Step One to Salesmanship....!

The world is so full of contradictions; it makes me kinda go crazy…!


As my first example in this case I would start wid the most common belief – size does not matter…! Yes, probably it does not when u further quote that “Pen is mightier than a sword” or when u think of the ants on their worldly quest…! One stupid cockroach or that little ugly good for nothing rat can give you a semi heart attack and make u defy gravity in all your might…>! Our very famous “Bhainsa bada ki bheja??” says it all…! :P

I met one of our revered investor where we tried to advise her on buying a certain fund which was suitable for her appetite! She is too old for me to comment on or mock at, which neither is my intention nor my nature, but just to support my argument I bring her in here…! The fund had grown tremendously and was trading at an NAV of c. 190. The female was shocked and was scared to invest into it….! The reason being “abhi toh yeh itna expensive ho gaya hai, wats the use of getting into it now…?? Rs. 190 as against a starting price of Rs. 10 …. Noh noh….. dont try to sell anything to me…!”. But the belief that a lower NAV is cheaper than a higher one is a misconception. Unlike the stock price, which is different from the stock’s intrinsic value, which eventually classifies the stock being cheap or expensive, the Equity funds are purchased or redeemed at NAV (essentially their intrinsic values). Thus what matters next for the fund is the kind of growth it clocks in and not the NAV. An HDFC Top 200 may give you returns of c. 25% despite at Rs. 190, whereas an NFO might end up giving you mere 10% returns despite at Rs. 10. Clearly it is not the size of the NAV that matters but the returns that do…!

Contrariwise, you have situations like a local garage wala offering to acquire Mahindra & Mahindra or an ant trying to wrestle with its best friend, the elephant, when the thought of “Size does not matter” seems to be in serious jeopardy. You would scamper for life if u saw The Hulk (smash it…!) right infront of you in his most violent green streak or if a Godzilla is present in the next lane like it is in the Yankee dodo films….! You surely cannot invest in a PE fund if you’re only worth a couple of Tata Nanos…!

I was reading a couple of articles the other day wherefrom I had to deduce whether India was a worthy investment avenue. The more I read, the more I was vacillating on India as an investment opportunity. There were some who opined that Euro zone sovereign debt crisis was a sure episode. However, this crisis would be good for India as this would cool off the commodity prices, in particular the crude prices which were expected to soar until USD 100 per barrel. Every dollar increase in per barrel price of crude impacts India by USD 800m. Thus crude remaining at 75 – 76 levels would ensure subsidies not going too far, improved BOP and maintenance of deficits. India has merely 4% - 5% dependence on Europe for its exports. Europe also accounts for only as much as 15% of US exports, which again are only a small proportion of total US production where much is domestically consumed. No major impact would be made on India in this case.

Sovereign debt crisis generally long for as many as 6 years to 50 years where by the country is forced to take austerity measures like increase in taxes, cut in public spends, etc. Recovery / public spending begins only after deficits are reduced to a good extent. Interest rates in the zone would be reduced to help flourish the domestic industry which would lead to outflows there. There is intra – euro unrest with blame game going on between member nations who are trying to bust each other to gain more superiority in the zone. Thus, where eurozone is becoming a more weak investment proposition for investors, the affability for emerging nations is increasing which are rather safer and poised for faster growth. And as apparent to all, India and China are the most adored amongst the pack for investment.

That said, there were articles still where by a contrary view was presented that India would surely be hit if Euro zone crisis occurs. Exports to Europe are expected to decline which would lead to dumping in emerging nations such as India, which have a huge consumption. This would hurt the domestic industries and lead to valuation coming off affair bit. Also, corporate in India are jittery to build up fresh capacities as in case the recovery is slow and there is dumping and little consumption, the new capacities will only be a waste of money and resources. Interest rates in Europe are expected to go down as to make European industries grow. This would lead to a weak euro and make exports more competent across the globe, hurting US, Japan and many other developing nations. Credit offtake in India has anyways been low post the 2008 US financial crisis, where India Inc had raked in loads of money and is currently afloat with liquidity. These events would further delay the offtake and affect the banking and financial services space in India.

The debate seems never ending when people pitch for sectors specifically. As a general notion, one would think that in an event of global recession or crisis, tourism industry would be the most vulnerable. However, to sell India we seem to have enough talking points. The theme is “domestic consumption”, a fact that India rides high on. Intercontinental Hotels Group (IHG), observed that there were a total of 500 million trips in India per year and only 5 million were international, i.e. only 1% was exposed to revenues from random firangs. In a report by World Economic Forum, India is ranked 11th in the Asia Pacific region and 62nd overall, moving up three places on the list of the world's attractive destinations. The report also claimed that the Indian travel and tourism industry ranked 5th in the long-term (10-year) growth and is expected to be the 2nd largest employer in the world by 2019, employing 40,037,000 persons in all. But then came certain numbers, which at least forced me to think on the investment proposition as compared to other sectors.

• The demand for travel and tourism in India is expected to grow by 8.2% between 2010 and 2019 and will place India at the third position in the world

• Capital investment in the sector is expected to grow at 8.8% between 2010 and 2019

• India to get capital investment worth USD 94.5bn by 2019

• India is projected to become the fifth fastest growing business travel destination from 2010-2019 with an estimated real growth rate of 7.6%.

Why would someone really invest in such a sector with such a long gestation period when he might as well get better returns in other sectors in lesser holding period; or probably when he eyes opportunities in other nations with better growth stories. The numbers above are only probabilistic and there is the wolf standing right at the door in case the crisis was to come through globally. You have the food sector in India instead which may perhaps fetch better returns. There is a strong case for gowth in all segments of the industry with probably the highest growth coming through in the dairy products (15% growth projected), fruits and vegetable (20%) and fisheries (20%). The consumption patterns of Indians are very similar to the Europeans. Also Russia is getting modernized as regards its food habits. China is still having a traditional palate. As a result India and Russia provide the best opportunities, within the emerging countries, for investments and developments in the face of Euro crisis. The per capita spending on food in India is 1/6th that of China and 1/16th that of the US. While India’s consumption of grains and cereals is comparable to global levels, an opportunity exists to drive and increase the consumption levels in milk and milk products, and meat and marine products.

No country is better positioned to take advantage of the demographic dividend than India. In 2020, the average age of India will be only 29 years, compared with 37 in China and the US, 45 in the European countries and 48 in Japan. Moreover, 70% of Indians will be of working age in 2025 compared to 61% now. The high percentage of youth is expected to drive demand for tertiary processed foods due to their preference for such products and their propensity to buy new products. The urban population too is forecasted to be 30% of the total population by 2012 compared to 29% in 2008 indicating renewed food habits and more demand for processed food.

Phhhew…. That’s a lot said and thought. Guess with even a bit more you would pounce back with vengeance. But do keep reading and commenting and lemme know if you come across more interesting stuff as food for thought…! :)

When life gives you lemons… cut them into halves and sell each of them in a new package…. LOL!.... probably with different perspectives….! :P