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Sensex, food prices, and more...

Dec 26, 2007

Here is a review of the key events of the past few days as also what your New Year resolution can look like.

  • Monday (December 24th) saw the Indian stock markets take positive cues from the global markets, which had earlier found some reprieve (from the credit crisis) in the upcoming holidays. Stocks from the IT sector were particularly in favour with the BSE's technology index posting gains of 6%, followed by banking and energy indices (each 3% up). While worries regarding a possible global slowdown, as also higher inflationary pressures remain intact, the Indian markets continue to benefit from the flush of liquidity, both from the foreign investors as well as domestic institutions (mutual funds and insurance companies). With the BSE-Sensex, which has indeed got more attention in 2007 than the Bachchans, playing merry-go-round around the 20K level, it is worthwhile to remind ourselves of what Warren Buffett mentions in his 1981 letter to shareholders. He says, "While market values track business values quite well over long periods, in any given year, the relationship can gyrate capriciously." Not only are the Indian markets gyrating wildly, the period has shrunk from 'within a year' to 'within weeks'!

  • The PTI (Press Trust of India) has reported that with the Gujarat poll outcome coming as a bolt from the blue for the party, Congress president Sonia Gandhi is expected to embark on an exercise to find out reasons for the debacle and take corrective steps. Besides, a debate has already begun in the Congress whether Modi's impressive showing was due to the chief minister exploiting the 'tactical mistake' of Mrs. Gandhi's 'liars and merchants of death' remarks! Did anyone say anti-incumbency?

    Well, a loss for the Congress in Gujarat (as also expected in Himachal Pradesh) might mean that the weakened UPA (United Progressive Alliance coalition led by the party) will come under pressure and soften the reformist edge to the Union Budget due to be presented in February 2008. As a matter of fact, the Congress' loss in Gujarat is its fourth regional defeat this year, which may prompt the UPA government to cut taxes and raise subsidies as it seeks to regain popularity before national elections, due in 2009. That will be happy news for taxpayers but sad for the country's finances and the reforms process.

  • The Food and Agriculture Organisation (FAO) has urged governments and the international community to implement immediate measures in support of poor countries hit hard by dramatic food price increases. As per a study conducted by the organisation, currently 37 countries worldwide are facing food crises due to conflict and disasters. In addition, food security is being adversely affected by unprecedented price hikes for basic food, driven by historically low food stocks, droughts and floods linked to climate change, high oil prices and growing demand for bio-fuels. Importantly, high international cereal prices have already sparked food riots in several countries. A leading business daily has reported in this regard that food prices leaped 4.3% YoY in Europe during November 2007, 4.8% in the US and 18% in China. As far as India is concerned, 'the picture is rather confusing due to the multiplicity of index numbers, none of which help gauge the underlying trends satisfactorily'. But is anyone really cared about any other index than the Sensex in this country?

  • As we pass through the last full week of 2007, there's one phrase that reminds us of the situation prevailing around - "Human nature is human nature and human nature would continue to remain human nature till human nature remains human nature." - (Late) Nani Palkhivala. Now, one would ask why this quote on a website dedicated to equities. Well, this phrase, when used in context of equity investing, holds true to a very high extent. History is replete with examples when greed and fear (key ingredients of human nature) have taken over discipline, resulting into windfall gains and, of course, 'windfall' losses for investors. And more sadly, small investors are the biggest losers in these phases of indiscipline.

    While greed results into bulls taking the centre-stage and leading markets towards nauseatingly high levels, fear brings them back to ground zero. And small investors suffer in both these situations. As we are about to enter the year 2008, Indian equity markets are at their all-time highs. While such a situation brings in factors that cause the 'greed' element to rear its face, investors need to practice utmost caution and not give in to temptations that rising markets like these bring with them. This calls for high levels of 'discipline' and, in these times, this should be like a resolution for the New Year.

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