X

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.
Stockmarkets: The flip side... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Sep 12, 2005

    Stockmarkets: The flip side...

    We are indeed living in heady times. The BSE-Sensex has crossed the 8,00 Foreign Institutional Investors (FIIs) fund inflows continue to be positive with no signs of stopping. The Indian economy has been amongst the fastest growing in the world, recording a growth rate of 6.9% in FY05. Increasing purchasing power, a massive 300-million strong middle class, a flourishing services sector, strong corporate performance and booming stock as well as property markets - all hunky dory, right!

    Well, we thought it would be appropriate to dwell a little bit on our flaws/the risks facing India's long-term sustainable growth and development. Enough has been said and written ad nauseum about the positive factors. Please note, we say at the risk of repeating ourselves that we are not bearish on the 'India story'. We are very positive on the prospects of India Inc, but would rather be a little realistic and take note of the negatives that are currently plaguing our economy and affecting our ability to grow at a sustainable 8%-plus per annum, rather than the 6% to 7% that we have managed currently.

    Issues that require focus
    Infrastructure: This is hardly something that anyone does not know. Our infrastructure is terrible, to put it mildly. Be it roads, railways, airports, ports, power, connectivity, they are all in poor shape at present. The massive traffic snarls of Bangalore are only too well documented by names such as Mr. Narayanmurthy, Mr. Nandan Nilekani and Mr. Azim Premji, all legends in the Indian software industry. Being the 'IT capital' of the country, such poor infrastructure is a matter of shame. Mumbai, the country's financial capital, continues to suffer from terrible roads. The poor state of infrastructure was most tellingly exposed sometime ago when nature's fury struck in the form of the rain deluge that hit the city. Healthcare and primary education are also issues that need urgent attention.

    The country's power situation is not much to write home about either. The poor economics in the form of subsidised tariffs adopted by earlier governments have led to the State Electricity Boards (SEBs) suffering huge losses. Transmission and distribution (T&D) losses are at unacceptably high levels (between 18% to 62%) compared to international standards. The quality of power supplied and frequency is very poor and frequent load shedding is the norm in most areas of the country. This is a huge impediment to growth, as it raises the cost of doing business, making firms uncompetitive and hinders foreign direct investment (FDI), something that is desperately needed in industries like telecom in order to invest for future growth.

    Job creation: Given India's huge population and more importantly, the demographics, where a majority of the population is under 30 years of age, job creation is crucial. This is one area that is in desperate need of attention. In 1999-2000, India's unemployment rate was estimated at 7.3%. However, if we take into account 'disguised unemployment', where, for example, in a farm, a greater number of people are working in it than is actually required, the figure could even run into double digits. Given the widening gap between the rich and the poor, this could cause serious social unrest and hamper our economic progress.

    'Left' politics: These days, it just seems that whatever the government wants to do, be it divesting part of its stake in PSUs or increase fuel prices, the 'Left' parties act as impediments. It is ironical and hypocritical on the part of the Left, as they themselves divest their stake in public enterprises in their home states but disallow it at the Centre. China, a communist state, has actually announced plans recently to divest part of its stake in PSUs and raise US$ 280 bn and the Left continues to dither on this count.

    Crude prices: Crude prices have hit all-time highs, even coming close to US$ 70 a barrel. This is due to reasons such as a spurt in demand from countries like China and India as also speculation by financial investors, due to an abundance of global liquidity, caused by all-time low interest rates around the world and an increase in risk appetite. This has the potential to drive a hole in he country's fiscal position and is inflationary. It acts as a tax on growth, since higher oil demand in order to fuel growth also causes a rise in prices. As a result, this could slow down overall growth. But this has not affected the markets, not just in India but all other emerging markets as well, mainly due to the global liquidity being poured in stocks and property markets, boosting them and, in some cases, creating an unsustainable, bubble-like situation.

    Fragile global economy: At present, the global economy appears to be on fragile ground. It is overly dependent upon US growth, as the debt-ridden consumer gets increasingly stretched. Rising interest rates over the longer term could hit the consumer hard. Emerging markets around the world are at the centre of stock and property market bubbles. There is clearly a limit to this huge surge in global liquidity and what the trigger could be is anyone's guess. Once that happens, FII money could flow out of the country, leaving markets badly hurt. We are not saying that this will happen for sure and when it could happen, just that it is a possibility and the longer this liquidity continues to flow into stock and property markets, the more it will be a bubble-like situation. What could happen when such a bubble bursts is anyone's guess.

    Conclusion
    Clearly, the euphoria that foreign investors are showing investing in India might not be entirely justified, given the above factors. It is undoubtedly correct that India would provide them with better returns compared to other parts of the world. But then, as we know, FIIs are generally 'fair weather friends' and at the slightest sign of danger, could flee to perceived safer havens.

    Our main point is that while India is indeed expected to show a better economic performance than most other countries, investors need to consider the above points as potential risks or 'party-poopers' before investing money. A bottom-up approach would work in such a scenario and, as always, look at the stock markets as a long-term investment avenue, rather than a chance to speculate, which, at these levels, is getting riskier with every trading session.

     

     

    Equitymaster requests your view! Post a comment on "Stockmarkets: The flip side...". 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.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    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.

    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.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    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...

    More
    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

    S&P BSE SENSEX


    Aug 18, 2017 (Close)

    MARKET STATS