Value-Stock-Plus

Informed Investing!

Investing is most intelligent when it is most businesslike - Benjamin Graham (1894-1976)

____________________________________________________________________

Value-Stock-Plus stands at No. 50 in the list of Top 100 Finance Blogs  by ValueWiki

Recognised by The Economic Times as one of the most popular financial blog

Updated! Compilation on Warren Buffett, Rakesh Jhunjhunwala & Charlie Munger
____________________________________________________________________

« Home | Property Stocks: Land bank chimera » | The devil is in derivative! » | Value-Stock-Plus listed in The Economic Times » | The Myths In Your Finance Texts » | Most Money Is Made By Waiting, Not Trading » | Discounted Cash Flow Analysis » | Largecaps & Midcaps: Bridge the gap » | ‘What we buy is important; at what price is most i... » | Warren Buffett - A Compilation » | Art of Stock Picking »

Markets and economy: The stumbling blocks!

'India is not on autopilot to greatness. But it would take an incompetent pilot to crash the plane'. These words of Mr. Edward Luce very aptly define the contours of the Indian economy. The economy has been growing at an average annual growth rate of nearly 6% since the 1980s, and at over 8% during the last three years. Besides, India has also shown considerable resilience during the recent years and avoided adverse contagion impact of several shocks. This has precipitated to increased confidence in the country's financial markets with a consistent increase in gross domestic investment rate from 23% of GDP in FY02 to 30% in FY06. The gross domestic saving rate has also improved from 24% to 29% over the same period, contributed by a significant turn around in public sector saving. A case in this point is that the inflows into mutual funds alone have multiplied 10 times in the last decade and is currently at all time highs!

For this buoyancy to sustain, the country will have to tide over several stumbling blocks.

Inherent flaws... First, the poor state of the physical infrastructure, both in terms of quantity and quality. While with the healthy fundamentals of the domestic financial sector and the enhanced interest of foreign investors, funding should not pose a problem, issues relating to regulatory framework and rapid execution need to be addressed by the government.

Second, fiscal consolidation. The recent budget of the central government targets a gross fiscal deficit of 3% of GDP by 2009. This requires fiscal empowerment, which is possible through two routes (i) elimination of subsidies or (ii) elimination of tax exemptions. While in any economy fiscal consolidation is hard, it is particularly so in our setting

Third, India is set to remain one of the youngest countries in the world in the next few decades. This 'demographic dividend' cannot be used to the economy's advantage unless prerequisites such as skill-upgradation and sound governance to realise it are put in place.

Fourth, there is a need to shift the emphasis from foreign institutional investment to attracting foreign direct investment, which is less volatile. This requires a more favourable investment climate in general both for domestic and foreign capital.

Global Imbalances... As India does not depend on the international capital market for financing the fiscal deficit, the extent of adverse consequences of the global developments would be muted. However, there could be a spillover effect of global developments on domestic interest rates and thus on fiscal position. Also, a faster rise in rates overseas could lead to a shift in investor confidence to the international markets. Further, should there be a reversal of capital flows, asset prices may decline. With this there is a risk that rise in interest rates in general could impact the housing market and expose the balance sheet of the households to interest rate risk, increasing the risk of loan delinquencies for banks. Banks in India have invested significantly in government debt and other fixed income securities. If a rise in international rates gets reflected in domestic interest rates, banks will also have to mark down the value of their investment portfolio.

Multilateral confidence... Finally, there needs to be the confidence of the investor community on multilateral aspects such as political stability, terrorism combating ability and significance at global economic platforms (such as the IMF and World Bank).

While we do not intend to sound pessimistic about the continued resilience of the economy to global and internal shocks, investors investing in the India story should assess these grounds before judging the 'market risk' to be assigned to a stock. Weighing this with the premium expected to be earned over and above the risk free rate (10 year GSec yield), will help you correctly align your portfolio as per your risk profile.

Additional Readings:
  • India needs to reduce dependence on oil import: World Bank
  • FII currency play behind bounce
  • Midcaps braced to play the catch-up game next
  • Gujarat Ambuja: In changing times
  • Sensex at 12.3K again; blue chips still languish
  • How will ECS' decision on CBM impact RNRL?
  • Why is CLSA bullish on cement?
  • Sebi makes it easier for foreign investors
  • Investment tips to get higher-returns
  • Brokers bullish on Selan Exploration, Cipla
  • Racy Stocks - These companies are persistently growing their revenues for the last three quarters, have a record of robust profitability and strong recent price performance
Off-Topic Readings:
  • 2 Indians in Forbes' richest Americans list
  • The 400 richest Americans
  • An investment plan for winners
  • 5 WISE rules of investing
Parting Thought:
  • It's easier to create money than to spend it. - Warren Buffett

Posted by toughiee on Friday, September 22, 2006 at 6:32 PM | Permalink

Post a Comment

Search


Compilations

  • Warren Buffett
  • Charlie Munger
  • Rakesh Jhunjhunwala

Previous posts

  • Property Stocks: Land bank chimera
  • The devil is in derivative!
  • Value-Stock-Plus listed in The Economic Times
  • The Myths In Your Finance Texts
  • Most Money Is Made By Waiting, Not Trading
  • Discounted Cash Flow Analysis
  • Largecaps & Midcaps: Bridge the gap
  • ‘What we buy is important; at what price is most i...
  • Warren Buffett - A Compilation
  • Art of Stock Picking

Archives

  • November 2005
  • December 2005
  • January 2006
  • February 2006
  • March 2006
  • April 2006
  • May 2006
  • June 2006
  • July 2006
  • August 2006
  • September 2006
  • October 2006
  • November 2006
  • December 2006
  • January 2007
  • February 2007
  • March 2007
  • April 2007
  • May 2007
  • June 2007
  • July 2007
  • August 2007
  • September 2007
  • October 2007
  • November 2007
  • December 2007
  • January 2008
  • February 2008
  • March 2008
  • April 2008
  • May 2008
  • June 2008

About This Blog

  • Get on Mobile
  • Atom Feeds
  • Disclaimer
  • Email to Owner

Blog Directories

  • Stockblogs

Related Blogs

  • DeepWealth
  • Dardashti
  • Ridgewood Group
  • Trading Day by Day

Business Papers

  • Economic Times
  • Business Standard
  • Business Line
  • Financial Express
  • DNA Money

Business News

  • Capital Market
  • Equitymaster
  • India Infoline
  • Moneycontrol.com
  • Yahoo! India Finance
  • ICICIdirect

Results

  • India Earnings

Quotes & Stats

  • Asian Indices
  • All Indian Quotes
  • Indian ADRs
  • Indian GDRs
  • Arbitrage
  • Sector Classification
  • FII Trends
  • MF Trends
  • NSE Heat Map
  • Insider Trading
  • BC/RD
  • BM (Company)
  • BM (Date)
  • BSE Bulk Deals
  • NSE Bulk Deals
  • NSE Block Deals
  • US Indices
  • US Pre-Market
  • US After Hours
  • CBOE VIX
  • European Indices
  • Commodity/Currency
  • Nymex Light Crude Oil
  • Nymex Natural Gas
  • Nymex Gold
  • Nymex Silver
  • Nymex Copper
  • All In One

Equity Analysis

  • Kotak Street
  • Moneypore
  • Geojit
  • IDBI
  • Naviamarkets
  • ET Big Bucks
  • BS Smart Investor
  • FE Investor
  • BL Investment World

Screeners

  • Equitymaster
  • ICICIdirect

Research Reports

  • Moneycontrol

Technical Analysis

  • ICICIdirect
  • Yahoo! Finance

E-Books

  • Value Investing
  • Trading & Technicals
  • Gann
  • Elliott Wave
  • Risk Management
  • Derivatives

Misc. Links

  • BSE
  • NSE
  • SEBI
  • SEBI Edifar
  • Corp. Filings
  • WatchOutInvestors

Global Research

  • Morgan Stanley GEF
  • Hussman Funds

Interactive

  • Online Chat
Subscribe to this blog's feed
[What is this?]
Powered by Blogger