GMO Q2 Letter
Saturday, September 22, 2012
Currently, the absorption of residential spaces in the city is skewed towards the Rs. 3000–7500/sq.ft. price band, but there is also significant momentum in the price band of Rs. 7500/sq.ft. (4) and above. Bangalore’s luxury residential market seen a major transformation in the recent past, with the Kingfisher Tower setting a new capital values benchmark (northwards of Rs. 30,000/sq.ft) in the super luxury category. The new dynamics being seen now have been referred to as the ‘coming of age’ of Bangalore’s residential market, and I agree with this definition. We are certainly witnessing a remarkable maturing process here. According to our data, residential property capital values in Bangalore have increased by 25% since the trough in mid–2009, not factoring inflation. Currently, the absorption of residential spaces in the city is skewed towards the Rs. 3000–7500/sq.ft. price band, but there is also significant momentum in the price band of Rs. 7500/sq.ft. (4) and above. The upcoming supply in this category of homes is a clear indication of this trend. The short-term economic inhibitors currently at play across the country have definitely had their effect on buyers’ sentiments, but Bangalore’s residential market is still one of the most resilient from a long haul perspective.
CEO of Facebook Mark Zuckerberg has made it clear that Facebook has every intention of giving Google a run for its money by marrying social networking with one of the most valuable areas of the technology industry: Search. The Search market represents a “big opportunity” that Facebook is uniquely positioned to address, said Zuckerberg at a tech industry conference in San Francisco earlier this week. A global survey “Search & Social Survey (2011-2012)”, undertaken earlier in the year by leading independent digital marketing agency Greenlight, concluded Facebook could potentially capture close to a quarter of the Search market were it to launch its own search engine tomorrow, making it the second most utilised search engine in every major market except for China, Japan, and Russia, where it would occupy an uncontested third place. What’s more, the results from Greenlight’s survey also showed Facebook could increase its share to 50% within just a few years. However, the survey also indicated Google+ has been more successful than most may have initially speculated and as such, the agency concludes Google and Facebook will both be front and centre in ‘Social Search’. The survey also asked respondents if they clicked on advertisements or sponsored listings in Facebook. The alarming response was that 44% answered ‘never’. Facebook could capture close to 50% of the global Search market Greenlight surveyed 500 people - students, law enforcement professionals, medical staff, accountants, lawyers, the unemployed, and everyone in between, to ascertain how they engage with online advertising, search engines, and social networks, in order to glean insight into how consumers engage with marketers today, and formulate views on what the future might hold. The survey revealed 5% would 'definitely' use a future Facebook search engine if the firm were to launch one to rival Google's. The other extreme, those categorically saying they simply would not use a future Facebook search engine, totalled 26% of all respondents. Those responding in the 'Definitely' and 'Probably' camps totalled 17%. Those responding 'No' and 'Probably not', totalled 48%. “These stats therefore suggest Facebook could capture around 22% of the global Search market by simply launching its own search engine tomorrow morning (the 'Definitely', 'Probably', and half of the 'Don't know' respondents combined), says Andreas Pouros, chief operating officer at Greenlight. It wouldn't need to be a spectacular engine either, just well integrated into the Facebook experience and generally competent. What’s more, Greenlight’s results also suggest Facebook could increase that projected market share to a maximum of 50% within a few years by converting the least overtly loyal Google users over to them. However, that increase would need to come from the 27% of respondents who replied ‘Maybe, but only if it was better than Google and Bing’ ”. (Facebook already integrates Bing into its Search function, but it is a buried option in the navigational side-bar post query, so this really does not constitute its own search engine by any real definition). Google and Facebook will both be front and centre in 'Social Search' On the flip side, Greenlight found that Google's own social endeavours with Google+ might be more successful than most think. For instance, 23% of Google users have been +1'ing listings in Google's search results, giving Google lots of data about what people like. “When compared to the 35% of users that Greenlight’s survey found routinely 'like' a brand or company on Facebook, then it is not that significantly more than Google's social signal collection, particularly as 28% of respondents said they had no idea what '+1' actually meant, which will invariably decrease rapidly over time,” says Pouros. “Essentially, Greenlight’s research shows that Google and Facebook will both be front and centre in 'Social Search'.”
Indian stocks ended near 52-week highs on the back of a ~2% surge on Friday. Indian stock indices were among the best-performing ones globally. This week’s ascent can be attributed entirely to the Government’s new-found enthusiasm on economic reforms. Last week’s announcements were followed up with formal notification of FDI norms for various sectors. The Government also slashed withholding tax on overseas borrowings to attract critical foreign capital flows, besides approving an equity market scheme for smaller investors. The rupee too benefited from the UPA’s reforms push. The issue of UPA Government’s stability was also settled after the Samajwadi Party said it will support the Congress-led regime from outside. With the troublemaker TMC out of the way, the Government seems all the more emboldened to go ahead with pending reforms. Markets could rise further if the bottlenecks to fresh domestic investments are removed. Global markets also need to be supportive. However, one must be careful as inflation remains sticky and the RBI may take a while before slashing rates. The external situation also remains fragile, especially in Europe and China.
The Indian markets closed an eventful week with the Sensex rising 1.56% and the Nifty up by 2.03% for the week ended September 21, 2012. Headlines for the Week: RBI cuts CRR by 25 bps, leaves key rates unchanged August consumer price inflation at 10.03% India’s fuel sales up 7.8% in August India to cut tax on overseas borrowing by local firms Govt OKs 51% FDI in Multi Brand Retail
The market logged gains for third straight week on a slew of economic reforms announced by the government recently. The barometer index, BSE Sensex, reached its highest closing level in nearly 14 months. The S&P CNX Nifty attained its highest closing level in almost 14-1/2 months. The BSE Mid-Cap and the BSE Small-Cap indices outperformed the BSE Sensex. The market logged gains in two of four trading days during the week ended Friday, 21 September 2012. The stock market was closed on Wednesday, 19 September 2012, on account of Ganesh Chaturthi. The BSE Sensex gained 288.56 points or 1.56% to 18,752.83 in the week ended 21 September 2012, its highest closing level since 25 July 2011. The 50-unit S&P CNX Nifty surged 113.50 points or 2.03% to settle at 5,691.15, its highest closing level since 7 July 2011. The BSE Mid-Cap index advanced 3% and the BSE Small-Cap index gained 2.81% in the week. Both these indices outperformed the Sensex.
The government's next policy moves after easier foreign investment rules announced this week will dictate near term trend on the bourses. Volatility may remain high as traders roll over positions in the futures & options (F&O) segment from the near month September 2012 series to October 2012 series. The September 2012 F&O contracts expire on Thursday, 27 September 2012. Shares of sugar firms will be focus on buzz the government will announce reduction in subsidy on sugar made available to below-poverty-line (BPL) consumers under the public distribution system. The measure expected to be announced after a Cabinet Meeting on Tuesday, 25 September 2012, is aimed at reducing the government's good subsidy burden, reports suggest.
Key benchmark indices surged on the last trading session of the week, with the market sentiment boosted by the government on Thursday notifying the rules for allowing greater foreign investment in retail, aviation and broadcasting sectors. The government's announcement during trading hours today, 21 September 2012, of a reduction on taxes on overseas loans of local companies as well as announcement of a plan offering tax relief to retail equity investors, also boosted sentiment. Easing of political worries also aided rally on the domestic bourses after Samajwadi Party (SP) chief Mulayam Singh Yadav hinted at continuing giving outside support to the UPA, saying he does not want communal forces to come to power. The barometer index, BSE Sensex, reached its highest closing level in nearly 14 months. The S&P CNX Nifty attained its highest closing level in almost 14-1/2months. The Sensex jumped 403.58 points or 2.2%, off close to 115 points from the day's high and up about 340 points from the day's low. The market breadth was strong. Higher global markets also underpinned sentiment on the domestic bourses.