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Wednesday, November 30, 2011

Acid Test For India Story?

The GDP of 6.9% is the lowest in nine months.With IIP expected at 5% for the full year the slowdown in growth is begining to come home.Inflation is stubbornly high.

A major slump across all sectors lent a hand to this disappointing number. Agriculture growth came in at a meager 3.2% and manufacturing at 2.7% against 5.4% and 7.8% respectively for the same period last year. However, it was de-growth in mining that was the major blow.Services sector too has taken a hit and with manufacturing being down quarter on quarter is adding to the pressure.

The comfort zone for RBI in terms of inflation is 4.5-5% band but I do not think that it will go lower than 7% unless the bottom falls out of the economy and we go into recession.My reason is the food inflation component and with lower production,higher wastage,almost 40-60% in perishable items,the supply chain contraints cannot be wished away neither repaired immediately unless massive investment is undertaken in refrigerated stores and depots and the role of middlemen diminished.

The policy paralysis just adds onto the pressure.I do not see the Eurozone having a more than superficial impact but yes the sentiments have turned negative to a large extent.How will the Indian markets take the 51% FDI in Retail.Is this trigger enough to make the sentiment in equities positive?

An acid test for those who believe in the India story!How can we attract massive investments into the critical infrastucture segment?How to develop services AND provide social security to the organised and unorganised sector.

A funny corollary of development-Bihar.It was India's most underdeveloped state and cheap labour would flock to the rest of the country to,be it daily wagers in real estate,cab drivers or servants in households.A Bihari servant was as ubiquitous a scene as a Nepali watchman in most residences.Now with the NREGA scheme a lot of people are not moving out of Bihar as a result there is a huge shortage of labour for builing roads,bridges and apartments.

Its all leading to rising wages and more inflationary pressure,another vicious circle.It feels like an opportunity for longterm investors as there are plenty of companies trading at less than book value,4% Yield,PEs of 4-5 and RoEs of 20

Time to build or rebuild a portfolio.Consumer focussed,agribusiness stocks.Bharti annouces 50 million users in Africa and those who read my blog regularly will remember how aggressively i have recommended Bharti with an eye on the future.Its one of the stocks  I reiterate a buy on,everytime it declines.

Wednesday, November 23, 2011

The Chaos Theory

I have become a believer....


Just when it looked that the US was not going into recession,PIIGS were on the verge of getting over their sovereign debt issues,BRICS han tould keep growing quicker the developed world,the Arab Spring would breed more democracies,comes a throwback......

Again issues in Spain,Italy,subdued outlook in the US,another Tahrir Square,the slowing growth in China and an upcoming stagflationary situation in India.The Chaos Theory states that the complexities of different factors makes a longterm prediction almost impossible.

The lack of political will to undertake reforms from a Government that has a majority is not only puzzling but downright asinine.Have we frittered away the chance to make this country a dream destination?A leader of the emerging world?Only hindsight will provide an answer.

This time at least the sum of the parts seems to be not greater than the whole!

The answer is to keep the faith and keep investing......SiPs(systematic Investment Plans),every month and month on month to gain the advantage of TPoA(power of averaging).It allows you to keep your exposure to risky assets low as well as giving time for the markets to adjust to the vicissitudes of market dynamics.

Like the weather,the equity markets are a 'natural system'and its difficult to quantify,determine and factor in all the happenings-be they political,economic or natural phenomena.Anyone who thinks they have built a system that can read the differentials and come out with a single answer is welcome to try it on me!!

Till then believe in your instincts,invest in companies that have scalability and grounds for growth,an honest management that has at least one Leader(mind you i did not say MANAGER).

This blog has not talked of individual stocks for a long time and the time comes in Indian equities when sectors and companies can be identified and I look forward to doing that...in my own way!

Monday, November 14, 2011

Crude Reality...

Even before the shadow of an Israeli precision strike on Iranian nuclear facilities becomes a reality and threaten to drag the entire mideast into a war that no one can win,I have been bullish on crude.My reasons are as mentioned below:-

1.Biofuels and other green fuels are still half a decade from fruition and being able to replace the current
   usage
2.The last great year for "big"discoveries was 2009 when BP found a giant deep water well in the Gulf of
   Mexico and Anadarko made a discovery in Sierra Leone.The wells in the middle east are going dry
   i.e.Dubai,Abu Dhabi,Sharjah are trying to turn into financial centres and only Kuwait has some supplies
   but historically since 1980s the discoveries have not kept pace with demand
3.Exploration remains a risky, and costly, business, where some deepwater wells can cost up to $100
   million. From 30 to 50 percent of exploration wells find oil.  
4.The greed of OPEC
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SUSPICIOUS JUMP in reserves reported by six OPEC members added 300 billion barrels of oil to official reserve tallies yet followed no major discovery of new fields.

5.The technolgy for drilling oil wells in the deep sea are still extremely expensive and unreliable which adds
   to the cost of production
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GLOBAL PRODUCTION OF OIL both conventional and unconventional (red), recovered after falling in 1973 and 11979. But a more permanent decline is less than 10 years away, according to the authors’ model, based in part on multiple Hubbert curves (lighter lines). U.S. and Canadian oil (brown) topped out in 1972; production in the former Soviet Union (yellow) has fallen 45 percent since 1987. A crest in the oil produced outside the Persian Gulf region (purple) now appears imminent

Into this if the Israelis decide to take out Iranian nuclear facilities located as per the map...
then a war involving Palestine-Syria-Iran on one side and the US-Iran-NATO powers on the other hand looks inevitable.
Iran Nuclear Program MapSuicide bombers,terrorist attacks would be the first line of attacking the US and the situation is scary.

For India oil at $100 might not lead to recession straightaway but the economic impact will be hard.

Politics,Business and Oil will set the tone for the decade to be...

Monday, November 7, 2011

C for China...C for Counterfeit...

U.S. Finds Chinese Counterfeit Parts in Military.....screaming headlines on Bloomberg.

"Counterfeiting in China has reached a crisis point." This common view is heard from many foreign executives and government officials. The problem appears to be getting worse each year: Not only is the quality of counterfeits improving, counterfeit goods are appearing in more overseas markets".-anonymous Chinese Government official.

What many people might not be aware of is the tacit official support provided in the early 1990s when China began a push to become the manufacturing centre of the world.60 Minutes found a corner shop in Donguan, China, selling clubs by Callaway, the American manufacturer of the famous Great Big Bertha driver.


The Chinese government didn't want 60 Minutes to bring our cameras, so they did - undercover. Inside, they saw a club that looked and felt like the Great Big Bertha. Not only that, they were offered Callaway irons, putters, golf bags, gloves, and even a Callaway umbrella.

My sources say there are streets in Shenzhen and SEZs in Donguan and Yiwu which is a 2hour drive from Shanghai are the main centre and anything from Tiffany's jewels to Nike shoes(counterfeit) offcourse can be found on main street.

What started as an enterprise to satisfy the aspirational urges of a few is now a roaring billion dollar industry that exports to Thailand,Vietnam,India and now as per CBS and Bloomberg its heading back to the US!

South Asian countries are more at risk as they can be browbeaten politically to accept more such products as well as them being a cheaper import and destroying the local small scale industries en masse.Just to put things in perspective India's trade deficit(excess of imports over exports)jumped 160% to 23.9 billion $.

Add the cheap poisonous material used in manufacturing(such as children's toys) and the social cost goes up further.

Offcourse it makes sense for China as it kills competition,gets its product into sensitive national security areas and creates a monopolistic environment.It will be important to see what happens if the purchasing index in Europe and US slides and there are fewer orders?

I keep saying in my blog that if there is to be armageddon it will have to come out of China.They are not counting the environmental cost....polluted lakes,forced shifting of population,uprooting whole villages to construct Special Economic Zones.Controlling state media and information services might last another half a decade.

The brutal policy of Chinization of Tibet is being applied in varying degrees in other parts of mainland China as well.If and when there is an "Arab Spring"it will be the Mother of all revolutions!!

My feeling is that the Chinese are superb at ultra long term planning and have an excellent grasp of global political realities BUT just somwhere they seem to be neglecting what is just in front of their nose.The muslim revolt by Uighers is but just one symptom.Those of you who travel often to China do keep ur eyes peeled...hahaha.