Gold wins the gold medal - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Gold wins the gold medal 

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In this issue:
» TCS gobbles Citi BPO
» FM's as optimistic as ever
» Gold's golden run
» India's love affair with cricket
» ...and more!

00:00 TCS makes a US$ 505 m acquisition
This is a move that could definitely allay some of the fears with respect to outsourcing. TCS, India's largest IT services company and Citigroup, a leading global financial services company have reached an agreement whereby the former would acquire all of the latter's interest in Citigroup Global Services Limited, an India based captive BPO arm. The deal is believed to be an all cash deal of the size of US$ 505 m. In addition to the sale, Citigroup has also promised TCS to provide outsourcing deals worth US$ 2.5 bn over the next 9.5 years. Commenting on the deal, Mr Ramadorai, CEO of TCS said, "This transaction will complement our domain expertise and bring new capabilities to TCS that will help drive growth going forward."

Given the huge cash and investments resources at the disposal of TCS, it looks unlikely it will go for a debt-raising plan, especially in these times, for the financing of the deal.

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00:23 Analysis gone wrong
We sincerely hope that this does not become a regular feature. We are referring to the blow the falling stock markets have dealt upon a team of research analysts working for a mid sized Indian brokerage firm. As per the grapevine, the entire team has been asked to leave as certain highly leveraged bets on their employer's proprietary books have gone horribly wrong, thus leading to huge liquidity crunch. It is amazing how times change. The very same tribe that excelled at company & industry analysis like none other forgot to see the downside of the huge bonuses and salaries it earned during the halcyon days of the industry.

00:45 Even the legend gets the timing wrong
Frustrated that a stock you thought was an absolute bargain fell another 30%. You don't need to. Essentially, you are trying to master the technique of trying to time the markets. Well, the odds are heavily stacked against you. For even legends like Warren Buffett have given up on it. In case you want a proof, look at what has happened to the master's latest investments in Goldman Sachs and GE. Both the stocks are down anywhere between 8%-10% and might not be done still.

What's wrong with you guys? It's been only two weeks since Buffett made a commitment and it would be preposterous to assume he has a two-week horizon. The master is quite sure that he would earn a decent return on his investment after a five-year time frame. And this is what lesser mortals like us should strive to achieve. Forget what the market does in two-weeks or even two-months and instead invest from a five-year perspective in blue chips that are trading below their intrinsic values. More often than not, you would go laughing all the way to your bank.

01:20 In the meanwhile
The relentless fall of the stock markets into the abyss continues. And the scarier part is that the bottom just does not seem to be approaching. The credit crisis has assumed massive proportions with cash infusion and bailouts being the order of the day. And Asia seems to be paying for the crime committed by the US and Europe. As per Bloomberg, the numbers are staggering. For instance, the MSCI Asia Pacific Index fell 7 % bringing its decline this year to 42% and is set for its lowest close since 1990 when Japan's asset bubble was deflating. The Nikkei lost 9.4%, the biggest plunge since global markets crashed in October 1987. Australia's S&P/ASX 200 Index declined 5% as consumer confidence fell the most in two years. And matters headed to such a crisis in Indonesia that it had to halt trading, the first since September 2000. Indian markets also succumbed to the pressure as the benchmark, BSE-Sensex, shed 3% during today's trading session.

Meanwhile, central banks are frantically scurrying around trying to restore some sort of sanity in the financial markets but to no avail as of now, as events show. While Australia's central bank has cut interest rates, the US Fed is also open to follow suit. UK is also working out a rescue package for British banks. To add fuel to the fire, the IMF has increased its estimate of global losses from the current financial turmoil to US$ 1.4 trillion, a massive sum, which a layman cannot even begin to fathom. Plus, it has cut its forecast for global growth to 3% next year. These are trying times indeed!

02:08 Ben's tryst with 'Depression'!
The man, who is guiding the US economy through its worst phases in several decades, is incidentally an authority on the 'Great Depression'. No wonder then that the chief of the US Federal Reserve Mr. Ben Bernanke believes that historical lessons suggest - inaction or delayed reaction to financial calamity - could be disastrous.

With the Fed's bailout of several large institutions in the US and the recent US$ 700 bn infusion being subject to criticism, the Fed chief has reasoned the same being necessary in the dire circumstances. 'Helicopter Ben' as he is popularly known, has once again promised to douse the flames of recession by using all possible means even it calls for taking an action on interest rates. It may be recalled that only a few weeks ago, the Fed's official posture was that inflation was a serious concern. We wonder if the organization is suffering from amnesia and only remembers what happened during the 'Great Depression'! Having said that, atleast it has claimed to be prepared to take 'momentous steps to address a problem of historic dimensions'. Any takers for its words?

02:46 PC's die hard optimism
Certainly not our Finance Minister. For he still believes that despite all that is happening around the globe, the Indian economy is well placed to grow at 8% in FY09. What more, the FM is equally confident that growth in FY10 will bounce back to 9% levels. Speaking on the sidelines of an awards ceremony, the FM was also all praise for the country's regulatory agencies like the RBI and SEBI, who have taken timely decisions to steer the domestic economy clear of the credit crisis. With elections round the corner, it is difficult not to doubt the minister's optimistic assertions. However, the fundamentals do let us believe that a great part of his predictions will indeed hold true.

03:10 An industry that is as robust as ever?
A close look at the moolah that the rebel cricket league ICL is likely to rake in this year and one would be forgiven to assume that we are in the midst of worst global economic slump in recent times. As per press reports, the broadcaster is eyeing more than 80% jump in ad revenues as compared to last year. While the fact that there is no other big cricketing event coinciding with the staging of ICL, it does goes to show that good times or no, cricket will continue to have its way.

03:27 Dada, we will miss you
And while we are on cricket, we would like to wish all the very best to one of India's most successful CEOs, on the cricket field that is. Yes, we are referring to our very own Saurav Ganguly, endearingly referred to as 'Dada'. After an extraordinary stint at the highest level, Dada will don India colors for the last time when he along with his team will take on the Australians on home soil. Those silken offside drives and the lazy elegance would surely be missed a lot. Thank you 'Dada' for all the entertainment.

03:43 Gold wins the gold medal...
In the race for performance that is...Gold exchange traded funds (ETFs) have been the best performers among fund categories in the past six months. Gold ETFs clocked absolute returns of over 9% during this period even as other funds continued to decline. Technology funds have turned out to be the worst performing category.

Gold has performed well on the back of a flight of money from risky stock and commodities into safe havens. Gold prices have also risen due to the festival season in India. While the out performance by gold in the current market turmoil makes sense, we wonder if a diversified fund tracking the India growth story is a better choice for the long term because unlike productive businesses, gold after all just sits there.

04:09 Money is nothing
We hate to end the day on a sour note. But the (financial) world around us is so full of despair these days that this is what we begin with and this is what we end at. Take for instance the lead story on CNN's financial website earlier today. It shouts out - "A 5-year low", reporting on the US stock markets' continued slide as the credit crisis worsens.

With a 500 points decline yesterday, the Dow Jones Industrial Average has dropped 900 points in a span of two days. The index the world looks up to now stands at its lowest point since 30th September 2003. However, it still isn't the lowest point for the index in this decade. October 2002 it was.

"Money vanishes. It is nothing. The only solid reality is the word of God," says Pope Benedict XVI reflecting the crashing stock markets and capitalism. He further says and we quote, "He who builds only on visible and tangible things like success, career and money, builds the house of his life on sand."

As reported on Bloomberg, the Pope 'doesn't just have a spiritual interest in the current turmoil'. Earnings from roughly US$ 1 bn in stocks, bonds and real estate are what he and his institution in the Vatican City rely on apart from the donations they receive.

The Pope is right - money is vanishing round the world, more so in the US and Europe. But will 'greed' that created so much money in the first place ever vanish? Highly unlikely.

Before we sign off for the day...
The ECB, Bank of England and the US Fed have simultaneously announced interest rate cuts of 0.5% today.

04:55 Today's investing mantra
"I will tell you how to get rich. Go home, shut the door and be fearful when others are greedy and greedy when others are fearful." - Warren Buffett
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