Had she ring fenced him and Harvard educated Finance Minister Chidambaram from the Left and their Jurassic ideologies, and allowed both to do their jobs, we would not be where we are today.

Had she also not given in to the propensity to continue in power as long as possible, but had, instead, taken a cue from both Gavaskar and Gates, who retired at the peak of their careers, and been bold enough to call elections last year, when things were good and inflation under control, it would have ensured another innings.

The going was ‘seemingly’ good, one could add. The fiscal deficit was apparently falling within the limits of the FRBM Act but was, in reality, shooting well past it due to creative accounting; the sort that, in the corporate world, brought down Kenneth Lay of Enron. Expenditure which ought to be shown in the Budget, such as subsidies on petro products, or on fertilisers, were not, thereby fictitiously bringing down the fiscal deficit and partly compensating PSU oil companies and fertiliser companies through issuance of bonds. These bonds become a liability for a future finance minister; hence a tax burden on a future generation.

This was accompanied by a loosish monetary policy, albeit not anywhere as loosish as what the US Federal Reserve is doing. Result: inflation, which is close to 12%.

Of the petro product subsidies of around Rs 230,000 crores an insignificant portion goes to the truly deserving, for their cooking needs. A chunk of it goes to support an oil mafia that adulterates diesel with cheaper kerosene, causing environmental and health problems. There are several other pernicious effects.

The cheaper petrol encourages overusage as people buy gas guzzlers. The resultant crude oil imports weaken the rupee. Now, instead of encouraging new oil, which NELP VII seeks to do, the Finance Ministry, starved of resources despite having got the biggest ever increases in tax revenue ever, is trying to restrict tax concessions under Sn 80(1B)(9) only for oil and not for gas. Those who take the risk of bidding for blocks do not know whether they will find oil, or gas, or both, or neither. But such has been the utter wastage of tax revenue, that the Finance Ministry is looking more to its own interest than that of the country.

The US has increase petrol prices which are now over $4/gallon, resulting in a decline in consumption for the first time in 17 years. Governments of emerging economies like Indonesia, Thailand and Malaysia have increased theirs by 30-40%, causing a drop in consumption. We do not have the courage to do so because of resistance from the Left parties. Interesting, communist China has done so!

Such servility to the Left, which has not accepted the responsibility to be a part of Government but lends outside support to it (withdrawable any time) is now leading to the stand-off that is causing nervousness in the stock market. Had the UPA Government found its backbone last year, and called the bluff, it would have had a far better chance of re-election than it has now, with inflation and the fiscal deficit running amok. The Congress should have done a Gavaskar.

Now that inflation is running high and elections may be nigh (needing inflation to be tamed fast), the RBI has gone aggressive with interest rate hikes. It hiked the repo rate (at which it lends to banks) by 0.50%, and CRR (which banks have to deposit with RBI) by 0.25%. In turn, commercial banks like SBI and Union have raised PLR by 0.5%. Deposit rates would also be raised soon; net of inflation they are hugely negative. When deposit rates rise, equity markets fall since debt becomes relatively that much more attractive than riskier equity.

This also sucks money out of the system, and farmers are finding it impossible to get loans for planting in the kharif season from co operative banks and difficult from commercial banks. So the debt waiver of Rs 70,000 crores will come to naught if farmers do not get credit and thus cannot plant crops, in the coming season. Given that there is also a huge shortage of fertilisers (despite the Rs 90,000 crores subsidy for them) this can affect agricultural growth; and hence GDP numbers.

The corporate sector is tightening its belt, cutting down costs such as travel costs and vehicle costs, and giving notice to non performers. In contrast, a recent VVIP visit to Mumbai witnessed hold up in traffic for a cavalcade of 40 cars to pass through! The pay commission has awarded steep pay increases for Government employees, none of whom are ever sacked, and the Parliament has hiked fees for MPs to witness their walk outs.

Oil prices have now hit $ 142/barrel. A lot of it is speculative demand; there are fully loaded oil tankers awaiting demand for the oil! So, it is quite likely that the speculative demand for oil would come down, bringing with it a much needed relief. This is likely when the US Fed increases interest rates; it hasn’t, unlike most other countries, including the EU and India.

Last week the sensex fell 769 points, to 13802, including a teeth shattering 619 point drop on Friday. Of the 769 points, ICICI Bank contributed 132, L&T 113 and Infosys 85. Reliance Industries (RIL) was positive at 90, followed by TCS with 1. RIL’s gas from the KG Basin is to start flowing from Sep and, as directed by the Government’s priorities, will flow first to fertiliser, then to LPG and then to existing power plants.

What is interesting is that for the four days to Thursday (Fri information not available), domestic mutual funds were net buyers on all days whilst FIIs were net buyers only on Tuesday. This indicates availability of domestic money at attractive levels..

Tata Steel produced consolidated results (with Corus) with sales at Rs 132,110 crores (second to RIL) and PAT at Rs 12,350 crores. ONGC, with a PAT of Rs 19,872 crores, has the highest profit of an Indian company even after being eaten away by Government, its majority owner. It is doing much to assure energy security for the country but its capex plans are bound to be hampered because its profits are eaten away so that you and I can get cheaper petrol today, and probably have to cycle to work tomorrow! Myopia, thy name is Government!

The fundamentals that created the India story remain. Our demographic profile, with over 40 m. people going to be added to the 19-25 years (most productive) workforce in the next 5 years, the huge domestic market for almost anything that can be produced, the entrepreneurs that pop up now they have been given freedom to be so, the growth of the service sector etc. What defeats all these advantages is poor governance. With an election coming soon one hopes that governance will also improve. After all, we have seen how good administration helped a reelection in Gujarat and how poor governance led to a defeat in Karnataka.

The sensex, having broken the 14,500 support, could now find support at around 12,250 levels. Given the political drama that will be played in the next week over the nuclear deal, the market could swing either way depending on whether the Government survives (in which case a sharp rally will ensue) or falls. It could survive either with the Left backing down (unlikely) or Mulayam lending support (more likely, given the right incentives).

The next few weeks should be spent deciding what to bottom fish for and buy. As mentioned earlier, the underlying fundamentals are good and hopefully governance will improve. And yes, spend the time also watching Wimbledon!

Source: Gandhi, Gavaskar and Gates

Growth generally means better returns. And growing returns. Bank deposits generally give you more steady and stable returns.

Investing in stocks directly.

But what if you know nothing about the stock markets and are unsure which stock will actually do well? Just because a company is a “blue chip” today, does not mean it cannot fall into bad times in the future. Century Textiles and Bombay Dyeing were blue chips and “must own” stocks twenty years ago but today they have lost that stature. Infosys was not even a listed stock fifteen years ago and today it is one of the Top 5 stocks in the market. Investing in shares for long time periods is the only way to make really good returns. But, then, one needs to know which stock to invest in and always be on top of things in an ever-changing business world. And that requires a lot of time and effort on your part.

Investing through a “professional investor”.

A more common way of investing in the stock markets is by investing in mutual funds. Mutual funds take money from many individuals and then buy a basket of shares. This allows the investor to own a “diversified” basket which covers stocks in many sectors. The theory here is that the fund manager – the professional investor – is smart enough to have selected the correct stocks for the portfolio; will always monitor how the portfolio of stocks he owns on your behalf is doing; and will always look out for better stocks to buy. For all this effort, you pay the mutual fund a management fee for the services of the professional investor.

Great in theory. And a wonderful concept. But, what if you chose a professional investor who was not that good at picking the right stocks?

There are over 309 mutual fund schemes that invest in the stock markets. How sure are you that you will be able to identify the best fund to match your needs?

The Nifty 50: 5 in 5!

Maybe there is a better way to invest your money without having to waste your time worrying about picking your own stocks or even selecting a mutual fund? Well, there is: invest in a fund that tracks the Index. If you had bought a fund that tracked the NSE-50 Index you would have made 5 times your money in 5 years.Without any time wasted worrying about which stocks to buy or sell; or which mutual fund to subscribe to.

In stock market terminology buying an “index fund” is known as “passive” investing.

5 times in 5 years sounds like a pretty exciting passive investment to me.

NIFTY -50 INDEX: Up by more than 5 times in 5 years…

Sources: Bloomberg

* Past performance may or may not be sustained in future.

Now before you rush out to invest with a hope of making 5 times your money in 5 years, recognize the risks that stock markets can fall sharply and suddenly. Sometimes the markets recover quickly and sometimes they seem to bounce around going nowhere. And you may not make 5x your money in 5 years. You could make less. Or more. Or you could even lose a chunk of your investment. Past performance, as they correctly say, is no prediction of what the future will bring.

But stock markets are unpredictable and complicated – that is why you don’t wish to buy shares directly, remember?

And mutual funds have so many complications too: your choice of the kind of mutual fund you want to invest in; the best portfolio manager to look af ter your investments; the higher costs of most mutualfunds.

Take the easy way out: invest in the Quantum Index Fund (NFO closes on June 20th) which is an exchange traded fund (ETF). The Quantum Index Fund will trade on the NSE itself like any other stock, such as Infosys, Reliance, or Tata Steel.

The Quantum Index ETF

The Quantum Index Fund would be traded on NSE and will buy all the 50 stocks comprising the NSE Index and stick to it during good and bad times, like a good Indian wife. Stocks which are not in the Index cannot be bought.

Why you should consider the Quantum Index ETF

• No pains of doing research in selecting a single stock or sector and taking the risk of the specific stock or sector, which may or may not do well.

• Well diversified exposure to stock markets and economy of India-NSE 50 Index comprises of 50 blue chip stocks in 21 sectors, so lowers your risk and dependence on any one stock or sector to make you money.

• No need to track the NSE Index portfolio, a committee of eminent market professionals monitors the NSE Index and makes changes based on well laid-out criteria .

• Low cost and easy way of making an initial investment: subscribe at the NFO.

• Low cost way to add to your initial investment by buying the Quantum Index ETF on the NSE (on listing) – just call your broker or use your online broking account.

Source: How 50 Gave You a ‘5 in 5′

This equates to US$500 billion by the end of 2012. As you can see by the chart for Tata Steel, which is up 663% over the past five years, there are select companies that benefit from this type of government largesse.

But there is another company, a pure play, that will benefit directly from India’s rising GDP and its continued quest for a modern road, rail and power network. And due to a recent change in banking laws in conjunction with an acquisition, it has the catalyst needed for dramatic share price appreciation this summer. But you’d better act fast. Read my free report today.

Christian DeHaemer

Editor, Material Profits

This super-safe $15 stock is the “sleeping giant of India”. Most investors think they can’t own it, but they’re wrong!

While plenty of Americans know that China is a fast-growing economy, a small group of investors are making seven times more money investing in India.

And right now, you have a rare opportunity to slip through a “secret backdoor” and own shares of this $15 Indian company that I guarantee will post a triple-digit gain in the next 12 months… or your money back. Over the next five years, you could see 10 times that amount… maybe more!

Keep reading to learn more…

In fact, I nearly decided to skip the writin’ part myself this week and leave the heavy lifting to your contributions, because you guys are smart and I have caught a bad case of Spring Fever.

Chances are you have it too. As I write this (Thursday afternoon), with the exception of a small swath of the US Midwest, we here on our side of the equator are under the influence of glorious spring weather.

Here in Boston, we may hit 70 degrees for the first time in something like 175 days. But I won’t brag too much, because I am sure IDE readers under the equator are grooving on some spectacular autumn weather. Still, in lieu of bagging it altogether this week, I’ll be rolling down the windows for today’s ride.

I have spent most of the day, as I do a couple times week, running through a spreadsheet of my projected valuations for about 200 companies that trade on the Hong Kong Stock Exchange.

And before you get the idea that I am going to use that as a sleazy no-value-to-you entry point to talk about my newsletter, let me dissuade you of that idea, immediately.

Like you, I quickly tire of email gabbers who offer nothing more than lame ideas that somehow are shoehorned to fit their high-dollar newsletter’s point of view.

I read one recently – all the way through – that was making some truly ridiculous points about the power of micro-cap investing. And sure enough, after making it appear as if the Pink Sheets were a secret market stocked with nothing but profit whales, the author closed by referring me to a penny-stock service.

One, I assumed that has done what no one else has – found a way to make billons of dollars off of the Pink Sheet garbage pile… and if I don’t subscribe today I’ll die a penniless wretch… hey, maybe I have a future as a copy writer.

WARNING: SHAMELESS SHILL AHEAD – Of course, that’s what I really like about IDE. Yes, missives from Charles, Lynn, Rusty, Andy Gordon, and Rick contain advertising but – and it’s a big BUT – 99% of the time you’ll not find a self-serving word among that crowd.

You get free stuff… actual professional market insights… with an absolute minimum of hassle.

So anyway, back to my spreadsheet. I was digging though my HKEx forward valuations, which you can buy for a zillion dollars because it’s only stocked with whales, and I started noodling around steel company valuations.

A warm breeze was wafting through my office windows and next thing you know I was naked with daisies in my hair romping on the front lawn singing, “When the moooooon is in the seventh house and Jupiter aligns with Mars… Leeettttt the sunshine, Leeettttt the sunshine in, the sunshine in.”

Whoops. I mean the next thing you know I was looking at the global steel industry as a whole.

I found something interesting that pertains to the Indian steel industry.

It looks to me as if Indian steel stocks are headed toward some very attractive gains after suffering a pretty stiff correction during the past three or four months.

The best I can figure, most of that dive was due to misplaced fears of weak earnings caused by robust raw-commodity prices.

And, while costs are an issue, I think Tata Steel and Steal Authority of India (SAIL) are due for a nice bounce… 15% to 20% over the short term.

In fact, they may even be sweet long-term value plays considering that they trade at about a 35% discount to their global peers. On top of that, it looks like India’s government is set to step in and regulate prices… but in favor of state-owned SAIL. That means, at a minimum, jacked up prices could help all Indian steel outfits with second- and third-quarter earnings.

This, at worst, should create a solid short- to medium-term low-risk/high-reward scenario for investors.

Now, as promised, a word about the Saturday IDE opinion challenge, which is a very simple concept.

Since we’re more relaxed here on the weekend, I thought it would be a great place for you to share your opinions… but, not in the usual two-line “hey a**hole,” way, but in the longer sign-your-work way.

So, we’re opening up the spigot for your opinions… as long as they are decently well-thought and not more than 350 words long you’re in… I’ve got about 12 queued now… and as I said last week, don’t worry if you’re punctuation and grammar shy – I got people (me) to give you a hand up there.

So, pen your opinion, paste it into the reply tab down below, and I’ll work my way through them and publish one to two a week, at minimum.

Easy!

See you next week. I’ll be the one with the big smile and the sunburn.

Now, let’s turn things over to Bob then Kevin, both of whom show you just how easy it is to make a good, engaging argument… I am hearing footsteps.

Lock and load.

Andy

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.