Tuesday, November 25, 2008


US Government takes a stake in Citibank

This was something that would have been deemed impossible even a few months back. A Government and system that believes in the free market philosophy, bailing out a massive bank with tax-payer money; that too when the President is from the Republican Party ? This just goes to show that ideology and dogma don't stand a chance when a country's interests and well-being are challenged. Citibank is too big a bank, with too heavy an involvement in the economy. A collapse of Citibank would have been seen as disastrous failure, and causing a lot of shocks in the financial world; already the US economy is in recession, sales are down, unemployment is high. One can imagine how bad the state of the economy is when you consider that such a massive step such as providing financial support to Citibank has not been opposed by anyone - most people are shell-shocked and without a clue as to how to improve things. In such a state, using the funds allocated for saving the economy to pick up a state in Citibank is like showing the market that the Government will not let such a big player such as Citibank go down; this is what the US Government has also done earlier for troubled institutions such as the Mortgage companies, for the big brokerages, for other banks, for AIG, and so on.
What does this mean ? It means that by the time this entire bad period ends, the happenings now will be a case study of the power of the Government and Central Banks to try and ward off a massive downturn while letting the recession and bad news stand. In addition, the Government will end up with stakes of so many financial institutions that it will seem like a command economy to some degree, like a back door nationalisation.

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Sunday, November 16, 2008


Ominous news overall on the economy

The recession word is haunting markets the world over. The US was already in recession, and given its status as the driver of the world economy, it is not a good portent for the rest of the economies all over the world. Other economies are starting to get badly affected; the collapse of an economy such as Iceland typically is of concern only to the natives, but a recession in countries such as Germany (the largest powerhouse of the European Union), slow growth in Japan, reduced growth in China, all of these are very bad portents that the situation will get much worse before it gets better.
In India, things are getting bad. Reduction in inflation to less than 9% is the only bit of good news, else the shake in consumer confidence has had a drastic effect. Entire industries such as textiles (hit by loss of exports), IT (because of reduction in IT spending in the US), Consumer Goods / Auto (because of loss in confidence and hence reduction in spending), Realty (massively hit because people are unwilling to commit), Airlines (massive losses so far), and numerous other industries are being hit.
So, in the space of a few months, the Government and the RBI are trying to reverse all the measures they took earlier, such as a tight credit scene (they were trying to cut inflation, but also cut industrial growth due to the tight credit squeeze), the Government is willing to give measures to improve the lot of airlines, banks, mutual funds, and so on; with this being an election year, the Government will also try to ensure that they will do what they can to bring back the good times. The biggest question is about whether the Government can do anything substantial, other than wait for these recession times to pass over.

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Monday, November 03, 2008


Left claims that they predicted economic problems ..

The Left is waxing eloquent over the current economic problems sweeping all over the globe. The Left parties, represented primarily by the CPM in India, claim credit for opposing FDI in insurance upto 49%, for preventing full capital convertibility, for banking sector reform, and so on. In addition, they claim credit for such social alleviation schemes such as the National Employment Guarantee Program, the farmer loan waiver, prevention of expansion of the SEZ Act, etc. In this, the Congress has also come to the forefront, claiming that it was the slow and measured pace of implementation of reform that led to the country being reasonably insulated from the global mayhem, and by preventing pension fund deposits into the stock market, they prevented loss of money in the pension funds (due to the stock market crash). As further proof of the re-emergence of their way of thinking, they quote the recent interest in Marx and his books.
What a lot of bull. If you compare India with other countries around the globe that were in a similar situation just 20-30 years back, many of them would have suffered much greater economic turmoil than in India, but, and mark this point, even with all this turmoil, these countries have a per capita standard of living which is much better than that afforded to a majority of Indian citizens. For decades after independence, India used a socialist state-controlled approach to growth, and ended up with a small incremental growth level of 2-4 %. Combine this with a population growth of a similar percent, and you end up with a continued high level of grinding poverty.
It is only when the state let go of some of its controls and allowed private enterprise to grow did we start seeing a higher rate of growth and a trickle down effect of the growth starting to reach lower sections of the population (by lower, I mean lower on the economic plane). What India needs is more release of the merits of private enterprise, more openness. What one needs to recognize is that the economic turmoil growing through the US is the result of the regulators failing in their duty, and not the failure of capitalism. Currently, everything seems bleak, and that is because this seems like a terrifying recession. However, every recession comes to an end, and when the next growth phase starts, we will all be enjoying the merits of free enterprise and a faster rate of growth.

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Sunday, November 02, 2008


India stock market update as of 02 November 2008

The last 2 months have seen sheer mayhem on the Indian (and global) stock markets. Share prices have plunged sharply, with some companies now quoting at book value levels. This is the case with large caps, companies with fundamentally good records such as Hindalco, Tata Motors, etc. So, you can imagine the case of mid and small caps. Shareholders in smaller companies have seen their share value plummeting massively, with a massive pullout by FII's from the Indian market. Till January, there was a talk about decoupling of the Indian economy from the US and global economy, but no one talks about that now. The overall credit squeeze that started from the US economy has impacted the Indian economy now.
Now the important question is about what to do now ? There are many negative indicators in the Indian market right now:
- There are no sustained indicators about FII's stopping their selling
- The US economy is now in recession, and there are no quick trends on when the economy will pull out, and how deep this recession will be
- The Indian economy has started slowing down, with companies reporting results that are not as buoyant as you would expect
- The realty market is almost at a standstill with the number of deals having reduced significantly
- Overall consumer spending has started falling, with even the Diwali period not displaying the expected pickup
At the same time, the market is very volatile. The last session of the market saw a major jump, but no one should take this to be the pattern. At the same time, there are 2 sayings:
- The time to buy is when everybody is selling
- Fundamentally good companies are always worth buying
So, what will I do next ? I am starting to buy, at very small levels, the following companies:
Hindalco, Reliance, Suzlon (a contrarian play), Unitech (high risk, and high potential upside), Tata Motors (even though the company's results have not been so good)

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