A tale of many numbers - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
A tale of many numbers A  A  A
18 AUGUST 2009

I have been on the road for some time now traveling across many parts of the US and Canada. The interest in India - and other emerging markets - has increased over the past few months. Rising markets have this strange ability to attract more money. If you really think about it, people should invest when prices are low - when markets have fallen. But human nature and investor psychology being what it is - the higher the share price, the more the interest in the stock! Everyone wants a ride on the gravy train.

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The good thing about my travels, though, was that my last name did not attract any attention from the immigration officials in USA. Though I did have my "please step aside" moment about 2 years ago at Miami airport. There were others ahead of me in a large waiting room. We were called in order by an officer armed with a computer and equipped with a gun. A few questions on why I was visiting, where I was staying, and then a few clicks of the mouse and a few stamps before I was told "Hope you enjoy your stay here". The entire process did take an hour, though, and I would rather have spent that time somewhere else. But we all have a job to do and the US Immigration was doing theirs.

Just as money flows are doing to stock markets what money flows are supposed to do.
When people buy with greed, markets rise.
When people sell in fear, markets fall.

Table 1: Foreign flows stayed positive in July
Period Net Foreign Activity(US$ m) Net Local Fund Activity(US$ m) Total
(US$ m)
Change in BSE-30 TRI in that period (% ) ( USD)
CY 2003 6,940 93 7,033 +86.3%
CY 2004 8,958 -261 8,697 +23.1%
CY 2005 10,896 3,089 13,985 +42.2%
CY 2006 7,994 3,442 11,435 +53.3%
CY 2007 17,235 3,121 20,357 +68.5%
CY 2008 -13,136 2,037 -11,099 -60.7%
Cumulative 38,888 11,520 50,407 +231.1%
July 2009 2,283.8 376.7 +2,660.5 +7.8%
YTD 2009 +7,310 +878 +8,188 +64.4%
Source: Sebi.gov.in

Egged on by these foreign inflows of USD 2.2 billion from FIIs (much of it short term money and some of it long term capital) and buy orders from local funds, the Indian stock markets gained ground in July (+7.8% in US Dollars). So far, the Indian stock markets have gained +64.4% in the year-to-date (YTD) through July 31st. Not bad for a 7-month return.

Though the Indian stock markets underperformed the MSCI Emerging Markets Index in July (see Table 2 below), they are ahead for the 7 months of this year.

Table 2: India trails Emerging Markets in July, but still ahead for the year.
(all return figures in USD) 1-month for July YTD 2009 CY 2008 CY 2007
BSE - 30 TR Index +7.8% +64.4% -60.7% +68.5%
MSCI Emerging Market Index +11.3% +51.1% -53.5% +39.5%
MSCI Return number as per Bloomberg; * Annualized Numbers

And how does India compare with its larger peers within the emerging markets: Brazil, Russia, and China?
Well, based on the MSCI BRIC Index (see Graph 1 below), India managed to outperform only Russia.

Graph 1: India lags MSCI Emerging Markets and MSCI BRIC in July (all in USD)
India lags MSCI Emerging Markets and MSCI BRIC in July (all in USD
Source: Bloomberg

A good year - but can it end badly?
But this is no time to calibrate where individual markets and asset classes are. While many went on their annual vacation in the western world - with anxious Blackberry a quick touch away - the markets gave everyone a warm fuzzy feeling.
This is the first time in calendar year 2009 that all the Indices and asset classes tracked in Table 3 below have a plus sign ahead of them.

Table 3: All in positive territory YTD, but India lags Brazil and China
(all in USD) % change for month ended July, 2009 % change YTD in CY 2009 % Gain/Loss since July 31, 2007 (Bear Stearns funds in trouble)
India - BSE-30 TRI +7.8% +64.4% -12.8%
Brazil - Bovespa +11.8% +82.4% +0.8%
China - SHCOMP +15.5% +89.6% -13.1%
Russia - RTSI$ +3.1% +63.6% -47.8%
MSCI EM Free +11.3% +51.1% -20.7%
S&P 500 +7.6% +11.0% -28.8%
MSCI World +8.8% +19.0% -28.5%
Berkshire Hathaway +7.8% +0.4% -11.8%
Gold +3.0% +8.2% +43.6%
Oil -0.6% +55.7% -11.2%
Source: Bloomberg

This table has a lot of information in it, so spend some time on it.
India is lagging Brazil and China in terms of returns in July and also for the year-to-date.
But, since the world began to re-price and reassess risks (the extreme right column), India (-12.8%) has lagged Brazil (mostly due to currency movements - the Brazilian Real has gained ground against the US Dollar) and is a whisker ahead of China (-13.1%) and has done way better than Russia (-47.8%).

Note that Gold is up +43.6% over the same time period. It should remain an essential part of any investment portfolio.

In August 2007, two hedge funds belonging to Bear Stearns - a well established finance company - blew up. This was the first flapping of the wings of the butterfly. Eventually, Bear Stearns went bankrupt as did Lehman Brothers in September 2008. But August 2007 was when some fears over the extent of unknown risks taken to get unknown returns began to seep into the minds of global investors.

While China and Brazil have - so far this year - benefited more than India from the perceived global economic recovery (in terms of share price movements) any change in perception could see a faster decline in those stock markets. But India is still hostage to foreign short term flows of speculative money and there is no doubt that the Indian markets will be hit by "FII selling".

And India has its own set of problems: from the drought to a questionable policy making process.

So, while swine flu dominates the press, the China Cold could be more of an irritant.

Maybe it is time for some Indian academic to write a report on why China - broken up into 25 independent countries - would be less dangerous for our portfolio returns. J

Till then, keep with the asset allocation; don't panic when others do; and let's keep praying for some rain.

Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)
Quantum Long Term Equity Fund Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 20% Keep aside money to meet your expenses for 6 months to 2 years

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

Note: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt Ltd and Quantum Asset Management Company Pvt Ltd.. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited. To write to Ajit, please click here.

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8 Responses to "A tale of many numbers"

Ajit Dayal

Aug 22, 2009

Param, hi, yes MXEF is the MSCI Emerging Markets Index. I shall remember to put a more explicit legend each time. Sorry about not being clear from the start.

A, I have made a few trips to the US, and this article does not refer to my last trip being in May...i scrolled to see where you got that impression...the subsequent artcile on China referred to talks/views on my last visit when I met companies from Latin America...that was in New York the week of August 2nd...I have wonderful things to say about many people (in my sphere of interaction and area that would be HDFC and Infosys; regulators who regulate; people and companies who strive to work in the field of finance and make their money in an honest way )... the aviation industry probably does not do too well from me...though i travel a lot but buy economy tickets......i have the utmost respect for my readers and they have the power to stop reading what I have to say...i have seen a lot and like to share my views..and the thoughts behind my views, whether right or wrong...but you are right, i do need to sit and introspect...and i am tired and getting old, hopefully a little wiser...i will be more than happy to meet you and spend some time with you...



Aug 21, 2009

Ajit, Thanks for the clarification.
Glad to know there exist authors who read comments posted on their write-ups :)
I take it the MXEF is the Emerging Mkt Index.



Aug 20, 2009

amusing!! you went in may and you are posting comments now in august.

have you lost it!! or you feel readers anyone don't take notice.

finding faults seems to be your full time hobby, that way you are atleast helping aviation if not anybody else.

how about chintan baithak's for some introspection. it will be a quantum leap let me tell you.



Aug 19, 2009

Have usually found your articles quite interesting and well thought-out. Your use of the English language too is very good, for a change, compared to other write-ups. Keep up the good work of letting investors like us know the real picture and not the the crap that's dished out by newspapers.


Ajit Dayal

Aug 19, 2009

Sorry, another clarification: MSEUBRIC is the Bloomberg code for the MSCI BRIC Index.


Ajit Dayal

Aug 19, 2009

Sorry, Param, my language was not very clear. Graph 1 shows the MSCI BRIC Index and India has done worse than that Index. The MSCI BRIC Index consists of the the 4 stock markets (Brazil, Russia, India, China) and when I look at these individual constituents, India was behind Brazil and China but did better than Russia. The 4 individual lines are not shown in this graph. But you get a flavour of that in Table 3 which shows some of the individual markets and indicates how India has done better than Russia, but worse than Brazil and China.

Mr Apte, your comment on YTD for India and Berkshire is accurate but, since the month risk got repriced globally (August 2007), Berkshire has done a little better than India. Also, there is a lot of risk in owning a purely India portfolio for a non-Indian company and the Berkshire portfolio is probably less volatile and less risky than owning a pure Indian basket from a Berkshire's perspective.



Aug 19, 2009

You wrote: "Well, based on the MSCI BRIC Index (see Graph 1 below), India managed to outperform only Russia"
However Graph 1 talks about MSEUBRIC Index & MXEF Index (which is better than BRIC & Sensex) - there is no mention of MSCI BRIC or Russian Index. Not sure if I'm missing something obvious. Please check


sudhir apte

Aug 18, 2009

3 otill bservations

Indian MFs are still pigmies compared to FIIs
Since July 31,2007 India and Warren Buffet are neck and
neck in their performance
But YTD in 2009, India is miles ahead of Buffet. Somebody should send this stats to Buffet. Its time he paid more attention to Indian stocks. What his next in line,our own Mr Jain is doing?

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