2011 was bad but 2012 will be worst

2011 was the year in which equity markets were almost flat and volatile in small range. The prices of gold and silver plumbed almost 20% in 2011. This rise in price of precious metals shows that it is better to invest in safe heaven, being the best hedge against inflation.


The last quarter of 2011 was even more worse where the inflation remained high at 9.8% and also the interest rates rose. This shows a negative sign of the economy where even the IIP numbers were on a sharp decline -5%.
RBI in its monetary review on 16th Dec 2011 needs to look in this issue and find some measures to cut on rates. As firms which are capital intensive tend to borrow less and so produce less in times of rising interest rates and hovering inflation. This affects the growth of overall economy. Considering the current situation where there is financial crises in Europe the demand for products is less so exports are declining. Over which the depreciation in Rupee 53.65 vs a dollar is another concern affecting the exporters and has also increased government expenditure and lead to fiscal deficit.


So what I conclude is all problems are carried forward in preceding year (2012) missing to look for solutions of problems of 2011. Which are the depreciation in rupee, out flow seen by foreign investors, fiscal deficit, rising government expenditure, rising interest rates, rising inflation, political instability, pending corruption charges etc. Affecting the sentiments of foreign investors.  All old problems are carried away and new problems shall arise out of these issues making 2012 more worse than 2011. Experts predict that current financial crises is far more worse than The Lehman crises. Our government claims that India has a shield against global financial crises but the domestic issues mentioned above are also the hampering factors affecting growth of our nation. All we need is efficient and effective governing bodies who can resolve this issues.

KHP

FDI in Retail

FDI in retail was a new wave of consumerism. Which would have surely helped indian economy to grow more in terms of globalization.

Allowing 51% foreign investment in retail would lead to greater choice for buyers and off course at discount prices. Which would surely have helped food inflation which is hovering at 9% to come down. It would have also made some changes in farming sector and making it more efficient and effective.

Apart from Walmart, Swedens furniture maker IKEA, Japans Lawson, French retailer Correfour and Britain's TESCO were raring for India's entry.

Retail would have bought large variety of products and improved customer service. However the local kirana shop is not the only competitor but online retaile websites are also the competitors.

History reveals that Gaint retailers like Walmart has improved its value chain and have played a vital role in benefiting the end user.

So why is the government opposing it just because there are many intermediates in the value chain in the current retail segment. Government is collecting huge taxes and intermediates have been making margins on transactions incurred in passing the goods to end user. So the intermediates have been opposing and also govt is facing threat of its tax revenue.

However allowing FDI would have also helped Rupee to appreciate reducing govt expenditure on its fiscal deficit and also benefiting the end user which would have curbed food inflation down. Another noticeable change would be improved financial services (consumer loans) with retail loans. Creating job opportunities in financial sector, agriculture sector and retail sectors improving employment rate.

Considering these benefits I would favor FDI in retail. But why is Mr Ambani not in favour (guess).

KHP

The primer on PE ratios

Let us understand what are the determinants of stock P/E which are Stability, Growth, Dividends, ROI and Leverage. Why do we need to understand these determinants?

Most of us perceive it incorrectly that lower the PE the better the stock is because it is undervalued just beacuse price is lower or Earnings are high or both. Let consider other factors as well to make a wise investment in stocks.

Stability : Stability in earnings, One should always realise that company manufacturing umbrellas will have stable earnings in rainy season. Whereas the revenue will not be recognised during summers. So it is important to divest once rainy season ends. So stable earnings are important. The better the earnings the better the retention reserve and better the growth of the company.

Growth : It is important to understand how efficiently the management is utilising its retention reserve for further growth. If the managemant is investing its funds in Govt securities even investor can manage his funds by investing in such risk free assets. So why do an investor should take a risk by investing in stocks of companies which invest their retention reserve in Govt sec and not for futrther expansion. This means management is no more efficient and lags any innovatiove thoughts. The product must have reached a maturity stage and shall soon enter a decline stage.

Dividends : Companies which pay high dividends have lower EPS which will make PE ratio high. But dividends are income to share holders which should be considered as far as return on stocks is concerned.

Leverage : Operating leverage and Financial leverage are also important to understand the performance of firm.