Friday, 12 December 2008
Are we De-coupling?
Thursday, 4 December 2008
Back to Business?
Saturday, 29 November 2008
Terror Strikes Mumbai
After a crime is committed and the suspect is arrested, many time it so happens that it takes six months to an year until the charges are framed, then comes the trial where lawyers take advantage of the loopholes of the detective system or the investigations and are able to save the criminals from sentence. There are umpteen instances where criminals have gone Scot-free because of the delayed (and therefore shoddy) investigations. Justice delayed is justice denied and therefore we have to take steps to speed up the process of justice.
Stock Markets: Markets rallied in spite of the terror strikes in Mumbai. There is a lot bad news happening around the world about more an more banks wanting bail out packages. Worlds largest automakers also want bail outs, The American dream wants a bail out package and industry leaders are asking for virtual nationalization of their industries in US. These are bad times, if you have bought when the markets bottomed in October then SELL NOW only to buy when the markets retrace the bottoms again.
Sunday, 23 November 2008
Policy reassurance
Now we move over to the G-20 declaration: All the leaders of G-20 countries pledged to counter this crisis and do whatever it takes to tackle the situation. One thing that comes as a cropper in this deliberation is the mandate to formulate accounting policies to value illiquid securities. How do you value a security as X amount when nobody is ready to pay that X amount to purchase the security. the fundamental basis of value or price is the agreement of two parties to exchange that asset at a price or value. So what is the value or price of the security that is ILLIQUID?
Monday, 17 November 2008
India ahead
Come 2010, India will be a show case of withering financial crises and the financial storms. Then we will witness the world giving India its due as the thought leader of the world.
It was India which invented the ZERO to teach the world to count beyond 9, It was India which helped the world adapt to the understanding that years should be counted in four digits and not in 2 digits (remember Y2K?). Now It will be India again which will show the world that the middle path or the mixed economy is the correct way of managing ones economy, that is the way to absorb the shocks.
My definition of mixed economy is a little different from that of the popular one!
Here we have an organised industry, American Style with 12000 listed companies on the stock exchanges, investment banks, commercial banks, mutual funds, and all the trappings of the so called developed world.
Then an unorganised industry of big and small businessmen who have never been part of the organised world. people who have bought plots, built homes and managed families oblivious to home loans, income taxes and PAN cards.
Another part of the economy is the co-operative one, we have borrowers co-operatives running finance operations, cane suppliers co-operatives running sugar factories, consumers running consumer co-operatives, farmers running Agriculture produce marketing co-operatives... i.e. generally all those who have no bargaining power ganging up and setting up down stream co-operatives to manage their own interests. This also meant that depositors or capital providers of finance co-operatives are at the mercy of the borrowers who are also the owners of the finance co-operatives, Sugar consumers and sugar factories at the mercy of sugar cane suppliers (raw material suppliers), etc.
Prima facie, doesn't it seem like we have segregated the problem areas and kept them at arms length distance from each other?
So, In India we not only have a mixed economy, but also a segregated economy and thus "bad" credit, "bad" customers, "bad" suppliers and "bad" consumers are segregated in the economy and do not have anything to do with the "organized" sector.
That's the Indian Economy, cheers!
Wednesday, 12 November 2008
Indian Industry comes of Age
This is also an answer to those who talk of India not being on the radar of global companies. This also proves that more than 50% of global companies are eyeing the ever growing markets of India.
Apart from these companies, there are scores of foreign companies which have a presence in India, some of these interests have been built up in the last two decades of liberalization and Globalization. With these business interests and their lobbyists it is hard to break away from the global economy. But this association itself will guarantee the stability of democracy and the continuance of principles of economic management followed in the last two decades.
Monday, 10 November 2008
China Shows the way
The government should take a cue from the Chinese government and start a resurgent India programme of stimulating investment. We cannot tamely sit back and murmur about slowing growth, we have to do something ourselves and cannot expect FDI to walk in into India. Unless government starts investing private investors will not bring money to the table. This is a blackjack game where the house has to deal first and put money on the table, unless the players are convinced about money available to be won they will not play. That sums up the need for creation of investment climate in the country.
Saturday, 8 November 2008
Information processing speed is the key!
For example steel prices declined by 30% in the month of October (This information is from the market and not from a government source and we are on 8th of November) if this information is available to an individual like me in a remote town in India, why is it not available to Government data collectors?
Iron ore prices have crashed starting from September through October and it is common knowledge in mining areas that iron ore miners, transporters and traders are in dire straits, does this information reach the government or it will reach when one of the transporters, traders commits suicide or one big timer goes bankrupt?
Tata Motors and Ashok Leyland have cut production of commercial vehicles as thousands of HCVs are lined up in the second hand market. A result of ore transporters losing business completely. Does this reflect in the statistics of the Government now or will it reflect only in December 2008 or January 2009. Would it be any useful to the policy makers or the public to know this after most of the single truck owners have defaulted on their loan payments and their trucks confiscated?
There is an immediate need to tone up the information gathering process and make it real time. In this era of IT and e-governance this is the least our government can do, more so, when we proclaim to be the World leaders in Information Technology.
Tuesday, 4 November 2008
Wrong Prescription Again
Injecting liquidity is a very short term measure for the markets and the economy. The patient wants vitamins, proteins and carbohydrates so that he can get up and start walking again. I am talking about the Indian Economy. But, our doctor has given him a pain killer and a bottle of glucose. I met a friend here, who said this liquidity injection is like a ritual we have in our homes during January (Sankranti) : we pour sweets, chocolates, puffed rice, sugar cane pieces and coins on the small kids in the house. We call the neighbouring kids who will sit around the kid and collect all the sweets, etc. and then go away. The same thing is going to happen here, injected liquidity will find its way to the stock markets and other markets to buy puffed up stocks which will be downloaded by the FII's.
Expect the markets to come down after the initial euphoria of the liquidity injection and the US Presidential Election. This bearish phase in the Indian stock markets will last till the middle of next year (of course, I am repeating this line again!). So, if you have bought when I wrote BUY you could offload the stocks now and make a neat 10% gain. the Regulators, Government, Politicians and FIIs will give enough opportunities to re-enter the markets at better prices.
Friday, 31 October 2008
Dollar Shortage? and Mergers
When these large banks gobble up smaller banks they are getting a large customer base, acquiring which would have cost them a bomb. Many times this comes gratis and that's the great thing about crisis and acquisitions during crisis. (Remember Bear Sterns was bought over for a song, lock stock, barrel and clients included!)
The Indian markets will rally another 5 - 10% in the next week and then we should expect another bout of selling from FIIs and a correction.
Look forward to a hard take on the state of Indian markets in the next post.
Till then, have a nice weekend.
Wednesday, 22 October 2008
Where is the Bottom for the markets?
On Indices I would like to remind about the famous Samuelson "Indices are prepared by a committee which looks for the popular stocks and unpopular ones are eased out of the calculations, making the indices go up when the constituents are going down." So, whats the moral of the story? Start buying ETFs on the nifty (NIFTYBEES) and accumulate slowly. That will mirror the growth in the indices in the next bull run. All of us have a chance to participate in the next bull run as this bearish phase will be painful and long drawn up to the end of June 2009 when the new government takes over in India. Regardless of the colour of the government, the freshness of the incumbent will lead to better and clearer thinking on the policy front and may be, we will find the same policies continued forward as new initiatives. Nevertheless they will be from a new face in the Government and therefore will have a good feel about them.
So, start accumulating stocks for the next nine months and be ready to participate in the next bull run.
Saturday, 18 October 2008
The oracle speaks once in a while
What happens when you go to the doctor when you are ill? he treats you to make you feel better first and then treats you to actually make you better. Our doctors have tried hard to make us feel better but we have not been feeling better at all . they have also started the dose of medicine and have started treating the symptoms. We only hope that they start some homeopathic treatment which will go to the root of the problem and remove the ailment.
Indian markets seem to have gone back three years and there is a consensus building up about further losses. FII's have been pulling out of the markets in a big way. Retail investors are coming in with hordes of cheques for buying, but selective buying has emerged outside the ambit of the Indices. A look at the PE ratios tells us that the prices are compelling and the most industry PEs are around 10. that's the time to buy. Of course you can expect volatility of 15% but can anybody really catch the bottom therefore...
BUY BUY for Now.
Wednesday, 15 October 2008
THE CRR CUT
If you were running a bank...
Would you lend to the farmers for buying seeds, tractors, harvesting equipment, hauling equipment, etc. only to be told later that you can forget the loan and it will converted to a 10 year govt bond earning you a measly 7%?
Would you lend to a small scale industrial entrepreneur who does not know what are accounts and who would hide all his misdoings as stock/inventory in his balance sheet. would you finance his junk called inventory and wait till he defaults and then reschedule his loan so that it does not pop up as NPA on your books?
Would you lend to the sophisticated corporate who would indulge in speculation in real estate setting up useless malls in the remotest of places, where people do only window shopping?
Would you lend to Mutual funds who are facing redemption pressures and holding stocks which have come down 80% of their purchase price. Most of them junk as they were bought chasing unrealistic dreams?
Would you lend to salaried class who are already peeved at their finances and are in no need of more loans?
Would you raise credit card limits, lend for two wheelers, personal loans, etc and write away all the money?
What would you do with this liquidity?
Is liquidity the problem? Is Inflation the problem? Is complacency that "India has slowed its growth to 7.5%" a problem?
This Diwali seems to be more of a Diwala than Diwali.
By the way expect some relief from the markets tomorrow on the back of the CRR cut. But global cues will be bad as always and will act as dampeners.
Tuesday, 14 October 2008
Hold your money, its still not time to buy
A Student of mine has posed a question: He asks "why is the dollar appreciating when the US govt is busy printing and doling out "helicopter money"?". The answer is simple the supply of dollars is less than the demand for the dollars by those financial institutions who are selling hard in the emerging markets and taking the dollars home in search of great bargains in the ruins of the American Stock Exchanges. But the student has a point. This strengthening of the dollar is a temporary phenomenon. Wait till the chickens come to roost. The unprecedented money supply to create liquidity for worthless paper will boomerang into too much money supply and plunge the dollar to its correct PPP value. (One square meal in India costs $2 in a decent place in the countryside. How much does it cost in the US?)
As far as India is concerned we have a curious 12% inflation meaning a lot of money chasing few goods and the finance minister wanting to ease liquidity situation??? another paradox right? How can there be high inflation and low liquidity? My teachers taught me that high liquidity leads to inflation and to control inflation we either need to control liquidity or increase supply of goods.
So, in conclusion, wait till the wind blows over, This is a speculators world people only want to make a quick buck, nobody is interested in the long term well being of the country. US and India are in the election year the election has to get over, only the new govt will take medium term if not long term measures to stabilise the economy.
Wednesday, 8 October 2008
MELTDOWN? What does that mean?
Some fresh thinking needs to be done. We need to fix the supply side of the economics and bring in some sanity in thinking about the economy.
Indian economy will not experience the shocks to the extent that other economies are vulnerable as we are an inward looking economy and India is where the growth is for the moment.
The Nifty should bounce back from the 3350 levels and if something unfortunate happens then it will bounce back from 2800 levels (i.e. 9500 levels on the sensex).
The markets this time will bounce back because of retail buying emerging at these levels. The best bets will be again Infrastructure (we still need to build a whole lot of infrastructure), Cement, metals and energy.
Tuesday, 7 October 2008
Some prescriptions
Dear Sirs, please consider these suggestions, may be you need these simple ideas.
1. Anounce an ambitious program of Government Investment at least while leaving office. After haveing squandered nearly 1 lakh 50 thousand crores on farm loan waiver, sixth pay commission, raising individual tax slabs, etc. You owe it to the country to do something constructive too.
2. Speed up the process of approving SEZs and pester promoters to hurry up on setting up these SEZs.
3. Please take interest to allot land for the NANO project. Here interest means applying mind and not extending HAND.
4. Speed up the process of UMPPs and allot them to sincere corporates who want to implement projects.
5. NHAI has been forgotten. Let them do their work of six laning the the golden quadrilateral and let them take a few more projects.
Reduce CRR further and persuade banks give loans to people who want to pay back and not to those who want a waiver.
Do this and I will come upwith some more prescriptions.
Thursday, 2 October 2008
INSURER of LAST RESORT
This also props up a pertinent question. Does the state need to bail out private business and absorb losses? Does the state need to disinvest while making profits? The answers are obvious: The state cannot take risks but can underwrite all risks and the STATE is the INSURER OF LAST RESORT.
Monday, 29 September 2008
European banks are falling like nine pins
what next? the central banks will bank roll these banks in trouble and take the assets on its own books. So, now if you foreclose then you will turn over your house to the government. The govt of US is going to own a lot of homes in the next six months apart from owning the stocks of your homes. I read a few comments on this phenomenon and I think, the people who have been talking about very bad days or dooms day are simply frightening / scaring investors away. That's like telling your kid brother not to eat the chocolate saying that is tastes bad and slyly eating one yourself.
If you believe in your country's progress and the progress of your fellowmen. If you think that business can be conducted and profits can be made then go ahead and buy stocks. Buy stocks of companies that have been around for 25 years or more and don't worry about their immediate problems. This too shall pass!
Saturday, 27 September 2008
Should Indian markets follow American markets?
Aren't Indian Financial Institutions better off than the Americans as of now? India does not have a sub-prime problem! It does not talk of falling consumer spending. We have higher inflation - meaning more money chasing less goods. banks are wary of providing loans as usual and in the last five years the Indian banking system has been cleaning up its act by reducing non-performing assets and shoring up capital adequacy ratio. This should lead us to a stronger financial system and not a weaker one. Indian Sup-prime market is full of "Prime" cooperative sector. these loans are not scrutinised and therefore not tradeable. These loans will always be held till maturity or default, whichever occurs first. The cooperative sector has nothing to do with the corporate sector or the organised banking sector. So, there is no threat of the same thing happening in India.The range for nifty remains to be between 3800 and 4300. expect some positive news on the nuke deal and thus expect a decent opening on Monday.
Tuesday, 23 September 2008
The N-Deal will bring a whiff of fresh buying
Sunday, 21 September 2008
An Hi-FIVer tomorrow and an opportunity to exit stocks
AIG being taken over by the federal government means a lot to the industry. I have been getting calls about the future of AIG and my stock answer is that there is no bigger person on this planet than the President of US of A to own a business. In India we have a peculiar scene, TATA group the most trusted group has a joint venture with AIG (now the property of the federal government). IRDA in India has water tight investment rules and thus, there is no cause for concern for the insurance policy holders.
So, where do we invest in India now? of course the Infrastructure sector because that's where all the money is going. if you want to buy a stock and forget then buy reliance infrastructure limited keep it in your demat accounts and forget about it for a decade. It will finance all your dreams at the end of the decade.
Thursday, 18 September 2008
PLUNGE PROTECTION TEAM ON OVERDRIVE
Central bankers want to provide liquidity to what CDOs? My question is why should these bonds have a market at all and who in their sane minds will buy them? Real estate prices have been jacked up by speculators and these prices have been considered as "values" and then securitized. Do we need to bail out such operations?
Another difficult thing to understand is the commodity ETF. Lets take an example GOLD ETF, what kind of people are buying these things? Aren't they speculators in gold? Are we going to encourage speculation in gold now that our help in speculation in real estate has come to a nought?
Again, if there is some lucky sane mind reading this blog, please sell dollars, dollar is a goner as of now. US stocks will be available for their fair prices and Indian stocks too. Remember the golden rule is to buy only those stocks whose PE is less than 10 don't touch high fliers they will not survive. Money is always made in unglamorous ways by working hard and soiling ones hands and not by speculating and putting values on others toils. Go back to basics, follow the oracle of Omaha and buy value, buy businesses that you understand and diligently add money to your wallet.
Expect a knee jerk reaction from the European zone over the weekend. All these central bankers are throwing good money (supposedly) after the bad.
Wednesday, 17 September 2008
Uncle Sam owns CDOs, and doles housing finance for a song
In India the Govt owns most of the banking machinery but has not gone to these levels of profligacy. It has been outsourced to the co-operative sector. In the co-operative sector it is "Hush-a Bush-a, we all fall down" going on for a long time and RBI has been tightening the noose rightly. I am proud and happy that i was born in India in these times and have an opportunity to look at the misgivings of the US govt from a safe distance. Anybody interested in a free tip? go short all your dollars it will pummel to the depths in the coming 12 months.
Another prediction, beware of ICICI bank it has all the makings of an Indian Lehman. They are already hiding a lot. They have stopped all their personal and home loan operations for the last four months now.
Look for good old PSU banks who are conservative and good in their book keeping. there are plenty of them and they will shine in the next two years. Beware of flashy private sector banks (barring AXIS which has its head on its shoulders as of now.)
so long
Monday, 15 September 2008
Lehman goes dow under
I remember reading somewhere about technical analysts and investment gurus talking about why they went wrong when they predicted doom. All of them blamed the plunge protection team, you can see the plunge protection team in full action right now trying to salvage the situation in the markets. so untill our friend ben brings the moolah in, happy investing
Thursday, 4 September 2008
IPOs of the week
JK laxmi cement seems to be a good buy for the long term it is trading lower than its book value and has been adding a lot of brand value. Remember OM Puri talking about "chain ki neend ki guarantee".
bye for now