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Autos in top gear again! - Views on News from Equitymaster
 
 
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  • Dec 2, 2009

    Autos in top gear again!

    Barely did the dust settle on India's excellent economic performance for the quarter ended September 2009, India's auto sector also seems to have come out all guns blazing. Maruti and Hero Honda, market leaders in their respective segments, have witnessed record shattering sales for the month of November 2009. While sales at Maruti were higher by an impressive 60% YoY in the domestic market, Hero Honda recorded its best November monthly sales ever, with volumes witnessing a strong growth of 31% YoY.

    Besides being market leaders, sales at both these companies are also good indicators of where the rural demand is headed given their well entrenched rural presence. Thus, if the numbers are anything to go by, rural demand also seems to have come in pretty strong for both the companies. And this does bode well for India's economy as there are concerns that following drought like situation in certain pockets, rural demand may not hold up during the third quarter. The latest auto numbers must have surely gone some distance in putting those concerns to rest.

    As far as the auto sector itself is concerned, response to the better than expected volumes is likely to be favorable on the stock prices of auto companies in the near term. However, given that the prices have already run up a lot, they are also likely to be as susceptible to negative surprises in the coming months. Hence, unless one is confident that this is a structural change, caution has to be exercised while investing.

    Gold adds few more backers
    The yellow metal Gold is really finding a lot of backers these days. Latest to join the bandwagon is the billionaire investor and turnaround specialist Wilbur Ross. Ross is of the opinion that with top investors increasing their gold related holdings, the precious metal could keep rising to US$ 2,000 an ounce. However, Ross has not based his arguments on the demand supply theory. Instead, he believes that gold is more of a psychological commodity than an industrial commodity and hence, it is a momentum trade on a global scale rather than anything that has intrinsic value.

    While Ross may be true that the intrinsic value of gold is not readily ascertainable, it should be noted that even the intrinsic value of a currency cannot be determined with a great degree of accuracy. One can only have a fair degree of confidence that it will not get significantly devalued. But that confidence is being increasingly shattered these days by governments who seem to be on a reckless money printing spree. And since unlike currencies gold cannot be printed, people are seeking the relative safety of gold. Thus, while on an absolute basis gold may not have any intrinsic value, on a relative basis, it seems far safer than its alternative, the paper currency.

     

     

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