Monday 7 September 2015

Market Fall: Wind is Strong

Hello Everybody,

Hope you are strong in this wind...and wind always passes.

Actually there are problems with our growth calculations. If someone is overeating beyond limits, then with illness going to hospitals for treatment giving money to doctors, Happy Doctors spend even more and make more people happy. But eventually some day, overeater will understand the wisdom or fell terminally ill unable to eat anymore except medicines.

But the problem is that our economists call overeating as consumption led growth and stoppage of overeating as coming recession. Although we can see that stopping of overeating is nothing but a "self correcting" phase. So here we are; recession most of the time is a correcting phenomenon of misallocation of productive resources.

World just forgot that unnaturally high China growth was not sustainable but yet they were going overboard in creating over capacities for fulfilling Chinese thirst for commodities which once accounted for 50% of global demand. Now when China has realized or forced to curtail this unnecessary eating, others who have set up massive scales particularly for Chinese are shivering with fear. But their fears are justified and there is fear that their fears may eventually come true.

As I have explained in earlier post on FED rising rates; I am not counting much of this. But for some countries who are heavily dependent on Chinese story, future may be very uncertain. The uncertainty is whether countries like India and some parts of Africa can provide support to falling commodity  prices. And I feel they will. Although share of consumption in Indian GDP is relatively high at around 70% but I feel this is because of low levels of Investments. India is short of investments and as India is a place of disparities; so rich people are consuming much more and poor people are just surviving on Rice and Wheat. Proof is per capita Income in india which is very poor. We stand at around number 143 in per capita income as per IMF in 2014. We earn $ 1600 per head, with china at $ 7600, USA at $ 55000 and Luxembeourg at $ 110000. Pakistan is at $ 1343!! Do we really know what is growth and consumption with this paltry $ 1600 per head per year?

Do we have the right to fear that our Consumption may slow down? Do we really consume? Our per capita consumption of milk, meat, eggs, vegetables, cheese is tiny as compared to giants like USA; we fare badly even with global average. You think we are nation of milk, per capita milk and milk products usage per year is 250 Kg in USA, 240 Kg in UK, Pakistan at 160 Kg. we are around 70-80 kg even below global average of 110 Kg!! Each Indian gets to eat about 185 kg of grain in a year, while a US citizen consumes 1100 kg. In the US, about 50 kg poultry meat is consumed every year by each person, compared to just 3-4 kg in India. 

So should we fear? No, not at all. Instead India can utilize this commodity fall to augment its investment drive which is moving very slowly. India is going to gain from this correction in global market. Stock markets are a different thing, where in spite of economic growth, it can still fall if domestic investors are not investing in stocks and foreign investors are looking for safe avenues. This is something which is just happening in India.


So just don’t fear…flex the muscles in your leg and stand firmly at the ground. Wind is going to pass.

10 comments:

  1. Salute to your understanding, after many years found a person and blog worth following. Bravo Bro, keep it up.

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  2. Dear Gurpreet, I know that you found skm egg at very early stage but the way things are shaping up, don't you thing it has long way to go.My other query is about hsil at 250.

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    1. Sir, for SKM i am pasting my old reply to a similar query. HSIL is a good buy at this level, it deserves much better valuations.

      " Dear sir, not tracking this for long time since our cost of acquisition is very low. But, yes they have plans for getting 500 cr turnover around 2017-18. Currently they are about 270-280 cr with around 90% capacity, so at 100% they will get 300 cr. Hence they need to go for capacity expansion or acquisition as they are now with low debt and earning good profits.

      But as there is no such company in india, so chances of acquisition are very less, so they will be going for expansion. They are selling just 1-3% in india, so it will not be a bad idea to start a facility in tax free zone catering to indian market with proper branding. Indians are not at all aware of something like egg powder and liquid egg.

      So growth opportunity is indeed big for it, also in global market because inspite of india being 3rd largest in egg production, our export of egg powder/liquid eggs is petty at 500 crores. "

      So SKM is a bit risky one (not Bad) as it competes in global markets with just 300 cr turnover...but it can really scale up in india and even on the exports front. SKM is showing strong resistance in this market fall. So in my view it is all about having spare risky money for investing in this.

      Regards

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  3. Thanks Sir for prompt reply.Wonderful to a know a person like you.

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  4. Before reading this , I was too encircled by fear of losing ...,.but now I can say 'whatever happens , happens for good particularly for India...great stuff ....it can only come through you ........

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  5. Dear Gurpreet, NIIT has risen sharply since your recommendation, congrats on the same. Can it still be considered for purchase? How does it look from a 2-3yrs perspective specially looking at the focus of Modi govt. on skill India program?

    Also, I need your opinion on TV Today.

    Thanks much.




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    1. Hello Sanjay, NIIT is still a good buy...in fact i have also entered again at 70 after buying earlier at 39. It is a buy at every fall from hereon. My long term target is much higher. I am not buying it for 2-3 times gain but much more.

      No study of TV Today, so can't say.

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