Why investing in India increases our moolah's...

This can make you a very successful investor...

In this issue:
» Central banks losing faith in the US dollar
» Management salaries rising faster than company profits
» Indian pharma one-up on MNC pharma
» Strong industrial growth fires up stocks
» ...and more!!

00:00

"One lesson from the Great Depression is that you should never underestimate the destructive power of bad ideas," says noted economist Paul Krugman. We fully agree to this. Even the financial and economic crisis of 2008 has its roots in the destructive power of bad ideas " too much of easy money for too long a time, too much of borrowing by consumers and investors, and too much of betting on stocks and other asset classes.

Bad ideas are everywhere!

Investing in junk stocks just because you neighbours, friends and relatives are speculating and making money on them, is a bad idea. Investing in gold just because everyone fears hyper-inflation in the future (when there are imminent fears of deflation), is a bad idea. Investing in real estate, assuming prices to go up infinitely in the future, is a bad idea. In fact, investing in every sense and in all asset classes is a bad idea if you do it just because everyone else is doing it!

So, how do you get over these bad ideas and really profit from your own simple investing ideas? Independent thinking, we believe is the answer.

"The great man is he who in the midst of the crowd keeps with perfect sweetness, the independence of solitude," said the great American philosopher and poet, R. W. Emerson. Nothing else can get closer to the truth!

Stop listening to the crowd - neighbours, friends, relatives, and paranoid experts on TV. Do your own homework before investing your hard-earned money. Never borrow to invest, howsoever attractive an opportunity. Stay disciplined with your investments rather than panicking on every market crash.

These are some good ideas we can suggest. The best idea for you will be to implement these with sincerity!

01:13

A report by Barclays has shown that governments across the world boosted their foreign currency holdings by a huge US$ 413 bn during the September quarter. Needless to say that lending to the US government accounted for the majority of it. However, here comes the shocker! A full 63% of the new money that has come in has been invested into Euro and Yen denominated assets, thus setting a new record. Well, this potentially means thatcentral banks are losing faith in the US dollar and want to diversify their holdings. However, there’s a problem here. If they diversify too fast, they risk depreciating the dollar to unreasonable levels, a scenario which is not too ideal for their export driven economies. Hence, the process will have to be gradual. But one thing cannot be denied. As things stand today, the dollar is headed towards a continued long-term decline.

01:51

So, how will dollar depreciation affect Indian companies? In simple terms, companies with large foreign exchange earnings will be negatively impacted, and those with large foreign exchange spending will get more bang for their buck.

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01:59

Chart of the day

Today’s chart of the day shows how Indian companies are getting more integrated globally given their rising trade and investment transactions with international markets. As seen from the chart, while Indian companies’ foreign exchange earnings have multiplied almost 9 times over the past ten years, their foreign exchange expenses have also multiplied by 8 times. A large part of these forex transactions, not to mention, are in US dollar terms. And given the volatility that the greenback is expected to face going forward, Indian companies that are large on these forex transactions can only keep their fingers crossed.

Note: Forex earnings include those from sales of goods and services, dividend and interest;
Forex spending includes that on raw materials, finished goods, machinery,
interest & dividend payment, travelling expenses, and royalty payments; Data Source: CMIE Prowess

02:24

As Axis Bank performs the curtain raiser for the 2QFY10 (June-September 2009) results announcement of Indian banks today, expectations are mounting with regard to the improved performance of the sector over 2QFY09. While we expect select banks to show an improvement in margins on a year-on-year basis as these banks retire their high cost deposits, asset growth is unlikely to be very enthusing for the sector as a whole.

Also, provisioning towards investment depreciation as well as additional slippages and debt restructuring may eat into profits. Asset quality might also deteriorate as some of the loans which were restructured under the special restructuring window may have slipped. Having said that, we see this as a temporary blip in an otherwise buoyant long-term growth potential for the Indian banking sector.

02:56

Indian pharma has something to cheer about. As reported in a leading daily, the domestic pharma market is expected to overshadow the global pharma market by growing at a compounded annual rate of 12-15% during the period 2008-2013. In stark contrast, the global market is likely to grow by a mere 4-7% during the same period.

The strong growth is not restricted to India alone. Six other emerging markets namely China, Brazil, South Korea, Mexico, Turkey and Russia are also expected to see growth in the same figures. What will drive growth for Indian companies besides the domestic market is the US generics market despite intense competition there. What is more, while the US branded pharma market has been growing at a sluggish pace, the generics market has managed to outpace the overall pharma market.

Besides this, the branded generics markets of Asia, Russia, Africa and the like will also enhance revenues and profits of Indian pharma companies. The fact that global innovators themselves have decided to dabble in generics highlights the potential that the pharma market holds in the coming years.

03:42

Corporate pay remains a contentious issue around the world. It especially attracts attention when the broader economy isn’t doing well or when corporate scandals come to light. No wonder then, that recently there were noises from the Indian government about ‘vulgar’ salaries paid to Indian corporate bigwigs. In fact, as per a leading business daily, top corporate salaries grew by an average rate of 18% during FY09. Remember this was at a time when the net profit of their companies fell on an average by 14%. Some believe that salaries moderate with a lag effect and pay hikes will slow down in FY10.

In our opinion, companies do need to pay well to retain talent. But it should also be directly related to corporate performance. There is often a sense of entitlement from the top brass which flies in the face of good corporate governance practices.

Often there is a thin line between fair compensation and siphoning of shareholder wealth - a line good managers would not even come close to.

04:25

Strong industrial growth of over 10% YoY during August has led to a sharp surge in the Indian markets.Currently, at the time of writing, the BSE-Sensex is trading up by around 340 points (2%). Mid and small caps are also doing well.

Note: Forex earnings include those from sales of goods and services, dividend and interest;
Forex spending includes that on raw materials, finished goods, machinery,
interest & dividend payment, travelling expenses, and royalty payments; Data Source: CMIE Prowess
Among other Asian markets, while Japan (up 1.9%) and Singapore (up 1%) closed stronger, weakness was seen in China (down 0.6%) and Hong Kong (down 0.9%). European markets have opened on a positive note. Gold in the international markets is trading at US$ 1050 an ounce, slightly above its last Friday’s closing.

04:51

Today's investing mantra

"Draw a circle around the businesses you understand and then eliminate those that fail to qualify on the basis of value, good management, and limited exposure to hard times." - Warren Buffett