gopalan

Aug 28, 2009

Since global indices have been going up and we have almost nothing to show fundamentally and with the top index heavyweight Reliance tottering to find direction, to arithmetically keep the index up, some sectors/ scrip(s)have to be boosted. This probably explains the reason why IT stocks have been bolstered because in any case mystery can always be built in to performance of the sector.

Like 

R V Rau

Aug 27, 2009

I hear that Mr. Singh promised in 2004 to turn Mumbai into Shanghai.

I believe this was easy to promise because it can never happen in Mr. Singh's lifetime.

Secondly I believe Mr. Singh should be action oriented in weeding out corruption in high places.Kaam Adhik aur Batein Kum PM Sahib!

Like 

V S Gurumani

Aug 27, 2009

It is unfortunate that so seasoned a professional like our PM is advocating a 'policing approach' to deal with corruption. And that too, to the CBI, which is one of the most discredited outfits with a poor record of investigations and convictions.

The only way to reduce corruption in the country is to focus on better execution at every stage, from the time projects are conceived to the time they are delivered. The Delhi Metro, despite the recent accidents, remains a wonderful example of this. Many years ago, a courageous civil servant, Mr P C Luther, cleaned up the DVC and made it an organization to be proud of, by focusing on getting things done. Today, we have in NTPC a highly respected company which makes it to the Best Places to Work In surveys year after year.

In the end, a cliche says it best: Where there is a will, there is a way! Do we have the will, honourable Prive Minister?

Like 

PJ SINGH

Aug 27, 2009

Mr Dreman's advise to buy stocks,buy real estate and sell bonds is not understood in the light of tightening monetary policies by Fed to check rising inflation in the coming yrs.

Like 
  
Equitymaster requests your view! Post a comment on "This can keep FIIs away from India". 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