Thursday, October 13, 2016

Indian Investors Don't Ignore Deutsche Bank

It’s hardly a shock…
Deutsche Bank boasted a notional derivatives exposure of €41.9 trillion (US$46.53 trillion) in its 2015 annual report. This is about 10% of the total global derivatives market, standing at roughly US$493 trillion. In comparison, the current market cap of Deutsche Bank is worth €17.46 billion. In other words, Deutsche Bank is leveraged 2,399 times. Imagine promising to buy a house for $2,399 with assets of $1!.
While a fair chunk of these derivatives are hedged (i.e. there’s a buyer and seller for each contract), what happens if one side can’t pay up during the coming times of chaos? This is exactly what happened during the US sub-prime crisis of 2008. For this reason, the IMF notes that Deutsche Bank appears to be the most important net contributor to systemic risks.
We had underestimated the importance of Deutsche Bank.  Lehman Brothers on May 31, 2008, (the last 10-Q it had filed before it went bust) showed assets on its balance sheet of $639.4 billion and stockholders' equity of $26.3 billion. By comparison, Deutsche Bank, as of June 30, 2016, has assets of €1.8 trillion and stockholders' equity of €66.5 billion. Given the size of Deutsche's balance sheet, it is three times as large as Lehman Brothers was.
Indeed, the bank is connected to everything. Will it be the first domino to fall?
Source: IMF, WealthMills.
Looking at the globally connected game of counterparty derivative contracts, if Deutsche Bank fails, everyone else should follow.  But IMF, European central Bank and politicians are proactively trying to rescue 'Deutsche Bank' as it is the symbol of European Economy to avoid any chance for financial crises.

Friday, October 07, 2016

Corporate debt in India

Here's a financial tip no one gives you. If you owe money to the banks, make sure the amount is huge. Then you won't need to worry about paying it back on time. Or, indeed, in some cases, paying it back at all.
This is not a joke. Several top business houses in India owe banks astronomical amounts and have defaulted in repayment. But instead of facing pressure to pay back these loans, companies are routinely given sweet deals: either their loans are 'restructured' in a way that allows a moratorium on interest payments, or their repayment schedule is extended generously. Here are the Top corporates with high debt levels

1 .The Reliance Group : The Anil Ambani-led Reliance Group is in the business of power, insurance, wealth management, telecommunication infrastructure and entertainment. In March 2015, the company had a debt of Rs 1.25 lakh crore on its balance sheet.The amount is equivalent to the special package announced for Bihar by Prime Minister Narendra Modi ahead of state elections in August this year.
02 .The Vedanta Group :Anil Agarwal's company is the second-most indebted company. According to Credit Suisse, the company, which is into metals and mining, had a debt of Rs 1.03 lakh crore. This is equivalent to the amount raised by the Government of India in March 2015 through its biggest-ever auction of telecom spectrum.
03. Essar Group : Managed by the Ruia Brothers (Shashi Ruia and Ravi Ruia) the company, with operations in 25 countries, owes Rs 1.01 lakh crore. That's what the Centre plans to spend on building smart cities until 2020.
04.Adani Group :Gautam Adani, the chairman of the Adani Group of companies is known for his proximity with Prime Minister Narendra Modi. His business house owes Rs 96,031 crore to the banking system. The amount is a little less than the Budget for building the bullet train network between Mumbai and Ahmadabad proposed by the government. Earlier this year, the State Bank of India reportedly approved a loan of around $1 billion (Rs 6,600 crore ) for the company's coal mine in Australia. However, after much hue and cry in the media due to the highly stressed balance sheet of the public sector bank, the approval was withdrawn.
05. Jaypee Group :Manoj Gaur-run Jaypee Group has a debt of Rs 75,163 crore on its balance sheet. Jaypee Group had a golden time during the Mayawati rule in Uttar Pradesh between 2007 and 2012. The debt is eight times the allocation for mid-day meals in 2015 that feeds 12 crore school going children in the country.
06.JSW Group :Sajjan Jindal is the chairman of JSW group and he was recently in headlines for reportedly organising the meeting between Pakistan Prime minister Nawaaz Sharif and Narendra Modi. Big connections allow you big credit lines. As per the Credit Suisse report, the group has a debt of Rs 58,171 crore. The amount is equivalent to the cost of 26 Rafale fighter aircrafts that India plans to buy from France.
07.GMR Group : Named after its promoter GM Rao, the group is known for building Delhi's T3 International Airport terminal.The group has a debt of Rs 47,976 crore on its balance sheet. The amount can be used to build to coal-based power plants with a generation capacity of 4,000 MW each - enough to provide electricity to the state of Haryana during peak summers.
08.Lanco Group :Headed By L Madhusudan Rao, the company runs solar and thermal power plants. It has a debt of Rs 47,102 crore.
09.Videocon Group :Venugopal Dhoot's company, the group once famous for making televisions, owes Rs 45,405 crore to banks. This amount can be used to 93 missions to Mars by India.
10.GVK Group :Founded by GVK Reddy, the group has interests in energy, infrastructure and hospitality sectors. The company has a debt of Rs 33,933 crore. The amount is just a little less than government's allocation under the MNREGA scheme (National Rural Employment Guarantee Act) of Rs 34,000 crore in 2015.

Thursday, October 06, 2016

Media in India

If you're not reading News papers and Financial Reports you're uninformed If you do so you're misinformed. Please check  Who owns majority of Media  in India in the below Table

Monday, October 03, 2016

Confidence Factor

It's a bitterly cold day. you have lost all feeling in your nose. Your ears are hurting . You hunch your shoulders together to bury your head under the raised lapels of your greatcoat.
You turn a corner and you see a frozen pond. Can you risk taking a short cut across ? Or would it be safer to walk to the bridge half a mile down the road ?
You notice a man on the other side of the pond . He gingerly steps on to it. It holds the weight of one foot. He carefully places the other foot on the ice.
A young women behind follows his lead. As you watch, some children arrive with skates, and more adults follow them. Soon, the whole village is having a party on the ice. Each person had given the next person the confidence to join the party. The more people clamber on to the ice, the safer it feels. It's logical, isn't it? Or is it? Something makes you stop. You turn around . You walk away. Behind you , you hear the crack and the first scream .
Stock market follow the same psychology . As an increasing number of heavy bodies add themselves to the ice, human nature makes them feel that the safety factor is increasing. But the clear thinking observer realises that their added weight means the opposite is true. Each fresh body on the ice makes it more - not less- likely that the ice will crack .The global investment business today is a business exactly the same way that the street market in Mumbai or Dubai is. It is manned by salespeople, and they all have products they want you to buy .They make sure that what they sell is attractive . They tell you uplifting stories of how buyers of their services have generated wealth for themselves. They attract you to the ice. There are lots of people on it, so it must be safe .
At WealthMills we are committed for the safety and wealth creation of our clients with high ethical professional standards .

Friday, September 30, 2016

IPO ICICI Prudential Life Insurance co Ltd .

Most  investors  make  the  mistake  of  thinking  that  the  IPO  is  once-in-a-lifetime  opportunity to buy the aspired stock.  It is not!
Rather it may be the once-in-a-lifetime opportunity for the promoter and early stage investors to get the best possible valuations. And hence they leave no stone turned to make the months in the run up to the IPO look like a dream to prospective investors.
Now if you are not investing in a company for a quarter or two, the latest quarter’s performance should hardly matter.  But unfortunately that is what most investors look at. And this is why you will find most companies debuting on the bourses in their most profitable year or when the sentiments at the peak. If the profits and the sentiments do not last, it is very likely that investors may end up buying a mediocre business at an expensive price in the IPO. 
Buffett has explained that the mathematical probability of fetching a good stock at cheap valuations in its IPO is minimal. Therefore, investors hoping to become IPO millionaires have to rely on luck apart from their value investing skills.
IPOs and the Less Knowledgeable Buyers : It’s  almost  a  mathematical  impossibility  to  imagine  that,  out  of  the  thousands  of  things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors).
These words of Warren Buffett explicitly manifest his unwillingness to invest in IPOs.
The billionaire passed on the opportunity to subscribe to Google's IPO in 2004, which was offered at over 52 times earnings. In addition to Buffett's general reluctance towards the business models of most internet companies, Google's early valuations clearly didn't interest him.
The  stock  returned  nearly  1400%  in  ten  years,  proving  Buffett's  intrinsic  value calculations  wrong.  But  he  didn't  compromise  on  his  margin  of  safety  criteria,  and  the legendry investor never regretted his decision.
On the ICICI Purdential life Insurance company debut on stock exchanges, just to refresh my memory. I knew the flavor of Insurance industry as a disclosure I worked with ICICI Prudential life sales team in
2004. It was the time company was growing at a ballistic pace in sales and revenue. I recollect a young chap joined as Head of sales force, he was used to keep sales missions on selling life insurance policies. The team was so much charged up and selling policies left, right and center. Top sales men were heros of the company, such highly aggressive sales practice in all regions made ICICI Prudential life Insurance company as No 1 private life Insurance company and also NO 1 in policy lapsation by 2009. About 7.70 lacs conventional policies worth Rs 25269 Cr lapsed, highest among the private life insurers by value (As per IRDA Hand book published in 2009).
Later on change of management in 2009 at top deck brought persistency and improved focus on quality of sales, off course stringent measures by IRDA helped the company to maintain quality.  ICICI group strong channel alliances helped ICICI prudential life insurance co Ltd to remain as Top private life insurer. 
Challenges in Valuing Insurance Businesses
Very  few  businesses  have  a  demonstrable  or  predictable  level  of  repeat  business  from customers. Life insurance, by its very nature, primarily sells long-term contracts with  annual  premiums  and  expectation  that  a  portion  of  those  will  get  renewed  year-on-year. Additionally, it considers life mortality assumptions to create adequate reserves for future pay-outs on account of death, maturity or surrender of policies. These challenges could impact growth as well as valuation assumptions.
The basic principles of valuation are applicable to the insurance sector too, just as they apply to other sectors. However, some unique aspects can affect how they are valued. Calculation of debt is difficult to estimate and measure. Frequent regulatory notifications and considerations too affect valuations. The regulations on channels impact distribution relationships with a potential to positively or negatively affect valuations.

I will remain positive on the growth prospects of ICICI Prudential life ltd.

Wednesday, September 28, 2016

Conquest of Investing

Let us forget about markets for a moment and consider the following: prior to our age of market economies and capitalism, some other form of ‘capitalism’ existed.
However this capitalism was not based on creating wealth through progress in all spheres of society and the production and distribution of goods and services, but through conquest (the acquisition of territories and wealth by force – so called unfriendly takeovers).
From our schooldays we all remember the incredible military achievements of conquerors such as Cyrus the Great (559-530 BC), Alexander the Great (356-323 BC), Julius Caesar (100-44 BC), Charlemagne (AD 742-814), Umar ibn al-Khattab (586-644), Genghis Khan (1167-1225), and much later, Napoleon Bonaparte (1769-1821).

Their empires were in steep bull trends for a while… but eventually (frequently after the conqueror’s death) toppled like a house of cards… the great conquerors of antiquity were the first ‘businessmen’ to make extensive use of leverage. Their armies never grew much in terms of size, but the territories they controlled expanded almost exponentially. As a result, the acquired empire grew disproportionately per unit of soldier…
But one victor after another led to euphoria, carelessness, and total misjudgement of risks. While most great military leaders were careful not to waste their armies at the beginning of their careers, they later fell victim to their own success and began to neglect the risks associated with the conquest of larger and larger territories (the acquisition of additional assets).Take, for instance, Napoleon. 
The Russian campaign of 1812 was from a risk
 point of view, a complete absurdity (it was an incredibly leveraged, high –risk low-reward transaction, typical of the terminal or climactic phase of an empire’s uptrend)…
Markets are no different from empires. They expand, rise in value, become ever-extended, and eventually collapse. In a modern market economy, conquerors are business leaders (Promoters of Businesses) , successful speculators, adventurous fund managers and leverage buyout artists.
The Army Generals are their immediate subordinates like CEOs & Board members (ambitious junior partners among hedge funds, Fund Managers, research prima donnas, etc) who are all sharing in the profits of their ‘conquerors’ and Business Media houses who makes money by telecasting these conquests . Finally the soldiers are the individual investors – usually uninformed, greedy, and displaying strong crowd behaviour [psychology] and rapid changes of sentiment.

At WealthMills we are committed to protect the interest of Investors with unbiased views on markets.

Friday, June 17, 2011

My Dear RBI Governor,

My dear Subbarao,
I have special respect and regards towards RBI governor as he was from the town in Andhra Pradesh where I was graduated in commerce and built my aspirations towards financial markets . But by his movements I know one thing , that he knows increasing interest rates other than nothing! . He increased interest rates 10th time in a row in last 16 months , since inflation is very high and all the emerging markets were grappling with the same problem. RBI governor is relentlessly working towards tame the inflation . I firmly believe monetary policy which regulates the flow of money in the country lost its control on the economy in the last 10 years because of the excess flow of un accounted money in the country , this unaccounted money flows makes every asset class toinflate and dance! especially real estate which has became integral part of India’s growth corrupted story . RBI completely lost its authority and control on food prices as they do not come under regulatory control & purview of RBI , where pricing mechanism of most of food articles are regulated by local bodies and state governments , even Central government also don’t have required proper control , RBI governor can’t control the price of tomato you pay but try to control the quantity with variations in interest rates.
If we remember Mr Governor in September 2008 when the world was reeling under recession , Lehman brothers collapse and financial crises , in India high inflation excess of 10% YOU reduced interest rates in line with your fellow Central Bankers across the globe , after 36 months for the same inflation problem Your increasing interest rates !!.
You should know a Simple law SIR , nobody in the world eats excess bread 6 times in one day if they have some excess money in their valet.
Simply commercial Banks are fooling you sir , by not lending to priority sector in the required quantum.Rural credit have taken a big hit because of securitization of debt, every bank is buying debt from Micro finance institutions to meet their rural credit targets which is a time bomb kind of debt and will burst balance sheets of banks after some time.
Due to integration of financial markets and globalization of world economies Central banks across the globe just became Money printers .
Inflation targets varies from economy to economy , for example Euro zone which consists of 19 European nations monitored by European Central Bank (ECB) inflation comfort level is 2% as its a low growth trajectory and they can pump more money inline with inflation . Finally the Money Printer ,originator of inflation and author worst monetary policies Mr Ben – Benjamin Bernake Chairman of US Federal Reserve Bank , He knows only one thing Print and Pump Money into the world which is causing global high commodities prices .
RBI don’t have any control on global commodities prices especially crude oil and local food inflated prices. So your team have to do their job as high profile bureaucrats ,one thing they knew raise or decrease rates that’s what they are exercising powers . If this situation prevails for prolonged time it creates dire consequences on middle class which accounts 40% of country’s population ( as per Mc Kinsey global ). Encourage lending towards basic agriculture infrastucture ,food storage and for farming , if you keep on increasing interest rates for every up move of inflation your adding fuel to fire .Please stop debate on super regulator sir , first focus on priority lending and un accounted money flows in the economy to strengthen RBI’s role.

Tuesday, May 17, 2011

"Marriage system " Asset of India

Last week former Californian governor Arnold scharzenegger separated from his wife Maria after 25 years of married life !. Finally prince William tied the knot to his very old girl friend Kate , I pray for her it should not be Diana's story again.
Recently BRICS Nations including South African premieres conveyed a meeting for mutual cooperation and challenges among the emerging BRICS Nations , A term coined by Goldman Sachs in the year 2000 and succeeded in selling Nation's story and every one rejoiced and participating in the India's so called domestic growth story . As I interact with various investors across the globe , they are exuberant about India's robust growth than citizens of India. I was perplexed with variety of views .Finally I started analyzing the strong key points behind India's domestic story , it is amazing to know simple but powerful bullet point i.e. Our marriage & Family planning system , powerful asset of India . You are absolutely reading accurately our marriage and family system is the key strength of India's growth story .
The success of any economy depends on Human capital – how an economy efficiently using its human capital for development and providing employability referred as demographic dividends. And every one talk about India's demographic structure as key strength this strength is derived from the Marriage system in India.
We have to get educated to gain knowledge and wisdom , from wisdom , we derive the solutions which leads to revenue generation which translates as savings and spending for self well being and family prosperity this is the ultimate theme of majority of folks .For an economy people are key and their productivity is the lynch pin to run the economy . In the key financial planning of any individual your family will play a vital role which reflect in the economic development of the country .
Let me envisage the demographics of various nations. Chinese their average age is 37 years and 72% of population is in between 15 to 64 years and China also one of the aging population . Why Chinese household consumption so extraordinarily low , in part , it is because Chinese house holds can't rely on the traditional old age safety net in Asia namely children , As a result of government single child policy in past 30 years in China increased number of people above 45 years and indicates less productivity of nation and in a family of 5 every one depends on one young earning child .In USA because of increasing divorce rate and social system 50 % babies born in USA are born to unmarried girls and as per U.S state department statistics every year more than one l lac girls under 17 are diverted towards sex traffic .which will destabilize the nation over period of time . In Japan 25% of population is above 65 years and average age of Japanese population is 44 years which clearly indicates less productivity and consumption indicates clear threat to the nation . In Euro zone nations because of child delivering costs are very high , average European stopped giving birth and birth rate and population growth is very low almost it is zero which is impacting the Euro zone Economy . Very recently Russian Economy is very proactive to spur demand , it announced good number of schemes and incentives to its people who ever give birth to 4 children and above , if you want busy next 5 years migrate to Russia and enjoy the romantic life! .
Family instability too , is harder on poor children , poor less well educated couples are more likely to break up and when that happens the economic consequences are more severe than for the well off , the cost maintaining two establishments ,shuttling children between the two parents income , leaving less for the basic necessities , let alone counseling and remedial tuition to help devastated children cope with the breakup . Divorce therefore affects the children's health , hygiene and schooling far more in a poor family than in a rich family . In equality tends to further perpetuate it self through the social environment. To the extent that it is caused by significant part of the population is not being able to improve themselves because of lack of access to quality education it signifies tremendous inefficiency.
Father of Economics Adam Smith says that while population growth might increase the total wealth of nations but only improvements in productivity could make a nation richer on peer capital basis , it is not how much capital country has that makes it rich .It is how productive that capital is and according to Economist Solow the key to productivity is technology.
United states and other western nations countries did not became rich because of lucky endowment of natural resources or because of capital falling like manna from heaven . Rather they became rich through a virtuous cycle in which technology improvements led to capital became more productive , which in turn led to more capital investments, without technology growth , capital would grow in proportion to population and wealth per capital would simply level off.
The dynamics of economy and life changes for every decade, for example in 1970 civil engineering is demanding profession ,in 1980 banking was revolution and demanding profession in 1990 Media, and tele communication was in demand , in 2000 software engineering was demanding .2010 financial services is in demand . So I believe when your planning your family give greater gap between the children for greater diversification and you can't effort to have your children every one in the same industry , education and age group as dynamics of the economy changes . The greatest gift you can give to your children is education , of course every one endeavor is same but demanding education is crux . I encourage every married parent to educate your child in Chinese language , this is going to be the best gift you ever presented to your children . As we progress 70% business deals happens from China in future and this is going to change their business life.

If your single don't slew your life ! (Of course I am still bachelor) ! Get married or committed to be celibacy , adopt orphan and assist them for their brighter life . Those are married don't restrict for single child, with a long gap minimum 8 to 10 years give a birth to another child , this will help the economy to stimulate the workforce problems and later will help you in your old age
Your decision for marriage or break up and having kids and desiring for their prosperity will have significant impact on the nation as whole .
Don't take for granted since Indian population is young the opportunities will follow us ! Administration should plan well to stimulate population growth ! Or else one day India will face dire consequences like Japan or China.

Tuesday, April 12, 2011

War Times ...!

War Times ..! History : A collection of crimes , follies and misfortunes of mankind – Voltaire.

I was grown up in south of India and currently resides in Hyderabad as most of you aware but not in Mumbai financial capital of India . Of course Sir John Templeton and legendary Investor warren Buffet never lived in New York city .Hyderabad is a peaceful and secured city in India , people leads a comfortable and peaceful life like any other city in India unlike Tripoli , Cairo or Bahrain. As we are progressing into the month of April , beginning of new financial year for Indian Economy renewed exuberance is creeping into the financial markets and stock markets. I can see lot of new cars on the roads including mine. As cars are treated to be prosperity and Economic indicators of the nation .This Financial year is crucial for stock markets after the rebound from financial crises . In the world of Investing , there are Truths , there are lies , there are statistics , there are facts . The world we live in is no longer simple, But it is complex . The only worrying factor to me for Indian economy is not monsoons or corporate earnings nor inflation and corruption , but is geopolitics. Yes every thing in the world has to move in a cycle, even the War . As technical analysts on stock markets how they predict the market's support and resistance levels of indices, basing on the previous volumes and trading patterns . Through war cycle we can predict the wars to come. Back home UPA Led government is happiest ,ever since Indian cricket team winning Cricket world cup especially their victory on Pakistan in semi finals ! Thanks to cricket world cup and Indian cricket team . The key reason was all the national media attention was diverted towards the world of cricket from politics ,telecom 2G issues. Prime minister Mr. Singh went one step ahead and invited rival cousin Mr. Gilani P.M of Pakistan to India to build hostile relationship with arch rival nation. Where there was no concrete and amicable solutions to the issues between the two countries from last 60 years. I am sure there will not be a solution in next 60 years also for the same if history is the proof for future on geopolitical science. United states president Obama speaks about patriotism and human rights in U.N security council. Patriotism means not invading Iraq or war in Afghanistan or bombing Libya , Its stand for sacrifices and I am sure Americans can't afford for the same now !. Only thing they are interested is printing money till the time Dollar lost its value as measure of exchange and store of value. The day US Administration desires these formulas won't work and west financial condition deteriorate the only option to them is encourage the geopolitical tensions across the globe. For common man in India it sounds stupid to think and read about these issues , who are habituated to comfortable and peaceful life . But if You enlarge your global vision the geopolitical tensions are accentuating at faster pace. The crux is growth is concentrated in Asia but also the threat . 60% population lives in Asia and India ,China, Pakistan and Korea are Nuclear club counties and in the middle east Iran is trying to book its berth for the club. Geopolitical tensions are going up on daily basis across the globe, starting from Ivory coast , Libya ,Egypt in Africa. Middle east countries like Syria ,Bahrain, Israel ,Afghanistan . In Asia border issues between China ,India and Pakistan .Political tension between Japan and China . Between North Korea and South Korea . If these tensions prevails for a longer period and increases then USA's war chest and military order book will do well . So they have vested interest in encouraging these geopolitical tensions. The Swiss hates Germans , Germans hate the French , the French hate English and every one hates Americans. Each of these nationalities carries certain profile in your head and evokes a certain reactions. And all these issues will definitely going to impact prices of commodities like crude oil and base metals and global financial systems and finally our life’s and portfolios in India . I encourage investors in India to start paying utmost attention towards the geopolitical issues across the globe which will have greater impact on financial and stock markets than India's strong domestic story . I am sure and confident growing geopolitical tensions will change the face of financial markets. I believe in war cycle theory , but I am not sure when it will intensifies today ,tomorrow or after 10 years , but I am confident we are nearing to the next War cycle. "Reality does not depart even when you stop believing in it." I am not Dr Doom but try to be optimistic and look for opportunities from these developments .For successful investing is not depends upon the city you lives but its depends on how much attention you pay to the developments and predicting its impacts and interpreting the same.

Wednesday, March 30, 2011

Oh My Japan ! Tsunami

On 9TH of March at 9 pm I got call from my friend, he enquired what I was doing ! watching TV I replied . I was watching NHK global channel where no one understand and most of the people never heard about the same news channel. I have been watching this Channel from past 3 years to know more about Japanese technology and the economy , there are no commercial ads on this channel and no beautiful anchors but wonderful documentaries on world economy. Exactly after 4 days this channel have became world most preferred channel and single source of information on Japan for all media networks across the globe. Thanks to unexpected and devasting earth quakes, tsunami and nuclear radiations. People around the world became panic and investors pressed selling buttons after watching devasting news clips. It was unfortunate time for Japan.My Guru DR MARC FABER have just given a buy call on Japan just a week back before the tsunami and earth quake ! one of the biggest natural disaster in the history of the world. Nikkei plummeted 15% after the calamity its quite natural for a stock market taking gigantic back step .On 19th October 1987 Nikkei was down 14% .During 1989 to 2003 Nikkei lost Nearly 30,000 points. They were in the down trend and for stock market like Nikkei it got habituated to the down tend from past 40 years. Nothing New if you know the history .As lad in stock markets this was second opportunity to me to learn more about natural calamities and its consequences after the man made credit calamity around the world in 2008. We should take a closer look at Germany and Japan neither was nearly poor after world war II . both were bombed and destroyed during second world war .Their people were educated these countries had the blue prints to create the necessary organizations and some of their institutions and infrastructure survived but both had devastated bombed out economies. By 1980 Japan emerge of super power and became the top exporter to the world .but the key problem for Japan in the past20 years has been stagnated growth and its aging population with a average age of 45 years which is constraint to spur the domestic consumption . Japan is the 3rd largest economy in the world with a GDP size of 5 trillion dollars .On per capita income basis Japan is still the second largest economy in the world and second largest exporter to USA .Still China is largest exporter to Japan .Off late Japanese investment have been significantly important in India like Maruthi, Ranbaxy , Hero Honda ,Nomura and week days back by nipper life’s investment in reliance capital. Impact of current natural calamity has been strenuous and it will impact the global sentiment in short term and increase further pressure on current account of Japan. What ever be distraction happened in last week was just below 10% of the loss when we compare with destruction happened during world war II.I am sure and confident Japanese economy will raise as phoenix. key reason was the way they handled the current crises and their execution capabilities and technology advancement but this destruction will increase the demand for steel and others commodities for rebuilding related activities . This rebuilding will be a bigger stimulus package for the living people of Japan to create demand !

If we observe from past 10 years every fund that invests in Asia pacific Region comes as conditions as Ex Japan . Japanese economy has been ignored in the past 20 years as a investment destination and Japanese founds flows have been key funders to the debt of major countries this will definitely make the global liquidity stagnant for a while. It is premature to assess the immediate impact of Japanese natural crises on Indian stocks markets and liquidity flows. But this crises will increase the importance on alternative energy resources like solar energy, wind, and tidal energy as renewable energy. As the growing threat for nuclear power energy and its consequences from the past 15 days.

I also watch Russia Today channel more and ‘‘Pray for Russia’’

Tuesday, March 01, 2011

Inside Steel Sector

At Wealth Mills I am dedicated to enrich the continuous flow of Investor education . Today I am going to envisage on Iron & steel sector . The dynamics of steel sector are completely different when we compare with any other sector .Steel is considered as commodity and commodities will always move in very large cycles . The nature of steel sector is cyclical this represents consumption of steel moves on long cycles means it goes up and again comes down. In the Exhibit -1 you can observe the commodity index CRB Index which tracks the major commodities and how commodities prices moves over long term. Steel is the base metal and basic raw material for manufacturing, infrastructure and construction sectors which are integral part of any economy .For a simple fact 80% of Auto sector raw material is steel. In India the per capita steel consumption I mean usage is at 38 Kgs per head which was 29 kgs in 2006. Let us analyze how steel sector works !
Steel industry is highly capital intensive industry and it requires huge amount of capital to start a steel industry approximately billions of dollars for a midsized production capacity as it requires superiors technology to enhance the profit margins .
Gestation period to start a steel mill varies minimum from 7 to 10 years from the erection to start the production. Key concerns for steel industry are raw material and environmental clearances , we can observe World’s 3rd largest steel producer POSCO from past 4 years struggling to get environmental clearances for its plant at Odisha state in India . Basic raw material for steel industry is iron ore and the procurement of same is very crucial , across the globe iron ore reserves are completely regulated and restricted by the governments, as iron ore mines considered to be national assets & reserves. These are the vital entry barriers for steel industry and helps the existing players to reduce the competition in the industry. Still Steel Industry is highly fragmented industry which means Nobody in the world controls the production capacity as market share which reduces the pricing power of the producers .Even the largest Steel tycoon Arcelor Mittal controls less than 10% of world Steel Production which produces 90.6 million tones. Where as in India the largest producer Tata steel have production capacity of 6.8 million tones per annum.
There are different Investment strategies an investor can follow while investing in stock markets , one of the foremost and primary strategy is BUY & HOLD for long term and let the investments grow . But while investor choosing steel sector and stocks for long term investments , since the nature of the sector dynamics are cyclical so the investor need to be very much vigilant on the sector developments and stock specific updates and stock prices. In Indian stock market context Steel is considered to be growth sector and consumption of steel growth is stable and consistent until unless there is massive expansion of infrastructure , industrialization and housing boom . Globally steel is marked as stable sector in terms of growth.
As production of steel is limited to set capacities profit growth is challenge to the producers and growing input costs always put pressure on profit margins .This is the crucial reason Steel stock valuation are cheap comparatively to other sectors and always available for single digit price to earnings multiple valuations . Tata steel PE ratio is always on single digit where as banking & Information technology sectors always enjoys highest price earning multiples.
I advocate & encourage every investor to well aware the basics and industry dynamics and how it will be perceived in the stock market’s eyes is very important before taking investment decisions. Don't expect multibagger returns from steel sector in normal market environment but your capital is more secured in this sector.
Basing on the industry & sector dynamics steel sector large cap stocks are perfectly suitable to beginners and risk averse stock investors. At wealth mills I will endeavor my efforts to foster the Investor’s Investment Quotient.

Sunday, February 13, 2011

Financial Extremists

These guys are highly qualified , Wears expensive suits , Lives in posh and affluent localities ,drives expensive cars , Good speakers & presenters , Extremely self motivated people, Look very cool and gives impression as they are relentlessly working for social & investors cause .Derives lot of social respect from society. Their job known as Financial Advisory. They don't carry ammunition or weapons but products more dangerous and powerful than nuclear bombs which create financial destruction to your life. They are least bothered about customer's financial fortunes ,they work for their personnel appraisal and bonuses, prescribes only financial products that only gives highest amount of revenues irrespective of associated risks with respective of products . Unlike communal terrorists they won’t cover their faces with masks but wears neck ties . Their motive is increase their Assets under management and revenue and always assures and talk about doubling of our invested money at a very short span of time.
They won't talk much time once your balance is Zero .They call Customer is KING but not treats at least as a Citizen once your balance is NIL . Financial services firms designates their sales staff as Financial Advisors that they look into their priorities but not the investor priorities while conducting financial planning.
Now especially in India , the Wealth Managers or financial planners or Relationship Managers irrespective of their designations their main motive is earn high revenue for the company. Of course its not wrong practice ,Every one have to work with profit motive , But it should not through misguiding and promoting illicit wrong advisory practices which leads to Investors Financial destructions. , they know they are not married to their companies but Profit with human touch is essential for long term sustainability of Relation & Business.
Customers and Investors are afraid and worried to go to Banks not of robbers , but because some one might do their financial planning !!. In reality these highly respected institutions doing their own financial planning but not customers. Recently one of my uncle asked me in surprise why my wealth managers from a reputed Bank is stopped suggesting Mutual Funds for investment, and only talk about Stock Portfolio Management Services (PMS) , derivative structured products and private equity products (P.E) .For some well known financial advisory firms irrespective of customer's needs & requirements wealth management means only Life Insurance since it gives highest revenue .
I am not against to any of these Financial advisory firms and persons , I have high regards and respect for the profession of financial advisory. But the problem lies in with most of the advisors and their prescription of products . We have clearly witnessed the lacuna in recent Citi Bank Gurgoan case and there are number of issues and instances which won't come to lime light because of illicit financial advisory . A communal terrorist might create destruction to the lives with their explosives and weapons . But the products these financial extremists carry in their bags like Derivative structured and high bandwidth financial products create greater destruction to your financial life and makes miserable if Investors are not educated on the risks associated with the same. Because of wrong advisory the entire life savings of a Investor will be evaporated in a single day .You don't get these destruction stories on print & electronic media as prime news to know .
In India there is no proper code of conduct to regulate , restrict and control activities of this financial advisory services .We have to blame all the financial regulators also for messing and perplexing the entire advisory activities. AMFI , IRDA,SEBI all the monetary & regulatory bodies are failed to construct , develop a standard uniform code of conduct for Financial advisory services . Since we are very well aware how these regulatory bodies acted in recent past
Ministry of Finance should take initiative to develop standard code of conduct for Financial advisory at base level as priority before they constitute Financial Stability and Development Council (FSDC) as super regulator . From Financial advisory firms perspective , they have construct and develop stringent norms to appraise products and stress on strong risk disclosure norms to customers before they distribute and sell Financial Products to prevent this fervid financial extremism & Extremists while advising financial products.

Tuesday, February 08, 2011

Financial Wilderness

As we are progressing into the Month of February uncertainty creeping into the Economy & Stock Markets. Euphoric and exuberant voices on idiot boxes I mean television sets , were shut from some time . One will say we are in bull market , other will say bear and some other will say , We are already Doomed .
Wilderness is a state where people have to spent time in Forest without any basic facilities , life will be full of uncertainty in despondency without any aim. Wilderness is the period where children of Israel spent 40 years before entering into the promise land of God , after they depart from Egypt. During the same time nevertheless of Wilderness God comforted them .
Because of their Disobedience & Indiscipline ,they got delayed 40 years to pursue the promise land that flow with milk & Honey ,which normally takes 40 days to reach . If we observe the current trend in stock market, we are entering into the wilderness where our patience will be tested . With High inflation Environment ! Hedge funds & Emerging market dedicated ETFs (Exchange Traded Funds) started withdrawing their investments from Indian markets. Markets have taken a U turn from 20K to 18K levels . Retail & HNI investors are confused on to what is going to happen in market thinking that are we going hit all time low again ! Investors just started investing from past 6 months were not able to see their portfolio fizzling . I am not here to time the market which every Investor tend to do every time and I am not going to discuss how many days we will spend in wilderness. But what are the principals one should follow , and discipline to habituate during the course of Wilderness. There is immense exuberance in the Economy , people are not deferring their spending plans , Every asset class in the world is going up except stocks in India .I am not sure how many vegetables you can buy for thousand Rupees ( 22 Dollars) at vegetables stores . But For beginners in Stock Market I am very much confident and sure you can start constructing portfolio of stocks with all recipe of sectors with just one lac ( Two thousand Dollars) ! If you want to build a successful portfolio.
First & Foremost thing one should learn ,avoid timing the market I.e looking for bottoms levels of the market so one can buy stocks at much more cheaper rates . Time is stupendous and key essence of your investments , there is no good or bad times for market , market runs on its own trade cycles and time , where majority of of the people fail predict these Bottoms & Ups. According to one study of the American stock market over a 30-year period between the mid-1960s and mid-1990s, 95% of the significant market gains over this period came in just 90 trading days. That's 90 days out of a total 7,500 trading days – just around 1%. Investors who had missed even one of those days would have lost heavily. In India too, often large gains have come on a single day. The most memorable such day was May 19, 2009, when the Sensex rose 17% on the back of the re-election of the Congress -led United Progressive Alliance government. So, unless you can predict which days will be the big market gain days, the only way to capture them is to hang on for the ride even in the downturn. No stock pundit in the world predict those days .If they predict correct also its just their pure luck.
Its futile exercise spending time to catch the bottoms & Ups in the stock market and always stay invested .
There is always some thing to worry in stock market !! Show me a single day where we had a clear picture in stock market . In 2009 February deflation was the problem , today it turned as inflation .There is no single rule that works always in stock markets . IF one want to be successful in the journey of wilderness they have to be disciplined in investing .
The qualities an Investor ought to have include self reliance , common sense , open mindedness, flexibility , willingness to do independent research , A equal willingness to admit mistakes and ability to ignore general panic and most important PATIENCE. These are the few qualities one should habituate to become a successful investor in all times including Wilderness. The biggest enemy in stock is not your stock broker or company management Its your Emotions .Policy makers should recognise present inflation is not on Demand side But more on Supply side . Tightening interest rates is not a cure for inflation , Its just a first Aid. This is the time bank's lending should go up to priority sector at cheaper rates to control raising prices in long term. Since change of Growth Corridors to west in short term , Markets will be expected to be volatile . Even though some hot money may flow out . India will attract investors interest over longterm because of its intrinsic growth .For My readers in United states Don't worry Our Printing Machine Bernake will come up with one more recipe QUANTITATIVE EASING if Dow falls to 10000 levels.
If analyst says we are going to to touch lows? JUST Rejoice , you can buy chips at much more cheaper levels , use this Panic period as stock sowing time and get ready for harvesting soon . Historically Feb month was a volatile month with renewed anticipation from Union Budget. When Inflation at high levels then Equity market is the best avenue to tide against the inflation , As a growing nation and kind of bureaucratic & political mismanagement inflation and disinflation will be a problem Always in the days to come .Indian Markets will prove its resurgence and resilience at some point of time .
If anyone want to pursue their promise land successfully , then they have to learn and practice the principals to spend time in Wilderness.

Tuesday, January 04, 2011

We Are Doomed ! Thank You Bubble

To all my readers across the globe I wish a Happy New Year! As we progress into the New Year, we are entering into very unusual times. Due to ultra expansionary monetary policies of Central Banks across the continents in the last decade, the world witnessed a globally synchronised growth, which has caused the price manipulation for commodities, stocks, gold and real estate. Even the art prices and worthless collectable prices have also gone up. Currently every asset class is mis priced and the governments are misleading and confusing people. Key Challenge to the policy makers is to maintain the growth prospects across the economy.
In a Democratic Economy the prime objective of the government is always to keep its majority of the public cheerful. So the head of the administration wants to keep his people happy by taking decisions which will enlarge his image and popularity ratings always to keep his post secure! In today’s politics the economic decisions of most of the governments are short term in nature and the benefits have to be reaped by the end of their tenure only in order to get the credit in their kitty just like most of the our well paid CEOs of the corporate world.
Let’s see how the economy works! It is simply based on demand and supply of goods and services in an economy, which leads to employment, higher consumption, savings and development of the whole nation. Now the challenge to Mr Obama is to increase the demand and derive employment. But the problem is whenever he tries to increase the demand in the US, employment is going up in emerging nations but not in his home country. This is the fundamental problem with his economy because of the policy implications of the previous administrations. The measures he took to salvage his economy were bailouts, stimulus packages and quantitative easing and he loves to continue the same measures with his team of colleagues Tim Geitner (Treasury Secretary), and Ben Bernanke (Federal Reserve Chairman). This elite team led by Bernanke continues to do Quantitative Easing and print money till the time it lost its value as Medium Exchange and by keeping the real interest rates at ZERO which eventually led the currency to lose its key character as Measure of value to force people to spend and on spend!
The Fundamental flaw in the US Economy was that in the past 15 years of transforming the economy from Export led to import led Economy and by focusing and encouraging only a few sectors like financial services, and Technology and Defence. Of course the US made enormous progress in the past 20 years but the progress benefited people like Bill Gates, Wal-Mart or Bankers like Lloyd Blankfein of Goldman Sachs. The Top 1 % of households accounted for 8.9% of income in 1976 but this share grew to 23.5% of the total income generated in the US in 2007. Put differently - for every $ of real income growth was generated between 1976 and 2007, 58% went to the TOP 1 % of households. In 2007 the hedge fund manager John Paulson earned $ 3.7 billion about 74000 times the median household income in the US. This gives a clear picture! That widened the gap between the RICH and the POOR, So US politicians got the Idea to make the average poor American Cheerful who is a major part of the vote bank by building homes! They started lending more to the housing sector Left, Right and Centre.
In 2002 in a speech to the Department 0f Housing and Urban Development Mr Bush said:
“I Believe owning something is part of the American Dream as well, I believe when some people own their own home, they are realising the American Dream. And we saw that yesterday in Atlanta when we went to the new homes of the New Home Owners and I saw with pride first hand the man say "Welcome to my Home!" He didn't say welcome to government's home, he didn't say welcome to my neighbour's home but he said “Welcome to My Home ...He was a proud man. And I want that pride to extend all throughout our country.”
And we all knew the rest of the story whether they are proud or bankrupt? Too many poor families who should never have been lured into buying a house have been evicted after losing their meagre savings and are now homeless; too many houses have been built that will not be lived in. Almost every financial crisis has political roots, which no doubt is different in each case but political. The period leading up to the Great Depression was also time of great credit expansion. Excessive rural credit was one of the important causes of Bank failures during the Great Depression. In the US, economy politics means jobs and job creation, as jobs are the centre of economy and politics.
We all might be wondering how American administrations were funding these massive excess of housing credit. It is very simple. If your a Wealthy Drinker, the Bar owner obviously would give credit to you since you don't have liquid cash! China was buying US treasure bonds and financed the unsustainable consumption of the Rich country United States, as China was one of the key beneficiaries of the US bubble.
In a simple manner both Clinton and Bush molested the US Economy and packed and presented to Mr OBAMA and he is trying to pay remissions for their earlier sins. Now for the US, deficits are piling up day by day from unfunded liabilities like Healthcare, Medicare and social responsible projects.
If things are not coming under control with all these QEs and all, the last resort I am not sure. When this will happen - tomorrow or after 10 years? Eventually they encourage wars and directly get into wars. Economic history shows during war periods it typically leads to the rapid growth of output that temporarily pushes actual Gross National Product above potential GNP. This was evident in 1950 Korean War, 1970s Vietnam War and this might be the reason for war with Iraq and current war in Afghanistan.
All this money printing will give temporary relief but not a cure for disease. The US administration needs to spend on research, innovation mainly to encourage savings to create jobs at their home.
I respect the democratic system and the farmers but luring them is critical. Back home in India , In population 60% are farmers & landlords! Have extraordinary privileges that no other country offers such as no tax on their income but 18 % of income comes from farming to GDP and no government in India at least in our lifetime takes concrete measures to improve their productivity. Mr Cole, professor at Harvard Business School finds that Indian state owned banks increase their lending to the politically important but relatively poor constituencies of farmers 5 % to 10 %points in election years. The recent loan waiver to the farmers is also one of the key reasons of the UPA-led government victory. India is no exception to the US in luring Vote Banks. In India there is no social security for the tax payers. No one is aware of tax payers rights. Small business and Corporates transparency is very less. Government's subsidies on petrol, gas are enjoyed by everyone across the nation. I am surprised A CEO of company gets his subsidised cooking gas and his gardener also get at the same price.
Advantage / Disadvantage for India is that we are neither an Export nor Import driven Economy. We are a Domestic driven economy. If the same type of government politically influenced politics prevails in India without any reforms there won't be any chance to the damage control like the US.
Policy implementation in India is a challenge and we have always people like Rajas, Kalmadies and Radias. You will also find the same characters starting from a traffic cop in the morning when we start our life from home to work place! As for the stock market, only 3 % of Indians investing in Stock markets look at FII flows always. If the US or Europe enters any growth trajectory, money might flow back again which will create havoc for Indian stock markets. The Joker in the pack for Indian markets is crude oil. As long as crude is below $ 100 per barrel market will move smooth. Because of low interest rates overseas, remittances which accounts 5.5% of GDP ($ 55 billion), the highest in the world, flowed back to India in 2010 alone and flooded mainly the property markets which may create a real estate bubble in India, Decades back people perceived homes as shelters; now everyone wants to buy homes to do business which eventually create property and real estate bubble.
By and large Indian's great strength is our young population which no other country enjoys and this young population do not stop consumption and savings. As long as this process is on, we are in a sweet spot and time! This keeps the market momentum on! My urge to the Indian Investors is to save money and invest more in the stock market. Aware of the developments and things creeping back into the economy, we need to be responsible for our financial success and not CNBC or your City gold financial adviser. Learn from this financial chaos or else one day we will be doomed. Since I am not aware of investment nature of individual investor, I don't recommend stocks upfront. Please reach me for any stock specific queries.

Thursday, November 18, 2010


To all my readers at Wealth Mills , I wish you all a prosperous Diwali , festival of lights . I observe a clear difference for this Diwali as I pass through the roads as this Diwali is brighter than the previous ones. What makes this Diwali So special ! Is the positive confidence is back to billion spenders and investors in India . With the Mahurat trading markets are just at a kissing distance to the new highs and I can sense if the same rally continues for some time Investors can look their name on Forbes without working hard any more !. What the major change happened in the global arena if you analyse is past 2 years is except the confidence “ Nothing has Changed” Indian Markets were at All time high in Jan 10th 2008 at 21208 came down to rock bottom of 7697 in Oct 27th 2008 and Now stands at 21000 levels . If you bought a Index fund in Jan 2008 means after all the carnage and bull run with gush of liquidity, Congratulations !! you would have got back your capital or any thing + ve or -ve 5% , because of trail and error.

Today onwards the so called Fund Managers and Equity Analysts starts projecting their Lucky & favorite numbers on idiot boxes!, I mean Televisions sets! about New highs of the market with the sweet India's Domestic growth stories which entices the investor fraternity . In this saga of last 2 years we need to observe Indian stock nature which was so extreme, It just discounted first 3 years performance of UPA led government victory in first 3 minutes of trade on 18th May 2009 . Every one boast about the resilience of Indian Economy shown during the period of global credit crises , the Great advantage for Indian Economy was General Election in 2009 considered to be one of the biggest event across the globe & especially in India where all the unaccounted money flown into the economy without any restrictions. Just for simple math for 545 parliamentary constituencies for each Loksabha seat the average expenditure by the contesting candidates was minimum 25 crores which translates to more than 2 billion US Dollars which flown into the economy without any record . sixth pay commission's fat pay revision helped the Indian economy as a major stimulus besides to the govt actual stimulus package has helped the economy at greater extent .
Without mentioning the Top Financial regulators my Article is incomplete the Chieftains of RBI, SEBI & IRDA , Every one tried their level best to show their sincerity in their task they are assigned .F
irst and foremost the chieftain of RBI the well educated Mr RAO he is an expert in 2 things either tighten or loose interest rates . He did't see any thing !! If food inflation is high increase rates or its low decrease interest rates . He should know a simple law people won't eat 7 times a day since interest rates are Low or High .But I appreciate him for keeping interest rates at high when compared with global markets at least investor will get something back on their savings in fixed deposits. The second one is our SEBI chief C.B.Bhave , He is advanced and visionary !,He want to change the whole financial market systems over night . A Few significant changes he enforced were ban on entry loads for MF and ban on all unit linked life insurance products. Because of ban on entry load on Mutual Fund products from 1st August 2009 nobody is there to advise & service for M.F . Banks & Financial institutions stopped prescribing MF to their investors as they don't derive any revenue by advising the same . To overcome this problem fund houses and financial advisors resurrected sick product in India i.e Portfolio Management services to the Investors as they can charge with various fees left , right and center with Entry load & brokerage while churning the fund. I observed financial advisors advise only PMS and financial steroids like structured products with different combination of Equity , Debt & derivatives for their survival and also key cause for global financial crises . With the Inspiration of RBI & SEBI chiefs IRDA Chairman J Harinarayna gone one step ahead !, with number of sleepless nights completely revamped the unit linked policies and with this effect financial advisors started advising traditional endowment products where liquidity for Investors is less and the agents can earn double of their commission when compared to ULIP . Ultimately every one the regulators and financial advisors making their efforts at full throat to make investors more confused to take financial decisions about savings & Investments .
My sincere advise to all the investors in India is please do your homework before you take any single financial decision . As per stock markets are concern we are at 21000 levels of market, At price to earning ratio of at 18 times of forward earnings which is high value territory of course financial analysts mislead this number as fairly valued . As GDP to market capitalisation we are at more than 1 time which indicates high value for India .But because of unprecedented gush of liquidity markets might rally forward in the days to come . 10 to 15 % correction is healthy for market at this level . This is the time for retail investors to become vigilant and cautious before coming to market and please if you want to invest now don't waste your gun powder in a single shot. Take route of SIP or MIP and start Investing . Remember stock market investing is not T20 cricket or one day nor a test market cricket ITS A MARATHON stay invested wait for the opportunity don't rush. Investment decision is not a Diwali cracker its a nuclear bomb which change the Financial Fortunes of your life.

Tuesday, September 14, 2010

Lets Start Calling the Spade As SPADE

No body have clue whether we are in the middle or at the end of crises But the most optimistic people says we are in the beginning of new growth cycle . I am not here to determine you all what kind of recovery we are going to face V type , U type or W shape of recovery of global economy . But definitely explain you all the process. Last decade was quite unusual decade in the last 200 years history of the world , the key reason is there was a global synchronised growth around the world , if you travel to any corner of the world there was growth , its a decade of prosperity & excellency , INDIAN incomes are multiplied more number of times , so every one went on shopping....! the caveat is weather the same kind of economic growth will sustain or not is the million rupees question. ..... Iam not using $ because by the end of this decade Dollar position as global imperial currency will be questionable ??. In the beginning of the decade most of the folks were not aware of Google , SMS , credit cards and EMIs now they have became a part of their life , present decade will not be a easy going , we need to be very cautious about every thing in life , things will change at very fast pace , Investment avenues what looks good today will be turned as bad and bad will be darlings. Countries not heard like Vietnam , Cambodia,Srilanka etc., will be the dream destinations to earn money.
After the burst of TMT bubble ( Technology -Media- Telecom) and 1980 economic crises to maintain the growth momentum , policy makers in United states identified a new formula that was pumping money into the economy from the Federal Reserve by ultra expansionary monetary policies , Federal Reserve reduced its Fed Rate in baby steps from 23 % in 1983 to today at 0.25% which maintained growth momentum in the past 2 decades . Federal Reserve 's interest rate known as Fed Rate is considered to be a bench mark rate to European Central bank and creates major impact on the monetary policy decision making of Central Banks around the globe. If Interest rates are low! what will happen? we can't save money in banks!! ,one thing We will do is spend which in turn increase the corporate profits . So Invest in stock markets and Real estate , But the terrible problem is since interest rates are low if we borrow money and leverage our finances and spend and buy homes that creates systemic collapse thats what happened in USA and major parts of Europe . With excess liquidity in the system financial institutions innovated frenzy products like subprime bonds and policy makers relised lately total America was subprimed ,With availability of Cheap capital in global markets Indian Corporation went for shopping Tatas Bought Corus for $ 13 billion and Hindalco bought Novelis for $ 8 billion , like this most of the corporations increased their debt on the balance sheets . By pursuing Ultra expansionary monetary policies , Politicians & policy advisors created consumer demand and increased the gap between income and savings , as a result finally corporate profits are up by many folds . During this period policy makers focused on only Technology , service sectors and Military expansion and American corporates with WTO implications expanded their foot prints around the globe outsourced their business operations & manufacturing units to low cost destinations like China for manufacturing and India and Philippines etc for services . If your carrying APPLE I PHONE just turn it back you can understand this story better ! Designed in USA and manufactured in China!! . When Economy witness a unprecedented growth the first sector to expand is financial sector , The largest 5 broking companies in the world in 2007 Goldman Sachs ,Lehman , Morgan Stanley ,Merill lynch and Bear sterns paid 36 billion dollars as bonuses to their key employees, this was more than GDPs of some developing and middle east nations. From these numbers you can understand the heightened activities of these brokers which created the Economic imbalances around the World . But the Administrators and policy makers in USA and across globe least bothered about these imbalances. Their main focus was on "catching the Monarch of Iraq only"?. With excess liquidity in the banking and financial system people started investing in Real estate and banks leveraged its books by lending to the same sector . During 2007 in so called emerging markets Foreign investment has grown $ 200 billion to $ 900 billion , commercial bank lending up from $ 12 billion to $ 269 billion with this excess flood of liquidity stock market capitalisation in low and middle income economies in increased eight fold from $ 2 trillion in 2000 to $ 15 Trillion in 2007 or from 35 % of GDP to 144%. Stock Markets in BRIC Countries accounted for $ 11 Trillion . If the consumption led by excess credit goes up the key beneficiaries were the resource producing nations China and Canada in turn create demand for raw material like Oil , Iron ore, copper , Nickel , aluminum etc . With this commodities demand countries like Australia , Middle east , OPEC and African nations got benefited .
Noble laureate Mr PaulKrugman recently said “To be honest a new bubble now would help us out a lot even if we paid for it latter , This is a really good time for bubble” . Over a period of time Wall Street started influencing the Capitol Hill White House and American policy making decisions and the same thing will happen in India the Dalal Street will dominate Indian policy making over a period of time in the days to come. Every one boasting we achieved a lot in last ten years in India , Yes We did , but policy makers should relise this wouldn't had happened without taking the advantage of this credit bubble but not by our own capabilities!, If We again rely on next bubble the Growth story of India will be dampened. This is time for Indian policy makers and corporates to start and plan for sustained domestic growth models to maintain the growth momentum in INDIA.

Thursday, August 05, 2010

Power of Micro Finance

If some one says Villages are there in India ! I disagree , But I strongly believe INDIA is in villages . SKS Micro finance successfully completed its IPO process subscribed 14 times . Micro finance will be a new investment theme in India in the days to come . Since 70% of Indians are from rural India and don't know read and write and these guys can be charged with high interest rate left right and center. The key reason is low penetration of rural finance and access to credit market. Micro finance business have taken advantage from bureaucracy and political backup as the concept of financial inclusion.Till date there is no proper regulatory frame work to control and monitor the activities of these institutions unlike banks. With easy credit available in the overseas market at low rates these, institutions can lend money to under privileged folks at a stupendous interest rate around 28% to 30 % to increase their net interest margins.
Father of Micro finance and noble prize winner Mohammed Yunus said recently the concept of Micro finance is not a business for profit making but it is for a Social Cause ! I hope these institutions should not be a organised pawn brokers in villages with money and muscle power.
SKS Micro finance recently moved their corporate office to Satyam's old corporate office building satyam city center in the heart of Hyderabad .With listing of SKS Micro finance, the chieftain of SKS will be a part of Forbes list from Hyderabad. The prevailing problem with primary market is every one want to sell their IPO allotment immediately after listing which creates over supply of stock and eventually disastrous issue, if the company fundamentals are strong that will be the time for serious investors to use this as potential opportunity to create wealth as value investor .For every sector there will be different stages, nascent stage , growth stage and bubble stage ,as investor we should learn the art when to pluck the fruit from the tree. Organised Micro finance is at a very nascent stage in India , one should take the advantage before it becomes one more sub prime bubble in India. For risk taking Investors this is a place you can make some handsome money in the medium term.

Monday, July 26, 2010

Beware of Biggies!!

 During our investment journey we also come across ostentatious company managements who boast about their company's stock market performance and also charitable work they do for the society. As a investor we tend to fall into their trap by witnessing their good work . To day I have to introduce a person by name SIR ALLEN STANFORD , most of the Americans they don't require any introduction . Robert Allen Stanford born on March 24,1950 was a prominent financier, philanthropist ,celebrity for Americans and Chairman for wholly owned Stanford financial group of companies based at Houston , USA . He was sponsor of number of sporting teams across the globe including T20 world cup teams. He was recipient of 2006 Excellence in Leadership Award from American Economic council . Former United States President Mr.George Bush praised him as Inspiring personality for future generations .Why I am explaining about this is , once a company starts growing at a faster pace in a irrational way and the entire media focuses on such developments. One need to look into the true colours of the Managements and company operations . Allen Stanford started his own bank in a country by name Antigua and Barbuda, a Island nation with a population less than one lac , this nation is a tax heaven and starting  bank in this Island is very easy . With the tax treaties Antigua and Barbuda enjoys with USA, Allen Stanford got offshore banking license to start his Stanford international bank branches across USA and started accepting well known Certificate of Deposits (C.DS) from public offering very attractive interest rates ranging from 6 % to up to 15% when others were offering at less than 3 % ,with the help of media and from his ostentatious life style he mobilised nearly 50 billion US Dollar from public by offering unusual interest rates. To sustain to pay the interest rate he started inflating his book of accounts and tarnished the balance sheets. He diverted money from banks to buy mansions ,costly cruises and private jets and to gain the fame, some portion to charity works to the land of Antigua where he got the dual citizenship. Allen Stanford donated millions of dollars to university of Stanford just it is on his name .
For every investment there will be rational returns in correlation to the fundamentals of the respective investment avenue , including so called safe heaven GOLD . If you come across any such opportunity which gives unusual returns without a fundamental shift , you need to consider as unsystematic risk and look for the immediate exit ways without any further delay, you need to be vigilant and cautious about such unusual returns . Thanks to Securities Exchange Commission (SEC) which controls the financial activities of financial institutions in USA at least realising after 8 billions dollars flown from the books of Stanford international bank.
At WealthMills my sincere appeal to the investors is beware of such unusual returns, it can be in USA or in India. In our investment journey we will come across these sort of illusive investment avenues, One need to be aware of this kind of hypes , to be successful in your investment journey. People like Allen Stanford are there every corner of the country, we can't stop them , but we can avoid them.

Wednesday, July 21, 2010

Multi Baggers !!

Investing has a lot to do with common sense and personal observations. The man on the street frequently knows far more about the state of the economy than politicians, university professors and financial analysts who seldom travel, or if they do so, only from one first class hotel to another first class hotel and from one golf course to another. The pulse and vibrancy of an economy is, however, nowhere more visible than in a country's entertainment venues such as Multiplexes , Restaurants shopping centers ,vegetable markets and in country side fairs.
The problem with fund managers and financial analysts is they knew more about the subjects which creates very much apprehension for their portfolio investment , But the reality is where there is no apprehension there is no room for multi bagger returns . The more risks you take the probability of returns you derive from the investment is considerably high. Fund mangers always work within the frame work of fund objectives and compliance as limitations , if they like some interesting themes as investment avenues because of these limitations they may not be able to take part in those stock's growth stories as a part of their portfolio . But it might be in their personnel portfolio in the wife's account . Below table contains the largest wealth creators in the last 2 decades , if we would have invested in the following stocks our financial fortunes would have changed.
But how many Fund managers would have had these stocks in their portfolios they are managing when these companies were at nascent stage , these fund managers would have taken these stocks in their portfolio when companies after monitoring the companies performance at matured level !! By the time the earnings would have factored in the stock price . So when you want to Create WEALTH and leave a estate to your family with multi bagger investment returns !! ..... If you rely on your MF,PMS you don't land up any where probably you will upbeat the SO called inflation. Unless the fund manager was versatile like Jim Roggers or George Soros who given 4200% returns over the 10 years span of the Quantum fund while S&P 500 returned just 47% from 1973 to83. If you want to create wealth you need to develop the strategy of stock picking .

If someone says I invests in stocks , in my opinion they are wrong , I invests in businesses rather than stocks , Investing in stocks involves identifying companies and shop for Quality , Value and Growth. I would like to analyse what are core ideas and analysis one required to be successful investor.
Management : Management is the life blood to the company , one needs to analyse the dynamism and quality of the Management , just observe the transition in the companies products and services , an edible oil processing company transformed as India's software services giant as WIPRO, A nylon polyester manufacturing company transformed as one of the worlds largest oil refining company with interest in various diversified businesses as RIL. we can observe a clear sheer Management brilliance in the both the companies . How effective is the management ,taking the advantage of changing economic environment and taking the company ahead with a great vision to capitalise the opportunities coming in the way is very important . ITC is the company transforming their outlook from a pure tobacco based company to a FMCG company. If the management is dynamic means it doesn't matter what type of industry and sector they operate , these managements excel in the art of creating value to the investors. Mr Laxmi Mittal known in the art resurrecting the sick steel plants to transform high margin yielding and profitable houses. where as steel as a sector cyclical in nature and bears less valuations in the market because of high gestation period , highly fragmented nature of industry throughout the world, and shortage of iron ore reserves and govt regulations on ore. But Mr Mittal succeeded in the process of consolidating the industry and creating value to the share holders. The prime duty of the fund manager 's and investor is to figure out these kind of Managements vying to transform to cash the opportunities and desperate to create the value to share holders. In the past 5 years equity market from 2005 to 2010 markets are run up from 6,000 to the current levels , most of this happened because of unlocking value from the companies and de mergers . Some times internal disputes also surprises the share holders , tussle between Mr Ambani brothers given birth to R-com, RNRL , R-capital ventures . These are the times to the corporate India's managements to start creating value rather than unlocking values. While investing in a company one should look at the management traits how effectively manages the systematic and unsystematic risks is very important .
Price to Earnings ratio : A ratio everybody speaks and try to understand ,Price to earnings ratio is the key ratio to know How a stock is trading in the market in comparison with its earnings , we can derive this ratio by dividing current market price by number of outstanding share. figuring out PE ratio is very easy by simple calculation but the crux and confusing portion to the investors is weather the current PE ratio justifies it price or not is vital. WIPRO which was trading in the band of 500 PE ratio during 2000. Capital goods as sector always enjoys high PE multiples . Historically Steel as a sector trades in low PE ratio. While tracking PE ratio one should keep in mind PE is more relating to the Earnings i.e P&L account , the current earnings growth will sustains or not one should keep in mind while assessing the PE ratio. Another way to get a peek into the future prospects of a company is by looking at its PEG or price-to-earnings-to-growth ratio. Anything under 1 is great, although staring at a 1.1 or 1.2 isn’t going to steer me away from a company. How does PEG work? Let’s say a company has a P/E of 12. And that company has projected annual earnings over the next five years of 12%per year. It would then have a 12:12 PEG ratio or a ratio of 1. If its projected growth rate is 15% per year instead of 12%, its PEG ratio would be less than 1. Fund Managers would die for such a ratio.
Price to Book value: A ratio used to compare a stock's market value to its book value , price-to-book (P/B). The “book” refers to net assets or assets minus liabilities. A P/B less than 1 either means you’re getting a great buy on the company or its assets are worth as much as shares Think about it. At a P/B of 1, the price per share you’re paying is the same as the value of the net assets per share. That means everything else you’re getting with the company is free. The business – and the profits it generates – IS FREE. The future growth of the company? Free too. A P/B of 1 or less is a phenomenal ratio. But anything less than 2 is still considered good. I like EBITDA (Earnings before Interest, Taxes,Depreciation, and Amortization) much better – and I believe EV (enterprise value) to EBITDA is a much better ratio than P/E.EV is simply the market capitalization of a company plus its cash minus its debt. It’s called “enterprise value” because that’s what you would pay for the company if it were up for sale. Investing in company is all about buying a growth at cheaper rate , there is no specific acid test to measure as we are buying at cheap or not . One more point i like from the thesis of Mr Warren buffet is Moats let me just brief about Wide Moats : How much distance can a company put between it and its competitors by being a technology, brand, or marketing leader? This is an easy concept to understand but a hard one to put it into practice .Ford and GM probably once thought their brand recognition gave them a wide and deep moat over their obscure Japanese competition like Honda (more known for motorcycles or lawnmowers than cars at that time).Wide moats creates the efficiencies and high margin variation when compare with its peer group companies . Don't invest in a company for longterm where you can't understand their business model.
Ace fund manager Mr Peter Lynch rightly said " its futile to predict the economy and interest rates " .While investing there's always something to worry about in the market, one should shut out market noise and concentrate on company fundamentals, using a bottom - up approach. Invest for long run and pay little attention to short term market fluctuations. Equity science is not a rocket science to understand , One should develop a clear idea to understand Equity science to invest in stocks without scaring the market fads.