A step closer to 20 km of roads per day... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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A step closer to 20 km of roads per day... 

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In this issue:
» War of words over bubbles in gold and stocks
» SMS - the new Achilles' heel for telecom?
» Fed leaves interest rates near zero
» Is the US a growth or a value stock?
» ...and more!


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00:00
 
Warren Buffett recently decided to fork out a massive US$ 44 bn to buy the US rail road giant Burlington Northern Santa Fe Corp. He referred to the deal as an all-in wager on economic future of the United States. For a man who wouldn't touch anything that does not have a sustainable competitive advantage, the rail road giant must surely be having plenty going for it.

Interestingly, the Indian government also seems to have of-late taken infrastructure growth, particularly investment in roads, a little more seriously. A leading business daily today reports how as many as 27 road projects worth a sterling Rs 300 bn may start rolling within a fortnight, thanks to lesser red-tapism in the bidding process. The government has finally cut the red tape that kept the roads sector tied down by letting the Ministry of Road Transport and Highways decide on bidding procedures and make changes to bid documents, effectively keeping the Planning Commission out of the entire process. More importantly, the private sector which virtually lost interest in road projects over the last two years after the Plan panel, introduced a string of tricky clauses in the bid documents, may make a comeback.

Although the Ministry of Road Transport has ambitions of building 20 kilometres of roadways a day, so far, the government has only been able to build 6.5 kilometres everyday. The Ministry has therefore taken a rain check and has pushed the target of constructing 7,000 kilometres of road this year by another three months. Nevertheless, once achieved, the prospects of economic benefit from the same to India far outshine that from railroads to the US.

So, while the Oracle of Omaha bets big on railroads, should we be drawing lessons from that and take a closer look at the roads?

01:16  Chart of the day
India's demographic dividend is without doubt the key catalyst that is expected to usher in double digit GDP growth rates in the future. However, with 70% of Indians living in the villages, a key link to the demographic dividend is the rural population. No wonder, the incumbent government attributed its hugely successful election campaign to the success of National Rural Employment Guarantee Scheme (NREGS). While rural income has today overcome the anxieties tied with the fate of the monsoons to a large extent, it is rural consumption that is expected to lure the biggest corporate to the hinterland. As today's Chart of the Day shows, average per household consumption in the rural areas will equal that in the urban areas in 2005, within a span of eight years from now. Infact, Mc Kinsey estimates rural consumption to grow at a compounded annual growth rate of 3% over the next 16 years. Do we say more about long term trends?

Source: McKinsey

02:05
 
"It's clear Mr. Roubini hasn't done his homework, yet again," says the legendary commodities investor Jim Rogers while taking a stab at the New York University professor and one who was amongst the few to correctly predict the current crisis. As reported by Bloomberg, Rogers was taking a stab at Roubini on the latter's views that there are threats of bubbles in gold and emerging market stocks.

Rogers, in fact, continues to believe that gold prices will touch US$ 2,000 an ounce within the next ten years. And interestingly, Roubini calls this prediction as 'utter nonsense'! Roubini supports his views by saying that there is no inflation or 'near-depression' to drive gold prices that high.

Anyways, as this war of words continues between the two geniuses, we would advise you to not go overboard with your allocation to gold. The metal definitely deserves a place in your portfolio, but only to an extent of 5-10%. Sure, gold serves as a good hedge against inflation and economic certainty and we will have a lot of it in the future. But if you are looking to create wealth for your dependents and have 10-20 years investment horizon, good quality stocks (bought at reasonable valuations) can definitely get you there.

02:51
 
The telecom sector seems to be occupying the maximum newsprint space these days. The industry which crossed the milestone of 500 m subscribers during the month of September 2009 is on one hand being lauded for the achievement; considering that this figure was the target set for December 2010. However, on the other hand, there seems to be no end to the price wars in the sector. After voice calls, the latest to join the war is text messaging services (SMS).

A leading daily reports that with the cost of sending an SMS being less than a paisa for the telecom company , at an average of Re 1 per SMS, India's claims of having among the lowest telecom tariffs in the world go out of the window. Thus, as new entrants flood into the market, SMS tariffs could become the next major frontier of the pricing war now raging in the Indian mobile services industry.

It may be noted that SMS and other value-added services currently form 10% of the Indian telecom industry's annual revenue. With the new entrants seeking immediate regulatory intervention in the pricing of same, one needs to watch out for the fate of ARPUs (average revenue per user) that the industry leaders have enjoyed so far.

03:37
 
Looks like benign interest rates are here to stay in the US in the medium term atleast. The Federal Reserve has reiterated that it will keep interest rates near zero for 'an extended period' and that its policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline. The economic scenario in the US is still weak although some signs of recovery have been visible. The biggest problem for the US is rising unemployment. While the US government has introduced stimulus measures to perk up demand the same is happening at a sluggish pace as Americans are wary of loosening their purse strings when the job market is so weak. For Fed Chairman Ben Bernanke, a predicament has presented in the form of the exact timing of the withdrawal of the stimulus. There are talks that the recovery is wholly dependent on the stimulus packages, which if withdrawn right now could worsen the situation. Thus, unless the recovery is sustainable, interest rates in the US will continue to remain at lower levels.

04:10
 
As expected, Warren Buffett's latest catch has become a fodder for the so-called financial experts, resulting in a mad scamper in opinion giving. To be frank, Buffett is also to blame for it a bit. His assertion that the deal is an all-in wager on the economic future of the United States must have surely rubbed some people on the wrong side. With unemployment at a record high and wealth erosion showing no signs of respite, only the brave hearts must be seeing some sort of economic future for the United States of America.

You can surely count Buffett to be one of them. He has been often heard singing paeans to the economic system of the US, which he believes to be the best in the world. And as the deal shows, looks like he is still bullish on US' long term prospects. However, if his choice of company is a representative for the economic future of United States, then surely he does not see the US as a growth stock. We know this because that isn't simply his style. He is more of a value hunter, seeking non-exciting industries having strong moats and thriving on very little competition. So, is the US, the growth stock of the past, about to become a value stock? And are China and India the new growth stocks? Buffett seems to have passed a verdict on the former. As for the latter, only time will tell.

04:45
 
Meanwhile, Indian markets went back into the red today and the BSE-Sensex was trading 20 points below the dotted line at the time of writing. Stocks from the banking and cement sectors were amongst the major contributors towards the weakness. Amongst global indices, while most Asian stocks closed in the negative, Europe was also under a spell of weakness.

04:55  Today's investing mantra
"Buy a business, don't rent stocks." - Warren Buffett
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10 Responses to "A step closer to 20 km of roads per day..."

Kadambari

Nov 28, 2009

information is very good and it is very useful for me.




Thanks & Regards
Kadambari

Like 

DR VAISHALLI MORE

Nov 6, 2009

I FEEL THESE ARTICLES ARE THE BEST GUIDE AS WELL AS TEACHER TO THOSE LIKE ME WHO INVESTING SELF MONEY ON SUGESSIONS OF OTHER WITHOUT KNOWING IT EITHER RIGHT OR WRONG.

Like 

ashok kunti

Nov 6, 2009

Excellent,I teach a very good lesson as a investor,
but not for self it is helpful for all quick return
investor & economic interest people.

Like 

suhil

Nov 5, 2009

this news give a new view to invest in the cement and road equipment stock.

Like 

RAMAMOORTHY

Nov 5, 2009

VERY GOOD
IT IS TEACHING GOOD LESSON TO ALL INVESTOR & ECONOMIC INTEREST PEOPLE

Like 

vishal sharma

Nov 5, 2009

great insights to things...keep up the good job.

Like 

Bajrang Lal Agrawal

Nov 5, 2009

This news give a new view to invest in the Infrastructure unit & Gold. Really appriciable one.

Like 

dr. choudhary

Nov 5, 2009

Unhealthy indian market. It can easily being manipulated by big drivers or the gambllers as foreign institutions investors.They are going to snatch the money of our innocent investors and mainly from the investors who wants a quick returns on such artificially made volatile market. Thanks

Like 

M.Balachandran

Nov 5, 2009

The bigger lesson we should be drawing from the Oracle of Omaha betting big on railroads is to corporatize Indian Railways, slowly divest its equity to the Indian public, and may be finally privatize it.

Think capital raised for Government, increased efficiency and growth for rail transport.

M.Balachandran

Like 

Hasmukh Kutmutia

Nov 5, 2009

One of the best article I have read so far, though it is
practically unbelivable in the present Indian political
senario.

Like 
  
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