Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Much ado about nothing... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Aug 24, 2004

    Much ado about nothing...

    Much has been written about the BRIC (Brazil, Russia, India and China) nations and a leading firm has gone to the extent of saying that by 2050, India and China are likely to become two of the largest economies in the world. However, currently, these four economies are competing for investments.

    Although the four major developing economies outperformed the developed economies, in terms of growth in FY04, the last three months have witnessed some dramatic changes.

    Let us now analyze the performance of the benchmark indices during the last three months and the factors, which led to the circumstances.

    Brazil:  The Brazilian index has outperformed with a return of nearly 24% during the 3-month period and the main factors, which led to such robust performance, are good earnings prospects and the pension reforms that have been carried out have led to positive sentiments among the investors with foreign capital flowing in. The pension reforms are likely to boost the country's credit rating in the global markets thereby likely to attract capital investments at attractive rates. Further, measures such as taxing the benefits of state pensioners came in as another positive towards the reforms outlook. All this has resulted in positive inflows into the capital markets. However, concerns pertaining to rising inflation as a result of high crude oil prices loom large.

    Russia:  The Russian economy rode high on the back of high oil prices resulting in returns to the tune of 14% during the period. It should be noted that Russia is the largest non-OPEC oil producer with vast reserves and is a major exporter of oil. The 15% rise in the crude prices has helped economists forecast a surplus for the 5th consecutive year. With the increasing export funds, the country would be able to repay its high cost debt and also meet its domestic pension obligations. This augurs well for the economy, which is now anticipating a GDP growth rate of nearly 6.3% in FY05. However, concerns loom large over the country's over-dependence on oil for economic growth.

    India:  The Indian economy performed exceedingly well during FY04, but a change in the government at the center at the turn of the fiscal has led to major policy changes in areas ranging from disinvestments to agriculture. The last three months have resulted in lackluster activity as far as the BSE-Sensex is concerned. Rising inflation (currently at 7.96%) due to high commodity and crude oil prices have resulted in pessimistic sentiments among investors. Further, interest rate hikes. (Which we believe are likely to happen soon), would play a major role in determining as to which avenue gets a major share of the investors' funds. Global interest rates have been heading northwards and in order to retain Foreign Institutional Investors (FIIs) investments, domestic rates have to be hiked. It is due to these factors that we believe that investors have adopted a wait and watch policy as of now. However, strong business fundamentals and economic policies are likely to play a major role in the long-term.

    China:  The Chinese index has performed the worst resulting in negative returns after a dream run during FY04. The government's steps to slow down the economic activity in order to contain inflation and overheating of the economy have resulted into lower capital inflows. Further, China has become the second largest consumer of oil and with prices nearly 15% higher than FY04 average, this is likely to have a negative impact on the economic growth. Although the Chinese economy is the major driving force for Japan and many other Asian countries, concerns over declining demand from the US and high energy prices along with over-building of capacities have led to skepticism.

    The above article suggests that it is not only India, which has been a victim of high crude prices and rising inflation, but also other developing nations that compete for the same dollar of investment. Rising interest rates have put pressure on the Indian economy to increase rates so as to retain capital and at the same time, maintain the current state of development. As a result, we advise investors not to read too much into under-performance of a particular index vis-a-vis others as the macro-economic factors remain the same, just the magnitude of impact varies depending on the economic strength of the country.



    Equitymaster requests your view! Post a comment on "Much ado about nothing...". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 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.

    Which Gods Will Bring Down the US Empire? (Vivek Kaul's Diary)

    Aug 17, 2017

    Mr Trump is in the White House and the gods are in their heavens; what's not to like?

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. 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

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 17, 2017 (Close)