Category: Your Money

GDP Growth vs. Stocks

World gdp growth rate and gdp growth rate of t...

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Quite often, the reasons that investors give to be bullish on Indian stocks are: millions of people are rising above poverty and are experiencing the joys of consumerism for the first time. Almost all of India is connected via mobile phones and cable TV is making inroads in the remotest of towns. So in effect, what they are saying is that the stock-market is going to rise with India’s GDP. Is that really the case? Are stock-market returns correlated with GDP growth?

A study by Peter Henry and Prakash Kannan seems to indicate not:


This only reconfirms the theory that stock-markets are leading indicators of the economy, not the other way around. And somewhat counter-intuitively, investing in low growth countries actually yielded higher returns!

So what does this mean for Indian investors? The key take-away is to not get swayed by all the “India Shining” callouts and focus on the fundamentals of individual stocks. A rising tide lifts all boats but you only find out who is swimming naked when the tide goes out (Warren Buffett).

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Investing–getting started

An assortment of United States coins, includin...

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We instinctively know that to build wealth, we need to take control of our finances. But to get started investing is a daunting task. From pundits shilling stocks to brokers selling themselves on CNBC, it is easy to conclude that the deck is stacked against the individual investor. However, not all is lot. A volatile market like ours rewards patience, something that I see is in very short supply. The retail investor, and this is true across different markets, gets in too late and gets out too early. Call it the itchy trigger finger or the lack of courage in one’s conviction, retail investors often end up being contrarian statistics to institutional money. If retail is buying, sell, sell, sell!

Not all is lost. The waters might seem treacherous, but are navigable. The first step is to be in the right frame of mind. If you think of making money as a zero sum game, i.e., for you to make money, someone else has to lose it, then you will never make money! Wealth is created by the value creation process. So the first step is to understand that an infinite amount of wealth can be created because human ingenuity will always figure out a way to create value.

The second step is to distance yourself from what you can do with money, to what it actually is. It is nothing more than a piece of paper with a dead man’s picture on it. It is not really backed by anything other than your faith in its value (this is an entirely different post altogether). So try to be even minded whether you are making money or losing it.

The third thing is to write down 4-5 lines on how much risk you can take. Capital comes in two forms, one that is in your pocket and the other is mental. Mental capital is much more expensive than the notes in your pocket. If you can’t take the heat, stay away from the stove! Once you figure out what your risk appetite is, you can then start looking for investments that fit your profile.

Number four: valuation matters. We’ll get to what valuation is in future posts, but leave momentum chasing to the machines. Make sure that you buy stocks when they are cheap (fundamental) and have bottomed out (technical). Analyse, analyse, analyse. Make sure you understand what the company makes (how does it create value?), the regulatory backdrop and be prepared to change your stance if the situation demands.

And lastly, remember this: In “good times,” even errors are profitable; in “bad times” even the most well researched trades go awry. Be nimble, be smart and rely on process rathe than luck.

Good luck and stay tuned!

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Mexican cinemas in India: Once upon a time in the east

In the past 18 months Cinépolis has opened three multiplexes in India. Another 43 screens are due to open this year, followed by nearly 100 next year and slightly more the year after. The plans include 14- and 15-screen “megaplexes” in Mumbai and Pune, which will be India’s largest. The company hopes to have 500 screens by 2016, which could make it the biggest player in the country’s fragmented market.

Mexican cinemas in India: Once upon a time in the east | The Economist.


United (States) Parcel Service.

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India’s path to economic liberalization hasn’t been easy. The most enduring question since the 90’s was how a capital-starved emerging country like us can avoid being a dumping ground for foreign goods? Our fear has always been that given our lack of basic infrastructure, it might be economically cheaper to import than to produce capital goods here, turning India into a raw-material exporter rather than a robust economic power. So up went tariffs and duties.

I am reminded of the story of Sri Ramakrishna. He once remarked about a monk returned to meet his brother. When the brother questioned about what had he got after leaving the home and practicing strenuous tapasya, the monk proudly answered, “Look, I can walk on the river waters”. And he actually showed his brother how he could walk on the waters! The brother exclaimed, “Oh! Only for ‘walking on the waters’ you spent 12 long years! See by paying to the boatman half a rupee I can cross this river!”

Do we really want to be the monk who spends 12 years learning how to walk on water or should we focus on the easiest way to achieve the end result of being able to cross the river? How have our policies worked out, in the end?

Lets take the automobile sector for instance. We were in duo-poly hell right up till the 80’s. When India opened up, a lot of pent-up demand would have been met by merely importing finished vehicles. Used American cars would have been snapped up by cash constrained consumers here. The car rental companies in the US would’ve had a field day dumping their fleet of cars on us. But thanks to the duty structure put in place, importing these beasts would have been twice as expensive as producing a new car locally. And in came the flood of car manufacturers wanting to setup factories, raising employment levels which, in turn, created more demand for vehicles.

So we lost out a bit by making consumers pay more for cars. But in the end, it worked out pretty well for everybody. Today, importing kits is so expensive, that even companies that focus on the luxury sector like BMW and Harley Davidson plan on increasing the Indian content of the parts that go into their cars and bikes to bring down their ticker price. The forced indenisation has led to the creation of an entire ecosystem of parts and ancillary suppliers, creating opportunities along the way.

If the goal was to give some breathing space for infant industries to catch-up, trade protectionism worked in our context.

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