In this issue:
» What Jim Rogers & Marc Faber are advising now
» Lesson from the Ambani vs. Ambani row
» Buffett ruffles more feathers with his Goldman view
» Realty companies' 'affordable' plank goes for a toss
» ...and more!
If you have led one of India 's leading finance companies for more than two decades, you surely know a thing or two about the state of the Indian economy. Hence when we came across a television interview of Mr. Deepak Parekh, Chairman of HDFC, we saw it with much interest.
"The next decade is going to be India 's decade," proclaimed Mr. Parekh in the interview. However, in the same breath, he added, "I am not saying that everything is gung-ho and there are no problems. We have enough problems which we need to tackle, but we are the second fastest growing nation for the last so many years." On being asked as to what could go wrong with the India story, he mentioned factors like terrorism and corruption.
Mr. Parekh had a big advice and a booster dose for someone just starting on the path to investing in stockmarkets. For someone with money to invest for a 10 year horizon, he said, "I would say that if you do not put it in the stock market you are a fool."
There you are! One of the prominent long term thinkers of India advising investors to believe in the country's long term story! We couldn't have asked for anyone better to endorse our own view that someone with a 5-10 year investment horizon can still grab on to stocks of some wonderful companies. The idea is to identify companies run by ethical and visionary managements, and their stocks being available at cheap valuations.
At the end of the day, despite various challenges that the Indian economy faces, its growth prospects still look good from a long term perspective with a lot going for it at present.
So, are you investing in the India story for the next 10 years?
Chart of the day
Today's chart of the day shows the movement of the Baltic Dry Index (BDI), a shipping index that tracks the price of moving dry materials such as coal, iron ore, and grains by sea. This index is a favourite among the economists as it is considered a lead indicator for economic activity. This is because the cost of moving these goods provides a good indication of economic expansion or contraction.
After recovering some ground post the 2008 crash, the BDI has remained choppy (since June 2009). This clearly indicates that global trade is still not out of the woods.
Data Source: GE Shipping
Renowned gurus Jim Rogers and Marc Faber are advocating that investors should consider paring their holdings after a plunge in US stocks. They are of the view that equities are witnessing a normal correction. And that the markets were long overdue for a selloff.
In India too, stock prices of many companies have reached unjustifiable levels. And a correction here would be a good thing too. This would mean that a favourable opportunity presents itself to grab some good quality stocks at attractive prices.
Warren Buffett has already raised a mini storm of sorts with his all out support to Goldman Sachs on the SEC lawsuit. However, that hasn't deterred the man from changing his tack. He still remains very strongly supportive of the embattled firm, a conclusion that could be easily drawn from a recent interview with CNBC. The controversy surrounding Goldman, as we all know, is about the mis-selling of a financial product. The buyer of the product has alleged that the product that it bought from Goldman had a prominent investor on the other side of the transaction and Goldman was in the know. Thus, this amounted to cheating as per the buyer.
However, Buffett has put the blame squarely on the party buying the product rather than Goldman, who was selling it. He continues to believe that there was nothing wrong with the transaction. He further added that the buyers probably had dozens of analysts analyzing the product and if they felt that the product was not up to the mark, they shouldn't have bought it in the first place irrespective of whether there was anyone on the other side of the product or not.
Buffett also mentioned that he felt great about the US$ 5 bn investment that he made in Goldman at the time of investment and he feels great about it even now. Clearly, this man speaks his mind, even at the expense of ruffling up quite a few feathers.
When real estate companies talk about affordable housing, you would be wise to take it with a big pinch of salt. That's because the very companies that sang songs of their newfound focus on 'affordable housing' have made a rather quick U-turn. Recent reports show that they are back to their old ways, making and selling 'high-end' apartments. And in the process trying to bid up prices as much as possible!
Realty biggies like DLF, Unitech and HDIL have set an aggressive pipeline of projects, with a heavy 'high-end' component. No wonder then that property prices are also rising. As per a report on Mint, Mumbai leads the pack with the rates going up by 30-40% in the past six months. This is followed by the national capital region of Delhi and cities such as Bangalore , where prices have gone up by 15-20%. You would indeed do well to steer clear of the many terms coined by builder community to give a fillip to their sales.
The final verdict is out on the Ambani vs. Ambani dispute. One side won, the other lost. But there is one party which lost much before the verdict came out - India 's reputation for enforcing commercial contracts. India routinely gets a low score in this area in the ease of doing business rankings. This case merely highlights how bad the situation is even in such a vital area as oil & gas.
Why were there any grey areas in the contract between government and RIL in the first place? Why do large knowledgeable private parties enter into contracts that are so questionable? Why did it eventually require government intervention in such commercial matters? Uncomfortable questions! But ones that indicate that India needs an overhaul in the way commercial law is enforced. Otherwise, foreign investors will be highly cautious in putting their money in large-ticket long-term projects. If the last round of auctions of oil & gas blocks is anything to go by, the Ambani vs. Ambani dispute has already taken its toll.
Call it what you like. But these days it pays to be 'too big to fail'. The Fed did it last year and now it's the EU's turn - serving more billion dollar loans to those who have been instrumental in blowing up their savings. "The man with the addiction to alcohol is as addicted as the man who serves up the alcohol," wrote our founder Ajit Dayal in an earlier issue of The Honest Truth. This was before Lehman going bust.
Ajit's words seem to hold as much weight today as it did then. Unveiling US$ 962 bn loan for the European nations that are threatened by a sovereign debt crisis, the EU has just multiplied the problem. The US government's US$ 1.8 trillion has proven that such measures cannot solve the problem of excesses. But no one seems to be keen to take any lessons home! The new war chest may halt the landslide correction in European markets. But the debt crisis may come haunting back these nations sooner or later.
Cheered by the European bailout package, and in line with other global markets, Indian markets traded strong today. The BSE-Sensex was trading with gains of around 490 points (2.9%) at the time of writing this. Metal and realty stocks led the overall gains in today's trade. Among other key Asian markets, Hong Kong and Japan closed with gains of 2.5% and 1.6% respectively.
Today's investing mantra
"Investing isn't just about probabilities. It's about consequences, and you've got to be prepared for them." - John Bogle
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