Article on blackrock

Good article on Blackrock

http://www.businessweek.com/magazine/content/10_51/b4208060601694.htm

inflation and salaried class

Salaries class is no longer bothered about rising inflation. They seem to be complaining a bit., but no angst or anger, frustration seen in their mindsets. This is quite significant as the public is surviving with higher inflation for the second consecutive year.

These could be the possible reasons....

1. The salary levels has gone up significantly over the past decade
2. which resulted in increased cash or surplus on hand
3. Increased job opportunity across all sections of society
4. Lower middle class is able to absorb the shock
5. Below poverty line's voice is becoming very feeble in electoral system and worse as the could be involved in "cash for vote" during election time

whereas rise in price of Sugar could impact all the sections of the society. That is why i feel there is no significant push from government to bring the price down barring sugar. Let us see how it is going to be over a period.

Impact of per second billing to Indian Telecom Industry

My own analysis on Tata Docomo's per second billing impact on indian telecom industry detailed below:

Background: Tata Docomo launched per second billing across country and it is proving to be a hit. This resulted in rate war and RCOM followed it up with 50p billing last week. Bharti, IDEA and vodafone are yet to react to it.

What does this mean to consumers: India is filled with pre paid customers like 80:20 ration to postpaid. People are price sensitive and can easily shift loyalties.

What does this mean to Industry: ARPUs are stagnating for the past 18 months and is around Rs.230-270 range. This could crash to 140-180 range if everyone follows suit on pricing.

What does this mean to vendors: Call center handles Rs.10 per call for telecom industry. Telecom players might ask the vendors to cut the price to Rs.2 to Rs.4 and can result in movement of call centers from metros to tier II cities.

IVR usage penetration might be made more user friendly. Managed services players will feel the heat as telecom majors might ask the vendors to handle calls at as low as 6paise to 11 paise.

Fresh capital expenditure will be put on hold and can impact switch players like CISCO, Avaya and vendors like Firstsource, Onmobile.

What does this mean to Employees: 12plus year experienced people segment was majorly active in telecom, realty, engineering. This segment is expected to feel the heat and salary cuts might happen shortly.

What does this mean to investors: Avoid telecom stocks until industry stabilises. Watch only ARPU as data point and not subscriber base.

Over all industry outlook: 2010 / 2011 will witness the character test of the industry. Some 3-4 Niche players might get wiped out and strong players would emerge as winners from the first ever major challenge of indian telecom industry.

Investors skipped SIP instalments in bear phase

Investors skipped SIP instalments in bear phase

Courtesy - BL Research Bureau

Retail investors in mutual funds are not only guilty of ‘timing’ their lumpsum investments, they also try and time their systematic investment plans (SIP), according to an industry data.

The data reconfirms the general belief that the retail investors refrain from investing at lower market levels and re-enter equity funds only once they see a rally.

Inflows through SIP into 17 leading mutual funds were muted in the month of April, with the number of new accounts added at less than 1 lakh. As the equity indices started to move higher, the number of accounts swelled, surpassing the two lakh mark in July.

It is also noteworthy that investors seem to skip their monthly instalments during bearish market phases.

The number of ‘failed mandates’ for SIPs (where the ECS was not honoured or minimum balance in the account was inadequate on the date of investment) also peaked in April.

Failed SIPs in fact outnumbered the new accounts created by a margin of 45,000 accounts that month. But the situation has changed dramatically by July, with new accounts outstripping failed SIPs by more than 50,000 accounts.

Average SIP collection


Poor market sentiment also impacted the average ticket size for new accounts added. The national average was less than Rs 2100 during April but increased by Rs 50 in the July. Among the four metros, Delhi tops the national average by good margin while Chennai was lower than the national average.

But the number of accounts opened in Mumbai was far higher than Delhi.

In all, the cumulative number of accounts held by the 17 mutual funds mentioned here is about 18.5 lakh, and they managed SIP assets of Rs 14,000 crore.

Less than 15 per cent of the retail accounts with the mutual fund industry are currently through the SIP route. One certified financial planner opines that the poor return from SIPs running over the last couple of years could be one of the prime reasons for the low participation.

Is Indian stock market immature?

Is Indian stock market act immature? This is the most lingering question i have. Our market lacks depth - that is for sure.

But immature? you might question....

i will explain this with two examples now...

1. Hindustan UniLever Q1FY10 schduled on July 28th. The stock prices was hovering around Rs.300 up from Rs.250 before 30-45days. CNBC's earnings estimate was 615 crore (10% up) and the earnings announced was Rs.543 crore vs Rs.558 crore.

Stock crashed from 303 to 270 in flat 20minutes. Lever was one of the heavy weights and this violent behaviour was unwelcome for a index stock.

2. Sesa Goa couple of days ago was trading at 250 levels. Government wanted to impose 10% royalty on iron ore mining activity - the news got flashed in cnbc. Sesa Goa plummeted to Rs.225 in the next 30min.

It is common for governments to levy royalty to mining companies world over. Is our analysts or traders not aware of this?

Both these recent cases confirm that indian stock markets lack depth, maturity and they simply over react with some herd mentality behaviour and our market participants lack contrarian view.

QIP

Recent trend of corporates coming out with QIP raises some pertinent questions:

1. Is the corporates starved of funds?
2. Did they borrow heavily earlier?
3. Is there a probability for asset - liability mismatch?
4. Could there be a long term solvency issue?
5. What could have happened if the stock markets did not improve?

Is the board of directors considering all these pertinent questions or they are simply playing along?

Procurement

Wheat is the major ingredient / input for making bread, biscuits. All private companies make consistent, contracted buying of wheat from farmers across India.

Government also buys wheat and wheat is also getting exported. This is creating competition across various players over a period of time and likely to result in crisis when production is hampered due to natural causes.

My concern is, does the government, FCI have got alternative plans to tackle unforeseen circumstances, protection of price rice for retail customers? I didnt see any major action on Rice price movement.... thats why....

Populism and Economy

Produce

Some one, say a farmer has one acre of land - they toil for 4 months to grow rice, they spend close to 14000-18000 to seed, grow, harvest.

How do they sell?

Government, if you live in Tanjore, cauvery delta buys it back. if the farmer lives anywhere else, middle men buys and sell it. Means, price is variable, it can be lower than the cost of production !

Government sells at Rs.1

Government provides subsidy and sells it at Rs.1 for the poor and needy. But rice is being smuggled across the state and there are innumerable instances of corruption, smuggling, tradingn reported.

Who benefits ?

It is the traders who make money - not the producers, not the consumers ! Price of Rice is hovering around Rs.34/- in open markets now for retail customers.

Satyam buy out episode - what lies in store

Satyam was an issue some time back., government intervened, superseeded a public company, nominated board members. The new board carried out damage control exercise, found the buyer, retained existing clients with continued service.

This is no mean achievement., and kudos to the new board.

What does it means to indian incorporate?

1. Tech Mahindra would end up borrowing close to 2000 crores to meet the funds requirement of buy out. It means, companies are willing to lend to credible borrowers.

2. Indians thrive on chaos - be it simple traffic or collapse of company. Management skills of indian managers deserves special mention during crisis.

3. Take the example of Enron / Arthur Anderson episode and compare with Satyam - The indian government took credible steps to ensure business continuity.

4. Top professionals take calculated risks and the respective boards support them. This is no simple step and indicates well being of thought process.

Let us hope we will go forward !!!

Corporates & Morality

Obama on AIG Bonus:

"This is a corporation that finds itself in financial distress due to recklessness and greed," But he said the impropriety of the bonuses goes beyond economics. "It's about our fundamental values,"

"All across the country, there are people who are working hard and meeting their responsibilities every single day, without the benefit of government bailouts or multimillion-dollar bonuses. You've got a bunch of small-business people here who are struggling just to keep their credit line open," Obama said.

"And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. That is an ethic that we have to demand."

If you think what Obama told is bad, then read this:

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves”. - Andrew Jackson, 1767-1845, 7th US President, when forcing the closure of the Second Bank of the US in 1836 by revoking its charter. (Contributed by Haresh Chetnani)

What went wrong with Subiksha?

Recently, Subiksha retail store was in news for wrong reasons - they went down, closed down all their shops (1500 or so) and facing a crisis for survival. It would take some time to ascertain whether Subiksha can bounced back - but it is to take some more time !

Background

Subiksha was started way back in 1997. They had 50 stores by mid 2000. They have grown to 1500 odd shops in 2008 across India. Turnover of the company was approximated Rs.2300 crore in 2008.

Retail industry operates on wafer thin margin of around 6-9%. Hence, operational efficiency could be a real winner.

What went wrong?

Simply put, asset liability mismatch. Meaning of it...explanation as follows:

One needs to spend certain amount as fixed cost (like rent, electricity, salary), one needs to have working capital for buying goods, storage, distrubition etc.... this can come with certain period of credit say 30days or so., but due needs to be paid regularly to avail credit facility.

One needs capital for expansion plan i.e from 50 stores to 1600 stores !

Promoter keeps negotiating for further capital., and rotate the money of various vendors, partners - at one stage goes out of steam and fail to meet the financial commitments !

Price of Rice shoots up

Price of Rice has gone up substantially in one year - from Rs.18 to Rs.40/=. I am talking about price of normal rice, packed rice etc in any of the retail shops in Tamil Nadu. I am ignoring Ration Shops for sure !

The surprise point is No newspaper is reporting it, no news channels reporting it; Forget that one - even the political parties who are bothered about Lok Sabha election votes are not exploting it !!!!!

I am unable to understand why no one shouting about the price rise of Rice - Puzzled, bewildered, worried. The government is supposed to protect the civilians by managing unusual price rises - they are not bothered ! Long Live our Democracy !

Zero sum game

In game theory and economic theory, zero-sum describes a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero.

Zero-sum can be thought of more generally as constant sum where the benefits and losses to all players sum to the same value of money and pride and dignity.

This is the moral of the story learnt from satyam's fraud.

Y V Reddy is great - New York Times

I have written previously about Y V Reddy's great work as RBI Governor. Now read out the post from New York Times:

http://www.nytimes.com/2008/12/20/business/20nocera.html?_r=1&pagewanted=1

Funny Song on Home Loan EMIs

Serious Definition of EMI Payment:

You take a loan from bank; They will give a payment schedule; They adjust your payment against loan books; Most of your EMI payments goes into interest adjustment and little portion of your payments gets adjusted against principal outstanding;

So you keep paying for 3 years and realise that principal outstanding never comes down and wonder where your EMI payment goes !!!!!

Now I borrowed liberally from Anbe Anbe song from Dhaam Dhoom to express our despair on the loan statement which we receive every year :)

Tamil version:

Nee Nee vattiyai yethikitte poga
Naan naan udan katupattu nadakka
Indha loan-ai ennikavadhu adaithiduvene
sambalam muzhudum enadhey
Yedhai koduthom yedhai yedhuthom
Theriyavillai kanakku
Yengu tholainthom engu
Kidaithom puriyavillai namakku

English translation:

You keep raising interest rate
I keep obliging
some day i will repay my loan
and would enjoy my salary credit
what did i give, what did i take
i never got into my mind
what did i lose, what did i get
i never understood

Trust, you guys enjoyed my version :)

Recession & Entertainment

Recession is looming large on us. So what will happen to entertainment? My take as follows:

 

1. No issues for Middle class food joints – Be it McD, Pizza corner in USA or our own Saravana Bhavan, Woodlands or gangotri. After all, these places would become hot meeting places to discuss the future plan of action.
   
2. Costly wine and dine restaurents – they are likely to face some 20 to 30% traffic slow down
   
3. Low cost beer pubs – they are likely to survive the slow down as they also become hot meeting places
   
4. Star based movies (like Ghajini, Rab Ne Banadi Jodi) and comedies would have strong possibility of survival than serious movies as people look out for strong entertainment than some "advice / sentiment" factors.
   
5. So., multiplexes would face very different atmosphere – star based movies would have a bumper opening whereas normal movies would have very slow pick up – in contrast;
   
6. Sports (around 3 hours duration) events are unlikely to face substantial slow down in audience participation – the effect would be marginal – around 15% or so;
   
7. SPAs and Resorts might have to cut prices to lure more walk-ins than ever before.
   
8. Sex might become a cheapest entertainment L

Global Recession - Now official !

Its now official - US has entered recession in Dec 2007 and all the statistics confirmed that !

Chinese manufacturing data injected severe fear yesterday and it is almost certain that Europe, US, Japan, Singapore entered recession too.

What does this mean to India?

India's GDP would considerably slow down - already exports are down by 12%, fiscal deficit balooning, automobile sales considerably down; So, just ignore the pep statements of P Chidambaram and Montek Singh; India would be entering troubled waters starting this October;

If our folks employed in USA, Europe comes back retrenched, it would add considerable pressure to local situation. Otherwise, we might manage to just float in 2009.

As a investor, do invest in fixed deposits, bonds - ignore stock market, commodity market for now. Buy Gold only if it dips around 625 - 650 USD. Relax and cut down your expenses, avoid impulse shopping and save your money to buy things in discount.

Who cares about poor consumer?

Who cares about consumer in this poor country? No one....Want to know Why... Here I go !!!

1. RBI cuts repo rate by 200 basis points - whereas variable interest on our loans are cut only 75 basis points. Banks are claiming that they are in difficult situation as if people who borrowed are living in heaven !

2. NYMEX Crude is down from 140 levels 50 USD. ATF prices were cut 4 times in the last 2 months in India. Still, fuel surcharge is not revised down by indian airline companies !

3. Commodity prices were ruling high until April - May. Commodity prices have crashed since then - example Steel. But, benefit of construction cost not passed on to poor consumers !

4. Car companies used to hike prices when commodity prices were ruling high. Now, they are not even opening their mouth on price cuts now!

5. Petroleum Minister claimed some time back that fuel prices would be cut when NYMEX Crude trades around 65. He is saying now, time is not ripe for cutting the retail prices !

5. Same case applies to textiles, two wheelers, movies etc... Dhoni would be paid Rs.3 crores for brand building where as you will get only 20% discount twice a year.

If you think, you can be better off in USA or Europe... Just read this titbit - GM, Ford, Chrysler directors came Washington in chartered flight and asked US Congress for 25billion Bridge Loan of tax payers money from the US government to tide over the crisis. If they could have taken an economy class flight they might have spent around 600 USD for the same trip but they spent 20,000 USD by using chartered flight.

After all, it is their perk stupid !

So, profit making companies are important at our cost of sacrifice ! Very Well !

Dont believe our Finance Minister P Chidambaram

Dont take CRR cuts blindly and buy bank stocks. Why no one in our country questioning the current interest rates including the great Deepak Parikh?

It is the same minister who mislead the whole country during budget reply in parliament and claimed economy is in good state, low inflation, GDP growth of 9% etc... He is totally caught on the wrong foot and he and his team failed to read the economic signals.

They are trying to hide something, it is better to reveal the problems than hide !

Mark Faber's comments on US Economy

Marc Faber comments on US economy -

Dr. Marc Faber concluded his monthly bulletin (June 2008) with the
Following:

''The federal government is sending each of us a $600 rebate. If we
spend that money at Wal-Mart, the money goes to China . If we spend it on
gasoline it goes to the Arabs. If we buy a computer /software it will go
to India . If we purchase fruit and vegetables it will go to Mexico , Honduras and
Guatemala. If we purchase a good car it will go to Germany . If we
purchase useless crap it will go to Taiwan and none of it will help the
American economy. The only way to keep that money here at home is to
spend it on prostitutes and beer, since these are the only products
still produced in US. I've been doing my part.'