Do you risk your money chasing unrealistic returns? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

Do you risk your money chasing unrealistic returns? 

A  A  A
In this issue:
» China's vested interest in India's energy resources
» Bailed out banks nearing bankruptcy
» Is the government responsible for India's food crises?
» Will Indian ever have affordable healthcare?
» ...and more!!


---------------------- FREE Webinar with Ajit Dayal - Limited Seats! ----------------------
Find out what 2011 has in store for the Indian stock market... Register Now for our FREE Webinar with Ajit Dayal as Chief Guest. The Webinar airs on 10th January, 2011 at 5.30 pm. Register NOW!

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

00:00
 
Despite the risks in trading, many investors choose to ignore them at the behest of their selfish brokers. Some even end up losing most of their life's savings to such false promises. The brokers or advisors promising extraordinary returns in short time are certainly at fault. But so are investors who believe in such promises without a sound rationale.

Take, for instance, the most recent scam where Citibank officials in Gurgaon have been accused of cheating investors on fixed deposits. The returns promised on the instruments were double that a normal FD would fetch. Nevertheless, the HNI investors caught in the trap never doubted the promises. They did not bother to question the rationale for the returns. And in the bargain, ended up losing millions in extremely risky speculative bets. We are bemused by their belief in a ridiculous notion while investing millions. That returns on risk free FDs can be higher than that on risky stocks!

This is not to suggest that investors cannot seek returns higher than the average rates. But only if the underlying instruments have a historical track record of attractive returns. Buying stocks of fundamentally sound companies with very high margin of safety in valuations is a case in point. In such cases, investors have very little reason to doubt the possibility of high returns. But otherwise, it would be more prudent to ask your investment advisor the rationale for the unrealistic returns.

01:15  Chart of the day
 
India's contribution in a growth starved world economy is commendable. The country is stepping up efforts to catch up with neighbouring China in securing the highest rank in GDP growth. Indian stocks have been rerated over the years keeping the prospects of higher returns in mind. But the run up in their valuations seems to be a little premature when compared to the historical economic growth. As today's chart shows, in 2010, the share of market cap of Indian stocks in global market cap was higher than the share of India's GDP to world GDP. Of course, the expectation of higher profits from Indian stocks going ahead could be the reason for the same. But we believe that this also signals that the upside in valuations are limited to that extent.

Data source: World Bank

01:55
 
The Chinese don't mind joining hands with even their arch rivals when it comes to furthering national interest. As per a leading daily, China's largest Government owned energy firm, CNPC, has called upon its Indian counterpart, ONGC for a possible tie up in Indian waters. Yes, that's correct. China, India's staunch rival in the game of overseas oil and gas assets, is keen on forming a JV with ONGC in order to find new Indian oil and gas assets.

Given the high level of mistrust between the two, it looks unlikely that the Government will play ball anytime soon. India does allow 100% FDI in oil and gas but it is a sensitive sector. And hence, giving full access to China is indeed something that needs to be given due consideration. No doubt the Chinese have deep pockets and also have in their possession ultra deepwater technology. But it isn't something that India is desperate for and can get the same from some other friendly countries. Hence, a possible tie up with China is certainly not a do-or-die situation. As per us, unless China works really hard to prove to India that it deserves to be in its good books, India should not readily oblige.

02:30
 
Anesthesia is such a magic drug. So are bailouts. But once the effect goes, the pain hits back. This fact is emphasized by a recent Wall Street Journal report. About 100 banks bailed out by the government are teetering on the brink of bankruptcy. Again? Yes, again!

The banks in question took more than US$ 4.2 bn from the Treasury Department under the Troubled Asset Relief Program (TARP). Interestingly, this was created for healthy banks only. However, the depth of the problems for some of the institutions suggests that a number of them were in perilous shape from the beginning. Based on a review of third-quarter results, 98 banks were battling weakening capital levels, mounting bad loans and heat from regulators. This is up from 86 in similar troubles in the second quarter. Seven TARP recipients have gone under already. And they haven't gone alone. US$ 2.7 bn of TARP funds have also drowned with them. Smaller banks have been the worst hit. But this shouldn't really come as a surprise. A big, big lesson there for the US we believe.

03:03
 
India has been reeling under severe food inflation for the past 2-3 years. Rising food prices have burnt a hole in the pocket of the common man. The best the government has done to control this crisis is to stop exports of some food products. We saw the recent case of onions where the government stopped exports of the same. But this does not seem like a long term solution to contain the crisis that can take even bigger proportions in the future.

The biggest culprit in India's food crisis is the government itself. Its warehousing capacity has lagged food production for many years in the past. This remains the case even now. This has meant that a large part of production rots in the open every year. And this is in a country where a large number of people are dying of hunger! Ironical, isn't it? Call it the government crisis, and not the food crisis!

03:42
 
One of the key responsibilities of any government is to ensure that there is enough investment in the social sectors such as education and healthcare. After all, the productivity of people plays a very important role in enhancing GDP growth. And if the population is neither skilled nor healthy, such productivity will be virtually non-existent. Sadly, in India's case, there is a lot left to be desired at least when it comes to healthcare.

The Indian government spends less than 0.9% of GDP on healthcare. This is one of the lowest levels of government spending in the world. What is more, as far as healthcare expenses are concerned, Indians pay 80% of the same out of their pocket. This is burdensome given that a large swathe of population lives below the poverty line. Not just that, facilities at government hospitals are inadequate to say the least. And this compels people to turn towards private healthcare. The Indian government is strapped for cash. Because of which it is not able to ramp up healthcare infrastructure. And so, this role has fallen onto the shoulders of private healthcare practitioners. Sadly, we believe that this scenario is not likely to change anytime soon. Private hospitals and practitioners will be the ones who will have to shoulder the responsibility of making healthcare accessible to Indians.

Do you think Indians will ever have affordable healthcare facilities? Let us know.

04:20
 
India has the lowest electricity consumption compared to its emerging peers. But, with growth projected at around 9%, the power sector is assuming critical importance. This is indicated by the ambitious US$ 1 trillion investment in infrastructure expected in the 12th 5-year plan. A third of this huge outlay is expected to be allocated to the power sector. This works out to US$ 300 bn or Rs 13.5 trillion. This amount is double of what was estimated for the previous plan period. 100,000 mega watts (MW) of power capacity are now expected to be added from FY12-17. Each mega watt costs Rs 50 m. The cost of adding new capacities equals Rs 5 trillion. The rest will be used for distribution, transmission and generation work in progress.

The current plan ending FY12 will only be able to meet 80% of its capacity addition targets. We hope that this time around ambition and execution go hand in hand. With demand growing, missing lofty targets narrowly is no longer enough. This time around, the cost of underachievement will be even higher.

04:40
 
Led by strength in FMCG, commodity and banking stocks, the Indian indices have had a strong outing since the start of the session today. The BSE-Sensex was trading 169 points higher at the time of writing this. The BSE Midcap and BSE Small cap indices were up 0.6% and 1.0% respectively. The Indian indices were amongst the lead gainers in Asia while the European markets have also opened higher.

04:50  Today's investing mantra
"I look for businesses in which I think I can predict what they're going to look like in ten to fifteen years time. Take Wrigley's chewing gum. I don't think the internet is going to change how people chew gum." - 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:
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 "Do you risk your money chasing unrealistic returns?". Click here!

14 Responses to "Do you risk your money chasing unrealistic returns?"

Sarat Palat

Dec 31, 2010

First of all distinguish between health care and ill care. In India both are not adequate. If the people are health consious then the latter will reduce. However, the Govt. hospitals in the country are in a pathetic condition. The first thing to change is the attitude and the behaviour of the staff. Taking this as an advantage, the private hospitals are taking undue advantage. Remeber,the future of the country lies in productive people. If the people are not healthy they cannot be productive.

Like 

Dr Malpani, MD

Dec 30, 2010

The Indian healthcare system has become sick. Doctors are illness experts and not healthcare experts. Healthcare needs to learn from the revolution which has occurred in microfinancing. When given money and the freedom to use it as they see fit , even very poor people have come up with remarkably innovative ideas which could never have been planned, designed or anticipated by the traditional experts - bankers!

Information Therapy - the right information at the right time for the right person - can be powerful medicine ! Ideally, every clinic , hospital, pharmacy and diagnostic center should have a patient education resource center, where people can find information on their health problem .

Information Therapy is the Best Prescription !


Like 

Rishabh

Dec 29, 2010

Affordable healthcare and Government sponsored healthcare are two very different things.Current state of healthcare in countries lIke UK and US, that have huge govt. sponsored healthcare systems should serve as a warning to those who propose increased govt. spending. The only role that govt. needs to play in this is to get rid of the potential impediments to private participation and strengthen remedial/redressal mechanisms for malpractices...Make conditions even bearable for private sector and sit back and watch India entrprenurship solve the problem.

Like 

N Kannan

Dec 29, 2010

Healthcare scenerio in India will never change. In Tamilnadu Karunanidhi is distributing free TVs to everyone - poor and rich - for voting him to power. How many crores are wasted and how many crores have been swindled in the process!! But for constructive ideas, he will say no enough money with the Govt.

Like 

Prabha Krishnan

Dec 29, 2010

It depends on how we define healthcare. We need to concentrate first on delivering determinants to health such as safe water sources, solid waste management, nutrition. Affordable housing and sanitaion together with adequate food supply elevated the health of the masses in Europe PRIOR to mass vaccinations - because the Industrial revolution needed steady supply of healthy able bodied workers. Drugs, antibiotics and vaccinations are unsustainable, and elevate costs without measurable benefits.
Yes money stashed in Swiss banks can be used for spending - but spending on what?
The focus should be on preventative care -- India's claims to growth are hollow when 25% of all children who die between ages 0-5 come from India.

Like 

Manoj

Dec 29, 2010

I have been reading your articles for sometime now and what I have seen usually is get the bad feeling about India.

I believe in saying that you can be happy only when you are contempt as there is never an end for desire for more. having said that I am not voting that everything in India is bad or good. We should also look at the people's life in each of these countries when we are comparing the some huge numbers on terms of GDP which I can never relate to my daily living. If your article can focus in giving such insights then it would be great for every Indian who can most out of it.

Example when comparing about health care,
I am currently in US with Family and vising US for almost 8 years now. Getting Medical help is very easy, accessible and cheap in India compare to that here in US. It just take at least 2 weeks to get an appointment for the doctor no matter if its for Kid or Adult. If you go for emergency you have to pay more than what you could even think of paying.

So such way if you compare then our Indian brothers and sisters would get right information from article if you include such insights. I think we all should strive for showing people ways to be happy and not be in tensed.

Like 

harri

Dec 29, 2010

Do you really think it will ever happen? After our dear MMS has shown what it takes to corrupt a so called honest person to change his definition of honesty!
A real, true Indian will never be able to afford anything let alone quality health care.

Like 

Om Prakash Sharma

Dec 29, 2010

Dear Sir
I really appreciate your comment on China. I joined IAF in 1963 when China took advantage of the good intentions of our reverred PM Mr Nehru in 1962.It is still continuing with its Agenda. Any country believing China will suffer. US is suffering for the Actions of Mr. Nixon going overboard for friendship with it.

Like 

Nanda Kishore Biswal

Dec 29, 2010

Give ideas about profitable investment.

Like 

JS Pandher

Dec 29, 2010

Sir,
There is no hope from private hospitals n practitioners since they are there no make money.

Like 
Equitymaster requests your view! Post a comment on "Do you risk your money chasing unrealistic returns?". 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