In this issue:
» Is the steep rise in food prices justified?
» World Bank's opinion on India's GDP
» Dadri power plant meets Singur-like fate
» HDFC sees a management overhaul
» ...and more!!

So, want to be like Warren Buffett? It is very simple. Do it like the Omaha's Oracle did it. Easier said than done isn't it, especially in the current environment. The asset class that seems to be the talk of the town is gold and other hard commodities. And to avoid the temptation of investing in them is akin to missing your favorite Tendulkar innings. But if your returns are to come anywhere close to those of Buffett's you may have to curb the instinct. For Buffett has never been a heavy investor in commodities. His disregard for gold is well known and he has never been an admirer of other commodities as well.

Instead, he has poured his entire faith in people and organizations that have turned these so called commodities into something that is perceived to be extremely valuable for mankind and then earned a fat margin in the bargain. In other words, the bluest of the blue chips. Companies that have, year after year, taken in the commodities and done something so valuable with them that their customers have had no hesitation in paying a little more for the same product every year. To sum up, if you want to handily beat inflation, commodities might prove to be a good hedge. We at Equitymaster have traditionally advocated upto 5% investment in gold. But to actually crush inflation, you've got to invest in companies with strong competitive advantages and available at reasonable valuations. And if you take these lessons to heart, ten years from now, you could well be ahead of the pack by a fat margin.


Data source: Statistical Outline of India

The steep rise in foodgrain prices have almost rendered them unaffordable for an average Indian middleclass household. Drought like conditions in few pockets and floods in some other areas made it all the more easy for the government to reason the steep prices. However, statistics tell a different story.

No doubt the shoddy state of affairs in India's public distribution system is to be blamed. But one wonders if there are other causes for the severe malnutrition and food shortage in remote areas of the country. Particularly in a state like Orissa that is one of India's most mineral-rich states.

As seen in today's chart, data from the Statistical Outline of India shows that the country has consistently increased its food production. Infact, even the per capita production has increased over the past six decades. There are 230 kgs of foodgrains produced a year to feed every Indian today as against a paltry 141 kgs in 1951. Despite this, much of it gets hoarded, wasted or lost in transit much before it reaches the needy. And this could also be a huge factor towards spiraling food price inflation. The government has a tough and imperative job at hand.

01:50

"The outside world's image of India now is of cutting-edge competitive companies that are going to take jobs away from the developed world." Few global experts have given such a reference to India in the past. However India's strong fundamentals and well guided crisis-management seems to have cemented its role in leading the global economic recovery. A business daily has quoted none other than the chief of the World Bank, Mr. Robert Zoellick citing his belief that the Indian economy is now a force to reckon with. Infact, the top banker sees both India and China scaling back their GDPs to account for a quarter of the world GDP, as was the case a few centuries ago. However, in the same breath he has added that the US retains a huge amount of dynamism, which is not going away anywhere.

The World Bank is keen to support India's infrastructural growth, including building rural roads. The bank has already lent around US$ 5.3 bn to India so far in FY10 for improving the power, roads, banking, rural development and water sectors. It only remains to be seen if India can make the best use of the funds and the opportunity.

02:40

While almost everybody would agree that we need to pay attention to creating infrastructure in India, it is easier said than done. State governments and companies also don't help their own cause. They often flout the rules in sensitive issues like land acquisition. As a result, grievances snowball into major headaches.

After the Singur fiasco, the scene has shifted to UP. The Allahabad High Court has cancelled the acquisition of 2,500 acres of agricultural land for the Anil Ambani group's Rs 250 bn gas-based Dadri power plant. Apparently, the then state government had passed a notification claiming the land acquisition for 'public purpose', when it was meant for a company. Also, agricultural land should not have been acquired as per Land Acquisition (Companies) Rules, 1963. The state government also used 'emergency provisions' which should only be used in extraordinary cases. Agreed citizen agitations are not unique to India. However, large Indian corporates need to certainly examine whether their conduct is as responsible as it should be.

03:35

Meanwhile, commodities guru Jim Rogers continues his rant against the US dollar. "The US dollar is a terribly flawed currency", he is believed to have said. He further added that the US, as recently as 1987 was a creditor nation and now it is the largest debtor nation in the history of the world and this will continue to cause problems. Thus, as the US keeps borrowing, the value of the dollar will continue to debase and hence, investors should put their money in commodities like oil and gold as their demand will continue to outstrip supply. This is in sharp contrast to the US dollar where relentless supply by the US Fed could cause a huge drop in the value of dollar.

04:09

You can call it the end of an era. The legendry Mr. Deepak Parekh, chairman of the HDFC Group, has often been called the Father of India's financial revolution. Mr Parekh is set to step down as the chief of the HDFC group this month after a stint spanning three decades. He has been the CEO of HDFC for the past 16 out of 31 years of his association with the company. He is credited for not just building the corporation and making it what it is today, but evolving the concept of mortgage credit in the country. One of the reasons for HDFC's untarnished asset quality despite the turmoil in the real estate market has been Mr. Parekh's deep understanding of the construction business. Kudos to the person responsible for building one of the country's truly blue chip companies.

Mr. Parekh is being replaced by Mr. Keki Mistry who has been with the company since the past 28 years. Mr Parekh's succession planning comes without any hiccups given the profile of HDFC's top management and the history of their association with the group. However, his keen sense of business ethics could certainly find more takers.

04:30

After being beaten down on the back of news of the Dubai debacle during the previous week, stock markets worldwide recorded weekly gains this week. India's benchmark index, the BSE-Sensex ended the week higher by 2.8%. Infact, Asian stocks posted the biggest weekly gain in seven months led by the Japanese markets where the benchmark index ended higher by about 10%. It was followed by China and Hong Kong, which ended higher by about 7% each. The foreign institutional investors (FIIs) seemed to be willing to take full advantage of the fear surrounding the markets following the Dubai debacle. They invested nearly Rs 42 bn (net figure) in India during the week. The fact that the Indian economy posted strong second quarter GDP growth numbers also made markets buoyant. The domestic mutual funds also were in shopping mood as they invested nearly Rs 29.3 bn (net figure) during the week.


04:55 Weekend investing mantra
"Long-term shareholders benefit from a sinking stock market much as a regular purchaser of food benefits from declining food prices. So when the market plummets - as it will from time to time - neither panic nor mourn." - Warren Buffett .

-----------------------------------------------------------------
The best way to find yourself is to lose yourself in the service of others.”
Mahatma Gandhi