Are We Nearing The End of Global Recession? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Are We Nearing The End of Global Recession? 

A  A  A
In this issue:
» Global recession ending says OECD
» Gold flirting with the US$ 1,000 per ounce mark again
» Disinvestment through FPOs and not IPOs
» Late recovery by monsoons
» ...and more!!

--------------- FREE GIFT FOR OUR VALUED READERS -----------
We know that there are not many women subscribers at but with so many women breaking the glass ceiling in the global corporate world and heading private sector banks in India, it's time for 'The Investment Guide for Women'. So if you'd like your wife to be a little more enthusiastic about saving, your daughter to take an active interest in planning her financial life, or your friend to make better informed investment decisions..... just click here and you'll get 'Rendezvous with Money - The investment guide for women' - absolutely FREE! You may send it with our compliments to as many women as you like. No strings attached!

In a recent issue, we had discussed the difference in opinion between investment banks and hedge funds on the question of whether the global recession is ending. Investment banks believed a recovery is coming through, while several large hedge funds didn't.

Now, the club of rich industrialised nations, Organisation for Economic Co-operation and Development (OECD) has joined the debate. And it agrees with the investment banks. OECD says that the global recession is coming to an end faster than thought a few months ago and may in fact already be over. It believes the turnaround started in the emerging economies, especially China. However, OECD cautions that the pickup in economic activity continues to be dependent on government stimulus packages. Also, despite the improvement now in sight, OECD expects a contraction in GDPs of the major industrialised nations for 2009 as a whole due to the poor first half.

In our opinion, the optimism is not warranted at this stage. There are still genuine worries over unemployment data and housing prices. As Wilbur Ross, the investor famous for acquiring and turning around failed companies, recently said, "People are so desperate to hear positive news that they are drawing cheerful conclusions from negative data".

Staying on the issue, quite a few titans of the investing world have already given their verdict. 'We are not out of the woods yet, certainly not in the US', that's the mantra they are chanting these days. In fact, author and fund manager David Dreman has recently warned that the huge dose of liquidity that has been injected into the world economy will resurface in the future as inflation.

Is this the reason the precious metals gold and silver are back in vogue these days? After about a breather of few months, gold has started flirting with US$ 1,000 per ounce mark again. In fact, it is just a few dollars away from revisiting its 2009 highs. Silver has been equally buoyant, it recently touched its highest level in weeks. Thus, with the global economic uncertainty threatening to raise its ugly head again; it would pay to move some of your money into the relative safety of these precious metals.

01:28  Chart of the day
It is often said that the India growth story is driven by its consuming class. Today's chart of the day shows that consumption is indeed the bedrock of the Indian economy, accounting for 57% of its GDP. Compare that with China, where private domestic consumption forms only 37% of its GDP. In fact, India fares well when compared to the major economies in the Asia Pacific region. The reason is not hard to find. Most of these economies are export led and are dependent on the constant demand of goods from the Western nations. In the case of China for example, exports contribute to 37% of the GDP as against 13% in the case of India. Little wonder that India has shown a great deal of resilience to global economic crises time and again.

Source: Business Line, Global Insight, McKinsey

The hide and seek that the monsoons continue to play with the fortunes of rural India and corporates alike has taken a new turn, but this time, thankfully for the better. As per reports, the monsoon rains in India have been near normal for the three consecutive weeks since about the 12th of last month. In fact, the rainfall in the country is said to be almost 4% above normal during this period. Nonetheless, the total seasonal rainfall across India for the full June-September season is still forecast to be 20% below normal despite the recent downpour due to the rains playing truant during the initial part of the season. Interestingly, these rains might just have helped in bringing down the total deficit for this year from 25% to 23%. Also, this last minute comeback is expected to help the case of the depleted reservoirs and affected crops in the country, though its exact impact will be known only later in the year.

Sugar prices have already soared to Rs 35 a kg since last September due to a global shortage. Indications are that they are likely to go up further. And rising sugar prices are not the only problem. Already, the prospect of rising inflation looms large given that deficient rains have wreaked havoc on crop production in the country. Inflation (WPI) for the week ended August 22 moved up to -0.21% from -0.95% recorded in the week before. There are concerns that inflation will once again breach RBI's estimate of 5% by the end of this fiscal. What is more, the CPI, in which food gets a higher weightage, surged to 11.89% in July. The government contends that there are sufficient food stocks which would enable the country to tide over the drought. But, as usual, execution is the key and the government will really have to pull up its socks soon on releasing these buffer stocks and keep inflation in check lest the situation gets out of control.

Subtle aftershocks of the economic meltdown coupled with drought-like settings and inflationary threat do not particularly make the perfect setting for the growth of banking sector. However the 1% YoY growth that the Indian banking sector has managed in its credit disbursals in the first five months of FY10 is certainly disappointing; if not alarming. Although the first quarter is typically a muted one for the banking sector in terms of deposit accumulation and credit offtake, this year the performance has been particularly sloppy, for understandable reasons. Given that historically the credit growth in India has been on an average 2 times the GDP growth, we do not envisage the sector to clock credit growth in excess of 12% - 15% this fiscal.

Source: Livemint

The Planning Commission deputy chairman recently underlined the urgent need for divestment to bridge the resource gap of Rs 1.6 trillion in the Eleventh Five-Year Plan. The gravity of the situation is clear from the fact that the government is not divesting any new company but is instead selling its stake in companies already listed on the stock exchanges through FPOs. The FPO or follow on public offer is when a company listed on the exchange comes up with a secondary sale of shares offer. For the government, the advantage of an FPO is that they don't have to go take approvals from the parliament and the line ministry before making an offer as this results in a large lead time. For example, Coal India is expected to take at least 6 months before it can file the prospectus for an IPO with SEBI. The reason is that it will have to take approval from its board of directors, the administrative ministry, the disinvestment department, the Cabinet and only then can it file its prospectus. Even the government gets entangled in its own red tape.

In the meanwhile, the BSE-Sensex was up around 300 points at the time of writing as it really took off in the post lunch session. While losses persisted in the IT index, other indices managed to trade in the green led by metal, auto and capital goods sectors. On the global front, while key Asian indices closed mixed, European indices are trading firm currently.

04:50  Today's investing mantra
"We'll happily forgo knowing the price history and instead will seek whatever information will further our understanding of the company's business. After we buy a stock, consequently, we would not be disturbed if markets closed for a year or two." - 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:
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.
Let's Hope This Correction Continues
August 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...

Equitymaster requests your view! Post a comment on "Are We Nearing The End of Global Recession?". Click here!

6 Responses to "Are We Nearing The End of Global Recession?"


Sep 5, 2009

A study of the monsoon of the past 100yrs. has shown that while the 'amunt of rain' we gat is same, the period has reduced very much. From the previous 1st week of June to last week of Sept. when we had monsoons, this has now reduced to july to Sept. end/1st fortnight of Oct. The quantam of water is almost same. And therefore more importance to Rain-water harvesting. Else the water instead of perculating down is gushed away.



Sep 4, 2009

Agree gold has started flirting with US$ 1,000 per ounce mark again. What is your opinion on Silver. Agreed Gold is a defensive play. Do you think Silver can also be part of the overall suggested portfolio allocation?


Syed Zafar Ahmad

Sep 4, 2009

"The 5-Minute Wrap Up" is indeed very useful, to the point and informative. As the name suggests, it is precise as well. The efforts are worthwhile. I believe, it will get extremely popular with those who have time constraints, but are eager to know relevant developments in the money market at a glance. My congratulations for the endeavour made on this score.


Sangeeta Upadhyay

Sep 4, 2009

I love the equity wrap-up.It is jargons-free,simple and yet so much informative.One doesn't need to go through bulks of report to know whats happening around.However,it would surely help to have just two-three bullets on global developments(US,China,UK,Japan..) too or may be how the other exchanges around the world fared-with any news shockers/surprises.


venkatesh natarajan

Sep 4, 2009

Congrats to Equity . the 5 minutes wrap ups are truely informative for busy people, short and sweet.

keep up the good work



Sep 4, 2009

In the meanwhile, the BSE-Sensex was up around 300 points at the time of writing as it really took off in the post lunch session.

It shall be either
In the meantime or Meanwhile

Request correction

Equitymaster requests your view! Post a comment on "Are We Nearing The End of Global Recession?". Click here!


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: Website: CIN:U74999MH2007PTC175407