India is the third most powerful nation - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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India is the third most powerful nation 

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In this issue:
» India's high debt is not a concern
» Sensex hits 20,000. What next?
» Jim Rogers is cautious on Indian markets
» Agriculture is the next big bet
» ...and more!!


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00:00
 
India has been shining like a star through the global crisis. Countries around the globe are reeling under high unemployment rates and dismal growth rates. India on the other hand, has been giving good news with higher industrial output, higher growth rates, etc. However, at the same time India has also been in news for all the wrong reasons too. The Commonwealth Games have repeatedly highlighted the level of corruption in the country. To the extent that they are now being touted as the Commonwealth Shame for the country.

However, the shining star story seems to have completely outweighed the corruption story. In a recent study conducted by US National Intelligence Council, India has been named as the third most powerful country in the world. With 8% of global power in its hands, India stands 3rd after United States (22% of power) and China (12% of power). If the European Union is included as a block, then it would account for 16% of global power, making India the fourth most powerful nation in the world. The model used by the agency took into account GDP, defense spending, population and technology for each country to come up with its rankings.

We are sure, all Indians would definitely be proud to hear this. To go from being a third world country to the third most powerful country in such a short period of time is definitely something to be proud of. However, let's not forget that power leads to corruption too. Maybe this is the explanation for the level of corruption that we are seeing in our country.

What do you think about India becoming the 3rd most powerful country? Share your comments with us or post your comments on our Facebook page.

01:10  Chart of the day
 
Bond yields have been used as an indicator to judge the financial condition of the countries. If bond yields are very high, then it suggests that the country's bonds are risky and hence the higher interest rates or the lower bond prices. Today's chart of the day shows bond yields of the more debt burdened nations. It is not surprising to see high yields for the PIGS (Portugal, Ireland, Greece and Spain), which have led to the Euro zone debt crisis. However, it came as a shock to see yields in India to be higher than most of the crises hit countries. Perhaps it has to do with the country's high inflation rates.

Source: Trading Economics

01:15
 
Here's another one on India and its debt. India has emerged as one of the top 10 debtor nations in the world. In other words, the money that the foreigners have lent to India is amongst the highest in the world. Is this a cause for concern? Well, it will be foolish to arrive at conclusions without putting the debt numbers in proper perspective. Hence, it is important that we do it. Firstly, only 11% of the external debt is public debt i.e. owed by the Government. Thus, there is no huge refinancing risk as such. Secondly, we have pretty comfortable foreign exchange reserves should be there be a run on the debt. At US$ 285 bn worth of forex reserves, we are more than 100% covered considering that our total external debt is in the region of US$ 260 bn.

Furthermore, if one takes into account just short term debt, then the debt coverage rises to a very comfortable ratio of 5x. Perhaps, the only cause for concern could be the overwhelming share of private players. Currently, about 70% of our external debt is accounted for by private players. Should this number go down, it could lead to pressure on domestic interest rates as there would be intense competition for funds. However, that is a point for another day. For the time being though, Indian currency does not look under grave threat. Its top debtor nation position notwithstanding.

01:55
 
Talks of resistances and supports abound these days as the BSE-Sensex makes a new high day after day. Some experts say that the markets might correct but have support at such and such levels. And then there are others who believe that 'this is the right time to invest into the long term India growth story'. But while we hear experts speak in public about the long term, most of them continue to privately recommend hot tips for 1 week, 1 month, or at the most 1 year.

Amidst all this, the most basic question everyone is asking is - "Sensex is at 20,000! What next?"

While the business channels may have answers for this, and it varies depending on who's advising, we are not sure how the reality might turn out to be. We are no experts in predicting the direction of the stockmarkets by counting the EPS numbers of companies. But we can talk about the broader trends. And the broader trends tell us that risks of investing in the stock markets have increased manifold over the past few months.

02:47
 
Yes, India is growing. No doubt. And companies participating in that growth do deserve generous valuations. But what portion of these valuations is based on fundamentals and what portion is driven by sheer liquidity? Investment guru Jim Rogers believes it's the latter. He says, "We have this money flowing into the world and obviously it is going into the market." He adds, "I worry about stocks because I only see the stock markets as pretty high around the world, including India." As expected, he believes commodities are a better bet than stocks as they will continue to be consumed irrespective of how the world economy pans out. Stocks on the other hand will crash if the economy continues to struggle. As to which commodities one should buy - buy those which haven't gone up. For example silver instead of gold, he quips.

03:22
 
It is the oldest story in the book. When stockmarkets are rising, investors buy more expecting prices to rise higher. Little wonder then that many company promoters are looking to capitalize on this buoyancy. By raising equity capital without a significant dilution of their stake. And that explains why so many IPOs are hitting the market. That's not all. Mergers and acquisitions are also getting a shot in the arm on the back of an improved financing environment and rising indices. Plus, those promoters who have pledged their shares would look to get the same revoked. Especially since the number of shares pledged is also a function of the prevailing market price of the shares. However, it is because of this very buoyancy that we urge investors to be cautious while investing in stocks. Promoters are the ones who are looking to sell at the best possible price. Which is why as a potential buyers, investors have to make sure that they do not end up paying a high price. Same goes for companies. Rising prices should hardly be conducive to acquire companies especially when valuations would be rich.

03:50
 
Runaway prices of stocks and gold are inducing investors internationally to look at other avenues of investment. And large-scale farming appears to be fast becoming one such avenue. A report in the Business Line points out that globally people are now betting big on agriculture and are wanting to invest in it. More so in light of the scenario of food shortage in many parts of the world. In the Indian context though, such kinds of large financial investments in agriculture has not caught up as a trend yet. That's because farming is still considered a poor man's business here. And it remains close to its roots in terms of being a small time family run affair. But as large scale professional farming catches up in India, it can become another source of alternative investments for affluent investors.

04:35
 
After opening well above the 20,000 mark, Indian markets are currently trading weak on profit booking. The BSE Sensex was trading lower by 50 points at the time of writing this. Some gains were seen in the consumer durables and metals space. Consumer goods and IT stocks however lost some ground. Sentiments were mainly positive in the rest of Asia, with the only major loser being Nikkei, down 0.4%.

04:50  Today's investing mantra
"If a business does well, the stock eventually follows." - Warren Buffett
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50 Responses to "India is the third most powerful nation"

Ganesh Sastri

Sep 27, 2010

There are several dark clouds:
1. Massive inflation.
2. Huge CONSOLIDATED deficits - Central Govt, State Govt, Oil Marketing Companies, Loss making PSUs.
3. Massive CURRENT A/C DEFICIT. Every week we hear stats on FX balances. Rarely do we hear about FX DEBT. Net of FX debt, FX balances are pea nuts compared to China, Germany and Japan.
4. Low productivity. We may spend massively on infra. What kind of benefits we receive collectively? How long will these last? Will these investment be in shambles after ten years and make us spend again. We spent in 1982 on ASIAD. Are we getting benefit of the stadia built then? Why are building again? How long will we get the benefits of these investments?


Given these factors it is difficult to agree with the view that India is the third most powerful nation on this earth.

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Alok Nigam

Sep 24, 2010

3rd most Powerful in World!B.S. Using such criteria as the ones mentioned by you on which this is based is Meaningless.
To me "Powerful is One who can Influence";v cannot even influence any of our neighbor's-Nepal,Myanmar,Sri Lanka, Bangladesh,Pakistan-none of these will be in top 175 i suppose!leave aside the World.China drubs us every day.and v want to pat ourselves on this count.As far as Stock Market is concerned there is no need to think about it.Money flows where it can earn more!with Interest rates going up Dollars will come!it will push Rupee up!good for FII!bring it at 47 take it out at 42!earn 10% on exchange and 15% on Stocks!book profits and have a nice holiday.Start the process again after sometime when same situation arises!timing ?your guess is as good as mine.Western Investor's r happy with 8-10% return.Keep track of rupee and FII inflow/outflow rather than Nifty or Sensex is all I can say.Liquidity moves out as fast as it comes. Important to see is how much of this money is actually going into Long Term Investment.None of the so much hyped foreign investments announced few years back are taking off due to different reasons.With Kashmir/ Maoist/Ayodhya issues burning the political situation is slowly getting out of hand.No solution in sight.So what has been a strength in past could turn into negativity.Has any one heard of any major long term investment by Developed country recently.Rather the Indian industrialist is making major Investment's abroad.Why?Why can't they invest that money in India?ask yourself? I can see only 4 reasons-first that West will go in for Protectionism faster than we can think.Secondly they are uncomfortable with safety of Investment in their own country.Thirdly companies are available at much cheaper valuations in other countries so the returns are better.Fourthly they have become so big that their home country will not be able to support their investments in future.In any of the above 4 scenarios they feel that it is better to have alternate arrangements besides their home country.This does not mean that they will stop investing totally in India overnight.It is a process and not a switch.But not a good trend.Wage Cost is going up and productivity remains below international standards in Manufacturing.So the domestic consumption story will continue to drive demand till Outsourcing lives and even if it adds 5% percent to that "middle class" every year it is enough to boost demand.In a country where 77% population lives on 20 rupees a day and 37% families are below poverty line it only means that small % can drive up economy and make us all day dreaming.So enjoy till it lasts!

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ninad

Sep 24, 2010

all the development we see around is by accident and not choice , no matter how much we brag about our development , we ll always lag behind china by at least 10 yrs.this was the case in 1991 when we liberalised our economy and holds true even now.probably the gap is even more than 10 yrs.

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K.G. Rao

Sep 24, 2010

3rd most pwerful! Tripe. can't accept it unless they explain the parameters with figs and these are seen to be acceptable.

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sridhar

Sep 24, 2010

Good news. If good, patriotic,non corrupt politician rule we can be even in No1.

Like 

vivek

Sep 24, 2010

i totally agree with ashok khanna.i dont agree that we are 3rd powerful country,we are a developing country.if we visit the rural or tribal areas of our country,it gives an african look. Extreme poverty,no proper housing and roads,malnourished people,illiteracy,corruption,no proper healthcare,people die of malaria,diarrhea and so on.our country will progress only if there is political will.

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Vishal

Sep 23, 2010

I am sure INDIA is not the 3rd powerful country, Its the No.1 country because calculations and assumptions we are making through using data is itself incorrect.

We never show our real spendings, don't make or take bills.

Don't disclose correct Income or Gain

Always use Corruption as a helpful or faster way of getting things done.

No proper information of census, hence led to improper calculations.

Gray market business not accounted.

Indian brains working for other countries in R&D dept. and generating wealth for them. Technologies and software’s devlp.Iin most of the so called powerful nations are gift of Indians

Hence GDP, per capita, growth percentage, etc... is wrong Still its on 3rd position as declared, if we calculate using real numbers and figures I am sure India will top the list.

WORLD ROCKS BECAUSE INDIA ROCKS

Like 

V.Vijayakumar

Sep 23, 2010

Yes we are proud of India becomming the third powerful country. But at the same time see shameful news comming from our capital about commanwealth Games and corruption.And untimely verdict of Ayodhya case and the amout of fever creating by media. Its really shame.

Like 

Ravinder Gandhi

Sep 23, 2010

I think the US National Intelligence Council has calculated only the amount, resources and other data only as per record and if the money lying in Swiss Banks and other black money is put together India will be the 1st most powerful country and if all that money is actually invested in creating infrastructure which will also create employment opportunities for all the poors and create facilities for all classes of people, day is not far away when we will be really No.1 SONE KI CHIRIYA

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Amol

Sep 23, 2010

The mention about India's performance should taken with a pinch of salt. In a prudent perspective, has this resulted in well-being of comman man or created further opportunities for our politicians to stash more wads of cash in their Swiss bank account?

In my personal opinion, a flourished country/economy would only make sense if it raises the overall living standards of its inhabitants/citizens. When this happens, I would salute our politicians\economists alike.

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