INDIAN EQUITIES INDICES : % Weights by Sector.

Take a look at the newspaper clipping below.

The Indian Equity market provides international investors with an exposure to a well diversified emerging economy, that is not overly dependent on exports or raw materials and has a large domestic market.

BRIC nations like Brazil and Russia are more heavily concentrated on the commodity sector (basic raw materials).

China is an export oriented BRIC country.

However as the article says, the Agriculture and Trade sector are both absent from the NIFTY & BSE SENSEX.

Another point worth noting is the gradual rise in the % weight of the Banking and Financial services sector.
Internationally, both the FTSE (U.K) and the Hang Seng (Hong Kong) have considerable exposure to banking and financial services.

A Benchmark index must be truly representative of the underlying economy, and currently I feel that the Banking and Financial services' % weight in the index is too high.

In the long run, I would hope that sectors like Pharmaceuticals, Telecom, and Cement are given a greater share of the index.

The Automobile and FMCG sectors are also vital components when it comes to gauging consumer consumption demand.

INDIAN MONSOONS 2010

The monsoon rainfall last year was well below average.
As India waits for the arrival of the south west monsoon, everyone's hoping for a normal monsoon this year.

Insufficient rainfall resulted in rising food prices, as the prices of vegetables and food grains soared.

Last year, consumer demand in rural areas held up pretty well despite a poor monsoon. Continuing inflation, especially ''food price'' inflation will have a dampening effect on consumer consumption in the auto, FMCG & durable goods sectors.

Thus, a back to back season of insufficient rainfall will have serious repercussions for the Indian economy.

In the meantime, the India Meteorological Department (IMD) has forecast a normal monsoon across the country this year.

'''Lending a quantitative perspective to the available indications, IMD said the total rainfall during the June-September monsoon season would be 98 per cent of the long period average. This assessment is subject to a model error of ± 5 per cent.'''

Lastly, just a warning for those who may blindly follow the forecasts of the IMD!!

''''Last year too IMD had predicted a near-normal rainfall of 96 per cent. Two months later, in June, it issued an update scaling down its assessment to 93 per cent of normal. Both these predictions went awry. IMD then revised its forecast for a third time in August, this time predicting 87 per cent of normal rains.

These predictions, however, turned out wrong and the country received only 77 per cent of normal rainfall. This led to a drought in large parts of the country.'''''

Links:

TAKE A LOOK-India forecasts normal monsoon rainfall‎

Monsoon to dispel clouds over sugar, grain‎

MD predicts normal monsoon‎

GOLD - THE LAST 10 YEARS

THE MGM STUDIO DEBT DEBACLE

Here's another failed deal from the 'LBO bubble' days of 2005.

Cheap money lead to excessive valuations for buyouts.

As I read the article below in the Economic times newspaper last week, I was reminded once again of how experts, analysts and investment bankers continued to justify deals that were irrationally dangerous and value destructive!

The only guys who benefited from these deals, were the investment bank advisers who earned massive fees on these now failing LBO deals.


Lastly, I leave you with an interview of the ever consistent, rational and down to earth - David Rosenberg.

He continues to be the lone voice advising caution and recommending measures to minimize portfolio volatility!

Link:
The bear: Dead or just sleeping? - The Globe and Mail

David Rosenberg - More downside to U.S. Home prices ?

The recovery in the U.S. housing market is taking longer than expected.

The crash in home prices has really eroded the networth of homeowners and rattled the U.S.consumer.

David Rosenberg recently highlighted the differences between Investor expectations and Consumer expectations (Wall St. vs Main St.).

In the chart below he raises a valid point of 'mean reversion' as the the shadow inventory of foreclosed homes and continuing foreclosures, continues to stress out the US Residential property market.

Diminishing Marginal Productivity of Debt - Nathan's Economic Edge

Here is the link to my last post on the Marginal Productivity of Debt, where I quoted Prof. Antal E. Fekete.

LINK : THE MARGINAL PRODUCTIVITY OF DEBT.

Here is an a recent post from Nathan's Economic Edge - a blog that I have added to my blog list. It' an excellent blog that is definitely worth a read.
The Diminishing Marginal Productivity of debt :THE Most Important Chart of the CENTURY















Here is Nathan's explanation for the the above chart.

'''''''''''''''''''''''' This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt. '''''''''''''''

Clearly, Prof. Fekete and Nathan are trying to highlight the 'fatal danger' we face due to the diminishing marginal productivity of debt.

Sadly, most economists and finance ministers around the world, see further debt accumulation of debt as a solution to the current crisis, rather than the root cause of the chaos we face in financial markets today.

Clive Maund on Gold

Clive Maund has a new gold update at Kitco, 22 March 2010.
http://www.kitco.com/ind/maund/mar222010.html


















I have not added to gold positions recently, and remain slightly wary of a ''summer sell off'' in equity markets that may trigger a sell off in the precious metal markets.

The USD has been trending upwards, aided by the turmoil in the Eurozone; that has kept the EURO in check.

But I must say that inspite of the strength in the USD, gold prices have continued to consolidate.

David Rosenberg on S&P 500 returns

GREECE & the EUROZONE

Here's a fantastic cartoon by John Trever from the Albuquerque Journal.
SOURCE: Image dated : 03/11/10
http://www.cagle.com/working/100311/trever.jpg

HATCHBACK CARS IN INDIA

The hatchback car market in India looks all set for a fresh round of cut - throat competition.
Below is a clipping from last week's TIMES zigwheels. www.zigwheels.com

Ford India has launched the Ford Figo at a super competitive price of Rs. 3.49 lakhs (approx USD 7755, at 1USD = INR 45) for the base model.

The Indian government is also rolling back excise duty benefits on the sale of small cars and the Reserve Bank of India is also hinting at a tighter monetary policy going forward.

The Indian hatchback market is dominated by Maruti Suzuki & Hyundai Motors.

Maruti Suzuki is the dominant player and is the manufacturer of the legendary Maruti 800, the Suzuki Wagon R ( since relaunched as the Suzuki Ritz) and the Suzuki A star ( formerly the Suzuki Alto).

Hyundai India also makes the popular Hyundai Santro and the Hyundai i 10.

Tata Motors makes the Tata Indica & the Tata Nano!

Volkswagen, Ford, Fiat and GM are new entrants in the hatchback space.
In the past Fiat and GM have tried to enter this space, and were not very successful.

The hatchback segment is getting rather crowded in my opinion.

While this is great news for the customer, it means that the car makers will face margin pressures going forward.

Car makers will also have to compete with a growing second hand car market and second hand cars that are refurbished by the car companies themselves.

Consequently, investors in auto companies like Maruti Suzuki need to take note of the changing dynamics of the low margin high volume hatchback car market.

Investors in auto ancillary companies will also have to deal with shrinking profit margins. Raw material prices (steel, glass, rubber etc) are rising and car companies will look to cut costs to boost their own profitability.

A price war is great for the customer, but drastically reduces the profitability of the car makers.