A brilliant insight for investors & policymakers! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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A brilliant insight for investors & policymakers! 

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In this issue:
» How much money did Warren Buffett make in 2013?
» Should investors rely on hopes of a smooth Fed taper?
» Is the worst behind the telecom sector?
» A tough year for Indian commodity markets
» ...and more!


0:00
 
What comes to your mind when you think about the Indian economy? For many, India has become synonymous to a series of problems such as high inflation, high deficits, slowing growth, corruption, etc. A lot has been said and discussed about these problems. Now the big challenge is the solution. How should we deal with challenges of such high magnitudes?

An error that we often tend to make when dealing with such problems is that we believe that our assessment of the problem is accurate. We often forget to consider that there could be a flaw in the way we are looking at the problem and attempting to address it.

We came across an insightful article by Mr Aditya Puri (Managing Director, HDFC Bank) that highlights exactly this point. As per him, there is a general tendency in people to focus on the macro view of economic problems. In doing so, the problem acquires gigantic scale. And then, the solution appears very difficult.

On the contrary, how about going micro? In other words, what if we focus on micro level problems at the ground level and address them quickly. Given the complexity and diversity of the Indian economy, there is a strong case that solutions too should be localised. But this does not mean you lose sight of the big picture. The micro solutions ought to be evolved keeping in mind the macro scenario.

We couldn't agree more with Mr Puri's views. This is certainly a great way to go about tackling the myriads of problems engulfing the Indian economy.

In fact, this analogy could be extended to stock investing as well. Many investors tend to focus too much on the macro economic trends. We believe it is a big mistake to take investment decisions based on macro factors such as GDP growth, inflation rate, interest rate, elections, etc. It would be far more rewarding if you focus on the micro, which in this case would mean understanding and evaluating individual companies. In investing parlance, it is called the bottom-up approach. Some of the greatest investors in the world including the likes of Warren Buffett, Peter Lynch,Benjamin Graham, etc. have made fortunes following exactly this approach. And we believe anyone who follows this approach with discipline and persistence is quite likely to be rewarded in the long term.

Which, according to you, is the most effective way to address problems and make investments - macro or micro? Let us know your comments or post them on our Facebook page / Google+ page.

01:15  Chart of the day
 
The Indian rupee was among the worst performing currencies this year, hitting a record low of 68.85 against the dollar due to the weak domestic economy and speculation over scaling back of stimulus by the US. On the brighter side, there have also been positive impacts, like better earnings reported by export-oriented companies. According to a Business Standard article on Bloomberg's list of the world's 300 richest people, the wealth of India's IT and Pharma honchos increased the most in 2013 thanks to the rupee's fall that boosted their companies' foreign income and consequently the share price of their companies. At the top of the list of Indians who gained the most this year is HCL Technologies founder Shiv Nadar. The company's share prices doubled this year. Nadar's fellow IT magnate Azim Premji is number 4 among gainers, adding US US$ 941 m and giving him a total of US$ 14.3 bn. Right behind Nadar is Sun Pharma's founder and Managing Director Dilip Shanghvi with an increase of US US$ 3.2 bn to bring him up to US$ 12.8 bn. The only non-pharma, non-IT gainer in the list of Indians is construction magnate Pallonji Mistry (a major stakeholder in Tata Sons) who added US $2.6 bn. But this too is because of the Tata group's technology company Tata Consultancy Services (TCS).

Which Indian Billionaires Gained The Most In 2013?

----------------- Introducing... Valuation Graphs -----------------

Now you can view P/E and P/BV graphs of India's leading corporates on Equitymaster...

Not just that... you can also see, for instance, how the valuations of Infosys compare with TCS over the last 3 years!

Start here with the valuation chart for Infosys...


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01:45
 
It would hardly be surprising to learn that legendary investor Warren Buffett made the most money in 2013. Indeed, Mr Buffett made US$ 37 m a day to amass gain of around US$ 12.7 bn during the year. We had mentioned earlier how the investing genius has outperformed all long lived US stocks and mutual funds. This has largely been the result of his focus on the basic principles of value investing. By focusing on good, safe and quality stocks that are available at cheap valuations, the Oracle of Omaha has amassed such a vast fortune. The recipe for his success is not hard to find. His letters to Berkshire Hathaway shareholders are legendary in that they contain various nuggets of wisdom with respect to value investing. The challenge is to actually implement them because it requires considerable discipline, something that most are not able to master.

02:15
 
A write up in ft.com brings forth an interesting statistic. It's well known that emerging Asia is all about export-led growth. What we didn't know was how big this sector was as compared to other continents in the world. About 40% of the growth in emerging Asia is driven by exports. This compares to around a third in Europe and around 20% in Latin America. Does this explain why export oriented economies of Asia have seen their stock markets go up sharply in recent months? The Financial Times does think so. It argues how investors are expecting the US Fed to undertake a rather smooth taper. One that will not hinder global economic growth that is finally showing signs of picking up.

This is the wrong way of looking at things we reckon. It exposes investors to event-specific risks. In fact, we will go as far as calling this speculation. For investment is something that does not get its returns from the failure or the success of a future event. It is solely interested in the discount at which the stock is trading from its readily ascertainable intrinsic value based on its long term financial history.

02:45
 
The woes of the telecom sector have been well documented over the past few years. From the 2G scam which led to unhealthy competition, to the regulatory morass that continues to plague it, telcos have been through a very tough time. On one hand, their balance sheets are stretched to the limit with debt to fund acquisitions and their capex plans. On the other hand, the government still treats this important sector with kid gloves to try and maximize its revenues. In such a situation, it is tough for an investor to be optimistic about the future.

However, according to a leading financial daily, the light at the end of the tunnel may now be visible. It cites a report from the leading ratings agency CRISIL, which states that the operating profits of telcos are expected to increase by one-fifth over the next two years. This is based on the premise of rising tariffs and the increasing share of data and value added services in the revenue mix. The trend towards value added services would be helped by the record sales of smart phones as well as higher 3G usage. Also, the average rate per minute for large telcos has already stabilized in the last six months and has even seen a small uptick. These initial good signs may be heartening but a lot more still has to be done on the regulatory front if the fortunes of the sector have to turn for the better.

03:25
 
2013 was a tough year for commodity markets. Not because the commodity prices were in a downtrend. But because of the way the external events folded up during the year resulting in loss of investor confidence. For one, the Finance Minister imposed a commodity transaction tax (CTT) on non-agricultural products at the start of the year. This impacted trading volumes at the bourses. While this was just a mild dampener then came the NSEL crisis which completely eroded investor trust in commodity markets. Here an exchange had failed to discharge its duty in honoring contracts. This could be the least thing that should have happened to commodity market in India which is in the nascent stages. Inappropriate risk management practices led to a default worth Rs 56 bn, an amount even higher than the Harshad Mehta scam. Unless the perpetrators of this fraud are put behind bars such instances of toying with investor money will persist. Its time regulatory authorities show some mettle and discharge their duties diligently.

04:00
 
Stock markets across the globe continued to revel in the growing confidence of economic revival in the US as signaled by the tapering announced last week. All the major indices ended on a firm note in the last week of 2013. The US markets extended the rally clocking gains of 1.6% for the week after data showed a record fall in the weekly jobless claims. Even the yield on the 10-year Treasury note climbed over 3%, the highest since July 2011 pointing to firming interest rates.

The European markets were the biggest gainers for the week with stock indices of UK, Germany and France registering gains of 2% each. Even the Asian markets remained upbeat with indices in Japan and China clocking returns of 1.9% and 0.8% respectively.

The Indian equity markets ended 0.5% higher on cues of strengthening US economy. This is likely to further benefit the country's software services sector that has been among the best performers in 2013. Majority of the sectoral indices ended in the green with realty (up 3.4%), consumer durable (up 2.5%) and capital goods (up 2.4%) witnessing maximum buying interest. The small cap and midcap stocks outperformed the broader market recording gains of 3.6% and 2.5%, respectively during the week. Stocks from auto (down 0.4%) and oil & gas (down 0.1%) sectors were the only losers for the week.

Performance during the week ended December 27th, 2013
Source: Yahoo Finance, Kitco


04:50  Weekend investing mantra
"There seems to be some perverse human characteristic that likes to make easy things difficult." - 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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2 Responses to "A brilliant insight for investors & policymakers!"

Dr. Chandravadan Ajmera

Dec 28, 2013

Solution of the economic problems of India which looks giant this time; remind me of a childhood story of a demon whose soul was there in a parrot. You kill the parrot and the demon will die. we need a leader who can think out of box and kill the parrot; and demon will die like aa ant.and the parrot is our tax structure. Make it soft so every one likes to pay and keep penalties very large and we dont have lack of beaurecrats who can do this.

Like (1)

shah dilipkumar

Dec 28, 2013

mr puri's suggestion is totally wrong because it is like when you need to see tough solutions like diamond you can not ware eye glass you need proper magnification to understand the problem you can not observe macro economic parameters for micro economics at all

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