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Asian stocks, IT hiring & more...

Jan 21, 2008

  • Asian stock market indices continue their poor run into this week, as seen from the deep losses in some of the major ones like Hong Kong (down 3%), China (2%), Japan (3%) and Singapore (1%). This follows the blood bath that took place across global markets last week, on the back of vibes about an impending US recession (which is actually already there). Concerns that the US President's economic plan to ease pressure on the economy will not work had led to continued pressure on stocks across the board. These have also been weighed down by a string of poor results from some of the corporate bigwigs in the US, especially those from the banking sector. In the meanwhile, the US Federal Reserve Chairman, Ben Bernanke, has indicated that a fiscal stimulus of US$ 150 bn would 'help revive economic growth'. That is, a fresh dose of 'more money' will solve the problems caused by an earlier dose of 'more money'! Bernanke himself is said to be stepping on the gas, as he's widely expected to lower interest rates in the upcoming monetary policy meeting on January 30th.
  • As far as Indian stock market are concerned, the weakness was amply displayed by the benchmark indices, BSE-Sensex and NSE-Nifty, which closed last week (ended January 18th) with 9% and 8% losses respectively. While September to December quarter results of domestic companies have been good, what is currently concerning the markets is a fall-out of a US led global recession. Did we hear 'decoupling' somewhere? Suddenly, you can read and hear experts talking about 'gloom everywhere' - the same genre of people who, just a couple of weeks back, were talking about the Indian economy being isolated from global concerns.

    We believe that market declines often elicit the opposite reaction to what they should. Warren Buffett mentions in his 1990 letter to shareholders, "Investors...illogically become euphoric when stock prices rise and unhappy when they fall. We will be buying businesses - or small parts of businesses, called stocks - year in, year out as long as I live. Given these intentions, declining prices for businesses benefit us, and rising prices hurt us. The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces." Have you been checking out businesses with an eye for good opportunities at falling prices, dear reader?

  • A leading business daily talks about the top four Indian IT companies adding around 33,000 professionals during the September to December quarter, suggesting that there are no real signs of slowdown in business. While attrition rates at these companies have risen marginally, there seems to no real serious issue, if one were to believe what the managements have been saying of late. The important point to note here is that despite the substantial rise in employee base, the utilisation levels (proportion of total employees actually working on projects) have been stable to rising. Also importantly, three of these four firms have reported expansion in operating margins during the quarter, despite facing the heat of rupee's appreciation against the US dollar. Now, despite the decent outlook and attractive valuations, stocks from the software sector are not really showing signs of recovering. Interestingly, the price to earning (P/E) multiples at which some of these stocks are trading are even lower that the price to book value (P/BV) multiples for most of engineering stocks!

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