Will India's Obama stand up please? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Will India's Obama stand up please? 

A  A  A

In this issue:
» Petro dollars to the rescue?
» Its raining cards for Indian farmers
» Time to cut the excesses at Wall Street
» Can Obama pull off this casting coup?
» ...and more!!

------- Last Chance To Register for The Equitymaster WebSummit -------

How to Protect Your Wealth and Profit from the Global Crisis

Scheduled for Friday, 7th November, 2008. 5:30 PM (IST).

Registrations close today. Hurry! Click here.

00:00  Petro dollars to the rescue?
The financial crisis at its peak has begun to claim countries as victims now. While Iceland was the first to go under, Central and Eastern European countries are also finding the going very tough. The International Monetary Fund (IMF), meanwhile, is on the overdrive and has announced bailout packages for various economies. More recently, the fund approved a US$ 16.5 bn loan programme for Ukraine, which has been battered by a drop in global steel prices, the country's main export and the global financial crisis. Infact, the IMF has committed US$ 30 bn in the past few weeks in bailout packages for Hungary, Iceland and Ukraine. Further, it has envisaged lending as much as US$ 100 bn to economically healthy countries that are having trouble borrowing as a result of the turmoil in the global markets.

However, given the magnitude of the crisis, the organisation is likely to find that the US$ 200 bn in its kitty may not be enough and has therefore called upon the Gulf countries to support it in its rescue attempts. Oil producing nations had a field day when the oil prices were firm in recent years having amassed a fortune worth US$ 1 trillion from the same. As a result, they are now considered to be in a position to contribute. With the world's superpower (the US) now tottering on the edge, does this mean that the politically unstable oil producing nations will have a greater say in world affairs? Definitely, a point to ponder over!

00:37  Capex on the roll
As we worry about the capital outflows and the swift depreciation of the rupee against the US dollar, India continues to remain a hot destination for long term capital investment in the form of FDI (foreign direct investments). The cumulative FDI inflow of US$ 17.2 bn during April to September 2008 (1HFY09) has shown an impressive growth rate of 137% YoY. While this may sound enthusing enough, what is surely set to cheer investors is that fresh infrastructure investments announced in 1HFY09 alone were 23% higher than that announced in FY06 and nearly 61% of that in FY08.

Even in terms of commissioning of infrastructure projects, as per the CMIE (Centre for Monitoring Indian Economy), Rs 25,000 bn worth of projects are expected to be commissioned in 2HFY09. Of this, one fifth is to be concentrated in the electricity sector. While there are issues about delays in some projects, it is only a matter of time before the capex starts rolling. Interestingly, even sectors like construction activities and housing and real estate that had appeared to have lost investment appetite in the past few months, have received the maximum FDI investments in the past few months. As per the CMIE, even if half of the scheduled projects get commissioned successfully in 2HFY09, it will be the highest ever annual commissioning of projects in India's economic history.

01:18  Its raining cards!
It's the kind of deluge that Indian farmers are far from happy about. Crop and livestock insurances and other government health schemes all make it mandatory for them to have a plastic card for each. This is causing a situation where farmers have to carry around in their dhotis as many as seven different cards at times. The Kisan Credit card, Crop Insurance card, Rashtriya Swasthya Bima Yojana Card, National Rural Employment Guarantee Scheme card, Aam Aadmi Bima Yojana card, and the list goes on...

The different agencies involved use different technologies such as smart cards, cards carrying photographs, biometric cards (which use finger prints for identification) etc. And each card costs anywhere between Rs. 28-150. Thus with the costs of providing and replacing cards sometimes turning out to be costlier than a monthly insurance premium for the villagers, its high time to come up with a solution to lighten those poor dhotis!

01:42  In the meanwhile...
After a strong response to the political developments in the US yesterday, Asian markets shed most of their gains since the start of the session today. Along with the BSE-Sensex, key indices in the Japanese, South Korean, Hong Kong and Taiwan markets also lost more than 3% of their market capitalisation today. European markets across the board have also opened in the red losing more than 3% of their value in early trades. The rupee closed at 47.6 to the US dollar.

Gold held just over US$ 740 an ounce today, as interest in the metal as a haven from risk balanced the firmer dollar and falling oil prices. Investors are looking forward to the European Central Bank's expected rate cut later in the day for clues as to the next move in the foreign exchange markets and, consequently, in gold.

02:15  Will India's Obama stand up please?
As Barack Obama takes over the reigns of a battered US - society and economy - questions are being raised as to who could be India's answer to him. Who could bring change to India? Several people in the political circles are pointing to a leader in a north Indian state. And the comparisons are drawn not because that leader is the 'right' candidate to lead India, but because her social 'identity' bears resemblance to Obama's - subjugated, oppressed. And that is sad!

The comparison must end here. The breath of fresh air that Obama's 'change' campaign has brought about in the US is not what we can expect from our Indian version. The years of misrule that this northern state has witnessed is there for everyone to see. While this leader like her political peers has campaigned on the basis of communal divide, Obama has come to stand for democracy in its true sense - for the people by the people, of the people.

And also on the contrary, the Indian political version of democracy for so many years has been - far the people, buy the people and off the people! Obama has come as a source of hope for Americans...at least a hope to start off with. Will India's real Obama stand up please! We remain hopeful.

02:46  Can Obama pull off this casting coup?
With euphoria over Obama's victory finally beginning to ebb, attention has once again veered towards the ailing US economy. And hence, the appointment of the new American President's economic team has assumed a lot of significance. Please bear in mind that these will be the men and women that will help Obama in his efforts to take the mess that is the US economy currently to safety. The one position that will be the most closely watched is that of the US Treasury Secretary. Henry Paulson, the current occupant of the post has already indicated that he does not want to continue, thus giving the media a chance to speculate and throw up a few names. None has emerged more intriguing than the Oracle of Omaha, Warren Buffett.

The most influential investor in the United States is believed to be a phone-chat buddy of Obama, having advised him on a lot of economic matters during his campaign. Furthermore, just as Obama, Buffett is also a big critic of hefty tax incentives for the wealthy Americans and has been often heard saying that he pays less tax than his own secretary. Buffett is also opposed to the use of financial derivatives, instruments believed to be largely responsible for the current credit crisis. However, while he may be the right man for the job, he may lack the political skills required to survive in Washington. Interesting to see whether the new US president manages to convince one of the most successful investors of our times.

03:19  Tata's loss may be China's gain
After the loss of face and word to the Tata's, the West Bengal government is set to showcase Singur land to a Chinese automobile manufacturer. The company, First Automobile Works (FAW), is the biggest car manufacturer in China and produces 2 m cars every year. FAW has expressed interest in opening an automobile manufacturing unit in the state in collaboration with Ural India, which already has a footfall in the state in heavy truck and vehicles manufacturing.

The company has asked for 600 acres of land and the state government is considering offering the 645 acres of Singur land, where Tata Motors was supposed to set up its 'Nano' plant. The state government had leased out 997 acres of land to the Tata Motors, out of which 645 acres was reserved for the plant and rest for vendors' park for automobile parts. Since the opposition party has not demanded land from the mother plant, but from the 230 acres allotted for ancillary units, the same is set to be offered to the Chinese manufacturer. Further, once bitten twice shy, the state government has also lined up back-up lands in other parts of the state for the FAW team to consider.

03:57  It's time to cut the excesses
Faced with a weakening economy and the prospect of mounting losses, the Wall Street biggies have begun to bite the dust. Citigroup and Goldman Sachs have begun firing workers as part of the firms' plans to cut more than 12,000 jobs. Goldman, which converted itself from the biggest US securities firm into a commercial bank last month, has already given the pink slips to nearly 10% of its workforce. Similarly, Citigroup has been notifying staff about its plan to discard 9,100 positions over the next 12 months, or about 2.6% of its headcount. The ousted workers will add to the swelling ranks of Wall Street's unemployed, their lives upended by the credit crisis. Both New York-based firms have already cut staff, and are among the banks and brokerages worldwide that have shed almost 150,000 jobs since the subprime mortgage market collapsed last year.

But jobs are not all that the Wall Street firms are cutting. They are extending the cuts to that once-revered Wall Street bonus packages too. The most senior executives at Wall Street firms will have their bonuses slashed by as much as 70% this year, more than other employees, amid falling revenue and political pressures. The bonus cuts for the lower rung of employees will range between 10% and 45%.

04:33  There's democracy, and then there's monarchy
While we have Mr. Obama, symbolising youth, being handed over the reigns of the world's largest democracy, the other side of the world takes note of another young man being handed over the monarchy of a kingdom. We are talking about the 28-year old Oxford graduate Jigme Khesar Namgyel Wangchuck who has been crowned as the fifth king of the kingdom of Bhutan.

As a matter of fact, Bhutan had recently ended more than a century of absolute monarchy by holding its first parliamentary elections. Now, while the king remains the head of state and retains much influence, elected leaders are in charge of decision making. Interestingly, the king is still considered a father figure as the Bhutanese try to balance economic growth with respect for its age-old traditions.

04:50  Today's investing mantra
"Confronted with the challenge to distil the secret of sound investment into three words, we venture the motto, Margin of Safety." - Benjamin Graham
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:
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.
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.

Equitymaster requests your view! Post a comment on "Will India's Obama stand up please?". 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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407