India not short of labour, capital, enterprise. But... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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India not short of labour, capital, enterprise. But... 

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In this issue:
» Not fundamentals, but liquidity driving asset classes
» Telecom Ministry not keen on transparency
» After telecom, internet revolution in BRICs
» Wealthy Asians may not follow American counterparts
» ...and more!!


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00:00
 
India is not short of labour, capital and enterprise. Being the second most populous country abundant cheap labour is accessible to Indian industries. Indian companies have had more positive cash flows and low debt in recent times. A recent UN report suggests that India is likely to be one of the top recipients of FDI (foreign direct investment) until 2012.Thus capital is also aplenty. Indian entrepreneurs are making more headlines now than in the past. But even with these there is scarcity of an important resource - land. Scarce non agricultural land is on the verge of becoming the biggest roadblock to India's future potential.

The central government is finding it difficult to keep its 'pro reform' tag when it comes to land acquisition. Its political interests has made negotiating with thousands of small farmers holding tiny pockets of land all the more challenging. The Naxal attacks in Eastern India have only complicated matters. Several MNCs have threatened to withdraw their FDI plans. The exit of steel makers like Posco, Arcelor Mittal alone could take away US$ 80 bn. The government's own much publicized road-building plan is standing woefully short in execution.

Thus the road ahead for India's industrialization and infrastructure is very bumpy. Marred in socio-political disagreements, India's growth plans may well remain on paper. In fact expensive land may do to India what expensive labour is doing to China.

01:15  Chart of the day
 
India has seen a heavy influx of tourists from all over the world in recent years. This does not come as a surprise given the country's evolution as a destination for cheap medical treatments as well. The upcoming Commonwealth Games are expected to further boost these numbers. However, what is worrying is the fact that the average earnings per tourist has reduced dramatically over the past 4 years. In fact, as today's chart shows, the earnings per tourist in 2009 was 55% below the average earnings in the decade. We fear that India is not attracting the right kind of tourists.

Data source: Thomas Cook

01:49
 
Moneynews reports that large US stock funds are not being able to beat the indices. In other words, most stocks, irrespective of the market caps and industries that they represent, are still possessing very high correlations. Put it simply, all of them seem to be moving in the same direction. And this is making it difficult for fund managers to beat the markets and attract new money. We believe that it is not the fundamentals but the liquidity that is driving most asset classes across the world right now. And this is why they are behaving in a synchronised manner. Hence, unless we have some sort of a real recovery, this trend is more or less likely to persist.

Our strategy at such times should be to behave in a detached manner from the crowd. In other words, we should be buying good quality stocks at reasonable valuations when everyone is selling them. And come out of the same when price exceeds the intrinsic value. This strategy no doubt proves quite effective at all times. But it is times such as these where there is a maximum tendency to go with crowd. And this should be avoided at all costs.

02:25
 
We have always disliked the government's interference in businesses. So it came as another shocking piece of news to us that the telecom minister has shunned the industry regulator who wanted to have a better authority over managing the spectrum policies.

The minister, Mr. A. Raja has instead asked his telecom department to take care of the affairs of spectrum management. This is with a view to ensure that his ministry remains the sole custodian of this scarce resource. Telecom regulator, TRAI, had argued that transferring the spectrum issues to it would usher in more transparency. It would also allow it to carry out regular audits and ensure that this scarce national resource is used optimally. But then, we know our politicians' thoughts on transparency!

02:59
 
The Commonwealth Games to be hosted in India have already been neck deep in controversy and corruption. And to rub salt in the wound, not many tourists are expected to come for the Games. The initial estimate had pegged the number of foreign visitors at 400,000. Now hardly 10,000 are likely to come! Everybody right from tour operators to hoteliers and even the Delhi International Airport are not pinning much hope on the Commonwealth Games. Although rooms were booked in 5 star hotels for the Games, many have now been released. This has created the problem of unsold rooms. There are quite a few tourists expected to come from the UK, Canada and Australia. But then again they are not likely to be Games-specific. Indeed, there has been no dearth of negative publicity surrounding the Games.

03:33
 
The telecom revolution in India was startling to say the least. Its pace took everyone by surprise. A recent report by the Boston Consulting Group (BCG) now expects a similar turn of events for the spread of the internet too. BCG predicts that by 2015, there will be 1.2 bn internet users in the BRIC countries. This even dwarfs the total in America and Japan put together. As far as India is concerned, it is the arrival of 3G services that is expected to be the major catalyst for this metamorphosis. This is because mobile phones are far more commonplace than PCs in India. And 3G makes it possible to access the internet (at fast speeds) by way of little more than a cell phone. Such a mass usage of the internet will surely mean a change in landscape for most Indian companies. Much like what took place in the US during the late 1990s. The low literacy rate in India though will be one major restraining factor to the spread of the internet.

04:11
 
We may aspire to become as wealthy as the developed world. But when it comes to being as charitable as them, we are far behind. And it is not just us Indians, our fellow developing dragons, the Chinese as no different. Recently, the several US billionaires took a pledge for charity egged on by Bill Gates and Warren Buffett. They wanted their Asian counterparts to join in. But that doesn't seem likely anytime soon. Gates and Buffett plan to travel to China soon. Amusingly, there are reports that a number of wealthy Chinese individuals declined to attend an event hosted by the two due to concerns they'd be asked to donate to charity. India's very own Mukesh Ambani recently said that the realities of the West and the aspirations of the developing world are different. That explains the difference in our attitude towards charity. Maybe. Ironically though, the developing world perhaps needs more charity than the richer nations.

04:31
 
After a brief stint in the positive territory, profit booking in index heavyweights has brought the Indian indices below the dotted line in the final trading hours. The BSE-Sensex was trading 29 points lower at the time of writing this. Stocks from the banking, auto and engineering space saw the maximum profit booking today. Sentiments were negative across the rest of Asia with Indonesia being the only gainer. European markets have started on a cautious note.

04:50  Today's investing mantra
"The market does reflect the available information, as the professors tell us. But just as the funhouse mirrors don't always accurately reflect your weight, the markets don't always accurately reflect that information. Usually they are too pessimistic when it's bad and too optimistic when it's good." - Bill Miller
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10 Responses to "India not short of labour, capital, enterprise. But..."

subramaniam chittur

Sep 8, 2010

Our billionaires listen only to their swamijis. Each one has one or more swamijis. If we can organise a program for the swamis to see value then lot of money may come to charity.
About corruption we need to have a similar course to the judges to make them declare their wealth.
Once the billionaires do it the others will follow. Once the judges do what is required then the politicians will follow.
Corruption is the biggest problem for the country. The only solution is God has to take another Avatar and solve the problem.
I hope it happens during our lifetime.
Subbu Chittur.

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Rajendra Kamat

Sep 8, 2010

With respect to your comments regarding donations by Indians as compared to their wealthy counterparts, my opinion is that India is still a nascent country as compared to US & Euprope which have atleast couple of hundred years as independent countries under their belt. After looting most of the countries for centuries, if now these neo philanthrophists suddenly wake up & start to donate their wealth, it does not mean that Asians should follow suit.
In due course of generations that will follow I am sure Asians will also rise up to the occassion & donate when time calls.

brgds

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LOUIS COLACO

Sep 8, 2010

AMAR'S writing is a wake-up call! I feel making money is good but, my sincere advice to the rich is to remember that WHEN WE DIE, ALL THAT WE HAVE WILL BELONG TO SOMEONE ELSE. The only thing that will be remembered is the THE LEGACY we live behind for future generations. The best choice in opinion is to invest in education of the poor and the marginalized. Don't give money away, just establish institutions like Community Colleges and place children to work after training them in work skills and life coping skills including character.

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LOUIS COLACO

Sep 8, 2010

I liked what Venkat writes above to a point. CONVERSION is a bogey, as most of the Western World is secular and many do not even practice any religion. Again, talking about charity. Charity is good as the need is great. Mukesh and Anil have learnt a lot from their education in the West and are now putting our country on the world map in the footsteps of their beloved father, Dhirubai Ambani. I, being actively involved in education of the marginalized in our society, I shudder to find the state of primary & secondary education in state - aided schools and maybe even in some private schools. Ten years of schooling for most poorer students is waste of time, money and resorces. They neither have much knowledge, values nor character training or life skills. CAN SOMEONE HEAR ME? CHARITY BEGINS AT HOME!. A scientific research with a concrete & transparent action plan is needed NOW! I can see dragon breathng fire over our nation - the only sure weapon is 'good values & knowledge-based education' and increase of the middle class segment of our population to over 50 pct on TOP PRIORITY basis to save our future generations. I am convinced that GOVT CANNOT DO MUCH!

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George

Sep 8, 2010

Suggest me 2/3 scrips in Pharma sector where I can Invest some money to earn 20-25% of profit in coming 2/3 years

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Radheshyam Sharma

Sep 8, 2010

This is with reference to your following para
India is not short of labour, capital and enterprise. Being the second most populous country abundant cheap labour is accessible to Indian industries. Indian companies have had more positive cash flows and low debt in recent times. A recent UN report suggests that India is likely to be one of the top recipients of FDI (foreign direct investment) until 2012.Thus capital is also aplenty. Indian entrepreneurs are making more headlines now than in the past. But even with these there is scarcity of an important resource - land. Scarce non agricultural land is on the verge of becoming the biggest roadblock to India's future potential.

I have the following comment:

When people speak in the same breath about India and China, I become uneasy.
China has almost the same population as India but are blessed with 3 times the area.

I'll give some figures
China : Area 964821 Sq km
India : Area 3287590 sq Km

Population: China - 2006 - 1,306,313,800
- 2010 - 1,339,360,000
Percentage increase : 2.5%

Population: India - 2006 - 1,080,264,400
- 2010 - 1,187,340,000
Percentage increase: 9.9
Thus we see, while China has been able to control its population, our population growth exceeds our GDP hence our people are becoming poorer. With people like Lalu Yadav becoming ministers, how can you control population
China has not been able to control corruption but they have brought it under control.
They held the Olympics recently without a glitch while we are making heavy weather of a minor event like the CWG.
Why?
If what happened in Delhi had happened in China, the whole gang led by Sheila Dixit, Kalamadi, M S Gill and the other persons involved would have been executed by now.
China has the land to go in for infra structure projects.
Do we have the land?
The farmers who earn their living from, the land would get a one time payment which they would spend on cars, motore cycles, smart phones, ACs. Maybe, they may add a few floors to their houses, pave it with marble or tiles and finish their money. Then what? What would be their source of income thereafter. They would become beggars and find their way to the cities to over populate them, and give ammunition to people like Raj Thackeray.
I am not taliking through my hat.
We have seen this happening in Gurgaon where people now regret having sold their land.
Using fertile land for industrial purposes is just going to result in food shortage which we are already witnessing in parts of India.
A ban should be imposed on using fertile land.
If industry wants, they can use the Thar Desert in Rajasthan or the barren land indifferent parts of India which do not bear a single crop.
By using fertile land, you are just reducing the acreage under cultivation and the production of food grain
You will then have to import foodgrain.
The rich people who have benefitted from industries would not face difficulty as their purchasing power had increased but those millions who are not in that group will not be able to afford the imported prices.
There will be more Maoism.

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Amar

Sep 8, 2010

All Indian businessmen except for few,you can count on your fingertips, are only after accumulation of money for themselves & their family.They won't give anything for charity.Charity begins at home & these businessmen are all taught how to make money for themselves or for God from their childhood.Shame to all these businessman & that to one of the richest in the world.They are Rich so that they know how poor they are from within.

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Venkat

Sep 8, 2010

Charity is not the need of the hour. Governance is the need of the hour. Infact for the next 100 years it's required in India. The poor don't required Charity (a la the Western Capitalist way). They need facilitation. They know how to live and die in a dignified way (without all the PAPER that is being considered as wealth today). Charity is an act of arrogance - The arrogance of Ego. Most of Gates' charity goes towards HIV eradication (haded over to NGOs like USAID and others). These NGOs are being criticised for using unfair means to lure poor people in to religious conversions. If this is what the WEST wants to achieve all over the POOR world, then it's such an ignorance. Indian businessmen are smarter. They have been brought up in a better cultural ethos. At the end of the day, the Bania/Businessmen contribute to the well being of the society by making every worker live with self-respect, dignity and pride. If such opportunities are created for every disadvantaged citizen - then that is real CHARITY. The Westerner's understanding of CHARITY is not required and neither needs to be followed. Every Indian / Chinese / Japanese etc., i.e. those who are decendants of Eastern Culture instinctively understand the real meaning of CHARITY. And in my opinion (I don't want to be Humble in it), many Eastern Businessmen are already contributing in every way that they can to make human life more dignified and happier.

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shivam basotiya

Sep 8, 2010

i shivam basotiya trader of mcx,nse,bse,ncdex with all leading brokerage house like angel broking,sharekhan,india infoline,edelweiss,marwari stock broker,adroit in my past 9 years exprience i have earn 15 crore inr from my trding. i am feeling now very happy with your tips keep it up. shivam basotiya

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jaiprakash Dhanani

Sep 8, 2010

INDIA IS SHORTFALL OF SELF RESPECT THEY WOULD LOVE ANYTHING THAT COMES FROM WESTERN WORLD , INDIA IS NOT GROWING ECONOMY BUT IT IS CONSUMER ECONOMY WHERE ALL WESTERN PRODUCT IS BEING DUPED AND WE ARE PURCHASING LIKE FOOLISH WE DONT HAVE SINGLE BRAND THAT IS ACCPECTED BY WORLD BUT WE ACCPECT EVERY BRAND - MERA BHARAT MAHAN

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