What India should learn from the Rajat Gupta case?

A very famous quote by legendary value investor Warren Buffett goes thus: "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." We were reminded of these lines when we read what former Goldman Sachs director and McKinsey & Company Managing Partner Mr Rajat Gupta said just before being sentenced: "I have lost my reputation that I have built over a lifetime."

Just day before yesterday, Mr Gupta was sentenced to two years in federal prison in one of the biggest insider trading cases in the US. His crime was that of leaking confidential information to a hedge fund manager at the height of the financial crisis.

An article in Business Today has pointed out some very pertinent lessons for India from this entire episode. Crime and corruption are universal. They are as rampant in the US as in India. But what differentiates the two is the robustness and efficiency of the judicial system. Take this insider trading case. The quickness with which he was tried, found guilty and sentenced is indeed commendable. To give you a gist of the timeline, the trial began on May 21, 2012. On June 15, the jury found him guilty. And on October 24, he was sentenced to 2 years of imprisonment and a US$ 5 million fine. Period.

What if Mr Rajat Gupta was facing a trial in India instead of the US? It would, without any doubt, drag on for years. Remember the Satyam scam? Mr B Ramalinga Raju, the former chairman of the company which is now Mahindra Satyam, had confessed to fudging its accounts back in January 2009. As per the magazine, the Central Bureau of Investigation (CBI) had taken up the issue in February 2009. All the 10 accused have served about 18 months in prison as undertrials. There are matters still pending with several regulatory bodies including the Securities and Exchange Board of India (SEBI). In all likelihood, it will take a long time before the final verdict is out. And this wou ld be no exception. Judicial cases in India are known to go on for years, sometimes decades. But does delayed justice have much value? As the legal maxim goes: "Justice delayed is justice denied."

Mukesh Ambani does it 5th time in a row

Attaining top slot is a difficult task. But after reaching the pedestal maintaining one's position over there is also equally challenging. Not if you are Mukesh Ambani. The Forbes richest Indians' list is out. And for the fifth time in a row, Mukesh Ambani has claimed the title of being the richest Indian on earth. His net worth stood at US$ 21 bn for the year under consideration. Second in the list was ArcelorMittal's Chairman, Lakshmi Mittal. However, Bharti's Chairman, Sunil Mittal and Adani Group's Chairman, Gautam Adani were out of the annual list of 10 richest Indians. The telecom scam and power woes saw share prices of their companies tumble which eroded their net worth. Dilip Shanghvi of Sun Pharma was a surprise entry into the list. In fact, he entered the top 5 for the first time.

It is interesting to note that the collective wealth of India's 100 richest Indians increased 3.7% to US$ 250 bn. And this increase in wealth is approximately 14% of the country's nominal GDP. In a country, where majority of the people live below poverty line, such a concentration of wealth in hands of few people is really astounding.

Only 26% of India's workforce have full-time jobs

Data source: Business Standard *% of entire population of employed full-time for an employer; **% of workforce which is looking for work or available for work

In a recent study, polling firm Gallup has revealed that only about 26% of Indians aged 15 years and above had full-time employment of at least 30 hours per week in the first half of 2012. It also suggests that workers between the age group of 15 to 30 years are five times more likely to remain unemployed and twice as likely to be under-employed compared to their older counterparts. This is indeed a shocking revelation at a time when the developed economies are struggling with dwindling growth rates and high unemployment concerns. The problem of youth unemployment and under-employment can assume monstrous proportions in a highly populated country like India and can lead to disastrous socio-economic consequences. Indian policymakers really need to find a way to unlock the so-called demographic dividend before it starts becoming a huge liability.

S&P warns India yet again

Ever since the government opened the floodgates of reforms, stock market investors rejoiced. Particularly the FIIs. They are now hoping for more 'announcements'. But it seems the rating agencies are once-bitten-twice-shy. They are no longer willing to be pacified by reforms on paper. Especially since the political consensus to see the reforms implemented is extremely weak. Moreover, it could be much longer than anticipated before the reforms actually facilitate higher GDP growth. Plus there are problems of inflation, fiscal deficit and corruption. These are not going away anytime soon.

As a result, rating agency Standard & Poor's has once again issued warning regarding India's sovereign rating. The threat this time is to relegate India's rating to 'junk'. This has mostly to do with the doubts about execution of reforms. S&P however promises a better rating if reforms get executed well. That is with improvement in investment climate. Particularly, if foreign direct investment in various sectors is implemented successfully.

Now given that global rating agencies have very little reputation of 'credible ratings', the threats need not panic investors. Having said that, any premature celebrations about the government's reformist attitude are also uncalled for.

Millionaires in India to keep swelling

As per Credit Suisse's Global Wealth Report, the number of millionaires in emerging economies is expected to jump over the next few years. In China the number could double to almost 2 m by 2017. And right home in India, as many as 84,000 Indians are expected to become millionaires by 2017.

This is a huge increase of 53%! While the Indian middle class is seeing rising wealth, there is still a great deal of poverty in the country. This is reflected by the following statistics. Almost everyone in India (around 95%) has wealth below US$ 10,000. Only a very small proportion of the population (just 0.3%) has a net worth over US$ 100,000. The falling GDP growth rate has seen India shedding US$ 700 bn from its household wealth during mid-2011 to mid-2012 period. This is the steepest fall seen in Asia. It totals 50% of the total erosion that the continent has seen over the period. Well, we just hope that this money has been spent towards productive purposes instead of conspicuous consumption. Anyway, the million dollar question is whether you will be in the top 0.3% by 2017.

IMF predicts a poor 2012 for global economy

                                                               Source: Business Standard

We recently read with great surprise about how IMF cut India's GDP growth forecast for 2012 to just 4.9%. In fact, India is not alone. As above chart highlights, the global financial institution expects all major nations to have a subdued 2012 than 2013. India though is certainly the worst off. We for one though won't read too much into this. Even if growth does turn out to be the way IMF predicts, it is just an aberration as per us and on a long term basis, India's GDP growth should rebound to its long term average of 6%-7%.

Are there elephants or rats in your portfolio?

When you are an author of two extremely successful business books, your words are bound to carry a lot of weight. And so it is with Nassim Nicholas Taleb. In fact, no one in business circles calls a highly unpredictable event exactly that. Instead, they all prefer to use the metaphor 'The Black Swan', the title of one of Taleb's most popular books. Well, Taleb would now be hoping that he gives the world yet another catchphrase, 'Antifragile', a term that is also the title of his forthcoming book.

We certainly can't predict whether Taleb will contribute a new term towards the business lexicon. But few of the ideas in the book are certainly worth making a mention. He is of the view that metabolically speaking; an elephant is vastly more efficient than a rat. However, an elephant can easily break his leg or cause significant harm to himself. A rat on the other hand can be tossed around and it will still be fine. In other words, size does lead to fragility as per him.

Now, use this comparison to describe the current problems in Europe and you will see how wonderfully things fit in. Europe was so much better off being diverse, both politically and economically. But then policymakers hit upon this terrible idea of going for a unification i.e. turning it into an elephant. And it has been all downhill from there we believe. Similarly, what hampered China, for most part of its long history, is the top down state as per Taleb. Yet another case where being an elephant led to fragility.

Interesting isn't it? Can the same rules be applied to investing as well? We certainly think so. In the investing world, elephants would be companies that are capital intensive with big balance sheets and also great deal of debt. And they may well be efficient with huge economies of scale. But are they really wealth creating? May be not to the extent required. We would rather much prefer rat like companies that require very little capital to fund their growth and use most of their cash flows to reward their shareholders. In other words, companies those are not big but rather 'antifragile' is what one should look at. So that even if there is an economic storm, they are nimble enough to take shelter somewhere and not get exposed like the big elephants. Thus, it is time you asked yourself whether your portfolio would much rather have elephants or rats?

A subdued quarter but investors should be excited

The Indian equity markets have had a buoyant time in recent weeks. The benchmark BSE-Sensex has gone up over 9% in the past one month. As a result a lot of investors have been wondering if the tide has turned for the stock markets at least. Well the underlying reason unfortunately gives nothing to cheer about. At least not to the long term prudent investor. A major reason behind the recent run up in stock prices is foreign Institutional Investors (FIIs) interest. But at the same time there is another reason for which we need to give you a bit of a backg round. It has a lot to do with the upcoming quarterly result ann ouncements.

The upcoming September quarter results are expected to be another subdued set. Inflation as well as interest rates has continued to remain firm. At the same time the slowdown has affected the demand growth for both goods as well as services. Those companies relying on external demand to compensate may have to wait a while longer as the global headwinds continue to blow. As a result, the quarter results would not give investors much to cheer about. So one would wonder as to how the expected negative news is driving up stock prices.

The answer to this is that most stock market participants are expecting this quarter to be the bottom of the earnings cycle. This means that the quarter results will mark a turnaround point for companies. After this they should start delivering healthier results. The participants have a reason to expect this too. They think that the Reserve Bank of India (RBI) will start bringing the interest rates down. This in turn would fuel investments and consequently help companies deliver better results. But they seem to be forgetting the reason why RBI had turned hawkish in the first place. I nflation is still high and with the renewed FII interest in asse t classes, is expected to continue remaining high.

Nevertheless the point is still the same. The participants are relying on short term data points to take a view on stock markets. This in our opinion is a futile exercise. It is best to leave the quarterly earnings to the companies. It is nothing more than an indicator of their short term performance. It would be better to concentrate on long term fundamentals and business models instead. And if you have identified such a stock then the short term news of negativity is nothing more than an opportunity to get this great stock at a bargain. Going along with the herd will yield nothing but pain in the long term. 

225 B-schools have closed in 2 years in India

The service sector increasingly enjoyed a larger proportion of India's GDP over the past decade. Needless to say that the youth looked forward to procuring a job in this space. A degree in engineering or management or both became the visas to well paying white collared jobs. The booming software and financial sectors also managed to absorb scores of fresh graduates coming out of these institutes. Students who did not manage to fetch admissions in the few reputed institutions were wooed by plenty of other new institutes. The 'business' of opening engineering colleges and management institutes therefore became lucrative. Hundreds of new institutes came up in the past decade and thousands of aspirants queued up to join them. That was a time when the country added up to one lakh seats to its professional colleges every year.

A decade later, the picture is one of stark contrast. As per Economic Times, since 2011, 225 B-schools and over 50 engineering colleges across India have downed shutters. With the campus placement scene being dull and students finding the fess unaffordable, the new institutes now have few takers. It is not that Indians are no longer interested in investing in higher education. But institutes that merely offer a degree without being able to impart adequate knowledge have lost their sheen. At least this has helped separate the wheat from the chaff!

Kingfisher airlines is bankrupt but has 2nd highest paid CEO

If the CEO of a firm doubles his salary in a year's time, what would you attribute this increase in pay to? The profits of course isn't it? It's only logical to expect that a firm who has doubled its profits will have no qualms about granting a similar hike to its CEO. And thus, by the same logic, a firm where profits have been reduced by half, the CEO's take home should also suffer, isn't it? Well, let us tell you that this seems to happen only in the land of Utopia. For in the real world, some things are beyond the realms of logic.

Take the salary of the CEO of the troubled airline Kingfisher Airlines. The word has it that his salary almost doubled in FY12 from what he took home the previous year. And all this despite the firm falling deeper and deeper into a financial mess. What more, the king of good times is not alone in this endeavour. Almost all the major airlines have rewarded their CEOs with an equally hefty pay rise.

We wonder what this would do to the morale of numerous employees in the industry. Forget pay rise, most of them have seen their pay checks ceasing to come in anymore. As far as we are concerned, well it gives us one more reason to defend our stand of not looking at this sector as a good investment candidate. 

Gold's investment shine wanes

                                                                                  Source: World Gold Council

Gold has been a shining metal for most investors. A large part of the yellow metal's success in returns has been attributed to its safe haven investment status. But in recent times, the price increases appear to be more speculative than investment related. The reason for saying this is the fact that demand for gold as an investment has gone down. As per the World Gold Council, the investment related demand for gold (in tonnes) has seen a decline on a quarterly basis. One reason behind this could be the surge in price which makes the yellow metal expensive to hold. This could have led to the decline in demand

Are these new reforms worth cheering so much?

Prime Minister Manmohan Singh has taken everyone by surprise. Suddenly, he seems to have shifted from his perpetual 'silent mode' to 'animal spirits mode'. In a bid to end the policy logjam, a few policy initiatives were announced back to back over the last few days. First, a cut in diesel subsidies was announced. Next day, the door was opened up for foreign investment in multi-brand retail and aviation. The Finance Minister has proposed a National Investment Board to speed up clearances on large infrastructure projects.

The news media is abuzz with reports cheering the so-called 'bold' reforms. Even the stock markets have given a thumbs-up to the initiatives. The BSE-Sensex is at its one-year high already. With so much hoopla over the announcements, it is important to consider how big an impact they could have on the economy. And in doing so, to figure if the ongoing celebration is really worth it.

Let us start with the most basic question. Will the recent policy reforms revive investments in the economy? To a certain extent, investments will certainly get a boost. But these are certainly not the reforms that could be game-changers for India.

For instance, data from the Centre for Monitoring Indian Economy (CMIE) suggests that projects worth Rs 1.8 trillion were shelved during April-August 2012. This was in addition to projects worth Rs 4.5 trillion shelved in the fiscal year 2011-12. The reason for shelving of more than half of these projects was because of the inability of the promoters to acquire land. This is clear hint where the real big reforms ought to be happening.

Secondly, it will take a while before new investment proposals could match the boom years of 2004 to 2008. The main reason for the investment boom during this period was on account of cheap access to natural resources including land, coal, iron ore and bauxite. A similar scenario doesn't exist anymore.

In the opinion of Mr Mahesh Vyas (MD & CEO of CMIE), the Prime Minister's recent attempts to revive the investment climate in the country could take the proportion of investments in GDP to about 37% from the current 35.5% level.

If the impact of the new reforms is not going to be very significant, what is the reason for the sudden excitement? The answer is that the government has failed to initiate any meaningful policy reform in last several years. As such, the expectations have been abysmally low. It is only in contrast with the very poor expectations that the recent initiatives seem bold. The real game-changers for India would be progressive reforms related to land ownership and acquisition as well as labour laws. We would like to see if the Prime Minister takes up these issues with equal enthusiasm.  

The auto industry in India not worried about diesel price hike

The auto industry in India has been facing quite a few headwinds in the form of higher interest rates, fuel prices and fall in demand. Thus, most companies have seen volume growth slowdown in the past several months. The silver lining in the cloud has been the furious demand for diesel vehicles, which has lent some form of a cushion to the companies. As petrol prices have been freed, the recent hikes had led to an increasing gap between the prices of the fuel and diesel. This saw car buyers make a beeline for diesel cars. Diesel vehicles accounted for 40% of car sales in FY12, twice their share in the previous year.

Now that the diesel price has also been hiked, is the car industry worried? Not really. In fact, the industry has heaved a sigh of relief. This is because the government earlier was contemplating taxing diesel cars, a proposition that the industry was totally against. Thus, as far as auto companies are concerned, this is the lesser of the two evils. Also, even though diesel prices have been hiked, there is still substantial difference between the prices of the two fuels. This means that there will not be much of an adverse impact on the demand side unless the gap narrows considerably sometime in the future.

Despite slowdown advance tax numbers rise

                                                        Data source: Business Standard

Despite the ongoing slowdown in the economy, the advance tax collections from top 100 companies have increased by 10% year-on-year during the July-September quarter (2QFY13). Above chart shows advance tax payments of the top 5 firm. State Bank of India (SBI) was the highest tax payer during the quarter. Barring Reliance Industries Ltd (RIL), all other companies have witnessed a surge in the advance tax payment. It must be noted that the companies are supposed to pay 30% of the total advance tax for the fiscal during the current quarter.

India home to largest no. of fast growing firms

                                                                   Source: IB Times

News flow coming out of India, especially on the economic front, has been nothing to write about these past few months. Thankfully though, above chart highlights, India still has the distinction of being home to largest number of world's fastest growing public companies. In other words, nearly one fourth of the 1000 fastest growing public firms across the world are Indian as per a study conducted by the International Business Times. The sheer variety of the firms and also the fact that India has left its arch rival China far behind on this front, does make us positive about the long term  India growth story. If only the Government could put its house in order on the reforms front and we could well be the envy of the rest of the world.

Indonesia a better I in BRICS than India?

                                                          Source: Livemint.com

Has the time come to reconfigure the famous BRIC acronym? If above chart is any indication, it has perhaps. As the chart shows, by logging in two consecutive quarters of high GDP growth rates than India, the emerging market of Indonesia has staked a strong claim to take India's position in BRIC. However, we believe that these are early days yet and any hard conclusion cannot be reached by relying on just six months worth of performance. If the Government of India undertakes some bold reforms like it has done recently, the position of 'I' in BRIC is more or less secure we believe.

What will be the future of Asia?

It needs no telling that the economic center of gravity has moved from West to East. Asian countries, thanks to their high savings rate and a low base of GDP per capita, will continue to log in higher growth rates than their western counterparts for many more years to come. But what goes unnoticed perhaps is another important fact. As pointed out by the Economist, by 2030, Asia (excluding Japan) will be home to half of the world's elderly. And by virtue of this, it will also host most of the world's pensioners and patients.

Thus, it goes without saying that these countries will certainly have a big challenge on their hands. They will have to ensure that the elderly get all the help they need. This is not the only challenge though. As income levels rise, there will be a clamour for other Government sponsored schemes too like health insurance and unemployment benefits. Needless to say, this is going to put a big strain on the Government exchequer. Thus, it is imperative that a fine balance is achieved. The balance between making the schemes fiscally feasible and also ensuring that every citizen gets to lead the dignified life he /she deserves. As The Economist rightly points out, the welfare state should not only free the continent from squalor. It should also not sink it in too much debt.

Slow down in global economy hurting India's exports

India's exports during the month of July 2012 dropped to US$ 22.4 bn, a decline of 14.8% over the same month last year. It is worth noting that this is the steepest decline in the last three years. The main reason for the drop is the ongoing sovereign debt crisis in the Eurozone and the slowdown in the US. This is a clear indicator of the ongoing slowdown in the global economy. But India's domestic economy is also showing clear signs of a slowdown. While exports declined, imports during the same period also dropped by 7.6% to US$ 37.9 bn.

The government had set a lofty exports target of US$ 360 bn for this year. Looking at the current grim situation, the government has already admitted that achieving the target would be quite challenging. With all major economic indicators pointing towards a slowdown, the Indian economy is likely to face some serious challenges in the medium term.

In India, this breed of passenger vehicles has grown impressively

Management guru Stephen Covey had quoted "Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning If we remember correctly, it was Steve Jobs who once said that you can't ask customers what they want. Because by the time you build it, they will want something new. With the kind of path breaking products Apple has churned out over the years, Jobs has certainly walked the talk. By the way, there is an altogether different industry and that too in India that also seems to have taken this lesson to heart. And the industry is none other than the auto industry. Previously, most of the owners of small cars who looked for upgrades could do so by opting for sedans or hatchbacks. But in a move reminiscent of Apple's maneuvers, car makers took to launching new SUVs (Sports Utility Vehicles) and compact MPVs (Multi Purpose Vehicles), segment that customers barely thought of. Did the move work? Brilliantly we believe. This new breed of passenger vehicles has taken the market by storm. So much so that manufacturers are finding it hard to meet demand. What more, they have also given the struggling auto industry something to look forward to.

GDP growth in June 12 quarter

                                                                                Data Source: The Economist

After slowing down to 5.3% in the March 2012 quarter, India's GDP growth showed no signs of picking up in the June 2012 quarter as well. Growth during the quarter came in at around 5.5%. However, as above chart shows, when compared to its peers, India fared much better as it was ahead of countries such as Russia, Japan and the US.  Although it lagged behind China, the latter also displayed signs of a slowdown as growth came in lower than 8%. Japan saw some growth led by reconstruction activity post the earthquake and the tsunami that hit the nation last year. Not surprisingly, the Eurozone witnessed a dip in growth as debt problems continued to mar the countries in the region.       

Do you fall for this common management trick?

We humans have evolved to possess absolutely first rate linguistic skills. Our math skills in comparison look significantly underdeveloped. So much so that most of us come across as useless in something as basic as fractions. An evidence of this is routinely found whenever we go out shopping during the discount season. Imagine being faced with the prospect of choosing between a 50% increase in quantity and 33% discount in price. Most of us could end up choosing the former even though the two offers are exactly the same. Or take the hypothetical example of choosing between a 33% extra free and a 33% drop in price. While on the surface they appear the same, a deeper look would reveal that the discount is a better proposition than the increase in quantity.

If you thought such tactics are adopted by retailers and shopkeepers alone, you are certainly wrong. For even the field of  stock investing is known to use this trick and rather generously at that. Take the practice of issuing bonus shares or implementing a stock split. You will routinely hear management talk about how the share price of the company is on the higher side and how doing a stock split will make it more affordable for small investors. Not only this, even stock bonuses are given under the garb of rewarding shareholders for their long term association with the firm.

To make matters worse, investors more often than not fall for this trick and even send the stock price of the company under consideration soaring. What they fail to take into account is the fact that although their number of shares may have gone up, the share price is reduced proportionately. This thus leaves their total investment the same as before. Besides, the management that focuses mostly on bonuses and stock splits rather than trying to improve the long term profitability of the company should always be viewed with suspicion. The management's efforts at all times should be directed at improving the fundamentals of the company. For if profitability improves, share prices will automatically follow. Trying to artificially improve the share price through frequent bonuses and stock splits is not the mark of a good management we believe. And investors should always steer clear of such companies.

Borrowings of top 10 corporate group in a country

                                                          Source: The Economic Times

There have been reports doing the rounds that the  Indian banking system could potentially be sitting on significantly more NPAs (non performing assets) than those being reported. Above chart is perhaps one of the key reasons behind the same. As highlighted, the concentration of loans to top corporate groups is the highest for India amongst some of the other countries of the world.  This is not to say that most of these loans would eventually turn bad but such a high level of concentration is certainly risky for the long term health of India's banks and efforts should be made to lower the same.

This word is a cancer for India's economic health!

Most of India's state owned enterprises are currently on life support. Even by conservative estimates, these contribute at least 15% of the country's GDP. Hence there is little to explain on the critical state of India's economic health. The Indian government has left no stone unturned to ensure that the profitable PSUs bleed as much as unprofitable ones. As a result, not just the railways and state electricity boards, but also listed companies are piling up losses. Companies across sectors have not minced words about their dire state of affairs. Be it energy major Oil and Natural Gas Corporation Ltd. (ONGC), power major National Thermal Power Corporation (NTPC) or banking major State Bank of India (SBI). However, blinded by its political compulsions, the government sees little option than destroying public wealth.

But one quick fix solution that the government has adopted over the past few years has become the cancer for the economy's health. It answers to the name of debt 'restructuring'. Loans taken to fund agricultural losses, bleeding PSUs and loss making infrastructure projects have had this single remedy. The financers have been allowed to 'classify' the loans as standard as against writing them off as NPAs. Being just an accounting gimmick it allows the government to project all parties being financially sound. The loss making PSUs and the banks that have lent to them get away without taking the losses upfront. Moreover the PSUs get to borrow more despite their dire state of finances. If this was not allowed, several electricity boards, PSUs in oil, aviation and financial sectors would have declared bankruptcy by now.

But despite the risks of such a malpractice the government is set to put its seal on yet another 'restructuring' initiative. As per Bloomberg, a draft proposal by power ministry has sought to restructure US$ 35 bn (Rs 1.9 trillion) worth of loans. Held by power utilities, restructuring of these borrowings by banks will supposedly avert a power crisis in the country. Part of the loans will be transferred to state governments as well. Not that the financial condition of the state governments is any better. But with cash losses having widened 15 times over three years to Rs 288 bn, the state electricity boards are unlikely to find any lenders otherwise. The state governments are equally to blame for their stoic approach to raising power tariffs for years. As a result, the difference between the average cost of supplying electricity and the average tariff has almost doubled in last 11 years. Meanwhile transmission and distribution losses remained stagnant at 27%.

We believe that by offering an easy lifeline to such incompetent entities, the government is sealing the future of Indian PSUs. It is only a matter of time before the 'restructuring' bug devours what is left amongst India's so called 'navratnas'.

Market share of Indian aviation companies

                                                                    Data source: CAPA

The government has denied any plans to stall the operations of cash strapped avaition company Kingfisher Airlines. More concerning is the fact that it will alow the airline to be airborne, even if it means compromising the safety of passengers. Meanwhile the competitors of Kingfisher are looking to grab a share of its pie in the aviation space. As seen in today's chart, the likes of Indigo and Jet Airways that control 46% of Indian aviation space, can be key beneficiaries of some competition being grounded.

Are Indian banks' bad debts bigger than what is stated?

The global financial crisis did not affect Indian banks the way it impacted global banks. The major reason for this was the strict set of Reserve Bank of India (RBI) regulations that these banks had to adhere to which prohibited extensive use of securitization and derivatives. But that does not mean that Indian banks are completely out of the woods. Indeed, they are facing problems of another kind. Notably that of bigger bad debts.

The Economist points out that India has a bigger bad debt problem that is not in line with what is stated by the rather stable level of banks' official 'non-performing' loans. But the quantum of this debt is difficult to judge because many have been labelled as 'restructured'. This means that the terms of the debts have been softened, but they are not formally recognised as bad debts. These restructured loans were estimated at US$ 43 bn in March this year amounting to around 2% of India's GDP. Restructuring loans by itself is not such a problem simply because the borrower has not defaulted but simply requires easing of the terms of repayment. But the important thing to note here is that this facility should not be misused. For instance, take the case of struggling airlines such as Air India and Kingfisher Airlines. Both of them are saddled with massive debt. While they may not have technically defaulted so far because of restructuring of these debts, they are certainly in no position to service or repay the debts.

Also, the burden of these debts has been greater for public sector banks than their private peers. The Economist has estimated that 93% of restructured loans are on the books of public lenders. They tend to be in poorer shape than their private rivals on account of lower capital levels, lower profitability, higher bad debts and lower provisions held against those bad debts.

However, it would be too early to presume that the  problem of restructured loans could blow into something very big. At least we hope that the central bank which has been rather vigilant so far will ensure that this issue does not blow out of proportion. Moreover, since Indian banks (even PSUs) are comparatively better capitalized as compared to their Western peers, they are in a better position to tide over difficult times. Having said that, a consolidation in the sector cannot be ruled out. Overall, what banks need to ensure is that they do not stop lending to genuine borrowers just because they have been bitten by a few bad ones.

Commercial vehicles are the most cyclical

                                                                 Data Source: SIAM

It is well known that the  auto sector is cyclical as its performance is largely dependent on the growth of the Indian economy. But the degree of cyclicality within segments tends to vary. Chart shows that commercial vehicles (CVs) are the most cyclical as compared to either passenger vehicles or 2 wheelers. And in CVs, the medium and heavy CVs (MHCV) are more cyclical than LCVs. This is largely because MHCVs are largely used for the transportation of various goods across the as well as in construction acitivities and so the performance of these sectors have a large bearing on how the CV industry operates. Indeed, in FY13 so far given the slowdown of the Indian economy, MHCVs have faced the maximum brunt as can eb evined by the dip in volumes.

India third largest importer of Iran crude oil

                                                               Data source: The Financial Times
                                                                      *First quarter of 2011

The US has been imposing sanctions on Iran in order to curb its nuclear programme. But an article in Financial Times points out that curtailing Iran's oil exports may be difficult. This is because Iran is a major exporter of oil, accounting for about 5.2% of the world's total output in 2011. As such, sanctions on Iran can have significant consequences on world oil prices. Today's chart of the day shows the countries that are major importers of crude oil from Iran. Emerging economies are among major importers of crude oil from Iran. It must be noted that India is free from US sanctions as the latter had granted exemptions to over a dozen emerging economies in June 2012.

Investing in 'new age' sectors can be dangerous!

"What industry will be the next growth driver in the 21st century and what do you see that supports that? " legendary value investor Warren Buffett was once asked. Can you guess what answer he must have given? He simply said, "We don't worry too much about that." He went on to elaborate with the example of the automobile and the airplane industry. It was impossible back in the 1930s how much these two industries would impact the world. They have indeed been a great boon for society. However, for investors both these sectors have been absolute disasters. Of the 2,000 automobile companies that had mushroomed during that period, only a handful have survived. The fate of the airline industry has been even worse, with perpetual losses of billions of dollars.

The fate of a much-touted emerging sector has reaffirmed that Mr Buffett's wisdom has no expiry date. We are referring to the solar energy equipment sector. It goes without doubt that the world has little choice but to gradually switch towards sustainable and renewable energy sources. And solar energy is definitely a sector with very high potential. But does a high growth sector necessary translate into shareholder wealth? In this case, the answer seems to be no.

The global solar photovoltaic demand surged from a little over 7,000 megawatts (MW) to nearly 20,000 MW in 2010. And as per certain estimates, the current global demand stands at about 30,000 MW. But you would be surprised to know that the Indian solar manufacturing sector is on the verge of collapse with over 80% of the units shut down. In fact, not just India, the sector is facing severe headwinds across the globe. What's the reason? The answer is extreme optimism. Currently, the manufacturing capacity is two times the demand. Over enthusiasm about the industry's high growth prospects led players to set up huge capacities. But in recent times, the sector has been facing the brunt of the crisis in the Eurozone, one of the main markets. Dormant demand in India coupled with intense competition from Chinese counterparts made matters only worse.

Whatever be the fate of the solar equipment manufacturing industry, there is one very crucial lesson that investors need to take home. Be very careful while putting your money in the so-called 'new age' sectors purely on basis of huge growth potential. At best, avoid investing in sectors that do not have a sufficiently long operating history. Another important lesson is to let go of the urge to predict the future. Stick to the basic of value investing. Invest in stocks with strong fundamentals, solid past track record and sufficient future growth visibility.

India leads in FII inflows in Asia this year

                                                     Data source: The Economic Times

Above chart shows that Indian equity markets witnessed the highest inflow of FII (foreign institutional investors) funds in 2012 so far. Foreign funds have invested nearly US$ 11 bn in Indian stocks during this period. A significant portion of the funds poured in between January and March and then resumed in July. While FIIs have been net buyers of Indian equities in the current year, domestic institutional as well as retail investors have been net sellers. Among other Asian peers, South Korea witnessed the second highest FII inflows of about US$ 6.3 bn. 

In India, the demand for office space has slowed down

The global slowdown has impacted the demand of office space in the country. Due to the slowdown, many multinationals especially from the IT and banking, financial services and insurance (BFSI) have started consolidating their operations in the country. And this is reflected in falling absorption rates across the country. Absorption rate is the rate at which available homes are sold in the market during a given time period.  It may be noted that during the first half of 2012, the absorption of office space has declined by 32%. The absorption rate in National Capital Region (NCR)-Delhi dropped to 21%while that from Mumbai dropped to 19%. Apart from global slowdown, high interest rate and property prices have been another dampener.  Due to the slowing demand, the supply has also been impacted. In fact, it has fallen by approximately 52% in the first half of 2012. And the situation is unlikely to improve in the second half as well. After the residential downturn, it seems now even the commercial segment is facing the heat.

In India, these sectors doubled shareholder wealth in last 4 yrs

Stock investing is all about identifying and adopting a goal and sticking to it with discipline. The goal could be anything from earning x% returns to holding the stock for your period. The important thing is to identify what works best and stick to it without compromise. But an important question that any investor would have in mind is which investment philosophy works best?

An article carried by Business Standard appears to be addressing this question. It has identified 8 sectors where investors have been able to double their money. But investors have been able to do so only by holding on to the stocks over a period of 4 years. The sectors include tobacco, FMCG, tyres, auto, pharma, auto ancillaries, banks and fertilizers. These sectors have seena robust financial performance even during the not so good times. And this performance has translated to healthy gains for investors who remained committed to them.

The driving force behind the performance of these sectors was healthy domestic consumption. With rising income levels particularly in the rural sector, consumption has been growing in recent times. As a result, these sectors have seen their top lines outperform the overall economic growth. At the same time the ability to pass on increases in costs, keeping their administrative costs under control and maintaining their brands has helped these companies in growing their bottom lines as well.

On the other hand the "in the news" sectors like infrastructure, construction, sugar, etc have actually doled out negative returns for the investors during the same period. Though they have seen a growth on the financial front, but neither has the performance been outstanding. Nor have they helped investors in any way. With compounded annual returns ranging between -1% to -33% over the past 4 years, these sectors have actually destroyed shareholder wealth.

This leads to one key learning for investors. Something we always keep talking about. That is that in order to earn healthy returns over long term, it is essential to identify businesses with strong fundamentals. And having identified these it is necessary to hold on to them for a long time period. Investing in hot news items rather than the stronger business fundamentals can only lead to one thing. And that is losses.

Transport benefits most in diesel subsidy

                                                        Data Source: Business Standard

The Government of India has drawn a lot of flak recently for its inertia with regards to fuel price reforms. As per a study done by leading financial daily, subsidies doled out on diesel are finding their way mainly to transportation sector and that too in private hands. Today's chart shows that transport sector accounts for nearly 67% of the subsidy benefits. Prominently, the truckers and cars account for nearly 45% of the total subsidy bill. On the other hand, the agriculture sector, on which the Government rests its case accounts for a mere 12.3% of the subsidies. With a flawed subsidy system leading to dieselization of economy, one should expect the share to go up. The argument that linking diesel prices to market prices will lead to inflation doesn't hold water either. Higher fuel subsidies and huge fiscal deficit are feeding the vicious circle of low growth and high inflation anyway. If it is well being of the farm sector stalling reforms, there is a better way to take care of it. The sector will be better off using direct cash subsidies and strong price support system. It's time that the Government stops coming up with lame excuses and bites the bullet of fuel reforms.

Will India learn from this biggest banking scandal?

Cartelisation! Over the last one year, this has been one term that has got many Indian companies penalised by the Competition Commission of India (CCI). The allegations have been that firms within the same industry colluded together to manipulate prices.

But this is too trivial compared to what we are just going to tell you about. Imagine a cartel of big global banks manipulating the global financial system. We are referring to the Libor banking scandal. For a lay Indian, this may not be quite a popular term. But in the global financial system, it is a very crucial pivot. For starters, Libor stands for London interbank offered rate, the rate at which banks think they can lend and borrow money themselves. Libor is a globally accepted benchmark interest rate for over US$ 350 trillion in financial products.

Regulators are said to be of the view that the manipulation of the Libor interest rate was the result of "organised fraud". As per news agency Thomson Reuters, Barclays paid a hefty fine of about US$ 453 m to authorities in the US and the UK to settle allegations that some of its traders had colluded with employees at other banks to manipulate Libor. Several other financial institutions are reportedly under the scanner of regulators for their alleged role in the fraud. This comes as another striking evidence of the threat big banks and financial institutions pose to the health of the global economy. But they are not the only ones to be blamed. Such scandals also reflect the negligence of the regulators. What were they doing all this while? Worse still, these are the same too-big-to-fail institutions that the central banks rescue in times of crisis.

What lessons does this financial scandal have for India? It must be noted that in 1998, the Mumbai inter-bank offer rate, referred to as Mibor, was set up on the lines of Libor. The Mibor acts as a benchmark rate for all interest rate swaps, forward rate agreements, floating rate debentures and term deposits. Though most key interest rates in India are benchmarked by the Reserve Bank of India (RBI), the Libor scandal may be a reminder for the Indian central bank to ensure adequate checks and balances to ensure that a similar fraud does not occur in India. Already discussions are underway to switch to an actual screen-based traded price of Mibor as the current system could be susceptible to manipulation. We really hope the Indian bank regulator and the banks initiate appropriate steps to avoid a similar disaster in our country.

Does India really need a sovereign wealth fund?

Sovereign wealth funds (SWF) enjoyed a lot of interest from investors and policy makers alike during the heydays prior to 2008. So much so that it even caught the fancy of otherwise sedentary Indian policy makers. SWFs did have appeal until 2007 since several countries seemed to be making money through canny investments.  Particularly the oil-rich countries like Norway, the UAE, Saudi Arabia and Kuwait. As per Business Standard, all these funds have assets of close to US$ 500 bn. But how relevant is the idea of having such a fund for India is the question!

Well, for one, our policy makers are keen to have such a fund. Even if that means pulling out Rs 10 bn from budgetary resources. But that very idea reeks of imprudence! Most obviously, India does not have a large amount of money from natural resources that it needs to invest. Nor does it have a sustained current account surplus, such as China runs. The budget deficits are everyone's knowledge. The RBI is opposed to the idea of using India's falling forex reserves for capital investments. And rightly so. It has therefore been suggested that alternatively the government would raise money from the market. Or use surplus cash lying with public-sector units. With our government already having destroyed enough investor and tax payers' wealth, this could be the last nail in the coffin!

Indias trade deficit with China a big worry

                          Data source: Ministry of Commerce & Industry, Department of Commerce

                                                              *April to December 2012

Today's chart shows India's trade imbalance with China. While India's imports from China have been growing steadily, our exports to the dragon nation are not growing at the same rate. This has been the biggest contributor to our economy's overall gap between exports and imports, leading to a high current account deficit. It is worth noting that India's current account deficit was at an all-time high of 4.5% of GDP (gross domestic product) during the quarter ended March 2012. The steep depreciation in the rupee has been one of the adverse impacts of the wide trade deficit. This has become a major concern for the Indian government. If some solid steps are not initiated to correct the trade imbalance, it will pose a serious threat to the long term well-being of the Indian economy.

What Hitler can teach us about investing?

Rewind back in time to 1944. The long drawn World War II was nearing its end. With massive forces of the Western Allies pushing from the West and Soviet armies closing in unrelentingly from the East, Hitler's defeat was a certainty. But would he accept the reality? No chance. He continued to delude himself with the idea that he could strike a counter-attack with his two reserve armies and win the war. Similar was the case with Japan around that time. It had lost terribly in the Pacific against the Americans. Yet it lived under the illusion that the enemy would not be able to invade its homeland. We obviously know what the end result was in both the cases.

What is the reason for this kind of irrational behaviour? A certain gentleman by the name of Mr Christopher Mahoney offers an insightful explanation. He opines that it is very difficult to accept defeat in a long war. The human mind refuses to accept the brutality of defeat and suffering. In its own defence, the mind tends to delude itself in an alternative reality.

But is this tendency only specific to wars? Certainly not! Take the eurozone crisis for instance. The actual crisis is much bigger than what most policymakers are willing to believe. They still think that through policy intervention, they can save the euro from disaster. The President of the European Central Bank (ECB) Mr Mario Draghi recently declared that he would do "whatever it takes" to save the euro. To point the truth, nothing that the ECB has done so far has solved the crisis any bit. There is no tangible rescue plan so far that is likely to lessen the Eurozone's woes. The fact of the matter is that the euro is an inherently flawed financial instrument. Secondly, the Eurozone economies afflicted by the sovereign debt crisis have little choice but to face the consequences of their past excesses. There is no quick pill to escape pain.

Forget the Eurozone. Even many investors behave in this irrational manner when faced with massive losses in their stock market investments. Of course, stock price volatility owing to prevailing market sentiments must be certainly ignored. But there is strong reluctance among investors in accepting investment mistakes and booking losses on stocks whose fundamentals have turned sour. Even after facing huge losses on them, they continue to hold on. The vain hope being that the stock price will reverse and they will recover their losses. This, they believe not because the fundamentals say so. But because the alternative reality is very difficult to accept.

Drought may not severely affect India's growth

                                                              Data source: Business Today

India is facing a drought. This has finally been confirmed by the government. The culprit is the El Nino weather pattern which is expected to reduce the rainfall in the July to September period. The last time India had suffered such a drought was in 2009. As more than 50% of Indian agriculture depends on the monsoons, rain plays an important factor when it comes to food production in India. Food prices have already started heating up as rainfall started to fall short of average. If this continues, food prices would most likely hit new highs.

However, the current drought may not affect India's GDP (Gross Domestic Product) growth as much as it did in the past. Today's chart of the day shows that agriculture's contribution to India's GDP has been consistently declining. In the past, a drought tended to severely affect India's economic growth. But despite 2009 being a drought year, the GDP growth in the financial year 2009-10 (FY10) remained robust.

Will India's problem be China's gain?

Over the past few days, loads of print spaces were devoted to India's pitiable power sector. How the country's super power dreams have sunk into darkness was the most widely read headline. Not just in domestic but also in the international media. But unlike the ego brushing West, the Chinese have a more practical way of dealing with this news. They did not criticise Indian policy makers. Nor did they ridicule India's ambitious plans for the power sector. They are in fact quietly trying to make the most of the opportunity in disguise.

The Chinese companies in power equipment space are well positioned to feed the unmet demand in India.  Some like Shanghai Electric, Harbin Electric and Dongfang Electric have already established themselves in the country. They are competitive on costs and are giving local equipment suppliers, including Bharat Heavy Electricals Ltd (BHEL), a run for their money. As reported by Firstpost, Chinese players are expected to participate in projects set to generate an additional 40,000 MW of power over the next few years.

India has missed every capacity addition target since 1951. Despite this, nearly 30% of the total planned infrastructure outlay over the next five years is on the electricity sector. Transmission and distribution losses still account for 27% of power generated! It is time India takes some concrete steps. One is to facilitate private sector participation in the power equipment space. That, along with partnership with Chinese players, could be the only way to reduce our electricity woes.

This is how a good investor becomes great!

The Olympics are currently underway in London. So what better way to start than take an example out of the world's biggest sporting extravaganza? You see, all the champion athletes who compete in the games seem to put in the same amount of training hours and possess a similar level of work ethic. Yet, at the end of it all, there is only one winner who walks away with that elusive gold medal.

And here in lies the biggest mystery we believe. If all the participants pass through virtually the same work routine, why is it that some achieve success and others remain perennial underachievers? Most of us would put the reason down to some inborn talent.

However, a recent research in this area has shed light on a completely different reason behind this phenomenon. It has argued that if one wants to get good at something, how a person spends one's time is far more important than the total amount of time spent. Thus, the number of hours and the amount of sweat that one puts behind an activity is only a weak indicator of performance. What matters is that one should closely watch where one fails and then learn from the mistakes. In other words, unless we are constantly pushing ourselves to the limit and continuously monitoring our performance, we are never going to improve in our chosen field. On most occasions, we do our activities in our comfort zone. But true progress happens when we move out of there and get into the zone of learning.

Can this approach be used in investing as well? It certainly can but we believe it will require a small twist. As a financial blog points out, unlike sports or music, there is this problem of not getting an immediate feedback in investing. Whenever we make certain long term investing decision, its results will be known only after a time lag of 2-3 years. This could thus lengthen the whole process of learning. Fortunately, there is a solution at hand. And it says that we can become much better investors by studying the past investment made by successful investors. By recreating the situation when the other successful investors made their investments, we get a chance to understand what exactly must be going through their minds when they made their investments. You can then compare your conclusions and your logic behind investing with theirs and thus keep getting continuous feedback. Done over and over again, this approach has a much greater chance of turning you into a great investor than the one you currently seem to be using we believe.

Countries exposed to the Eurozone in 2012

                                                        Data Source: The Economist

Given that the Eurozone is down in the dumps on account of the severe debt crisis there, countries exposed to this region are bound to suffer as well. So it becomes important to note the level of exposure for each country. Today's chart of the day shows that Britain is most at risk since it has the highest exposure to Europe. In contrast, the BRIC countries fare better although they are not entirely immune from the events unfolding in that region. 

India's demand for gold makes US glitter

India's love for gold dates back thousands of years. The yellow metal has been the revered financial asset of the Indian people. And it continues to be so even today. The statistics say it all. 25% of the gold sold globally is purchased by India. As per a recent report, Indian households hold gold worth more than US$ 950 bn. The Indian government and the Reserve Bank of India (RBI) are not too happy about India's high  gold imports. This is because it adds further burden to India's already high current account deficit. But someone on the other side of the globe is all smiles. We are referring to the US and the other countries in the Americas. This region is set to become India's biggest gold supplier. There are several reasons why this is very likely to happen. Though China is the one of the biggest producers of gold, it uses a significant chunk of its production to build up its national reserves. Moreover, there are high entry barriers for private miners in the dragon nation. Ditto for Russia. Certain gold reserves in Europe are facing environmental hurdles. Other big producers such as South Africa and Australia are becoming unpopular due to high taxation and high cost of production respectively. That puts the Americas in an advantageous position. What favours this region even more is the fact that they hold the biggest share in the significant global gold discoveries between 1997 and 2011.

India lags BRICs in forex reserves

                                                                 Source: Financial Express

Forex or foreign exchange reserves are an important resource for the central bank of a country. It can be used by the central bank to help the domestic currency. When the domestic currency weakens in the international markets, the central bank could use its kitty of forex reserves to repurchase the domestic currency from the international markets. This can help in stabilizing the currency's value. Therefore, we thought of evaluating the position of India vis-a-vis its BRIC peers in terms of forex reserves. Interestingly, India lags behind all the other BRIC countries in this regards. It must be noted that large forex reserve balance can be used by a country to manipulate its exchange rates to provide itself a more favourable economic environment. Something that China has been accused of by other developed nations. And with a reserve in excess of US$ 3 trillion, it is quite understandable as to why it has come under the firepower of such accusations.

Govt targets skill building to reduce youth unemployment

While there are several macroeconomic issues plaguing the Indian economy, there is one very pressing concern that needs to be attended to with utmost urgency. Or else the long term ramifications would be disastrous for the country. We are referring to nothing but education and skill training. The statistics will tell you why we cannot afford to ignore this sector. Of India's 1.2 bn population, 65% is under the age of 35 years. And in fact, 54% of the population is under the age of 25 years. It must be noted that in both- absolute and percentage terms- these numbers are the highest. In other words, India is set to have the highest working population in the coming times. A huge work force bodes well for the economy. But only if it is educated and skilled!

Though India's enrolment rate is robust at 96% for entering primary schools, the story then on is not very encouraging. Only 20% of the population tends to complete primary education. The number for secondary and tertiary education dives down to 1.3% and 3.1%, respectively. The gross enrolment rate of 13.5% for higher education is among the lowest in the world. This means that a huge chunk of young populations enters the workforce with poor education and skill sets. How can such an unskilled workforce translate into a democratic dividend? It is because of these reasons that in recent years, policymakers have started laying great emphasis on education and skill development. The National Skill Development Mission (NSDC) has set a target of skilling 500 million people by 2022. This is indeed a mammoth task and will require public-private partnerships. Due to the large-scale poverty in the country the government has made education free, a constitutional right. Though the government spends about Rs 5,000-6,000 per student for 10 years or more, an additional amount needs be spent on skill development. This could help make many unemployed youth employable.

Real threat of a hyperinflation

If people start losing confidence in the future purchase power of money, they tend to switch to real assets. This causes increases in asset prices. In other words, the purchasing power of money declines. Noticing such a trend, other cash holders may also panic and flock towards real assets. When such a self-reinforcing cycle sets in, it leads to hyperinflation. It must be noted that hyperinflation is not really a very rare event. It has struck various economies in the last century. Some remarkable instances would be Germany in the 1920s, Hungary after World War II and more recently Zimbabwe in 2008.  

What are the usual conditions before an economy is hit by hyperinflation? As per an article in Zerohedge, one condition is government deficits in excess of 20% of government expenditures. Which are the countries that make it to this notorious list? The five countries that make it to this list are none other than India, the US, the UK, Japan and Spain. But Japan seems to be at relatively lesser risk given that it is a creditor nation and not a debtor nation. Even Spain, which is part of the Eurozone, cannot trigger a hyperinflation on its own because it doesn't have its own individual currency. So the only prospective hyperinflation candidates are India, the US and the UK. Where disaster strikes first is for everyone to wait and watch.

Mobile penetration:India's impressive jump

                                                                   Source: World Bank

Can you tell which invention has had the biggest impact on human population in the shortest period of time? As per World Bank, the invention is none other than mobile communication. In its latest report, the global institution has argued that the number of mobile phones in use has skyrocketed from less than 1 billion in 2000 to 6 billion in 2012. What more, the developing world today is more mobile than the developed world as it bypassed other communication devices to jump straight to mobiles. Today's chart of the day highlights the growth in mobile penetration of the BRIC nations, indeed showing how fast the growth has been. While India has amongst the lowest mobile penetration currently, it does boast of the fastest growth rate during the period.

Drought not the only threat to food prices

Rain Gods have been instrumental in stimulating India's GDP growth since ages. The economy is now no longer agrarian. However, India's inflation still gets squarely impacted by the rise in food prices. That in turn has a spillover effect on the economic buoyancy. But it seems the mercy of Rain Gods or the lack of it can no longer be indicative of rise in food prices. Forget India, not even in the US.

Like in several states of India, including Maharashtra, it seems a crippling drought has impacted farm produce in the US as well. It is said to be the worst since 1956. Crops like corn, wheat and soybean, that are widely consumed are the worst affected. Economists believe that some farms may have no produce at all. But with a sturdy irrigation system, the US may be able to tide over the drought problem in a much better manner than India. Having said that, drought alone is not the reason for spiraling food prices. And we completely agree with Jim Rogers when he says that there are plenty of factors that will make food crops dearer. Not just in India, but world over!  But what could be a bigger reason than drought?

Less farmlands and lesser farmers! Farmlands are increasingly being acquired for industrial and residential purposes. With farming no longer remaining an occupation of choice, the existing farmlands also remain uncultivated. Moreover, farmers prefer to cultivate cash crops that are more remunerative. In the bargain the supply of food grains is dwindling by the year.  Meanwhile higher demand and improved purchasing power does not help either. The rising demand supply gap in food crops is expected to stoke food prices higher, even if there is adequate rainfall. But we are not sure of Rogers' suggestion that investors should hoard agri commodity derivatives in their investment portfolio. For we believe that speculative trends could only worsen the problem of rising food prices.

Wheat topped commodity gainers year to date

                                                       Data source: Business Insider
                                                          Data as on 30th June 2012

While commodities have been a favourite investment bet over the past year, not many have yielded sizeable returns for investors. In fact as against popular perception, precious metals like gold and silver were not the top gainers. Nor were key industrial metals like copper and aluminum. On the contrary, food grains like wheat and corn saw the maximum year on year rise in prices. We will not be surprised if rising glob al demand for food products coupled with speculative interests, cause food commodities to move into unchartered territories.

Monsoon forecast has industry on tenterhooks

Typically during this time of the year, what do you think has always been the biggest worry for India Inc? It is certainly the rains. And this year too it has been no different. Thus, the whole of industry is on tenterhooks and is keenly watching the progress of the monsoon as it enters a crucial phase this week. Needless to say that different sectors are trying to deal with the situation in their own unique ways. Thus, while the white goods sector plans to come up with new schemes, FMCG companies are trying to put a lid on price increase. 


Then there is the automobile sector that is having a wait and watch approach. Banks too are in no mood to press the panic button and are of the view that it may be too early to take a call. Whatever may be the stance adopted by different sectors, one thing is clear that even after so many years, a prospect of poor monsoon still sent shivers down the spine of India Inc. We wonder whether this dependence will ever go away.