|»5 Minute Wrap Up by Equitymaster|
On This Day - 8 DECEMBER 2010
Do you have this at the top of your smallcap checklist?
In this issue:
------------------------------ Buy Stocks or Gold? ------------------------------
This is not to say that the process of researching bluechips is very different from that of researching their smaller peers. Even bluechips can lack transparency. But the criteria that should top your checklist for selecting stocks, especially in the mid and smallcap space, is management quality. Nothing better to support this argument than statistics on the performance of smallcaps in recent times. Nearly a third of them have hit the lower circuit in recent days. Agreed, some of the negative sentiments may be backed by concerns on valuations. We appreciate that. But a large part of the panic has been driven by the SEBI's crackdown on insider trading practices by the promoters of lesser known companies. Such risks are not evident in the annual reports and valuations of these companies. Nevertheless, a critical observation of the management's reputation in steering the business can give some cues on its quality. And we believe that this should top an investor's checklist while researching mid and smallcaps.
Do you check the management quality while selecting smallcap stocks? Let us know.
How did things come to such a pass in Spain? Blame it on the country's real estate bubble. Taking advantage of the Euro Zone's low interest rate, people started speculating heavily in real estate. The country's banking system too joined in the fun by extending loans by the truckloads to the sector. As per a study, the Spanish market accounted for a huge 67% of all the housing units built in Europe between 1999 and 2007. And since this was not real and just an illusion based on low interest rates, the hardening of the rates led to the entire sector go bust and with it also brought the entire banking sector in trouble. A long period of rebuilding is thus required and until such time, an economist, employed previously in the real estate sector, will have to keep driving a taxi perhaps.
It must be noted that India's IP regime complies with trade related intellectual property rights. This is part of the World Trade Organisation (WTO). But its laws are not as stringent as that of the EU. What it means is that India still continues to sell cheaper generic drugs to countries that do not have the capacity to produce them. But many of these medicines still have valid patents in the EU. Despite this, the intent to make medicines accessible and affordable has gained more favour. Especially with respect to diseases such as HIV which has the largest incidence in Africa, a continent which is very poor and cannot afford patented drugs. All this has meant that the EU-India pact will not impose restrictions on the export of generics.
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