<i>'It was a fraud story!'</i> - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

'It was a fraud story!' 

A  A  A
In this issue:
» What is causing FIIs to sell Indian equities?
» The double-edged sword for emerging markets
» Crude oil prices hit 4-year low. Where are they headed?
» World markets during the week gone by...
» and more....

This incident took place a couple of weeks ago.

One of our research analysts had a casual conversation with one journalist friend employed at one of the most respected business dailies in India. The journalist revealed something that may be shocking for many of you.

When this story was shared with the rest of the research team, we unanimously agreed that it had to be shared with our readers. So here is a brief extract of the conversation with the business journalist. Please note that for privacy and confidentiality reasons, we will not name the journalist and the business daily involved herein.

Equitymaster Analyst: "Hey, the other day I read that article you had written about the valuations of Indian stock markets. It was an interesting read. But do you really think Indian markets are cheap right now?"

Journalist: "Well, that was a fraud story..."

Equitymaster Analyst: "What? What do you mean?"

Journalist: "No, I don't mean fraud in the sense that the facts were wrong. The data was correct. The analysis was all fine. Just the intent was fudged."

Equitymaster Analyst: "Please elaborate..."

Journalist: "You see, the markets seem to be in an uptrend. I do not deny that the Indian economy appears poised for a revival. And markets could indeed soar to much higher levels in the coming years. But what I detest is the pressure from my boss to write rosy, bullish articles to keep up with the positive market sentiment. It is against my professional integrity. I would like to present a fair picture to my readers without the compulsion to project a selective version of reality."

This did not surprise us at all. Having seen the stock markets across market cycles, we know about the compulsions that media outfits and brokerages go through during bull and bear markets.

You may believe that newspapers, business journals and TV news channels provide you with facts that help you formulate opinions on the markets. What you probably do not know is that they often feed you with well-devised propaganda. They try to reinforce what you already believe, or what you want to believe.

Well, we do not mean to rubbish all the media voices around. They do play an important role in information dissemination. And there certainly are quite a few voices that we respect.

The point that we want to highlight by sharing this story is that investors should not make investments simply because everything appears hunky dory now. Borrowed enthusiasm makes you a speculator, not an investor. Use all the resources available at your disposal, but let your views be your own. Then you will make money across market cycles.

Do your stock investment decisions depend on the general market sentiment? Let us know your comments or share your views in the Equitymaster Club.

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01:35  Chart of the day
2014 so far has been a stellar year for the Indian stock markets clearly buoyed by the Modi effect. Fuelled by Modi's focus on growth and development, foreign investors made a beeline for Indian shores as they looked for better yields on their investments. Thus, the BSE-Sensex has gained more than 25% in the year so far.

The last 10 trading sessions, though, have been a completely different story altogether. foreign institutional investors (FIIs) turned out to be the net sellers during this period. Uncertain and weak global cues were primarily responsible for this. Signs of recession in Europe, slowdown in China and speculations regarding the US Fed's monetary policy kept investors on the tenterhooks. We believe that one should not read too much into this. Indian markets have rallied considerably this year and so a price correction is only natural. Ultimately, what will lead to a sustainable stock market rally is the reform story playing out and translating into increased earnings for corporates. Thus, investors who are in for the long haul should look upon any such corrections as opportunities to buy rock solid companies at attractive prices.

Should You Worry About FII Selling?

IMF has come out with a rather worrying stat for India, in fact for the entire emerging market pack. As per it, for every 100 Re investment in the debt and equity markets of emerging countries, Rs 12 now comes from the developed economies. Important to add that the same inflow stood at mere Rs 6 a decade ago. Trust us, as far as India is concerned, these figures could be on the higher side given how FIIs have behaved in recent past.

This is no doubt a strong endorsement of the attractiveness of emerging markets. However, it also brings with it fair share of risks. The most important being the risk of a market meltdown should these funds make a sudden exit. To that extent, the vulnerability of the capital markets of the emerging economies is now higher than ever. Any negative development in the developed economies and financial stability across the world could get affected. However, over the long term, the fate of the emerging markets is in their own hands. As long as their fundamentals remain strong, capital from the West will always flow back in search of higher returns.

When the price of one of the world's most coveted commodities falls substantially, there are probably as many people sad as there are happy. The producers are getting anxious. But for consumers, it's good news all the way. Yes, we're talking about crude oil. And it fell yesterday to its lowest level since 2010. This takes the price of Brent crude oil to a near 4-year low, dropping to US$ 90 a barrel. This takes the fall to over 25% since June of this year. Increasing supply on one hand from oil producing countries, and forecasts of weakening demand from consumers on the other hand, is what is causing these falling prices.

The story gets even more interesting. Some are speculating that we may be in the midst of an OPEC price war. Iran cut its official selling prices for its crude recently. Other producers may follow suit. They may in fact be fighting for market share through these cuts in each of their official selling prices. They are also not showing any signs that they will cut production in a bid to stabilize oil prices. Indeed, if these are signs of things to come, consumers of crude oil are surely going to be found smiling from ear to ear.

Global markets traded mostly in the negative for the third week in a row on weak worldwide economic growth. The US Federal Reserve would be winding down its bond-buying program later this month. But a series of weak economic data from Germany and other large euro zone economies led to growing concerns of recession in the European region. Germany, France and UK witnessed maximum selling pressures for the week. The US and Japan markets were also down by 1.9% and 2.6%, respectively. Concerns about global growth further pulled down crude prices that tumbled below US$ 90 a barrel.

Among Asian markets, both Indian and Singaporean markets were down one per cent. However, the Chinese and Hong Kong markets managed to end marginally higher. The Hong Kong markets continued to remain jittery on a possible escalation in pro-democracy protests in the city.

Majority of the sectoral indices in India ended on a negative note. Among the sectoral indices, pharma (down 4.2%), metal (down 3.8%) and FMCG (down 2.4%) were the leading losers during the week. Power (up 2%), oil and gas (up 1.8%) and realty (up 1.3%) were among the few gainers for the week.

Performance during the week ended Oct 10th, 2014

04:45  Weekend investing mantra
"I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business." - Warren Buffett
Today being a Saturday, there is no Premium edition being published. But you can always read our most recent issue here...
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9 Responses to "'It was a fraud story!'"

GKC Nair

Oct 15, 2014

The news which appeared today that ED is contemplating levying penalty of Rs 1000 Cr from online retailers is another such fraud story. The ED will decide only after they register a case and go through the hearings. It is not even clear if ED has any jurisdiction, because they are only concerned with international transactions.


BidyaSagar Shaw

Oct 13, 2014

I did not trust this media channels blindly.Yes I watch the channels to know the market. Whatever they give suggestion I didnot trust them.


Satish S Dabholkar

Oct 13, 2014

Yes, we also come across the stories in regard to Housing market also.Stories are spread through news papers that flats prices are going to rise in coming months so book the flats at the current rate.As we know that so many builders are construction many buildings and average prices of the flats are near to one corer and above.It is highly impossible to average customer to raise the amount,still news papers are spreading the news of revival of Housing market.Instead of this the newspaper industry should come with the real picture and show how the Builders have raised the prices artificially and how many flats are vacant in the Housing sector-cities wise such as Mumbai,Bangalore,Chennai etc which will result in raising pressure over the builders to reduced the housing rates and the Hosing Bubble will burst for the benefit of ordinary citizen.

Like (1)

Anil Aher

Oct 13, 2014

Absolutely correct ! However in stock market It is fair to do assumption that interest of relevant people, brokerage houses, news papers , companies, promoters, nations as well as right from chief of various nations, finance ministers etc all have there personal interest. All actions are subjective and biased towards there interest.
hence retail investor need to limit his expectations and act accordingly.

Like (1)


Oct 11, 2014

As an investor in primary/secondary market, one should get informed all the developments in the market through medias, but should not dependent 100% on the information provided. One should analyse the individual company fundamentals, its track record, management, their growth and average growth under top line and bottom line, reserve position, etc. should be weighed and to be compared with the peers, and then take the informed decisions as to whether to invest or not.

Like (1)

A.B. Pereira

Oct 11, 2014

Its no rocket science. We have seen it during the election time how the media got sold off to present unreal pictures of development in some parts of the country and unachievable promises, to win the elections.
And we are seeing how the majority of the media today (post elections) has become the mouthpiece of the ruling party instilling hope and faith (rather than action and implementation) in the people, as if we are a spiritual body living on eternal faith and hopes! That same media is silent on all the claims made by the current PM prior to the elections - especially on black money and corruption.
So, if false and fraudulent stories are getting cooked in the financial media, there needs be no surprise at all.

Like (1)

Rajendra Kumar Singhai

Oct 11, 2014

I select script on my own and not carried by views on channels.

Like (1)


Oct 11, 2014

My investment discipline is based on SIP style of investment. I buy stocks through SIP choosing stocks from different sectors. I avoid power cos, metals, and infra.

Like (1)


Oct 11, 2014

I completely agree with the views of journalist and I strongly believe that those specific reports on stock market and specific stocks are inflated most of the times. Iam into stock market since 1991 and whether you believe it or not but it is true that I never ever brought any stocks based on the reporters of any magazine or journal. But I do read a lot but I pick up those important ingredients like equity, PE, debt ratio, industry and finally management. I make between 100,000 to 150,000 profit every year since last 8 years.
I believe in my approach that (1) I should play the market with my own money (2) I should be a long term player (3) I must be patient to wait for the cyclical changes of the market as well as industry (4) I should not be greedy (4) when I smell some thing going wrong I don't mind book loses and get out of the stock (5) I equally enjoys booking loss too
I believe it's agame . You can not will all matches and can not goal all balls you played. So beat...

Like (2)
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