Next India

Public offers & retail participation

2010-02-24T12:30:00.000+05:30

- Chellamuthu Kuppusamy

Not really sure if many are following the market and hoping for a recovery or repeat of what we saw in 2003-2007. Beginning of bull runs are normally marked with underpriced public offers by the government. Maruti IPO in 2003 was a classical example that heralded a magical bull run.

If that is anything to go by, lukewarm response for the public offer of two state owned companies is paining. Retail portion for NTPC follow-on offer was subscribed 0.16 times and REC 0.22 times.

This is quite a contrast against the overwhelming response for NTPC’s IPO at Rs 62 back in 2004. If we go by the school of thought that low prices quality IPO are the indication of market revival we have miles to travel. Market, on the other hand, keeps everyone guessing.

Wealth Plus - Guarantees highest NAV value

2010-02-09T11:43:00.000+05:30

- Chellamuthu Kuppusamy

People have been wary about the market fluctuations and that has caused the NAV values of most of the unit linked plans shrinking in the last couple of years. Those making periodic systematic contributions were not affected with this scenario. In fact, they benefitted as market correction provided an opportunity to average their purchase and consolidate a long term portfolio without much effort. Market fluctuation is a friend for those who make periodic investments in market related products.

Nonetheless, the problem is for those who have not averaged out after having made one time investment at the peak. For people who are worried to see NAV value going down, companies have come out with plan that guarantees highest NAV value irrespective of the market condition at the time maturity.

Country’s most profitable and successful insurer LIC of India has introduced a new plan in this direction. It is called ‘Wealth Plus’, a unit linked product with highest NAV value reached when the plan is in force.

Payment option: 1) One time 2) equal payment for 3 years (yearly, half-yearly, quarterly or monthly)

LIC has said in a press release, “This plan will be available for sale for a limited period”

CFP - Perhaps a must for Financial Professionals !!

2010-02-02T20:00:00.002+05:30

- Chellamuthu Kuppusamy

Financial Planning and investment service is one that needs a lot of professionalism, ethics and financial literacy. Ability to make potential client understand their financial needs, both short team and long term, and suggest – not sell - various options available in front of them is one of the most important traits an investment consultant should not only possess but also exhibit.

Most of the self-styled ‘financial advisors’ are merely agents. They are rarely equipped to offer advice and confront the queries. Thanks to IRDA’s initiatives in the recent past that anyone aspiring to become an insurance agent (both life & general) should sit for an exam and obtain license. To some extent this has helped the agent community at large obtain insurance literacy. Trust me, I know an agent for 19 years and he is yet to process/sell a term insurance plan.

Well, going forward, professionalism and knowledge would be key for the survival of not only insurance agent, but for anyone in the field of financial service. CFP is one such a step in that director. Certified Financial Planner is offered by Financial Planning Standard Board (FPSB) of India. One can attend the course from any of the Authorized Educational Providers and appear in the examination conducted by NSE IT.

Financial market is like an ocean that employs millions of people. Currently there are only 920 CFPs in India as per FPSB website. This number is expected to surge in the years to come as it offers high level of professionalism, job & business opportunities and international recognition.

Who knows, it might even become a statutory requirement . . .

Term Vs Endowment Plans

2009-11-22T15:02:00.001+05:30

- Chellamuthu Kuppusamy

In response to the previous post "Jeevan Anand - Unique insurance plan" Vinod has commented:

"My experience on this:

Policy is good.

Since this is mainly life insurance, the cover to premium required ratio did not fit me well.

Since I was looking at life cover that could substitute my income (to a good extent) so financially my family is not in the woods to pay up all the emi's and liabilities. The premium required was too high. For those who can afford the premium this policy is great.
I have now decided to go for term policy for covering life and with the rest of money invest wisely (as much as possible ;) )

Best regards,
Vinod
********************************
Follow up communication:

Hi Vinod,
I am glad you said this. That is precisely how one should view insurance. But in India insurance is not considered as an instrument for life cover alone. People tend to ask, “What do I get back after paying my premium?” A reply that their family is protected against the financial loss due to an unlikely ecent of their sudden demise does not suffice.

That’s why penetration of term insurance plans are very very low in our country. Data reviels that only 26 per cent are insured in India. That too the average sum assured per policy is just over Rs 90,000. This is never going to be sufficient.

As you said, premium to sum assured ratio is high in India, because we rarely have term insurance policies. Invariably every policy holder expects a maturity value. This leave the insurers with no choice but to promote emdowment plans.

For instance, in one of LIC’s term assurance plans Anmol Jeevan – I, I would have to pay just Rs. 2,762 per year for a life cover of Rs 10 lakhs. In Amulya Jeevan, I would pay just Rs 5,850 per year for a life cover of Rs 25 lakhs.

Whereas as in Jeevan Saral (an Endowment plan), I would only get a coverage of Rs 1.25 lakhs for an annual premium of Rs 6,000.

But as everybody says, endowment plans gives back a maturity benefit which is not the case with term assurance plans. That does not matter if you are a streetsmart investor.

Jeevan Anand - Unique insurance plan

2009-11-20T16:46:00.005+05:30

Difference between term insurance and endowment plans:

Term insurance plans are like the insurance for motor vehicle and mediclaim. Insurance company pays full Sum Assured when risk occurs. Otherwise premium paid will be with the insurer.

Two important term assurance plans offered by LIC are"
a) Anmol Jeevan – 1 (Plan 164)
b) Amulya Jeevan – 1 (Plan 190)

In India life insurance is treated more as a saving instrument than being viewed from pure insurance point of view. Therefore, though plans are designed to provide risk cover when the policy is in force, they also give a big chunk at the time of maturity.

Such plans are called endowment plans. Most of the insurance plans in India are endowment plans. For a given sum assured, premium of endowment plan is more than any term assurance plan because they cover the risk of death as well as survival benifit.

At the time of maturity for endowment plans LIC pays the following
• Sum Assured
• Bonus
• Final Additional Bonus (for certain policies)
• Guaranteed additions (for certain policies)
• Loyalty Bonus (for certain policies)

As per IRDA regulation all insurance companies have to distribute 90 % of their profit to the policyholders in the form of bonus. LIC gives 95 % of its profit to the policyholders. Unlike private insurance companies, LIC invests the money in secured avenues and its marketing cost is much lower when compared with private players.

Now let me brief a popular endowment plan and their unique features.

Jeevan Anand (Plan 149)

Example:
Age 32
Sum assured Rs 5,00,000
Term 16 years

Scenario 1:

If death occurs between 32 & 48 years of age, nominee gets Rs 5 lakhs + bonus. If the death was caused by an accident, nominee gets Rs 10 lakhs + bonus

Scenario 2:
Insured person lives through policy period of 16 years. At the time of maturity he gets sum Assured Rs 5 lakhs + bonus

In other plans, life cover ends with the maturity. In Jeevan Anand, life cover continues even after the maturity period when the policyholder will not be paying any premium at all.

If death occurs in at the age of 49 years or 70 years or 95 years, nominee will get Rs 5,00,000. If death is caused by accident, nominee will get Rs 10,00,000. (age limit for double accidental benifit is 70 years)

Uniqueness about Jeevan Anand is that it is a combination of whole life and end assurance plans.

For further details please contact Selva at insurance.selva22@gmail.com

call 9941924240 / 9941258394

The bottom line is . . .

2009-10-16T08:56:00.001+05:30

- Chellamuthu Kuppusamy

What do you think is the objective of companies across the globe? Is it customer service, employee satisfaction, social responsibility? May be yes - may be no. Yes, because they are the means to achieve the primary objective and no, because they are the objectives on their own. Well, what could be the primary objective, if not only objective?

Let me borrow a line from Wikipedia to answer this question: “Businesses are formed to earn profit that will increase the wealth of its owners and grow the business itself” Every action and transaction (and of course inaction) has a financial implication. Ultimately everything boils down and sums up to greenback.

Balance sheet and Operating Margin are believed to be the touchstones – perhaps millstones if not managed properly - of any organization. Trial balance, inventory turnover, top line, bottom line, ROI, sequential growth etc are some of the commonly used terms in our daily life. The extent to which these buzzwords are fathomed is subject to debate. Therefore, we make a small attempt here to give a brief introduction to those terms and Financial Accounting concepts.

Firstly, every transaction and activity that has a financial implication is recorded. Such transactions are entered in two accounts at a time. This practice, known as ‘Double-entry bookkeeping system’, requires a debit entry in one of the accounts and a corresponding credit entry in another account.

For instance, an employee buys raw material with cash. This transaction needs to be recorded in two accounts, namely, cash and raw material accounts. In the cash account you make credit entry and a debit entry in the raw material accounts. This sounds good, but how do we determine what to debit and credit? How do we ensure we don’t debit an account that should indeed be credited? This is where golden rules of accounting come in handy.

Golden Rules of accounting:

'Personal Account': Debit the Receiver & Credit the Giver
'Real Account': Debit what comes in, Credit what goes out
'Nominal Account': Debit all expenses / losses, credit all Incomes / Gains

Personal accounts are accounts maintained for individuals and organization with whom the company does business with

Real accounts are for real things that can either be seen, felt and touched – an exception being goodwill. In other words these represent assets.

Nominal account represents expenses, losses, incomes and gains.

In our case, cash as well as raw material accounts are real accounts. When the company buys raw material by paying cash, cash goes out and raw material comes in and hence they are credited and debited respectively.

As all transactions are equally recorded on debit and credit sides, sum of all debit sides values and credit side values of all the account put together would be equal at any given point in time. Such an exercise is known as Trial Balance which serves as a tool to detect errors, which can result in the totals not being equal.

With accounting entries are maintained for each and every transaction, they are used to arrive at the Final Accounts which comprises of P&L (Profit and Loss) account and Balance sheet at the end of the accounting period, which is normally a quarter.

Balance sheet is a snapshot of company’s assets and liabilities at the end of the period. P&L, on the other hand, is the summary of profit or loss the company has made for the entire period. You might have read items sounding like ‘assets stand at Rs 2,000 crore on 31-03-2009 and profit for the FY 08-09 was Rs 120 crores’. First one reflects balance sheet position on a given day and the latter draws reference from P&L statement for entire financial year.

While preparing Final Accounts at the end of accounting period, all account values should either be transferred to the balance sheet or to the P&L statement. Account that represent assets (such as inventories, investments, receivables etc) and liabilities (such as payables, owner’s equity, earning & surplus - liability from company’s point of view to its owners/share holder) – are transferred to balance sheet.

All others accounts, which can be classified under expenses, losses, incomes and gains, are transferred to P&L statement. Sales volume or revenue or gross profit comes at the top. Expenses, interest and tax are deducted from this to arrive at the net profit or earnings. Revenue, which appears on the top, is referred as top-line and the net profit, which appears at the bottom, is referred as bottom-line.

Lesser the expenses more the profitability or the ability to convert top-line into bottom-line is. Operating Margin is the ratio of the bottom-line (normally it is the operating income excluding other incomes/expenses and tax) to the top-line. A company reporting 30 % OPM saves Rs 30 as a profit by doing business for Rs 100 after meeting an expense of Rs 70.

Operating margin directly affects the profit. After all, it is the bottom-line that finally matters in business.

(Book) Prabhakaran - The Story of his struggle for Eelam

2009-07-08T10:56:00.000+05:30

He is - perhaps was - a designated terrorist for some and an uncompromising freedom fighter for some. For the rest he was somewhere in between. Yes, I am talking about V. Prabhakaran, leader of the LTTE.

The story of his prolonged resistance and fierce confrontation with the Sri Lanka armed forces, nonetheless, ought to be studied, rather historically. Similarly, Indian involvement in the ethinic conflict and its consequences warrant a special mention.

I have made a sincere attempt to view these things objectively and retrospectively through the book 'Prabhakaran - The Story of his struggle for Eelam', in English. Though this is the English version of his biography 'Prabhakaran - A life' (பிரபாகரன் - ஒரு வாழ்க்கை) authored by me in Tamil, English version contains more information relevant to non-Tamil speaking people in India and international community.

It can be ordered online.

The economy will be in shambles throughout 2009!!

2009-03-02T11:14:00.000+05:30

This is what Warren Buffet had to say in his annual letter to shareholders.

******
Our decrease in net worth during 2008 was $11.5 billion, which reduced the per-share book value of both our Class A and Class B stock by 9.6%. Over the last 44 years (that is, since present management took over) book value has grown from $19 to $70,530, a rate of 20.3% compounded annually.

The table on the preceding page, recording both the 44-year performance of Berkshire’s book value and the S&P 500 index, shows that 2008 was the worst year for each. The period was devastating as well for corporate and municipal bonds, real estate and commodities. By yearend, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.

As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”

By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.

This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.

Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.

Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.

Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 211/2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges.

Without fail, however, we’ve overcome them. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.

Take a look again at the 44-year table on page 2. In 75% of those years, the S&P stocks recorded a gain. I would guess that a roughly similar percentage of years will be positive in the next 44. But neither Charlie Munger, my partner in running Berkshire, nor I can predict the winning and losing years in advance. (In our usual opinionated view, we don’t think anyone else can either.) We’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall.

In good years and bad, Charlie and I simply focus on four goals:
(1) maintaining Berkshire’s Gibraltar-like financial position, which features huge amounts of excess liquidity, near-term obligations that are modest, and dozens of sources of earnings and cash;
(2) widening the “moats” around our operating businesses that give them durable competitive advantages;
(3) acquiring and developing new and varied streams of earnings;
(4) expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered Berkshire exceptional results.

Book on Prabakaran

2008-12-30T16:53:00.000+05:30

Click here to order online

Most people approach Prabakaran and his widely known LTTE on emotional ground. Either they blindly support or they blindly oppose. Both there approaches fail to paint complete picture about him. His organization was started with a rusted revolver, but now Prabakaran is running a government. He possesses police force, judicial system, army, navy and air force ... everything that a nation ought to has.

Before arriving into any judgment about Prabakaran and his outfit, it becomes imperative to understand the history of Sri Lanka's ethnic conflict. What was the beginning point the endless war between Sinhalese and Tamils? What started it and why? How long this fire is going to be on? Can the self determination question of Tamils could be resolved only at war front? What are the innocent civilians caught in the the crossfire going to see a dawn? Is Tamil Eelam the only solution? Can Prabakaran win that for his men? Or is everything is going to end at his demise?

LTTE is a banned organization in India. Prabakaran is a main accused in Rajiv Gandhi's murder. Many countries in the world have banned the tigers. Sri Lankan government does not show any signs of putting an end to the war as it believes tigers can be completely destroyed. What is in store for the rebels? What is going to be its future?

The book on Prabakaran tries to examine these questions.

Putting your money where your word leads other...

2008-12-19T16:22:00.000+05:30

Just came across this paragraph from fortnightly investment magazine 'Capital market' .. It is not only impressive but thought provoking as well.

"Many research analysts do not invest in equities, but preach to investors on what to buy, hold or sell. As per the present regulation, a research analyst needs to disclose his holding in the company that he is commenting. It would be far better to make it mandatory for the analyst to invest a certain pre-defined sum in the recommended stocks for the period mentioned in the research report. This would definitely improve the sense of responsibility and accountability in the research community. It would also provide on-the-job training to analysts and make them aware of the risks involved in equity investment. Remember those who actually invest are shrewder than those who simply preach"

Indo-US nuclear deal.. - A look back

2008-11-03T13:42:00.000+05:30

- Chellamuthu Kuppusamy

That was something unprecedented in the history of Indian democracy. We had never seen such a sensational 'display of money' on the parliamentary floor. Trust me those were some of the tragic cum hilarious scenes we witnessed during the recent 'no confidence motion' and it could match any nail biting one day cricket game. You know what I am coming to. Yes, it is about the widely debated Indo-US 'civil' nuclear deal.

The Unites States Congress which is the House of Representatives (akin to Lok Sabha) and the Senate which is the upper house have given their blessing to this historic deal on September 28th and October 1st respectively. There was a sense of vindication, according to the Indian ambassador to the US Ronen Sen.

What makes this deal so special and time critical? Does India really surrender its national interest and sovereignty with this deal? A little recap from the history would help answer these questions.

The United States has the reputation of being the only nation in the history of mankind to deploy nuclear weapon and massacre more than 200 thousand people in August 1945. That eventually brought the World War II to an end.

Postwar era saw the world dividing into two camps, needless to mention American camp & Soviet camp. Mutual suspicion, secret nuclear programs and arm race was inevitable. Need for checking the proliferation of nuclear arms was felt and Nuclear Non-Proliferation Treaty (NPT or NNPT) was born thanks to the efforts from Ireland and Finland. That was in 1968.

NPT recognized the United States, the United Kingdom, France, Russia, and China as nuclear weapon states (NWS) while the others were identified as non nuclear weapon states (NNWS). All the nations recognized by the UN signed NPT except India, Pakistan and Israel. For India, NPT did not prevent proliferation but actually classified the counties as ‘nuclear haves’ and ‘nuclear not haves’ as it only prevents ‘not have’ nations developing atomic armory after 1968.

Being a non-signatory of NPT, there was no restriction on India for conducting nuclear test. It perhaps carried out a test in 1974 to be coded as ‘Smiling Buddha’ which provoked serious reactions around the globe. Nuclear fuel supplying countries formed Nuclear Suppliers Group (NSG) that subsequently decided not to assist India in the civil nuclear energy space.

There were 34 long years before this ban could relax. Indo-US deal enables India to access outside civil nuclear technologies and fuel, while still being a non-signatory of NPT. This is the best things that could happen to India.

World’s largest democracy only has to assure that it would not mix its civil and military nuclear establishments, and let IAEA supervise its civilian atomic power station. An estimated 14 out of the existing 22 reactors are to be used for civil and the rest for military purpose.

Following the foot prints of the U.S, France has inked an agreement to sell nuclear technology and reactors to India. What France plans to sell to India is the large 1,600 MW reactor, indeed, the largest of kind in commercial operations in the world, says the Hindu Business Line.

We have an installed capacity of 145,587.97 MW, primarily sourced from coal fired thermal power. France, on the other hand, generates 78.8 % of its electricity from nuclear power. We are at 2.9%. A long way to go indeed! We are far from uninterrupted power supply.

1930 around the corner?

2008-09-17T16:36:00.000+05:30

- Chellamuthu Kuppusamy

When Christopher Columbus landed in North America he would not have foreseen a financial institution to be established by his future fellow immigrants from western Europe, let alone that institution sending tremor to the financial market across the globe. Yes, I am talking about Lehman Brothers.

Henry Lehman was just 23-year-old when immigrated to the United States from Germany in 1844. He choose to settle down in the southern state of Alabama. Two of his brothers Emanuel & Mayer too took separate ships to the American shore and three of them formed Lehman Brothers in 1850. They took cotton trade as their primary business in which they excelled. In the next few years the center of cotton trade shifted from the south to New York City, which of course was - as it is today - the center of trading & commission business.

Civil war erupted 1982 and Lehman brothers financed Alabama state's reconstruction program. That was the beginning and the end came a couple of days ago. In the meantime they have grew, grew continually. They underwrote securities - initial public offers in particular - and did almost everything in the financial market. It did merger with American express and then de-merged again in 1994.

Subprime crisis that surfaced late last year forced Lehman Brothers to close down subprime division 'BNC Mortgage' and sending around 1,200 people home. On September 13 it decided to take bankruptcy protection. Its valuation based on September 15 stock price stood at $130 million. It's reported revenue for 2007 was 454 times more than this.

****
Sixth months ago Bear Stearns, the fifth largest bank, was on the prink of bankruptcy. JP Morgan Chase bought it out for dirt cheap $2 per share. That was not alone. Just recently Fannie Mae and Freddie Mac were bailed out by the US government. Now even before this 'broke' news from America's fourth largest investment bank Lehman could sink in, even more troubling stories come out. American International Group (AIG), the largest insurance firm in the US, would become next Lehman unless it gets around $70 - $80 billion. Luckily FED has come forward to perform rescue act. Likewise Merrill Lynch & Co was luck enough to find a buyer in Bank of America.

The US economy has been the driving force of the global economy, whether we like it or not. Any trouble in the US is not a standalone subject in the current world where everything is interconnected and eventually nothing is insulted in the great financial eco-system.

Already some analysts are talking about 'another' great repression of 1930 that we have only studied in history books. But we are unlikely to see 'another' great depression, but a greater or lesser depression, because the world economy now is interconnected while it was insulated back in 1930.

Troubled waters - Indian economy

2008-08-01T09:37:00.000+05:30

- Chellamuthu Kuppusamy

I was watching the US market opening report on UTVI last night and the female reporter from NYSE was elaborating the jobless claims in that country reaching 44 thousands plus level, which apparently is the highest since 2003. (We all know that 2003 is the year when the market bottomed out, at least in India with SENSEX around 3,000 mark) The united states is a strong economy where people spend a lot and they spend most of their incomes and borrowings. Therefore unemployment figures do not board well for the largest economy in the world, which not only determine the destiny of investments in that country but elsewhere around the globe.

When we talk about unemployment problem, what went unnoticed is the textile industry in India. In the last one year 3.5 lakh jobs have been lost in this space. There are already reports about negative inflation-adjusted salary hike in the much discussed IT sector where smaller players might loose their skin over the time. You should not have missed the news that Hexaware is trimming down their work force.

Automobile industry in India, which is already struggling to swallow the increased input costs, might face slowdown in demand thanks to RBI's move of hiking interest rate to combat inflation. Governor Y.V.Reddy in his last monitory policy announcement asserted that the idea is bring the inflation down to 7 % by 2009 March from the current level around 12%. Inflation is at 13 year high now. The interest rate was around 17% in 1995, which is exactly that period before 13 years. So, more rate hikes on the cards?

One areas that bestowed unprecedented return, namely real estates, is already facing softening demand and prices. Real estate and construction companies' decline was double that the average decline produced by the market on the bourses. In 2008, around 80 million sq ft (45 million sq ft in 2007) of commercial space supply is expected; indicating that supply is running ahead of demand. With the lending rate going up and the era of easy money is a thing of the past, one does not need to be rocket scientist to predict further decline in property prices across the country. Dalal street investment journal quotes on the current issue: "As for the NAV, a study states that 30 per cent decline in property prices leads to 50 per cent erosion of NAV and hence with property prices softening, NAV of companies with high land bank needs to be revisited.

Needless to say, banking was understandably the worst hit by inflation. Softening credit growth, upward trend in NPA etc can be expected. The, "Sir, would you be interested in any personal loans?" calls you normally get private banks on your mobile might change as, "Sir, we have an attractive fixed deposit scheme offering...". Most of the bank now trade 40-50 down from their 52 week high. They are also affected by treasury losses due to interest rate increment. This was evident in ICICI bank's recently announced quarterly results. The bank's net was dragged down by the treasury loss.

On top of all these we should not forget that our economy is still not detached from the agriculture whose fortune heavily depends on monsoon. With around 60 % of our population still in rural area basing their lives on the oldest vocation on this earth, severe draught for a couple of years can put some brakes on the growth.

Beware, cost of living, cost of health care, cost of politics (price tag for MPs), cost of housing, cost of education and of course the cost of girlfriends are on the rise and they are unlikely to come down.

What lies ahead? Have we shifted from a 'sustained bull run' to a 'sustained bear run' with periodic correction on the upper side? Has the India growth story faded? Are global slowdown and global commodity prices press the India Inc? What lies ahead?

Yes, it is troubled waters. FISH, IF YOU CAN & IF YOU HAVE HAVE THE WILL...

Real estate FDI inflow up nearly five-fold

2008-06-25T07:55:00.000+05:30

- Chellamuthu Kuppusamy

Quite understandably there are reports on surging inflation, increasing interest rates and the potential impact on housing sector etc flowing across. This, along with FIIs pulling out from Indian equity market, is not surprising indeed. But here is an interesting piece of information that goes against this theory. FDI investment in real estate sector has increased nearly five-fold this year.

Courtesy: Hindu business line.

New Delhi, June 24"

The Indian real estate and housing space emerged as the darling of foreign investors in 2007-08, clinching FDI equity inflows of about Rs 8,749 crore, a near five-fold increase over FY07.

“The investors have seen that the real estate potential in India is huge. The returns are quite attractive. In fact, we see the trend picking up even further this year as the prices are getting more attractive for investors,” Mr Ramesh Sanka, Chief Financial Officer at DLF said.

Late last year, DLF Ltd had sold 49 per cent stake in eight residential project SPVs to private equity investors for a total consideration of Rs 1,675 crore.

A Merrill Lynch & Co entity had bought 49 per cent equity in seven residential projects in Chennai, Bangalore, Kochi and Indore for Rs 1,481 crore. The company — headed by Mr K.P. Singh — has also diluted 49 per cent stake, in another middle-income housing project in Panchkula, Haryana, to Brahma Investments for Rs 194 crore.

According to data released by the Government on Tuesday, the real estate sector, thrown open in 2004-05, saw the FDI picking up significantly between FY05 and FY08; it was Rs 171 crore in 2005-06 surging to Rs 2,121 crore in 2006-07.

“Over the last three years, there has been a build-up in investor interest. We saw the impact of that interest and euphoria for FY07 and FY08 as new townships and projects were announced. Depending on the asset class within real estate sector, the average rate of return stood at 25-35 per cent for India, against a global average of single digit return,” Mr Sanjay Verma, Executive Managing Director, South Asia, of Cushman & Wakefield said.

“However, at the beginning of the current year we have seen some asset bubble deflation. With prices moving southwards, choppiness in the stock markets, pressure on interest rates and global issues, while deals will still happen, pricing will be the question,” Mr Verma added.

Warren Buffett - Biography in Tamil

2007-07-11T19:26:00.000+05:30

- Chellamuthu Kuppusamy

My second book has been released in Tamil.

Click here to order it online

It was a great pleasure and opportunity to write the biography of Warren Buffett, one of my lifetime heroes, in Tamil. I don't want to waste more words here.

A detailed post about this book in available at this link.

My book on prudent stock investing!

2007-05-10T03:21:00.000+05:30

- Chellamuthu Kuppusamy

This is a proclamation. (A heavy word indeed)

My book on prudent stock investing with the title ‘izhakathe’ (இழக்காதே! - Meaning Don't loose) is released in tamil.

Efforts are on to bring this out in English as well.

It can be ordered online from http://www.kamadenu.com/cgi-bin/store_view.cgi?catid=bus&itemid=292.

An introduction to the book is available at http://karaiyoram.blogspot.com/2007/05/blog-post.html

A review of இழக்காதே is available at http://pesalaam.blogspot.com/2007/05/blog-post_28.html

Another review by Udhayakumar at http://soundparty.blogspot.com/2007/07/blog-post.html

Indian, Lanka, Sethu & Ram Bridge

2007-05-08T07:35:00.000+05:30

- Chellamuthu Kuppusamy

Hot debates are floating around in the national capital New Delhi as well as in Chennai, and Colombo is keenly watching with plenty of curiosity. If you assume it is about LTTE and the eternal domestic conflict in that beautiful island, you are mistaken. What I am talking about is the Ram bridge issue.

Parts of India and Sri lanka were originally not part of Asian continent. Lemuria, as geologists call it, was a continent east of Africa or an extended part of that. It gradually moved and collided with Asian plate. The pressure created by that impact erupted the Himalayan mountains. Srilanka was part of the Indian subcontinent and over the years sea swallowed some of the low lying areas and thus separating Ceylon and India.

Even today that particular section of Bay of Bengal is not deep. (Great national poet Subramanya Bharathi sang, ‘lets us level sethu and build it to a street in order to reach Singala island’) It is very close to Rameshwaram and refugees often venture to swim across to reach rehabilitation camps, albeit being bad in condition, on our shores. This section of the see is known as palk straight, through which only boats can sail. Thinking of any ship is absolutely out of question.

Nagapatnam port, which is way in to the sea now, was focal point for sea trade of the powerful Cholas empire. After British established their presence in Madras (Chennai), it turned out to be their political and trade center of South India. Tuticorin is a harbor on eastern coast of south India and has been the port of Pandiya dynasties for centuries. Even now considerable direct trade takes place at Tuticorin port, which is a natural port unlike that of Chennai.

Well, how do all these matter to us, you might ask. If we look for three largest port in the word in terms of trade and activity, we find one of them in china. That is agreed as China is a massive country with huge population and plenty of international trade. However the surprise comes with the other two harbors.

One is Rotterdam in Netherlands, a country which flourished by trade even when the mighty British were conquering the entire world a couple of centuries ago. Holland is a tiny nation with around 15 million population. Their sea traffic is primarily dedicated to other European courtiers than Holland itself. Same can apply to the Amsterdam airport in that country, which is below see level.

Another port among the largest three is in Singapore, a city and a country, which raised itself among high per-capital income spot in the world. Much of its success came from its trade and service activities, as against any manufacturing and agricultural business. Their port creates lot of employment and plenty of income.

Singapore port is an important transit point. Most of the ships stopover for few hours and resume. Many Indian ships from/to the western coast are invariably among them. Ships operating between Europe and south east Asia are huge in number too.

Why do our ships halt at Singapore? Can’t we use one of the ports at our coat for this purpose? Yes, we can. Tuticorin is an obvious choice. But, if the ships stop over there, they have to go around Srilanka and then sail again. That makes it expensive and absurd. On the other hand, if pak straight is canalled deep enough to allow ships, life would be made simple.

It would potentially shift sizable port business from Singapore and Colombo to our shore. This has been the aspiration for nearly 135 years. Many attempts have been made in the past both in British India and Independent India to give a shape to this project. Due to various reasons, it was turned down or given up.

Sri Lankan government raised concerns and placed requests to New Delhi against the Sethu project for nearly more than 4 decades. You don’t need to be a rocket scientist to figure out the reason behind that. Surprisingly, India has assured at various occasions that this project, if (at all) gets implemented, will not affect Colombo’s economy. No one paid attention as to why we cared for other nation’s economy than our own.

This dream has (not fully yet) come true under the present Manmohan Singh government. More than Rs2,400 crores were allocated and reportedly the project is on progress. Ms.Jayalalitha opposed simply for the sake of opposing it. But, never mind. The show was on.

But, lately BJP, it’s parivars and some smalltime ludicrous personalities like Rama Gopalan have found Ramar Bridge, a bridge depicted in the Ramayana epic. They claim that Sethu project would destroy that bridge. They quote that Ramar bridge was built by orangutan army led by Hanuman to facilitate lord Ram reach the Lankan island to rescue his wife.

Ramar bridge was a natural formation as per geologists. Even assuming that there was a bridge, it should have been a stone bridge across the sea enabling trade and transport between India and the Lankan island mellenia, if not centuries, ago. Ove the years, it got sank into the sea. The very purpose of the bridge, even if it really had been there, has become obsolete many many years ago.

(Even going by the epic that it was made for Ram to confrot Ravana, what is the use of that now? Sita was already back and had agni bath to prove her purity. Now, Ram does not have to go back to Lanka again where he does not have any more wives captured. Even then the imaginary bridge is under the sea. How will he cross the sea?. He would better of taking a private jet)

All political parties aspire to gain control and be in power. But, taking religion and seting afire superstitious blief as a vehicle is certainly not the way. This becomes more severe when it turns against our economy and national prosperity.

In the late 1940’s there were three nations in south Asia freed from colonial clutches. These three nations, India, Pakistan and Ceylon (as Sri Lanka was called then) were led by three men educated in England namely, Nehru, Jinnah and Bandaranayahe.

But, unlike Nehru the other two gentlemen based their nationality and personal political success based on relegipous and lingual base. India remains the largest and greatest democracy in the world where democracy has been funny thing in Pakistan. Similarly, the island nation declared Buddism as the only allowable belief and Singala as the only language. It only aggravated and the state sponcered amry went on to demolish thousand of lives and tourched the greatest Jaffna library that served as the emblom of Tamil/Hindu tradition.

Fortunately, India was and still continues to be true a federal secular state, despite few horrible incidents forgotten along the sidelines of history. Thanks to our first prime minister Jawaharlal Nehru, multiple nationalities could coexist in this subcontinent under the same federal setup.

But, BJP and its allied forces are making an attempt to rewrite the history and present Savarkar in place of Mohandas Gandhi and Nehru. World histroy has seen nasty damages as religion was mixed into politics and administration. Some radical elements in few Islamic coutries seem to choose that path. BJP tries to match their act in every possible way. Any nation or tribe that wants to travel in the backward direction is destined to peril.

Congressmen may be corrupt and inefficient and that does not jusify making this subcontinent as a Hindu state. BJP arguably has more number of intellectual personalities compared with other political parties. But, mind if not directly properly would invite devil to dwell in there. Trust me, this view is not based on religious or political perspective, but on economical and rational.

These views are purely based on economical and rational viewpoint. No attempt is made to portay shipping minister T.R.Balu and his leader M.Karunanidhi, a shrewd politician as sacred cows. It will require a separate article to critize them.

If the sethu project is going to affect ecology, we need to investigate. But expert team has furnished feasibility report. Gladly we did not pay attention to Colombo’s outcry on ecological impact. If people argue that this project will affect fhishermen, that need to be carefully studied and find solutions. They may be real problems as well some politically motivated statement like that of Janalalitha.

But, if someone is trying to make politivcal milage out of relegious supersitions, we should go ahead, even if the bridge was constructed by Hanuman.

Some people augue that Sethu project would not really create any employment and improve the economy. Answer for that depends not only on the completion of the work, but also the port administration and easy to operate rules, just like Singapore. So, economic prosperity is not very sure without these additional changed. But, it is writing on the wall that it does not do any good to the economy by not going ahead with the project.

A $ a day!

2007-04-29T08:30:00.000+05:30

Courtesy : The economist

This month the World Bank announced that 986m people lived on the equivalent of less than one dollar a day in 2004—the first time it has counted fewer than 1 billion people in such a parlous state. The bank's definition of extreme poverty is stark, simple and even alliterative. In the latest issue of the Journal of Economic Perspectives, Abhijit Banerjee and Esther Duflo, of the Massachusetts Institute of Technology, describe it as a rhetorical masterstroke. But is it also entirely arbitrary? And how do the poor subsist on such a meagre amount?

When the bank decided to count the world's poor for its 1990 World Development Report, it did not take it upon itself to define them anew. Instead, a group of economists led by Martin Ravallion gathered together 33 national poverty lines that were already knocking about. India's line, for example, defined the poor as those who ate less than 2,250 calories a day. By its reckoning, this requirement would be met by the typical rural Indian spending 15 rupees a month at 1960-61 prices.

Mr Ravallion and his team converted rupees, pesos and rupiah into a common unit of purchasing power. Someone spending 15 rupees in rural India in 1960 had about the same command over goods and services as an American spending $23.14 a month in 1985. But India's benchmark was unusually abstemious. Half a dozen other poverty lines (for Indonesia, Bangladesh, Nepal, Kenya, Tanzania and Morocco) all fell within a few cents of a more generous allowance of $31 a month.

With that observation, the dollar-a-day concept was born, to appear in countless declarations, laments and pleas ever since. Halving the share of people who live on less than a dollar a day is, for example, the first of the Millennium Development Goals to which 189 countries subscribed in September 2000. (The concept's rhetorical appeal was diminished only a little when Mr Ravallion updated the threshold to $1.08 at 1993 prices, which is worth about $1.53 in today's money.)

Cigarettes and alcohol
But what does this line mean to the people who fall below it? Mr Banerjee and Ms Duflo describe the "economic lives" of the poor, drawing on 13 household surveys from Côte d'Ivoire to Mexico. The two surveys from India—undertaken in Udaipur's farms and Hyderabad's slums—they carried out themselves.

Vikram Seth, an economist before he was a poet, has described the "dreary pillage of privacy" these surveys entail. In 2001, for example, bank researchers in Timor-Leste diligently recorded whether a household bathed under a shower or in the river; used a flush toilet or a bucket; built their home from brick or rattan, and so forth. They also asked them to recall what they had eaten, drunk, chewed or smoked over the previous week: cassava or shrimp? Mung beans or papaya? Clove cigarettes or betel nuts? Beer or palm wine?

A dollar a day would seem to leave little room for choice or discretion. Hunger is surely the most binding of constraints. And yet these pillages of privacy show that the poor do make choices. They also suggest they are not always the best ones.

The poor do not complain much, the two authors note. (Only 9% of people in their Udaipur survey say their life makes them generally unhappy.) But they have a lot to complain about. Beset by hunger and illness, many are scrawny (65% of adult men in Udaipur are underweight), over half are anaemic, and about a seventh suffer from impaired eyesight. Many had to go without food on at least one day in the previous year.

And yet they do not eat as much as they could. According to Mr Banerjee and Ms Duflo, the typical poor household in Udaipur could spend up to 30% more on food than it does, if only it stopped devoting money to alcohol, tobacco and festivals. That last item, which includes weddings, funerals and religious events, typically accounts for about a tenth of the household's budget. This spending might be motivated by escapism—the poor have a lot to escape—or perhaps by social emulation. Even those in absolute poverty care about their relative standing.

The authors ponder not just how the poor spend their money but also how they make it. They describe the hard-pressed women of the Indian city of Guntur, who line the road each morning, mixing dosas over a kerosene stove for the price of a rupee. By 10 o'clock the women have turned their hands variously to making pickles, embroidering saris or collecting rubbish.
The poor, whether smallholders or petty entrepreneurs, lack scale and specialisation, Mr Banerjee and Ms Duflo point out. The farmers of Udaipur cultivate the land they own, no more, no less, but only a fifth rely on their plots as their chief source of income. In West Bengal, a poor household will typically have three breadwinners doing seven occupations between them.
It is almost an "item of faith" among development economists that the poor act rationally, however straitened their circumstances. If their undertakings are too small, or their efforts too thinly spread, to be efficient, it is not because they have miscalculated, but because the markets for land, credit or insurance have failed them. As one economist argued in 1993, "More than 40 years of research...should at last have laid to rest the thought that such folk may not know where their real interests lie."

But just such a thought is stirring again in the minds of Mr Banerjee and Ms Duflo. Why, for example, do more Ghanaian farmers not cultivate pineapples, which would fetch returns of 250-300% by some estimates? Why do so few farmers in western Kenya dress their fields with fertiliser, even after the benefits have been demonstrated to them?

"One senses a reluctance of poor people to commit themselves psychologically to a project of making more money," the authors write. When you live on a dollar a day it may be painful to confront your circumstances too squarely, or even to aspire to better things. The "great redeeming feature of poverty," George Orwell wrote after his excursions in the social gutters of Paris and London, is "the fact that it annihilates the future".

Strong rupee

2007-04-20T02:03:00.000+05:30

- Chellamuthu Kuppusamy

There was a remark made in the previous post on Chidamaram's book.//Why is the government increasing the interest rate to curb liquidity and at the same time inject money by heavily buying dollar to maintain exchange rate? Are the FM and RBI of the view that Indian economy is not resilient enough to absorb strong rupee? //

This statement has beome obsolete within days. Rupee has peaked to its 9 year high. It is alledged that RBI has pulled back from obsorbing excess dollat floating in the market. Government has apparently decide to keep aside economy aside & cool down inflation. Well..how does exchange rate find its relation to inflation?

We have seen multiple interest rate hikes in the recent past to curb liquidity & thus arresting inflation. A good move indeed. But, there is other side effects too. Due to relatively attrative interest rates, foreign money - read dollar - flows towards India. This raises the demand for rupee and brings down the demand for dollar making exchange rate climbe (say from 44 to 42). RBI normally buys such incoming dollar and makes an attempt to maintain greenback demand constant, meaning weaker rupee. Having a stroung rupee is not good for our exports and eonomy as a whole. That is precisely the comment made in the book review.

When RBI buys dollar and injects more rupee into the system, it adds to liquidity and subsequently giving raise to inflation. The oroginal goal is defeated? May be, true. It is duty of the government to maintain moderate inflation as well as exchange rate. But, managing ecconomy is not that simple. They always try to strike a balance.

Having said that, RBI not going ahead in its normal act of sucking dollar is not a surprise. State elections in the north is onsidered to be a reason. One cant help thining that inflation is more of a politivcal factor than eonomic one at this junccture. Otherwise there is no need to let rupee gain strength. I dont have any reason to believe that FM and RBI are confident that Indian economy is resilient enough to absorb strong rupee?

A view from outside - P.Chidambaram

2007-04-11T04:44:00.000+05:30

- Chellamuthu Kuppusamy

I am writing this from the city of Columbus in central Ohio, the United States. A coworker of mine shares an attention-grabbing information. It is about Indian finance minister P.Chidambaram.

He could not recollect exactly. It might be 2002 or 03. Mr.Chidambaram was out of power, even out of congress party. He was invited to a function in Columbus, organized by an Indian community. Political personalities attending such gatherings, while out of office, is not uncommon. But what is fascinating about this Harvard educated lawyer cum economist is his simplicity.

Former finance minister (at that time) flew all the way from India in economy class. Three and a half hours drive from Detroit was adequate for his commute to Columbus. He had not demanded another domestic flight, even after long journey in the sky. Story did not end there. He stayed with an NRI at his residence & surprisingly did not insist for hotel accommodation.

After the talk in the meeting, folks had offered him to take around the city. He refused and held that he had to write for Indian Express. Indeed, he went ahead and penned down thousand plus word column, despite getting intermittent calls from international bodies like world bank etc. That shows the level of discipline this market savvy politician is made up with. He wrote a column every week in Indian Express between August 2002 and March 2004, except two weeks.

All those articles are collected and tied to be named as ‘A view from outside’, a 372 page book, not to mention being priced at Rs.500. I am making a simple attempt to gaze through that work via a common man’s eyes.

He starts his first article on a positive note. “India is often described as a poor country. I disagree. It is a country where a large proportion of its people is poor.” He talks high that India can grow much much faster than rest of the world. But, growth is a function of investment. He augurs the need to eradicate all stumble blocks hindering productive investment. More emphasis can be seen towards public spending on infrastructure. We join our current FM in pressing the need to accelerate public investment and removing roadblocks for private investment.

At many instances he proves to be a smart politician, principally when it comes to criticizing then ruling BJP and it’s Hindutva policies.

Many of Chidambaram’s remarks on BJP’s term at the center applies now as well. Finance minister might like to forget these statements. He terms Vajpayee
“He presides over the most fractious coalition government ever to rule India. Not a day passes without one party or the other vehemently criticizing the government”

Should we forget the current government at the center flexing itself for every peril from left allies and regional powers like DMK? If one has mind that can be mould just by reading some articulate writing, it would be easy to get a feeling that it was only BJP that had differences in the government. Differences and compromises are not the rule of the game and accepted norm in a coalition government. Even current DMK government in Tamil Nadu faces unprecedented (is there a better word) pressure from its allies, including Chidambaram’s party itself for the first time.

One should have no doubts on his vision and economic acumen. Growth of nation and the living standard of her citizen is characterized by the per-capita consumption. BJP’s inability to push hard power sector reforms, initiate & even achieve preset targets in power generation capacity addition is indicated at various instances. We ought agree with FM on this matter. We are pretty pleased with government’s ambitious target of electrifying every home by 2012, which is no longer a paper target.

He touches upon agriculture, albeit them being short. Even he acknowledges.
“there were only three pieces on agriculture, but I was able to identify the real issues plaguing that sector: low investment, inadequate credit and poor farm-gate prices. These problems persist, but a beginning has been made to correct the situation.”

Book advocates for simple and transparent rules to be incorporated into our administrative system. Author even makes an attempt to touch the roots of corruption in our system and reasons why it stays undiminished. License raj obligated business leaders to be nice with ruler to receive favor, which is percolates down the pyramid to every taluk office and office boy, not to talk of clerks and officers.

Chidambaram also questions ourselves on the important issue of Kashmir. Our governments, for Chidambaram it is more of BJP than congress, have been very comfortable to point fingers towards Pakistan for every unrest in India. It is no different from Bush's 'war against terror' and Sadam Hussain being found guilty for every crisis US faces.

Our failure to embrace Kashmir and its people into national mainstream is cited. Dissident Panjabi’s are now in every walk of life. We have accommodated them on the national dais. Even DMK wanted separate nation and gave up that idea. It is a classical example on how a state (and political dynasties) can prosper through participation and involvement. India’s failure to handhold north eastern states is a symbol of disgrace.

‘A view from outside’ is predominantly economic outlook of this free market preacher. He has quoted lot numbers through the length and breadth of this work. I shall get into those details. Chidambaram’s advocate brain makes sure that he puts forward his views, criticism and comments with relevant statistics. That is some effort for a politician in Indian. No wonder why prime minister Dr.Manmohan Singh praises his finance minister and asks opposition to use their otherwise gratis time effectively.

He goes on talking on many issues ranging from child labor, honesty in politics, low tax – high compliance, fiscal deficit, usage of forex reserves, women empowerment, WTO, Kaveri water problem, tourism industry, budgets, disinvestment, FDI, tourism industry, LTTE and the list goes on. He proves with no doubt that he was Rajiv Gandhi’s pet. Rajiv had a dream and wanted to change the lives of millions. Agreed! But, Chidambaram’s efforts on Bofors are very explicit. Even he proclaims to have taken Vajpayee, a wordsmith himself, by surprise with his statement on this historic arms deal racket.

It is my honest belief that this articulate politician with his ‘scholar’ hat has done a fantastic work using his free time. I would say, “Its a must read”, if you don’t ask back, “Are his criticism hold good for his current governance & government?”

I want to add another question too. Why is the government increasing the interest rate to curb liquidity and at the same time inject money by heavily buying dollar to maintain exchange rate? Are the FM and RBI of the view that Indian economy is not resilient enough to absorb strong rupee?

Mr.Honda - 30 yrs ago

2007-02-11T19:07:00.000+05:30

A Talented Hawk Should Show Its Talons 1977

A book titled “Hoist Our Sails to take Advantage of Our Strengths,” published in June 1977:

Mr. Honda’s book, “Hoist Our Sails to take Advantage of Our Strengths,” published in 1977, is a new edition of the book of the same name published in 1967. This is an essay in which Mr. Honda insisted talented people should bring out their abilities to the fullest extent. Beginning this year, participation in TT racing resumed.

There are many different types of people. There are people who were born with outstanding talents and abilities. There are people who acquired talents through education or their own efforts. In contrast, there are people who do not have such gifts or talents, but who try to look as if they do. It takes a lot of effort and special skills to accurately evaluate and distinguish these different types of people from a large number of people. However, in Japan, there is an old saying that “a talented hawk hides its talons.”

This was an appeal to the public in the era when the cultural level of people was extremely low, so modesty was made to be a virtue. The trouble is that this thought is still highly regarded and emphasized. In other words, people who have excellent abilities are cautioned not to demonstrate such abilities, and those who don’t demonstrate true abilities are highly regarded. I am having a difficult time understanding why this old saying has been conveyed as if it is convincing. If the person rarely demonstrates the abilities, we don’t even know if the person actually has them. A person should be highly regarded only when his/her abilities are demonstrated and results are delivered. A person should not be highly regarded while he/she is still hiding the talons.

Moreover, holding back on your true ability does not work in this era of speed when things are constantly advancing. Precious abilities will be a useless possession. I am thinking this old saying should be deported from Japan. Instead, I want to insist on “talented hawks do not hide their talons.” In other words, we need to express ourselves saying, “This is how I think.” I want you to express yourself proudly – whether you are a hawk or a dove. I think there are kites or crows in addition to hawks and doves, and there is nothing wrong being a kite or a crow.

In this way, you can do a respectable job and feel your contribution to society only when you can completely understand and express your own individual qualities. Moreover, this strong confidence in your work will lead to your pride.

As long as we live, we will always be beset with various desires. We want to have money and pride. We want love. And we want to be healthy. In that sense, pursuing profit does not satisfy us completely. I am enjoying my life because I have a job that I am proud of. Thieves or swindlers obviously cannot be proud of their job, and thus have no fun.

Everybody is not a hawk. Kites and crows can also do some good depending on how they work. But that is possible only when we declare ourselves kites or crows. As long as we declare who we are, people should let us work in the way we can use our capabilities to the maximum.

In this world, there is nothing completely useless. Even rocks on the riverside become useful as concrete when they are mixed with cement. However, a diamond could be treated as a piece of glass or a rock on the riverside if it follows the concept of “a talented hawk hides its talons” or “silence is golden,” and does not assert itself. Such a non-assertive diamond will end up being buried in concrete. That is asking a little too much if you want to receive a good evaluation while remaining silent.

In other words, it is a virtue in the present day to clearly express one’s opinions and to efficiently provide data which effectively makes one’s value understood.

What will happen if young people keep silent? You must know the answers based on what I have been saying so far. In the area of politics, for instance, if people keep silent and display no reactions, we will not be able to tell if it is good or bad. The same holds for a company. Good company management is possible only by listening to the opinions of employees. A talented hawk not hiding its talons has a major positive impact in all senses.

Tata-Corus Are we Cheering?

2007-02-03T06:42:00.000+05:30

http://nextindia.blogspot.com/2007/01/tata-steel-corus-are-we-cheering.html

Tata steel & Corus - Are we cheering??

2007-02-01T08:36:00.000+05:30

- Kuppusamy Chellamuthu

Three exciting things involving India and England have occurred recently. Shilpa Shetty winning big brother show in UK amidst racist comment by fellow contestant is certainly interesting. British telecom major Vodafone fishing for Indian cellular operator Hutch is seen as the recognition of India growth story by advanced countries. (NYSE taking a stake in largest Indian stock exchange NSE can be viewed under the same lines). While these two events are certainly noteworthy, what is fascinating is Tata steel's acquisition of British steel maker Corus.

This is the largest takeover by an Indian firm overseas for an all cash deal of $12.1 billion (Rs 53,361 crore). Tata's had to offer 608 pence per share. This is 5 pence more than rival bidder CSN, a steel company from another growing nation Brazil.

While the entire India Inc is celebrating this news, we don't have any disregard towards this brave attempt. Neither can we ignore it as an irrational exuberance, though signs of that are exhibited.

"Today marks the end of the journey that started quite some days ago. An Indian company is making the bid for a European steel company much larger than itself — it is something which has never happened," Mr Ratan Tata, Chairman of Tata Steel, said.

Tata steel – Corus combine would be the fifth largest steel producer in the world. 19 million ton capacity is added to the kitty.

A company is taking over another bigger than itself. One can't forget IT bubble towards the end of last century and the first few months of this century when unknown IT companies swallowed firm larger in size to bulge the balance sheet & book value. Sure, it is not fair to compare the Tata's with any of those 'get rich quick' dot.com companies. However, there is an apprehension that Tata is biting more than what it can chew.

Tata steel being one of the cheapest steel producer in the world, deserves due admiration. This acquisition would help it spread wings globally, Europe in particular. Finance minister P.Chidambaram has assured that the central government would facilitate this deal go through smoothly. Any flexing of rules from SEBI or RBI should not be a big problem. But, the main question remains the price.

While one compares Tata's initial offer of 475 pence a share with the final deal of 608 pence, there lies little difficulty in determining it to be a high priced shopping. Hindu business line reports, "The 608 pence offer is at a premium of about 68.7 per cent over the average closing mid-market price of 360.5 pence of Corus on the LSE for the 12 months ended October 4, 2006."

But, Tata steel's MD Muthuraman justifies the price. "At 608 pence a share, the enterprise value of Corus works out to $710 per tonne. Today, to set up a greenfield capacity, going downstream as much as Corus has in terms of tin plate capacity, galvanising capacity and construction solutions anywhere in the world, would cost somewhere between $1200 and $1300 per tonne"

But, overvalue or undervalue varies based on the yardstick we use. The final deal for Corus at an enterprise value of over $13 billion works out to multiple of approximately 7 times EBITDA (earnings before interest, tax, depreciation and amortisation) for the year ended December 31, 2005 and 9 times for the 12 months to September 30, 2006. This is much higher than 5.5-6 times paid by Mittal for Arcelor.

On an EV/tonne basis also, the deal works out to $710 per tonne, higher than the Arcelor Mittal deal, though in line with some of the standalone deals in this space.

Alright. How does the stock market see this transaction? Tata steel share price took a beating by 10%. Nothing more to add. Highly leveraged purchase would burn a big hole in the bottom line and net profit margin. A mammoth task is ahead of Tata's to unite both the entities both in terms of operation and culture.

How can one summarize this? Corus shareholders can start running towards their bank with all smile and 608 pence money. I am concerned with lot of caution as a Tata steel shareholder and feel proud as an Indian. This mega purchase is going to be funded by 53:47 debt-equity mode and has happened on the day when RBI hiked repo-rate by 25 basis points. At the end of the day 'it is a matter of pride'? Neeeeyyy.

Note : Facts, figures and news quoted from Business Line.

Market panic - Business line letter

2007-01-13T06:14:00.000+05:30

http://www.thehindubusinessline.com/2006/06/16/stories/2006061600511000.htm

My letter to the Hindu Business Line

Market panic

This refers to "Stock market panics when politics dominates economics," Business Line, June 15):

Structural inefficiencies, apparent reversal of pro-business policies by the Centre, spiralling oil prices, global tightening of liquidity and scarcity of easy money are some of the factors that the recent crash can be attributed to.

What was informative in the article was that most of the transactions occurring in the major two exchanges are speculative/intra-day/derivative trades.

Short-term investors, as they call themselves, are in fact traders or speculators. This recent correction might act as an antidote to the day-trading epidemic.

Kuppusamy Chellamuthu
e-mail

Rakesh Jhunjhunwala Speaks

2006-12-26T03:34:00.000+05:30

From Hindubusiness line 26-Dec-2006.

`2007 will be year of consolidation and rise for the Indian markets'

Bangalore , Dec. 25

"Market is always right. Markets cannot be taught, they have to be learnt.

"We must have an attitude where we must balance fear and greed," was the hot tip by Mr Rakesh Jhunjhunwala, India's high-profile investor and President of Rare Enterprises, when he spoke at a seminar on `Wealth creation through equity investments' organised by Welingkar Institute of Management here on Friday.

Mr Jhunjhunwala spoke about his convictions that made a case for sustaining the India growth story.

Equities, because of their efficiency in allocating capital and ability to leverage, generated superior returns when compared to other assets over the long term, he said.
Since 1979, the Sensex has delivered 21 per cent returns compounded annual growth rate, which compares well with returns on funds managed by the legendary global investor Warren Buffet, he added.

Opportunities
Mr Jhunjhunwala said that enormous wealth was created over the last five years because opportunities in India have been manifold.

There is a strong case for investing in equities considering its under-penetration today.
He predicts the proportion of household savings to equity to rise to 15 per cent in 2011 from 4.5 per cent now as a result of which about $45 billion would flow into equity markets as against $6 billion now.

He expects 2007 to be a year of consolidation and rise for the Indian markets. According to him, the Sensex may have a floor at 12,500 and a peak at 16,500 in 2007.
Admitting that gains were going to be moderate in future unlike the manifold rise over the last few years, he advised investors to be realistic in their expectations.

He said that markets were unlikely to peak unless they were trading at a multiple of 25-30 times forward earnings. They are currently trading at about 16 times their earnings for financial year 2008.

Growth momentum
Speaking on the strength in India's fundamentals, he elaborated on forces that would sustain the growth momentum.

According to him, growth enablers (such as favourable demographics, higher base of skilled people and education base), liberalisation catalysts (such as competition), fall in interest rates, multiplier effect (on account of reforms), structural changes in quality of corporate earnings and micro trends (such as change in mindset of companies who are aspiring to become global) are likely to drive India's growth story to a higher level.

He, however, cautioned that investors should not forget the four-letter word `Risk' while making investment decisions.

"Patience may be tested, but conviction will be rewarded," he said. Mr K. Rajagopal, CIO, Reliance Capital Asset Management, and Mr Joseph Massey, Deputy Managing Director, MCX, were among other speakers on the occasion.

Got the best analyst??

2006-12-19T05:33:00.000+05:30

- Kuppusamy Chellamuthu

Posting some of the mail discussions from 'india_next' yahoo group.

First:
I have been trading in stocks for the last three years and losing money (yearly 2.5 lakhs on an average). I have tried everything from trading on my own intuition to getting tips from experts. There havent been a single three months streak where I have made money. Now what should I do? Do somebody have any idea who is the best analyst in India so that using his tips we can also make money? I dont care if he is a technical analyst or a fundamental analyst. I am ready to daytrade, invest or scalp. Who is the best out there? Please send me a mail if somebody has an opinion. Please do not mix business with this and do not send business advertisements.

Second:
I have a seasoned investor friend who often says, "Trading is one of the most sophisticated suicidal methods".

When you do day-trading your odds of gaining and losing are evenly poised, leaving apart the money you have to make up for brokerage and taxes. When a person comes with an intention of trading, his chance of winning is 0.50 (50%). He can either go broke or get the money enabling him to go ahead to the next day. His chance of gaining on the end of second day is 0.50 (for the previous day) X 0.50 (for second day) = 0.25. His chance of winning is reduced to 25% and to 12.5% on the third day. This has been proven by history. People who go great money in stocks were not addicted traders.

You did not need to beat the index by a substantial margin. But, had you stayed invested in sensex companies, your money would have grown decently during the past 3 years, which has been the best time for Indian stock market. Unless you are a broker, you don't need to advocate trading.

And...As our motive in operating stock market is to make money, seeking day-trading tips is nothing but a quick solution to the question 'how to make money in a day?' I am completely convinced that any person who has an answer for this question won't need to make money by selling his 'tips'.

Aa such, I don't detest trading. But, want to be sure on what I am trading. Otherwise better prefer flying to Los Vegas to try my luck.

Regret if your question did not get answer. I also believe that no other member of this group am not knows any such 'tipsters' who can facilitate us make money.

And finally, you are lucky enough to learn things at the expense of three years and 2.5 lakhs. There are people who paid much more for some trivial lessons.

Interview of a Sri Lankan industrialist

2006-08-11T10:06:00.000+05:30

This is an interview of a businessman in Sri Lanka that featured in today’s (11-Aug-06) Business Line daily.

It is interesting to see how this businessmen of this island nation look at India how our outsourcing sector looks at United States. Even among conflicts they are growing at a healthy rate. One should not be surprised to if service sector job slowly move from India to low cost countries like Sri Lanka. May be we should also encourage building up huge tourism industry.

Leaving other matters in the discussion apart, I always wonder why both politicians and businessmen of this island tried to constantly persuade Indian government not to go ahead with Sedhu project.

GMR IPO..

2006-07-27T16:51:00.000+05:30

- by Kuppusamy Chellamuthu

No activity off late in this as it was in the market for retail investors.
Drying volumes, beaten down prices, no cash to buyâ€¦ none of them was surprise & new. Most hit was the primary market where quite a few companies pulled back their IPO plans and rest that dared got poor response.

Past few days sentiments apparently getting back. However every adverse reason that prevailed a month back still remains intact despite the fact that some of quality stock s available at comfortable valuation. I would love to see the market at the same levels or even further slide. That would give me a long stretch of consolidation period with few more paydays ahead. If buying stock at cheap valuation is the motto of investing, we have every reason to rejoice bear domination. But a bear can last anywhere between a minute to couple of centuries. DJIA was at the same levels in 1964 & 1981, 17 long years. Japanese index fell all the way from 30 thousands points to 4 digits.

You rarely know whether your date is expensive or not. A fancy girl can make a fatty credit-card bill for you to pay for months. As a matter of fact, it is rarer to predict the markets than a fancy girl.

Infrastructure major GMR ventures to tap the primary market, though with a reduced price band. It is learnt that George Soros' Quantum fund and ICICI ventures have taken sizable stake at the price higher than the propose price band. That does not assure anything at the outset for an investor. If this issue gets good response especially from retail segment, it might probably revive primary market sentiment. That should be a good news because that is the only money injected into companies' balance sheet and projects, indirectly fuelling economy. Secondary Markey irrespective of its rise & fall does not have direct influence on economy, except causing fluctuating income for brokers and traders.

GMR is the major stake holder in Hyderabad international airport and modernizing Delhi airport. Interestingly it own hundreds of acres of land around these 2 airports. Company is also into other infrastructure and power generation activities. That makes one interesting. However looking at Fy-2006 earnings its IPO price is at mammoth valuation of around 90 times. Leave the bal to the keeper & wait???

Tata steel questions

2006-07-06T14:44:00.000+05:30

People might have heard of events happening around Tata steel camp.

Promoter’s holding company Tata sons has decided to increase its stake in Tata steel through preferential allotment and warrants route. Though we understand it is intended to shun any potential hostile bid by steel baron Mittal, what I fail to understand are……

1. If injecting further money into the business was the motive, why can’t they go with all out preferential issue rather than some amount of warrants?
2. I hope warrants are another form of options (like ESOP for executives) where in promoter does not need to shell out money immediately, but with a premium (like a call or put option) at the time of Warrant issue. Given these assumptions being true, what would probably be the exercise price as pronounced by ‘SEBI prescribed price formula’?
3. This question is not directly related to Tata steel, but with games played around convertible warrants. Does any one have a clue on what the price determination formula that SEBI prescribes for an unlisted company is? Has anyone closely followed DLF case where minority shareholder was apparently betrayed by the greedy promoter? Are there any similarities between DLF and Tata steel warrants? If the real motive is to raise money, why can’t Mr.Ratan Tata provide warrants for every Tata steel shareholder instead of Tata sons?

The news item (from Hindu business line) is below for reference.
----------------------------------------
Separately, Tata Steel informed the BSE that it would issue on preferential basis 2.70 crore ordinary shares of Rs 10 each at a price of Rs 516 per share for Rs 1,393.2 crore to Tata Sons.
Also proposed were 2.85 crore warrants, each entitling Tata Sons to subscribe to one ordinary share of Tata Steel against cash payment. The promoter company would pay Rs 51.60 per warrant on allotment; Tata Sons can exercise its option after April 1, 2007but not later than 18 months from the date of issue, in accordance with SEBI prescribed pricing formula.
"You may ask why this injection of funds (Rs 6,500 crore ) is not being made as a rights issue to shareholders. The main reason for that is - through an overseas issue we can perhaps obtain prices that are close to market prices today, which, we would not be able to do in the case of shareholders who would justifiably want a discount, and a substantial discount from market value. This we will consider in time as we always have. But if we want to hold dilution to a minimum and protect existing shareholders, we expect to raise these funds in a manner that it will not exceed 15 per cent of the prevailing paid-up capital of the company.

Two IPOs withdrawn..

2006-06-21T09:09:00.000+05:30

Two companies Bluplast Industries and Vigneshwara Exports have decided to withdraw their IPO due to poor response. This was done as a result of mere 89% subscription even after price band was brought down to Rs 110-124 from Rs 121-140 range in case of Vigneshwara Exports .
Look at the news...

Market at 7,000 points?

2006-06-13T12:27:00.000+05:30

- by Kuppusamy Chellamuthu

Investment guru Mark Faber some time back had observed that a 30% fall in the price of Indian equities was very much in the offering. Now he has advised investors to take holiday till October and relax. We have neither the experience nor the exposure to comment on his observation.

However what we can figure out is whether a 30% down is possible? What was believed to be a cynical view a month back, this now is a reality. BSE index had come down from as high as 12650 to 9100 levels, close to 30% in absolute terms. Do we expect some more downside movement? Well.. only an astrologer can tell.

Imagine a stock trading at 25 times of its TTM earning with anticipation of prosperous growth. Due to macro economic conditions and company’s performance, market can pretty much re-rate it 17 times levels. This is 32%.. when this particular stock, sector, country, equity as an asset class turn unfavorable for investors globally, even further loss is not ruled out.

After the market shrunk to 9500 levels, many experts came out openly saying that the real value of Sensex was around 7000 levels. Before commenting on their views, we have to see what happened to individual portfolios of small investors. Only a tiny percentage of long term investors managed to restrain their loss (even unrealized) within 30%. In many cases, the fall has been anywhere between 40% to 60%. A close analysis of most of the stocks would have revealed another fact. They now trade around the prices when sensex was around 6500. So.. in real sense, the impact of this crash is much more than what the index shows. Is Sensex not a true indicator of the entire market. Well.. the argument continues.

Now, we need to pay attention to these experts who claimed the true value being around 7000 levels. Did any one of these experts dare to pronounce this 6 weeks back? Accordingly these same people, the market was predicted to cross 15,000 before we cross 2006. Indian economy was strong and corporate performance was robust too. In just one month, concerns of inflation, government deficit and immaturity of our capital market are attributed now. Most of the times, it is hard to understand these statements, at least for me.

Valuing a business - net present value

2006-05-27T17:28:00.000+05:30

- Kuppusamy Chellamuthu

One of the most important and basic requirement for anyone aspiring to venture into the financial world is ‘money value’. Money in many ways is to be treated on par with time. Both of them are to be wisely spent. Knowing the value of money yesterday, today and tomorrow is essential.

One generally held belief in the capital market is that the share price of a firm represents sum of present value of all the money to be earned (or liquated) by it’s operations from today till infinity. This statement could not be easily appreciated by anyone who does not know the present value of future money.

Present value:
Rs.100 next year is not equal to the same amount available today. When adjusted for 5% inflation, next year’s Rs.100 would be worth Rs.95 now. Cash flows of Rs100 each for five years in the future does not really equal to Rs. 500 at present.

If some one borrows some money from you now with a promise or returning back Rs.100 five years later, the money you are likely to lend him is Rs.77.38 & not Rs.100.

Given this backdrop of present value concept, let us now see what could be the present value of a taxi business. Mr.X runs a cab which is likely to earn the following amount of money after paying for driver, police (??) and tax departments. At the end of 3 years, the taxi becomes non-operational and it’s salvage value would be Rs.1.5 lakhs.

End of year 1:
Earnings from operation = Rs.60,000
Equivalent Present value = Rs.57,000

End of year 2:
Earnings from operation = Rs.50,000
Equivalent Present value = Rs.45,125

End of year 3:
Earnings from operation = Rs.60,000
Total money including salvage value = Rs. 2,10,000
Equivalent Present value = Rs 1,80.048.80

Total net present value of all future money = 57,000 + 45,125 + 1,80.048.80 = Rs.2,82,173.8

Given the expected earnings from operations are intact, it is not prudent in paying more than Rs2.8 lakhs for this business. This applies to any investment be it in shares, research, education, bank deposits, lending money or even delaying you dowry.

Attitude on market crash

2006-05-22T18:02:00.000+05:30

Kuppusamy Chellamuthu

There was a cartoon in the Sunday edition of Hindu Business Line. An investment advisor is seen with band-aids on his fractured forearm rapped around the neck. And he says, "Yes..the same guy who sent me sweets when the Sensex first reached 10,000, did this now"
How true? When the market reached 10,000 points fro 9,000 points we all were delighted. It is hardly 3 months from then and the situation is no bad than it was then. What is the reason to feel sad?

Some people bought at low levels and hence afford to appreciate the above logic. But what about folks got in at higher levels? 12,000 and above.. what the **** is the problem? You buy a house for Rs.10 lakhs as you are fully convinced that it is worth that money. Some days later somebody offers you 9 lakhs to buy the house from you. He also sells a similar house he owns for 9 lakhs to another guy. In fact he is also ready to sell another such house to you as well for 9laks. Is it not good?
How does that affect you? Some one else selling his property should not affect you as you bought it for what you thought it deserves. Right? Then why worry??

Indeed it should make you happy. I tell you why.. you buy a business for value X and the same business is available at 0.75X with in days. There is absolutely nothing to worry. May be the ones buying now get it much cheaper than what you paid. But you certainly did not pay much if your decision was not influenced by the market condition and performance of others.
While it is true that this is hard to digest as emotion and money are involved here in great deal. But still we all learn from mistakes, sometimes our own and sometimes from that of others. Learning is not learning until it helps avoiding the same mistake again.

If you had bought with though of selling your positions off at a higher level (say 13 k or 15k), then by definition you are not an investor. No one would say, "I invested in a house for 10 lakh and would sell it for 15 lakhs after a week". He is trading/manipulating/speculating and for god sake not investing. If that is the intention people buy stocks with, yes.. this mail might seem another bluff....

This group has some successful derivative trader and I am not really sure how far it would be appreciated by them. I can afford to talk philosophy even in pain. When compared to the deep declines in January and April 2005, I am doing better with October 2005 and May 22, 2006 declines. Wait until a good ball is bowled. Mr.Market sees nothing but negative things for the investment and real world these times.

Rahul Dravid - You??

2006-05-22T08:55:00.000+05:30

Kuppusamy Chellamuthu

Rahul Dravid, the captain of Indian cricket team is a dream hero, not just for some pretty girls. He is a hero for various people ranging from observers, fans, aspiring young player, team mates etc.. When we partied at a friend’s home, there was an opportunity to meet a person who is a bank employee. He remembered his days when he played together with Rahul for India cements.

“Dravid is still the same. He won’t engage in any kind of rubbish talks especially on matters involving other players on matters other than cricket. Pretty confined and composed person he was with focus on the game every minute. His dedication stood him out among others. I am confident these are the qualities that took him this high in his career”

How true? I was exhilarated hearing this banking officer talk about the captain.

In him, we can not see the kind of aggression, excitement, attack seen with Sehwag and Dhoni. Does that mean that he is no important that the rest? Certainly not. As a matter of fact, Dravid is the key player and stands out to be a pillar of the team. He is very very successful player for ages with his consistency & perseverance. His strength is to tire the bowlers till they get weak while keeping him at the same sound position.

Benjamin Graham presented a simple investment plan with the help of baseball game. As I could not understand the game of baseball to the extend the investing game was understood and also our immense proximity to cricket, I developed a conviction that the same plan could be based on Dravid’s style of batting. As investors we have a lot to lean from Dravid.

Unlike test cricket, the game of investing is played for life time. Every stock quote is like a delivery bowled outside the off stump. Unless we go & hit the ball, the ball does not warrant us to hit it.

When the bowler gets tired or when an out of form bowler comes in to attack, you can expect loose deliveries. These are the times for which Rahul conserves his energy for. A 4 or 6 is in the offering. Here we have an edge over Dravid in the sense that he can only get a maximum of 6 runs in a ball. But in the market we can even go for & hit with crores & crores of money. Then… sit back & relax till next loose delivery is bowled no matter how many overs later.

We do not loose the wicket for not having played a ball or some overs at a stretch. Bowler keeps on bowling even when we don’t want to bat. Fine.. there are no stumps in BSE & NSE. The only way we get out is to play some bad shot and been ‘caught out’.

Some times we might have exercised inaction on some plump deliveries which should have been put away with ease in great style. That is ok.. we did not loose anything; it is only that we missed an earning opportunity. Having missed such a ball should not force us to go after the next delivery madly even if it is a yorker.

Very easy it is to play like Dravid. He is not expected to score runs of every delivery like Dhoni. Almost all mutual fund managers do not have that freedom to imitate Rahul, simply because they are compared with other player over after over, if not ball after ball. They are horses. Their fans and people bet on them always want these horses to perform tirelessly.

Hence there is no pressure from outside to be like Dravid for an individual investor like you and I. That does not let us be free from pressure, the pressure from inside. Not able to keep the money for some good investment opportunity might force to take any horse that came out first last hour. Yes.. pressure is purely internal and it is highly difficult to control emotions. Your girlfriend’s aunt made few thousand bucks in day trading does not have anything with you to trade. Even Harbajan can hit some ball to the fence. Does that mean that Dravid should imitate him?? Our worst enemy is nowhere but inside us.

It is equally bad to defend crazily easy deliveries. Do not even try for single or two, but got for the maximum, provide you know it is the ball that matches your line & length requirements. Some times full toss loose deliveries are for you to take. You are insane if you do not leverage (margin purchase or derivatives or whatever) with such investment opportunities. They occur once in a green-moon.

You may not know the delivery that could cost your wicket. That is not a problem. It is fair enough to know the delivery with which you can add up your score. Knowing what you know and playing the game according to your strengths is seldom practiced by investors. Are you one among them?

Any bad pitch in bad weather condition could yield you at least 5 deliveries to score in a 5 day test match. That is all what we need. Any bad economic condition in the worst of recession could provide you at least 5 investment options in a year. What else do we need?

Even for Dravid, sometimes it is not irrational to go for unconventional shots like reverse sweep. He might probably know there is no fielder and also probability of getting out is nil. Derivatives instruments are similar to that. They are to be played at the surest of the deliveries.

“Investors, please do not deal with derivatives and day trading each day. Know what? I don’t play reverse sweep at every delivery” says Dravid. Do we listen?

From Warren's mouth

2006-05-18T12:12:00.000+05:30

For those who are not aware of Warren Buffet, he is the second richest man in the world only after Mr.Gates. He is believed to be the greatest value investor of the 20th century. Story below talks about brokers, mutual funs manager, financial consultant etc who end up snatching our otherwise higher returns.

Happy reading!!

-Kuppusamy Chellamuthu

Cut your gains!

In his 2006 letter to Berkshire Hathaway shareholders, Warren Buffett explains how costly it can be to let advisors come between you and your money.

By Warren Buffett

Between Dec. 31, 1899, and Dec. 31, 1999, to give a really long-term example, the Dow rose from 66 to 11,497. (Guess what annual growth rate is required to produce this result; the surprising answer is at the end of this piece.)

This huge rise came about for a simple reason: Over the century, American businesses did extraordinarily well and investors rode the wave of their prosperity. Businesses continue to do well. But now shareholders, through a series of self-inflicted wounds, are in a major way cutting the returns they will realize from their investments.

The explanation of how this is happening begins with a fundamental truth: With unimportant exceptions, such as bankruptcies in which some of a company's losses are borne by creditors, the most that owners in aggregate can earn between now and Judgment Day is what their businesses in aggregate earn. True, by buying and selling that is clever or lucky, investor A may take more than his share of the pie at the expense of investor B.

And, yes, all investors feel richer when stocks soar. But an owner can exit only by having someone take his place. If one investor sells high, another must buy high. For owners as a whole, there is simply no magic -- no shower of money from outer space -- that will enable them to extract wealth from their companies beyond that created by the companies themselves.
Indeed, owners must earn less than their businesses earn because of "frictional" costs. And that's my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have.

To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We'll call them the Gotrocks. After paying taxes on dividends, this family -- generation after generation -- becomes richer by the aggregate amount earned by its companies.

Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.
But let's now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers -- for a fee, of course -- obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what.

So the family's annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend, and in a wide variety of ways, they urge it on.
After a while, most of the family members realize that they are not doing so well at this new "beat my brother" game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he'll never outsmart the rest of the family. The suggested cure: "Hire a manager -- yes, us -- and get the job done professionally."
These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.

The family's disappointment grows. Each of its members is now employing professionals. Yet overall, the group's finances have taken a turn for the worse. The solution? More help, of course.
It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don't suggest it to them.
The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group -- we'll call them the hyper-Helpers -- appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers -- brokers, managers, consultants -- are not sufficiently motivated and are simply going through the motions. "What," the new Helpers ask, "can you expect from such a bunch of zombies?"

The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with self-confidence, the hyper-Helpers assert that huge contingent payments -- in addition to stiff fixed fees -- are what each family member must fork over in order to really outmaneuver his relatives.

The more observant members of the family see that some of the hyper-Helpers are really just manager Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.

And that's where we are today: A record portion of the earnings that would go in their entirety to owners -- if they all just stayed in their rocking chairs -- is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all the losses -- and large fixed fees to boot -- when the Helpers are dumb or unlucky (or occasionally crooked).

A sufficient number of arrangements like this -- heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so -- may make it more accurate to call the family the Hadrocks. Today, in fact, the family's frictional costs of all sorts may well amount to 20 percent of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80 percent or so of what they would earn if they just sat still and listened to no one.

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, "I can calculate the movement of the stars, but not the madness of men." If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the fourth law of motion: For investors as a whole, returns decrease as motion increases.

Here's the answer to the question posed at the beginning of this piece: To get very specific, the Dow increased from 65.73 to 11,497.12 in the 20th century, and that amounts to a gain of 5.3 percent compounded annually. (Investors would also have received dividends, of course.) To achieve an equal rate of gain in the 21st century, the Dow will have to rise by Dec. 31, 2099, to -- brace yourself -- precisely 2,011,011.23. But I'm willing to settle for 2,000,000; six years into this century, the Dow has gained not at all

Diversification!! how much?

2006-05-14T15:08:00.000+05:30

“Don’t put all your eggs in one basket”

Almost every one of us would have heard this famous dictum in the world of investment.

If one goes by the efficient market theory – a proven hypothesis, not that the hypothesis is proven to be true; but it is proven to be a hypothesis for ever – stock price of a company reflects current value of all the future earning expected from its operation from today till judgment day. (It is found on various occasions that market prices a security in anyway but efficient). In the short term, stock market could be driven by expectation and emotions of mass psychology. But in the long run it should – and would – reflect the true business strength and earning potential of the company.

You might say “hey stop. Where are we heading? What does this got to do with diversification & famous egg and basket story?” We do certainly not get out of track yet J

Well. As discussed above, the stock price is subject to fluctuation based on the performance of a company and its business. If some one chooses to put all his money in a business, then his destiny is likely to be determined by the prospects of that organization irrespective of weather he lies it or not. Having entered at a wrong price at a wrong time in a wrong business could be fatal. Companies like Bioncon and Jet airways have a bad year in the bourses albeit unprecedented rise in the benchmark index of Mumbai stock exchange. This happened albeit their market leader position in their respective industries. This is what happens when you put all your eggs in one basket. You drop the basket, eggs are gone. These are technically called unsystematic risks peculiar to a particular organization whereas systematic risk is for the entire country, it’s economy and stock market.

Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. It strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Even carefully selected stocks can plunge at times (like Pricol) irrespective of good business prospects. This is where diversification comes in handy. Having a couple of losers in a bag of 10 stocks is not a bad portfolio. You have sufficiently diversified. Sometimes inevitable negative effects of some losers are offset by the propelling positive effects of many winners.

But….there is nothing worse in the world like diversifying for the sake of it. I myself have done the mistake of not putting more than a fixed amount in a particular stock. Buying stocks worth same rupee value in each counter was my modus operandi. As of today my portfolio consists of 39 stocks and 4 mutual funds. This is excessive diversification for an individual investor of my size and risk profile. A little retrospect leads to an interesting figure. I have bought/sold/held 96 different companies in my portfolio in the past 2 years. Despite this high diversification, about 73 % of my total gain has resulted from top 10 stocks. All of them were sure winners; at least I believed so at the time of purchase. Nevertheless heavy allocation was not made to these stocks as I had a mental block of a rupee value beyond which I did not want to pump into one. The top 10 securities are below.

Zuari Industries
Era constructions
Alstom projects
Industrial Investment Trust
Tata steel
Century textiles
BHEL
Hindalco
ITC
SAIL

Avoiding excessive diversification – that I know for sure was done for the sake of diversifying – actually dragged down the performance of my entire portfolio. It is only my hard earned experience and an insight derived from voracious reading leading to the conclusion that ‘diversification is an excuse we want to generously grant ourselves for the lack of knowledge & depth in decision making abilities’. Some people buy some stocks and lot of mutual funds simply to comply the comfort of diversification. Ultimately mutual funds that he holds might end of holding same securities he holds himself. He is not diversified as he perceives (or even deceives) himself. As we discussed in the definition, diversifying is an act of avoiding business (unsystematic) risk and not the systematic risk that can crash the entire stock market. Holding 100 different securities does not guard you from systematic risk. Evens like war, political change, foreign policies can attribute to them. Similarly when the portfolio size grows, you try to simulate the market, thus leaving the chance of getting above the market returns (should I call beating the market?) limited. Diversification intended for neutralizing the bad effects of losers with the winners might ultimately dilute the portfolio where the performance of winners might get dragged down by losers and average performers.

I probably have not spent a enough time in the capital market to comment on ‘suit for all’ recipe in terms of diversification. From my personal experience and the amount of learning from reading great men’s view in this field, an ideal portfolio could not be more than 25 to 30. Widening your horizon leaves you at a position where you probably don’t know what to track and what not to track. Focus on your strengths and dive with full energy when you see some thing of your liking.

I do not fail to mention about Warren Buffett in my writings. As per his own statements, if you leave top 10 decisions he took, his results were nothing but ordinary. Warren’s phenomenal show was not a result of widening diversification; but a result of focus and concentration!!

Mutual Funds in Bull market

2006-05-02T09:03:00.000+05:30

by Kuppusamy Clellamuthu

Mutual funds have done a commendable job hitherto in India & elsewhere in the world. They have brought in millions of investors into equity investing, thought indirectly. That is some efforts laudable.

However many of us have a belief that mutual funds would grow at the rate of 40-45% every year (some people say 20-25 % YOY growth is not a concern with mutual funds). It does not make any sense to expect every year to be the same way how the last 2-3 years have been. Mutual funds have generated returns in the range of -30% (or even lesser) during the bear market of 2001-02.

Hell lot of money has been collected since the beginning of this calendar year where the market never looked attractive. In an extended bull markets like this one, people see the enormous returns generated by the mutual funds in the recent past and pump in money (purchase/invest in MF). Heavy inflow obtained this way leaves fund managers with few choices (all of them being bad) at these high levels. They have no choice but to put them in the same stocks they already own even at higher levels. Some funds need to keep some (more) money away for rainy days at these levels. This reduces the return for people invested later. Inevitably markets tend to correct/crash at some stage later. Seeing a fall in market & their NAVs people tend to withdraw their money from the funds. Fund managers are forced to sell more stocks at these low levels to meet these needs, thus driving the prices even lower. No one is ready to keep their money or put in new level where there are attractive buy opportunities for the fund.

In the last 1990’s and in 2000 lot (some one should find a better & bigger word at this place) of investor put in to .com/technology funds in US. They did not bother even with companies trading at 500-1000 times of their earnings. After historic correction (companies lost from 50-80 % of their value from late 2000 till 2002) in 2002, nearly half the investors were ready to invest in shares and MF. More and more attractive picks were present at that time. After all rational behavior and human nature never go together.

IPO Scam

2006-05-01T08:44:00.000+05:30

by Kuppusamy Chellamuthu

During my high school days, we had gober gas facility for our farm house. That more than sufficed cooking gas needs of our family. We never really needed kerosene that we could get at subsidized rate with our ration card. There were many other such farmer families in our hamlet. Kerosene quota of these families was used by others who did not have this bio gas setup for themselves. The needy would borrows ration cards and utilize the provision available on the cards. This is not a bigger sin as long as it is used for family!! How about a big provisional store owner fabricating multiple ration cards with various names (with the help of greedy card issuing authorities) to obtain goods at damn cheap rate and consequently sell thee same with high margin on the same day or in a week?? This kind of act is not only unfair but also unforgivable. You are misusing the quota that is meant for needy people.

Recently heard Initial Public Offer (IPO) scams are not too different. In every IPO, retail investors get 35% quota of the issue size. If the issue size of say Rs1000 cores, Rs350 crores are to be offered to the retail investors. A retail investor by definition can apply for maximum of Rs.1 lakh. If some one who is rich wants to apply to the tune of Rs 50 lakhs, he would come under non institutional investor category. Quota for this section is roughly one third of retail section and also the demand (from such wealthy people) would be high. The chances of getting allotment owing to oversubscription are very minimal. On the other hand if he could find 50 retail investors who don’t apply for this particular IPO? He cold pretty well (like the ration card borrowing example) requests his 50 friends to apply Rs 1 lakh each on their account on his behalf. This way his chances of getting more shares are enhanced. Is it not a pain to go after 50 worthless people for this high network individual for the sake of an IPO? Answer might be a probable YES. What about opening 50 bogus demat account with fake names?? If the officials involved – like out ration card issuing authorities – help in opening such multiple accounts, his mission is accomplished.

For any one to have a demat account, there should be a savings bank account attached to it. For people who open trading accounts in ICICI, you get saving bank a/c, demat a/c and trading account in one go with one company. Unlike ICICI, many brokers who only operate demat and trading accounts don’t have banking business on their own (example Karvy). Even if Karvy aggress to open multiple bogus accounts for you, it is imperative to have multiple banking accounts with some bank. You need to know some one at such banks who can open accounts on non-existing people’s names. Banks need photo, names, signature, etc to have an account with them.

A lady Rupal Panchal and her associates commenced a photo shop and offered free photos as part of their promotional (???) initiatives. Rushed with such an offers people took free photos from the mentioned studio. Studio successfully mobbed thousands of faces for them to use. With photos collected this way, they opened saving accounts with various banks and demat accounts primarily with Karvy, a Hyderabad based stock broking firm. From a single address she was able to have more than 5000 demat accounts. She massively applied from all these accounts to the YES bank and IDFC IPO, transferred allotted shares to a single account a day before listing & massive sell on the first day of listing. Set ready for next IPO……

After many investigations SEBI came out on 29-April-2006 heavily on Karvy, India bulls and some other brokers. Look at a report:
“ Some of the demat accounts that were used to manipulate allotments in the initial public offer of Yes Bank and IDFC were opened during 2003, and not in the last year as was earlier believed. The first IPO in which the key operators have participated was that of Maruti Udyog Ltd, in June 2003, though the number of fictitious demat accounts were not very high then, the interim order from Securities and Exchange Board of India has said.”

This could have been avoided if the IPO lead manager had checked all applications with the same address (may be more than 6 or 7 as various members of the same family can apply for same IPO). The banks and brokers clearly violated KYC (know your customer) norms before opening such accounts. It often takes a scam to tighten the rules – leave alone reform - to create a fair system for common retail investors. Even ICICI bank opened few such accounts and it was let go free with a fine of Rs 5 lakhs. How fair??? Nonetheless the SEBI order is most solicited; though late, it did occur.

If you find some delays in opening a new account due to reasons like first name & last name mismatch, address mismatch, sign improper, PAN card not present etc, you are not alone. Another rule is in place to block off market transfer before the day of listing. These should be in the best interest of none but people like us.

In the coming days, we have no choice but to believe that (# of times) oversubscription legitimate. It better be!!!!

Stock Valuation

2006-04-29T10:32:00.000+05:30

- by Kuppusamy Chellamuthu

The topic discussed below might be too trivial to some. But still as many in this group are getting the flavor of equities for the first time, it might make more sense.

Have you been amused by statements like
* Indian market over valued
* Prices have already discounted 2008 earnings
* 16.5x of FY06 earnings
* Shares trades at 8 times of earnings which is below its peers
* Indian stocks are fairly valued when compared to other emerging markets

What does this damn things valuation mean? Let us discuss it with an example below.

What is EPS:
First and fundamental thing to understand is EPS (Earnings per Shares). This means the money one share (which is a part of the ownership) earns in that year/quarter. If there is a total of 1000 equity shares and the company’s profit for the year is Rs 10,000, each individual share earned Rs.10. This is what is known as EPS by dividing the profit by total number of shares.

What is PE ratio:
PE ratio is price earning ratio which is the ratio of market price of the share to the earning of the shares. In the above example we calculated the earning of a share (EPS) as Rs.10. Let us assume that this share trades at Rs.120 in the market. PE ratio is calculated as Price/EPS = 120/10 = 12. This company trades at an PE of 12 or 12 times of its earnings.

What can one infer from this? Well.. you need to pay a price of Rs. 120 to earn a profit of Rs.10 at the end of the year. Is it costly or attractive? Purely depends on the risk appetite of the investor. This turns out to be 8.33 % earning in an year (10/120) * 100. Anyone is OK for such a gain/return in a year could buy at this level. As a matter of fact a low PE value is good and higher PE is certainly expensive. When there are two companies that operate in the same market with same efficiency (say Infy & Wipro) it is good to buy the company that have the lowest PE , given all other variables remain same.

Does that mean that a higher PE is not to be bought at all? Then why the heck some companies are trading at 40 times to 100 times of their earnings. Well.. the market expect these companies perform exceptionally well. A share price of Rs.200 for EPS of Rs 4 translates to a PE of 50. Is one simply looks at the yield it is just 2 %. However if the earnings double for the next 2 years, its EPS would Rs 16 after 2 years. So the current price of 200 is 12.5 times of n+2 yrs (say year 2008 yearnings). This looks OK. But one needs to be sure about the growth like how Infosys, Bharati tele etc have grown.

Being equipped with these terminologies helps one understand (al least an attempt to understand) and analyze recommendation and so called hot tips from your broker. Mind you.. brokers feel ease to work with clients who asks no questions; but pay little respect. After all for him it is money for every trade no matter you gain or loose.

Have a nice day!!

Setting Realistic Expectations

2006-04-28T13:53:00.000+05:30

A friend of mine called this afternoon to convey the vacancy he came across in his company which he thought might suit me. We talked about few other things as well. He has been an investor through equity mutual funds for the past 1 year. Most of his funds have appreciated more than 100 % and his net investment as per NAV is around Rs 2 lakhs. He sounded pretty optimistic to make it to Rs 5 million (half crore) in the next 5 years.

With a very optimistic gain of 20% a year, Rs.100 invested now would becomes Rs. 248 at the end of 5 years. (refer first table)

This is just around 2.5 times. With this formula, his current investment of 2 lakhs would turn somewhere near 5 lakhs. Not 50 lakhs!!!

Now we’ll see how much CAGR (compounded annual growth rate) is required to turn his Rs.2 lakhs into half crore. (refer second table)

A consistent 90% gain every year without fail is mandated to achieve this ambitious destination.

No one of us have any doubt on the performance share market from 2003 onwards. It has been exemplary by any standards. But, can we expect this to repeat every year?

Let me draw a simple parallel from game of cricket to illustrate this fact. I have a friend who is a great soccer player himself and a great fan of the game. He hardly watched any cricket during his life till now. This year some of us were watching an one day cricket match. It was the initial 15 overs of the game and Shewag scored 4 consecutive 4 run shots with ease (some thing we have been watching with the market in the last 3 years). Power cut!!! People started anxious to know the progress of the match & the score India can get at the end of 50 overs. We also started making small bets to pass time on the likely to be score. Our man calculated remaining 40 overs (with the same rate Shewag scored in the last 4 deliveries) and believed India could get 960 more runs (40 overs * 6 balls * 4 runs) at the end of the innings. Total asinine!!

To arrive at a score one should know
* how many wickets remain
* which bowlers line up in the opposition team
* nature of the pitch
* pressure level in the game etc etc..

Same goes with share market. Bombay market index touched the four digit figure for the first time in 1990. It took 16 years to reach 12000 points. This is nothing more than 16.81 % growth on annualized basis. (if we leave last 3 years, the returns could be nothing but poor). This is how the investing game has been played & runs scored. There could be few loose deliveries & bowlers to exploit with. But beware, scoring runs at international level is not an easy affair and so is making easy money in capital market.

Before ending this write up, let us see how Warren Buffet the most successful investor over the years has compounded his money. (refer third table)

Warren has compounded his money at 22.43% on an average with respect to 11.66 % return produced by S&P 500 with dividend included. If the best investor in the world could achieve only this much, I humbly believe that we should not have unrealistic goals or targets. I personally have set a target of 15% growth for some years to come which I should try hard to achieve. That is the level I believe I can achieve given my limitations and knowledge.

Most of the investors/traders are relatively new to the market. We set unrealistic expectations based on the recent performance. How different is this from the person who expects India to score 960 runs in 40 overs?

The content and intent of this message is based on my limitations. There could be extraordinary people (even in this group) who can generate more than 25% every year. For that you need to be another George Soros.

-Kuppusamy

Inflation

2006-04-28T09:24:00.000+05:30

“Indians are becoming stronger. Some years two strong men were needed to carry groceries worth Rs.200. But now 5 years old boy can carry the same”

Does this sound as if we are getting stronger as the years progress? Or does this indicate the inevitable scenario of prices of goods rising? Or is it some kind of joke far from reality? We neither are getting strong nor is it a joke. The prices keep increasing every year whether we like it or not. It is technically known as ‘Inflation’ in the financial terms.

Inflation is always measured in %. An inflation of 5% this year means that the price of a good that was available at Rs.100 last year would cost us Rs.105. We (at least I) remember the days when petrol was available at Rs.10 per liter. Inflation does not determine the commodity prices; rather the commodity prices determine inflation

Inflation & Interest rate:
You are planning to buy a TV worth Rs.10,000 now. But a friend of yours is in dire need for the same amount and promises to return it back after one year. As you know that the inflation clocks at 5% an year, you expect the TV to cost Rs. 10,500 next year. So to get the TV at that time you require Rs.500 extra. To be at a no gain/loss state you require your friend to return back with an interest of Rs 500 equaling inflation. Any interest or gain you receive below the inflation rate is not acceptable. As inflation goes up, interest rates also go up. It is essential for one to get a return well in excess of inflation; otherwise he better spends that money right now.

You get a pay raise of 2% in a year when inflation is 6%. During the next year get pay reduction of 2% (-2% raise) when the inflation is 0 %. Which would make you feel good or bad? Naturally and emotionally you feel happy when you got 2% hike and felt bad when it got reduced. However a closer looks suggests that the pay change is negative during the high inflation year and nil during zero inflation year after adjusting for inflation. Experts call this ‘money illusion’. You were delighted to get a 12% interest when inflation was 25%; but feel bad to get 6% during a 6% inflation year. Actually the second is better.

It is the duty of the government to control inflation by regulating the interest rate. Why does the prices raise? Many people try to chase very few goods. Supply outpaces demand and hence the price increases. However if the government increases the interest rate, people would tend to deposit in bank/bonds instead of buying good. Thus inflation is reduced by indirectly controlling the supply of cash towards fewer goods.

Inflation, Interest rate & stock market:
In the recent past (3-4 years) many people try to venture into stock market. The primary reason has been the reducing interest rates. When the assured interest that could be fetched from bank deposit is no longer worth considering, people look at share market with the intention of getting better returns (even though it is risky). But when the inflation is too high and the interest rate as a result of that is also high, people feel safer to lock their money in fixed income securities as they offer a decent risk free return. This is not only true to individual investor like you and I, but for major mutual fund manager and FIIs as well. Inflow into the share market gets reduced due to high interest rates and hence the market does not move as much as one would love it to. This is just a supply-demand of money part. There is another more important factor. Many companies borrow money to run their business. Revenues after having paid for interest and tax become the profit for the share holders. As the interest rates are high, most of the revenue is eaten up by the interest component and hence very little is left for share holders in the form of profit. Worst hit are the companies that are heavily leveraged with barrowed fund. So.. Watch out for companies with high debt-equity ratio during high interest rates.

Inflation is not the only factor determining the interest rate in a country; it is just one of factors. We would talk various such points later in this group.

Please feel free to pass on you comment/suggestions/feedbacks.

Punch Dialogue:
It does not matter whether you are right or wrong; but how much you gain when you are right and how less you loose when you are wrong.

By: Kuppusamy Chellamuthu