Stocks, Crude, Gold Hit Hard! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Stocks, Crude, Gold Hit Hard! 

A  A  A

In this issue:
»  The week that was
»  India's prime lenders in prime health
»  Message from Warren Buffett
»  ...and more!

00:00   Stocks, Crude, Gold Hit Hard!
It was another week of high drama for the global financial system and the stock markets. Just as it appeared that the credit markets have started loosening on the back of the new bail out plan, there emerged another cockroach in the kitchen. Fears of a worldwide recession sent shivers down the market during the latter half of the week and although the US markets did manage to close higher for the week, investors are unlikely to take home big confidence from this rally.

Contrasting trend was witnessed among global indices in the past week, an aberration that had indeed become rare in recent times. While key Asian markets with the exception of Japan ended lower for the week, their Occidental counterparts edged higher. However, given the sharply intertwined nature of global capital flows, this ought to be a case of exception rather than the rule. India was amongst the worst hit with the Sensex coming off as much as 5% during the week.

After being rather reluctant to spend taxpayers' money for buying stakes in banks, deteriorating credit market conditions have forced the US Treasury secretary to do exactly just that. We are talking of the new US$ 250 bn bail out plan that was set in motion by the government during the week. Unless banks go into bankruptcy, the plan looks like a win-win situation for both government as well as bank shareholders. More importantly, it addresses the root cause of contraction in capital as the equity capital can now be leveraged 9-10 times over by the banks and hence, make possible that much more lending. The plan did seem to have the desired impact as interbank lending rates for major currencies did show signs of coming down by the time the week progressed.

Crude oil declined by 8% during the week to under US$ 72 a barrel. Gold prices slid by 8% to US$ 783 an ounce. Gold's decline seemed to have been triggered by the speculation that investors are likely to book profits in the yellow metal to make up for losses in other markets.


Just in case you are wondering, "What is the smartest money in the world currently doing?" Let us tell you that it is adding more equities to the portfolio. We are referring to the Oracle of Omaha, Warren Buffett and his investment strategy currently. The master has said that he is buying US stocks in his personal portfolio and if prices keep looking attractive, his non-Berkshire net worth would be soon 100% equities. Comforting thoughts indeed from one of the greatest investing legends of all times.

------- Don't Miss -------
5 Stocks You Should Throw Out Now!

The stock market has crashed. And the bad news isn't over. These 5 stocks will be POISON...

Which 5? How do we know?

Click here to find out.

2.52  'The week's biggest news - India's prime lenders in prime health
The BSE-Bankex index, with a 4% rise, was the biggest gainer among sectoral indices this week. And the result - strong set of numbers from three of the biggest financial entities in the country - HDFC, HDFC Bank and Axis Bank these three recorded strong growth in advances and interest income and stable to higher net interest margins. As for the net NPA (non-performing asset) to advances ratio, it rose for HDFC Bank and declined for HDFC and Axis Bank.

These performances speak volumes about the respective management teams who are trying to steer their companies through slowdown and liquidity worries, while other aggressive players are faltering along the way. While these banking and financial companies might still face weak growth in the short to medium term if the broader slowdown were to persist, that fact of the matter is that times like these are an easy medium for investors to filter out wheat from the chaff.

3.30   Best of this week's 5 Min. WrapUp - Message from Warren Buffett
In an opinion editorial on the New York Times, Warren Buffett delivered an emphatic message - "Now is a good time to buy."

Buffett says that the stock markets gauge the health of the real economy and react in anticipation. He supports his argument by going back in history and pointing out how the stock markets bottom out earlier than the underlying economy. By the time the underlying economy hits rock bottom, stock markets are generally already on their way up. "Market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over", he says.

He advises investors to check financial leverage and competitive strength of companies before buying. If they pass the litmus test, one needn't worry about earning hiccups.

Cash and cash equivalents is what Buffett would like investors to exit from. He believes the worldwide bailout packages will be strongly inflationary over the next decade thereby eating away into the real value of cash. Of course, one expects him to walk the talk. Almost all the investments in his personal portfolio (and not Berkshire Hathaway's) are now in equities. This is in sharp contrast to the 100% bond portfolio that he had earlier. (Read the full article)

4.40   Weekend investing mantra
"Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." - Warren Buffett
The 5 Minute WrapUp Premium is now Live!
A brand new initiative of Equitymaster, this is the Premium version of our daily e-newsletter The 5 Minute WrapUp.

Join us in this journey to uncover the sensible way of managing money and identifying investment opportunities across various asset classes including Stocks, Gold, Fixed Deposits... that over time can help you realize your life's goals...

Latest EditionGet Access
Recent Articles:
Why NOW Is the WORST Time for Index Investing
August 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)
August 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
This Company Beat the Business World's 'Three Killer Cs'
August 16, 2017
And what it has in common with beating the stock market too.
Let's Hope This Correction Continues
August 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...

Equitymaster requests your view! Post a comment on "Stocks, Crude, Gold Hit Hard!". Click here!



Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: Website: CIN:U74999MH2007PTC175407