In Pursuit Of Self-Sufficiency

It is disturbing to note that one man can impact the global financial market in broad, sweeping strokes. However, what we saw in the last fortnight has exemplified that. A mere statement of intention of scaling back the bond purchase programme by US Fed Chairman Ben Bernanke was more than enough to trigger a sell-off in the world financial markets. Not a single asset class remained unaffected, including precious metals and bonds. More than a trillion dollars have been wiped out from the world capital markets on a single day.

The Indian markets were no exception to this, and the benchmark index tanked by more than two per cent following the announcement. India, which remained a darling of FIIs in the last couple of years, saw an exodus of foreign money. From June 20 to 26, we saw a total of around Rs 18000 crore leaving the Indian shores, including equity and debt. This has not only pushed our stock market down, but has also severely impacted the external value of the INR. The currency has fallen by a whopping eight per cent in the past month alone, and as I pen this edit, it has closed at its all-time low, below 60 a dollar.

For a country like India, which is a net importer, a weaker rupee poses many macro-economic problems including the widening of trade deficits. As far as our imports go, the major chunk is of oil & gas, which constitutes 34 per cent of our total import basket. In the last year alone, we spent around 8.5 per cent of our total GDP towards the import of petroleum products.

In our cover story for this issue, we have tried to analyse this problem objectively and the ways in which we can cushion our vulnerability to the sudden outflow of foreign money. This led us to the energy sector, which surely has the potential to protect us from such volatility and turn the tables for India. However, this requires astute planning, implementation and execution. Moreover, we require our policies and regulatory structure to work in the right direction with a long-term vision to promote this sector. We already have before us the example of another emerging economy Brazil, which has engaged in a continual movement for attaining self-sufficiency in oil despite changes in governmental leadership, political priorities and economic policies. This also throws open an opportunity for investors to invest in some of these energy companies that will benefit from the changing landscape in the sector. Do read our cover story to know more.

The sudden fall in stock prices in the last one month has made many people concerned for their investments and grapple with the question of how the stock market will chart its future course. This and related queries will be answered in our story ‘What’s In Store For The Markets?’

In our analysis for this issue, we reflect on an interesting parallel between the turnaround of fortunes for the Indian cricket coach and the fate of ambitious acquisitions in the corporate world. The last fortnight marked an important corporate takeover, where Indian tyre major, Apollo Tyres acquired US-based tyre manufacturer Cooper Tire & Rubber Company for a consideration of USD 2.5 billion. This once again showcased the growing appetite of Indian entrepreneurs to go global. However, despite this acquisition giving Apollo a presence in USA and China, its stock has crashed nearly 40 per cent. We have analysed this deal and have tried to look at why this news was not received positively by the markets.

In our Low Priced Scrip section, we have recommended Govind Rubber, which is primarily into manufacturing tyres for two and three-wheeler vehicles. The robust expansion plans that the company has undertaken indicates a rather promising outlook for the company's future performance.

Our Choice Scrip recommendation this time around is The Byke Hospitality. So far, this company seems to have gone unnoticed by the analyst fraternity. The company has six hotels in a few locations and is set to increase the number of hotels in the next few years. The Byke Hospitality’s story is all about wealth creation.

By the time we come to the next issue, some of the earlier results for the first quarter of FY14 will start flowing in. These would provide direction to the stock market on an immediate basis.