So, you own gold? Great! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

So, you own gold? Great! 

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In this issue:
» Nano bags yet another award
» Real estate players attempt wooing retailers
» Rupee's steep fall
» Gold, the only silver lining in commodities
» and more...

00:00  International recognition, local disgrace
It is indeed a sad state of affairs that just as a world class Indian product adds another jewel in its already studded crown, its launch gets mired in ugly controversies. The product under discussion is the small car 'Nano' that has won the technology innovation in transportation award by the leading business daily, Wall Street Journal. Important to add that another group company TCS has clinched the top spot in the wireless space.

Coming back to 'Nano', aware that her move may have started to backfire, TMC chief Mamata Banerjee called upon congress chief Sonia Gandhi in New Delhi. Although the details of the meeting have not been made public, it is believed that the TMC chief has requested the Congress matriarch to intervene and try and bring out a solution to the problem. However, the TMC head did mention that she is not anti industry and that both industry and agriculture should prosper but not at the expense of each other.

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00.33  CV makers going slow on expansion plans
Trouble or no trouble, Tata Motors will roll out 'Nano' as per the schedule and the timing couldn't have been better. Suffering from slowdown in other divisions, notably CVs, it will give the revenues of the company a much-needed shot in the arm. However, rival Ashok Leyland might not be that lucky, as flagging CV sales would mean a poor FY09 for the company. In a telephonic talk with a leading business daily, the company's CFO has stated that global sentiments and highest interest in 16 years have greatly impacted demand for CVs. So much so that the company's August sales were down a huge 20% on a YoY basis and has also forced it to take a relook at the whole strategy for future expansion. However, going by the recent spate of JV deals, it clearly knows that this is just a cyclical slowdown and the long-term story is still intact.

01.03  'Realty' check for mall developers
"Slowdown" is also spreading to other sectors with one of the biggest victims being the real estate sector. However, just as one man's poison is another man's food, this slowdown in playing into the hands of retailers looking to undertake huge expansions. Bloomberg has quoted the chief of Pantaloon Retail, Mr. Kishore Biyani as saying that malls are waiving rents for retailers for six months as excess supply and slowing economic growth erodes demand. What is more, the mall developers are also offering to pay for interior decoration based on the latter's requirements.

"Developers are ready to pay us for coming into the malls. They need anchor clients like us to bring in other clients," says the man who has been dubbed as India's Sam Walton (the legendary promoter of Wal-Mart).

Bloomberg further reports that malls in India's top eight cities have around 20% of their total 40 m square feet of space vacant. And considering the fact that more malls are mushrooming up in these cities month after month, developers are in for some 'realty' (reality) check.

1:40  Weak rupee pooping the foreign debt party
Although the second quarter results have not started pouring out with full vigour, they are already giving jitters to companies with significant foreign debt. To be more specific, these companies seemed to be worried about the AS-11 provisions, an accounting rule that mandates the companies to route their mark-to-market losses through the profit and loss accounts. The depreciating rupee has already wreaked a substantial havoc during the first quarter with profits of a number of companies getting blunted as a result of this provisioning. With the currency showing no signs of moving in the other direction, looks like firms will have to live with some more pain. Although the mark-to-market losses do not impact cash flows, investors do tend to view it negatively and in times such as these, it is likely to cause even more heartburn.

02:10  Rupee breaks a 16-year record
In a news that would further compound the woes of foreign debt holding firms, the Indian rupee has created a record of having its biggest quarterly decline in nearly 16 years! However, this number might not appear all that sweet to importers. Furthermore, the currency also fell to a five year low as higher crude oil imports and capital outflows exerted a kind of pressure that has not been seen for quite some time. In another news, India's current account deficit also widened to a record US$ 10 bn in the three months ended June 2008 as a strong increase in crude prices more than offset gains from software exports and remittances. Pertinent to add that the deficit last year stood at a mere US$ 1 bn. With crude imports chipping away at the company's forex reserves, it is hoped that the recent finds in the KG basin would ease some pressure, thus freeing up funds for other needs like infrastructure building.

02:41  In the meanwhile...
Hoping that the US lawmakers will pass the US$ 700 bn when it comes up for discussion again, most Asian and European indices rallied and put up a strong show today. The Indian benchmark ended stronger for the second consecutive day today, edging higher by more than 1%. Just like yesterday, it went significantly below break even in the initial hours only to stage a smart recovery later on. In the US market yesterday, stocks came back with a vengeance, erasing a good portion of the Monday's deficit. There too, similar hope of the Congress pushing through the bailout package did the trick. The optimism also rubbed off on crude oil as it jumped higher in Asia and stayed above US$ 100 per barrel.

03:01  Europe can't get away with what the US can!
When America sneezes, the world catches cold - may sound cliched. But not every economy can recover from its ailment the way the US can. UK, which is in a credit crisis every bit as serious as that in the US, is far more vulnerable and less likely to be bailed out through a government rescue programme. Hence, what could come out of an economic crisis in the EU could be much worse.

According to the International Herald Tribune, UK is about a year behind the US in its property crash but seems to be doing its level best to narrow the gap, with prices falling at about 1.5% a month and mortgage availability collapsing. The mortgage lender Bradford & Bingley, the ninth largest in the country, was nationalized on Monday after it could no longer fund itself. Also, the net mortgage lending in UK in 1HFY09 was only 2% of that in the corresponding period of FY08, the lowest since 1993. However, what is really worrisome is the fact that unlike the US, which benefits from the dollar being a pre-eminent global reserve currency, UK cannot simply get away with borrowing and spending freely to try to stem its crisis. The UK Prime Minister has opined that if the nation tried to hatch a plan of proportionate size (referring to the US$ 700 bn bailout plan), investors would sell the pound and shun British government debt, sending interest rates higher. What it essentially means is that while the US has gotten away with the crisis so far; UK may not be so lucky.

03:49  Mahindra taking a contrarian approach
Amidst the carnage that has wreaked havoc on the stockmarkets across the world, those who have badly burnt their fingers, especially in the Indian stockmarkets, would probably be looking back at those heady days during the period 2005 to mid-2007 when markets were making new highs in a space of two months and making fast money was the order of the day. Why investors, even companies were enthused by this buoyancy, which led to IPOs being announced by the dozen. With oversubscriptions being a foregone conclusion, the only matter that was probably debated was the magnitude of the same. The tables then turned. The subprime crisis reared its ugly head and the rest they say is history. Once the battering in the stockmarkets began, some Indian companies, which had gone in for IPOs actually withdrew the same due to considerable under-subscriptions. Infact, if the events of the year are anything to go buy, IPOs for the time being seem to have been swept under the carpet.

Mahindra Holidays & Resorts India Ltd, which owns the Club Mahindra Holiday Resorts, obviously thinks otherwise. The company yesterday revived efforts for its IPO by refiling its draft offer documents with SEBI and plans to sell 9.27 m shares representing 11% of the post-issue paid up capital. Interestingly, the company had initially filed these documents in December 2007 but did not go ahead with the same. Quite a show of bravado in a bleak environment! Will this pay off? Only time will tell.

04:29  Gold, the only silver lining in commodities
Until recently, commodities were on a roll. With the equity markets under performing since the beginning of the year, the price of commodities such as crude oil and copper made rapid strides. One of the reasons they did so well was due to a weak dollar. As the worth of a dollar declined, the dollar price of commodities became attractive for holders of other currency. No longer. The currency markets have been spooked by the realisation that the banking crisis is not limited to the US.

There is one exception though - gold. It is different from other commodities because investors regard it as a safe haven. As a result, the money rushing out of many investment classes is being parked in the yellow metal. Infact, spot price of gold hit a one-month high of US$ 920 an ounce on Monday after financial bailout package was not approved. Trackers of the metal are going so far to say that the commodity may touch Rs 15,000 for 10 grams by the end of October as the festival season buying kicks in.

04:55  Today's investing mantra
"Technology companies should be valued at a discount to the shares of companies like Disney and Coca-Cola, which have long-term earnings." - Warren Buffett

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