Of lower inflation and higher FDI - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Of lower inflation and higher FDI

Dec 24, 2008

The reality of lower economic growth for India this year seems to have finally dawned upon the policymakers. The country's midyear economic review was tabled in parliament last evening. "We should be prepared for growth in 2008-09 as a whole to be around 7%." This is how the people concerned chose to put it across as the issue of GDP growth came up.The tone was however not subdued throughout. Knowing quite well that prices of commodities have been in a free fall for quite some time now, and are likely to remain in the medium term, the policymakers expressed confidence that inflation should reach "normal levels" by March 2009. The increase in FDI (foreign direct investment) and the prospect of strong remittances were also some of the other positives that one can take away from the review.

Talking of FDI, another development took place in the parliament yesterday that could well help swell the total FDI tally. It was the introduction of the Insurance Amendment Bill, a legislation that strives to increase the maximum permissible foreign investment in insurance companies to 49% from the current level of 26%.

Industry players welcomed the move as it would result in more equity flowing into the sector, which at present is massively under-penetrated and in some real need of fund inflows. Another bill, the LIC Bill was also introduced in the parliament yesterday. This bill seeks to put a cap on the government guarantees on LIC's (Life Insurance Corporation) obligations. This in effect means that not all your LIC insurance policies will be guaranteed by the government and is now likely to be a function of the solvency of LIC. The move is likely to deal a big blow to the competitive position of LIC as it will create more of a level playing field between the public sector behemoth and private insurers.

Mixed economic indicators
Now we know why investment titans like Warren Buffett and Peter Lynch never made investment decisions after taking into consideration macroeconomic indicators. Because if they did so, they probably would have held cash all their lives. Sample this. Yesterday, two leading macroeconomic indicators came out in the US. Both pointing towards opposite directions. Since we are already hearing a lot of news of gloom and doom, let us consider the positive one first.

It was the Michigan Index of Consumer Sentiment and it showed a marked improvement from the lows of November, a 28-year low to be precise. An improvement in consumer sentiment means good news for consumer spending and since it accounts for a bulk of US GDP, it translates into good news for the country's economic growth. The rise in index was believed to be a result of sharp fall in crude oil prices, which would now enable the US consumer to divert the savings from the same to other items of consumption.

But before one starts reading too much into the same, it's time for the bad news. And it comes from that very predictable quarter - the US housing market. As per reports, sales of existing homes in the US fell nearly 9% as continued job losses and stricter lending standards crimped demand. What more, the median home prices fell a little more than 13%, its worst ever decline since 1968 when the data was published first time ever. So, there you are. Two indicators pointing in two opposite directions!

We guess analyzing companies and trying to arrive at its intrinsic value looks like a much better proposition, isn't it? Sooner or later, the price will meet value. And you will save a lot of stress in the process.

Equitymaster requests your view! Post a comment on "Of lower inflation and higher FDI". Click here!


More Views on News

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

ONGC to NMDC: Here are 5 Stocks Value Investors Should Closely Track (Views On News)

Nov 26, 2021

Before investing in value stocks, research the company and gain insight into why the market is discounting it.

How to Prepare for a Stockmarket Pandemic in 2022 podcast (Views On News)

Dec 6, 2021

The transition from a small correction to a market crash to a bear market may be without any warning.

SEBI Issues Operating Norms For Silver ETFs. Here is All You Should Know (Outside View)

Dec 6, 2021

SEBI has issued operating norms for Silver ETFs to ensure uniformity of the schemes.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 6, 2021 03:32 PM