Stock Market - Respect

A lot has been said and written about the anomalies of the stock market, its irrational exuberance driven by sentiment and liquidity. The inefficiencies are always highlighted and talked and written about, especially during a bear market when things are collapsing. The fact remains, that a market consists of various participants. While the speculators do create noise, the sane minds respect earnings.

Last week, the Supreme court declared its verdict on the Reliance gas controversy. It ruled in favour of Reliance Industry being able to sell the gas at government prescribed rate. 
The stock market reacted in an expected manner. Reliance Industry soared, RNRL and Reliance Power tanked. What is amazing is that the market capitalization lost and gained was almost equal.

This is the beauty of the stock market. It computed the value derived by one company and value lost to the other set of companies in a matter of hours. This is no coincidence, its the sheer power of rationality of the markets.
Its instances like these which makes you say, Respect...

Kasab Verdict

It took over 17 months for the trial to conclude. The decision seemed inevitable right at the outset, but the judge deliberated and heard arguments from both parties before passing his judgment.
"To be hanged till death"

Its a landmark judgment, not because of the complexity involved but the impact it has on the common man. For the unfortunate victims relatives, it is a step forward towards closure. It alleviates the grief of these folks and God alone knows that they deserve better.

The judgment also sends a message to terrorists; there is no honour in what they are doing and what they are trying to achieve. The end result, as it rightfully should be, is death without any dignity.

It also makes me feel proud to be an Indian. Nobody would have grudged us if we had shot Kasab on the fateful night or immediately thereafter. We were mature enough to allow are judicial system to play its part and reach a legal conclusion.

My prayers are with all those that suffered.

How sport helps an Economy

Sport is viewed in many dimensions across the world. It provides great entertainment to the public, career opportunities to the players, coaches and others associated (broadcasters, journalists etc). But we seldom look at it from an economy perspective. I believe that a huge sporting extravaganza is an economic kicker. You suddenly have an event which creates new avenue of enterprise at various levels.

Lets try and break it down, using the IPL as an example.

Direct Impact

1. Players - Earning significant salaries, which will eventually trickle into the economy
2. Broadcasters - Huge advertising revenue due to popularity of sport
3. Team Owners - Revenue generation through broadcasting rights, gate receipts and merchandise
4. Stadium / Venues - Match hosting fee
5. Government - Through tax receipts (In the context of IPL, this may not be entirely accurate

These stakeholders are direct beneficiaries of hosting a huge sporting event. Obviously the trickle down effect from each of these parties is significant. At an individual level, there wont be a significant impact to the above mentioned stakeholder (except for maybe the players) as most of them are fairly well off in their current life scenario.
The life altering impact is on a different set of people, mentioned below.

Associated Impact

1. Food Vendors - In and around the stadium there are large number of food / refreshment vendors who suddenly have an additional target audience ready to consume.
2. Merchandiser - The small guys manufacturing and selling jerseys, banners , placards, whistles, hats, accessories etc..
3. Event Management Firms - Organizing and managing such events is a professionals job
4. Tourism - Loyal fans travel along with teams they support

I may have missed out a few, but the point I am trying to make must be clear by now. It provides opportunity to a bunch of small guys to grow their business, expand their horizons and strive for more. These events also facilitate fans to consume more than they otherwise would have.
When the IPL shifted to South Africa last year, it generated over 1billion rand for the economy. That is the kind of impact sport makes.

Sport : Life

Year 1999:
Bayern Munich     - 1
Machester United - 2
(Manchester United score in the last few seconds of the game; Bayern Munich lead for most of the game)

Year 2010:
Bayern Munich     - 2

Machester United - 1
(Bayern Munich score in the last few seconds of the game; Manchester United lead for most of the game)


Sport is such a great leveler....... Don't get me started on life now....

Economy Overview

World Economy

The world is recovering from the shocks of the most severe recession in recent history. It was the first time since world war two that the global economy has substantially contracted when compared to previous years. The acute phase of the financial crisis has passed and a global economic recovery is underway. However, the recovery remains fragile and is expected to slow in the second half of 2010 as the growth impact of fiscal and monetary measures wane and the current inventory cycle runs its course. Economists believe that the baseline scenario for global growth would be 2.7 percent in 2010 and 3.2 percent in 2011. The world can be classified into slow growth economies like U.S.A, U.K and the rest of Europe who are grappling with huge fiscal deficits and significant debt, and faster growing Asian countries which have remained well insulated from the turmoil.

The world economy is trudging towards recovery but faces significant risks which can hamper growth. The reduced impact of the fiscal stimulus, sovereign defaults or banking failures could plunge the world economy back into recession.

Indian Economy

The Indian economy witnessed an average GDP growth of over 9% from 2005-08. The global financial crisis contributed to the deceleration in annual GDP growth to 6.1% in 2009. India escaped the brunt of the global financial crisis because of cautious banking policies and a relatively low dependence on exports for growth. Domestic demand driven by purchases of consumer durables and automobiles has emerged as a key driver of the economy. During the slowdown imports and exports were severely impacted. The economy is back on track, with industrial output improving every month. The government expects GDP growth to be over 8% in 2010 and above 9% from 2011 onwards.

The risks that India faces are more external in nature. The risk of the global economy experiencing a downturn, sovereign default or failure of banks threaten India’s impressive growth rate. The fiscal deficit for 2009 was at 6.9% of GDP is a cause of concern for the economy. The Finance Minister has pledged to bring the deficit down to 5.5% of GDP in 2010 and further to 4.8% in 2011. Improvement in this situation will allow better credit access to corporate as government borrowing will reduce. 
The situation remains linked to how the world progresses but the clouds are less dark now.

Theme 2010 - Consolidate

The ship has just made it out of a dangerous storm. The port is visible but yet at a distance. The key question is should we make a dash for the port or spend some time and repair the holes in the ship before proceeding.

This past year has helped separate the truly resilient individuals, businesses and countries. Some of it is fortuitous and some of it is due to foresight. The point is, we stand at the threshold of a new world order being created. It needs to be built with careful preparation. Adequate time needs to be spent in the repairing and then moving towards growing.

My theme of the year is careful rebuilding.

Mutual Funds; hmmmmm

We work really hard to earn money, and then invest it with hopes of better returns. People who do not actively track stock markets prefer to invest in mutual funds. These are considered safer than equity.

The key to succeed in the stock market is to buy low and sell high. Easier said than done.
More than 70% of mutual funds do not out perform their benchmark indices. Fund managers are highly educated, intelligent and trained people. Yet most do not need beat the index. The above graph is an indication of how badly the fund managers timed the market in 2009. They had the highest cash holding in their portfolio when the market was at the lowest point.

This leads to me ponder if its worth my while to bother investing in mutual funds when I can easily invest in an Index ETF (exchange traded fund).