Is your stock affected by any of these 4 evils? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

Is your stock affected by any of these 4 evils? 

A  A  A
In this issue:
» How has gold performed Diwali to Diwali?
» SEBI plans to build equity culture in India
» Top level at realty firms undergoing churn
» Odisha: Resource rich, economically poor
» ...and more!


---------------------------------------- BSE Sensex headed for a massive rally? ----------------------------------------

Recently we wrote to you about all the excitement surrounding Sensex 23,000.

In connection with that, here's a warning -

If you do not pick your stocks well, no matter how well the Sensex does, you may not make money at all. In fact, you could even lose money.

You see, in the long term all that matters is the quality of stocks you own.

And that's precisely why you should Click Here to get full details.

In it we reveal details of what in our view are the Top 5 Stocks to own in current times.

Interested? Click Here for full details.

------------------------------------------------------------------------------------------------------------------------


00:00
 
"How much will it go up and in how much time?" This is the most common question that investors tend to ask when they come across a prospective stock idea. A positive response to the above question often prompts an investor to buy the stock.

But this is not how successful investors do it. On the contrary, when faced with a lucrative investing idea, they first play the devil's advocate to figure out any potential risks that could derail their investments. A famous investing quote goes thus: "Watch the downside; the upside will take care of itself."

We came across an interesting article in the Economic Times that mentioned some key risks that Indian investors should take care of.

Number one- Be wary of big ticket acquisitions. If the past is any good an indicator, acquisitions seldom work. On several occasions, price wars between competing buyers end up with the acquirer paying a hefty premium. Financing big acquisitions often tends to erode the acquiring company's balance sheet. Moreover, integrating the acquired company and making the synergies work is not only a tall task but also very time-consuming.

Number two- Be wary of rising debt levels. Using debt is not at all a bad idea. But too much of it weighs heavily on a company's cash flows and profitability. In the current economic environment where growth has slowed down while interest rates have remained high, highly indebted companies are in deep trouble.

Number three- Be wary of companies with corporate governance issues. Management integrity is one of the most crucial factors that no investor can afford to ignore. Several companies that have been associated in shady deals have seen their stock prices being battered.

Number four- Be wary of structural changes in an industry. Sometimes, there could be nothing really wrong with a business. But some adverse regulatory changes could fundamentally alter the prospects of the entire industry. In such cases, it is best to consider the impact of such changes before investing into the stock.

According to you, what other risks should Indian investors bear in mind while making their investment decisions? Share your comments with us or post your views on our Facebook page / Google+ page

01:10  Chart of the day
 
Diwali 2012 is just a couple of weeks away. Traditionally, this has been the season for buying gold. We thought it would be interesting to see how gold prices have appreciated over a decade. Today's chart of the day shows the return on gold from one Diwali to the next in rupee terms. Had you invested in gold every year since Diwali 2001, you would have made enormous gains on all your gold investments. The total gains would have been about 670%. So, should you buy gold even after it has risen so substantially? Being a keeper of value, gold tends to act as a hedge against currency devaluation and negative real interest rates. At a time when central banks across the world are recklessly devaluing their currencies, gold has retained its status as a safe haven. As such, we believe that gold should account for about 10-15% of a person's investment portfolio.

Data source: Economic Times
*In Indian rupee terms


01:44
 
Inflation adjusted returns are bound to be tepid in the near term. In such a scenario, gold and equities seem to be only bet for long term investors. But a disproportionate exposure to the yellow metal cannot serve the purpose. Investors need to not only beat inflation but also fetch returns that satisfy their wealth building targets. In India though, less than 10% of household savings find their way into equities and mutual funds. Lack of information, poor penetration of financial products and lack of trust are to blame. Fear of unscrupulous companies seeking funding has kept investors away from primary markets in recent years. The secondary markets too have evinced little interest from investors living beyond metro cities. In fact, the sentiments about equities are so bad that even the government has made no headway in its disinvestment targets. As a result capital market regulator SEBI is targeting multiple reforms. Ones that will reinstate trust and encourage Indian investors to have equities in their portfolio.

To begin with, it will address the problem of IPO market. It will disallow companies without well-defined capex plans to raise funds. Not only will that offer better visibility but also allow investors to value companies based on the management's long term vision. For the secondary markets, the regulator is seeking participation from pension funds. The world over, equity markets have developed on the back of pension reforms. However, such reforms have evaded India so far. Government pension funds are still not allowed a healthy exposure to equities. Large pension funds from world over have shown interest in Indian equities. But the domestic funds have given equities a miss. SEBI's initiatives to facilitate investor participation in equities can go a long way in benefitting both investors and corporates.

02:40
 
Churning at the mid to lower level is quite high and common in companies across the board. However, it is not a common phenomenon in the real estate sector where changes are generally few at the top level. As reported by a leading business daily, companies related with the real estate sector - developers, fund houses and consultants - have seen a significant amount of churn at the top level in recent times. Managing directors of large developers have moved to head other companies, including other developers or consultants. Top executives of real estate funds have either quit to start their own ventures or moved to head some of the big names in real estate consulting business. There are various reasons being mentioned for this development by various experts. These include the slowdown in the real estate sector, thereby putting pressure on top managements. Some believe the maturity of the sector is the reason as there is homegrown talent being created thereby being large enough to move around. Given the difficult times being faced by the sector and the companies present within, we cannot help but think this development to not be a coincidence.

03:20
 
The US has been in the doldrums for quite some time now. And measures adopted by the US Fed have hardly done much to spur growth. Indeed, all the US central bank has done till now is to introduce more and more rounds of quantitative easing. And these actions have only fuelled debates of the possible demise of the US dollar as the world's reserve currency. If that happens, which currency will take its place? Will it be the Chinese Yuan?

Notwithstanding the current slowdown, China's economy has grown by leaps and bounds in the past several years. So much so that the dragon nation has become a force to reckon with in the international arena. Despite that, Marc Mobius does not see the Yuan as a legitimate replacement for the dollar as the world's reserve currency. He maintains for that to happen, China will have to first open its financial markets further. Mobius has a valid point there. Further, the other alternative of the Euro toppling the dollar also looks remote what with the massive debt problems plaguing the region. So, ironically, dollar's position remains unchallenged in the near future at least.

03:55
 
Odisha , a mineral rich state, holds a third of the country's iron ore reserves, a quarter of its coal, half its bauxite and more than 90% of its nickel and chromite. The state accounted for about a fifth of all industrial investment proposals in India in the last four years as it has attracted investment proposals worth US$ 210 bn. However, most of these investments are yet to see the light of the day. Most of these projects are delayed due to problems related to land acquisition, pending environment and forest clearances, raw material linkages and local law and order situation. Odisha has seen many protests in the past. The recent one was aimed at disrupting Naveen Jindal's upcoming steel plant. Similarly many projects involving Tata, POSCO, ArcelorMittal and Vedanta Resources have also being delayed. It is an unfortunate paradox that a state with such rich mineral resources cannot get its act together and help its people get out of poverty.

04:30
 
In the meanwhile, the Indian equity markets were trading above the dotted line with the BSE-Sensex higher by about 16 points (up 0.1%) at the time of writing. While stocks in the consumer durables and oil & gas space are trading firm, capital goods and power stocks are trading weak. The key Asian indices closed in the red today.

04:45  Today's Investing Mantra
"If we were to do it over again, we'd do it pretty much the same way. The world hasn't changed that much. We'd read everything in sight about businesses and industries we think we'd understand. And, working with far less capital, our investment universe would be far broader than it is currently." - Warren Buffett

  • Test Your Warren Buffett Quotient Now!
  • 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:
    How Unique Are the Companies You Invest In?
    August 21, 2017
    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.
    You've Heard of Timeless Books... Ever Heard of Timeless Stocks?
    August 19, 2017
    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
    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.

    Equitymaster requests your view! Post a comment on "Is your stock affected by any of these 4 evils?". Click here!

    2 Responses to "Is your stock affected by any of these 4 evils?"

    HEMRAJ BANTHIA

    Oct 30, 2012

    RAJASTHAN IS RICHEST IN MINERAL BUT ECONOMICALLY IT IS POOREST

    Like 

    Borkar M.R.

    Oct 29, 2012

    How rhe eqty market will go up, I mean by number of retails
    participents. At Equity Master, I suggest you carry out a
    survey by asking only one question to all people from PM FM
    (leave only 4 people President/V.President and Speaker of LS/
    RS) "How much %wise of their savings have gone into equity/MFs.
    On top of it, I say, let the SEBI chairman himself come out with
    the figure. If we do not follow what we preach or what our NETA
    and BABU want common man, Aam Aadami, to do, then do you think
    equity market will see robust growth? Secondly, there is no
    quick action to punish the people who indulge in financial
    crimes. To-day I saw a photo of Vijaya Mallya chating on F1
    track. Do you know he charged King Fisher Airline broking
    commission for providing loan' at least that was in black and
    white when loan proposal was circulated to the shareholders
    (ensuring that that reaches shareholders in such a manner that
    they will not be able to reach the meeting and vote on it. What
    the banks were doing on this proposal? How they voted? -
    Borkar

    Like 
      
    Equitymaster requests your view! Post a comment on "Is your stock affected by any of these 4 evils?". Click here!

    MOST POPULAR | ARCHIVES | TELL YOUR FRIENDS ABOUT THE 5 MINUTE WRAPUP | WRITE TO US

    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407