Do it yourself

Wednesday, July 8, 2015

Who wants another Shakespeare

Thought for the day

"Put your shoulder to the wheel."

- Aesop (Greek, 620-560BC))

Word for the day

Telegnosis (n)

Supernatural or occult knowledge; clairvoyance.

(Source: Dictionary.com)

Malice towards none

Good to know that India's food safety standards are much higher than UK and Singapore.

Kudos FSSAI!!!

Who wants another Shakespeare

Admittedly I am just an amateur reader of history and claim no authority to comment on it.

Nonetheless, from the few pages of history of human civilization I have occasionally flipped over I could vividly make out that till a few decades ago the state played the primary role in promotion, encouragement and financing of the pursuits of excellence in the fields of art, science and technology. The development of commerce was left primarily to the private entrepreneurs with state limiting its role to providing basic logistic infrastructure.

In recent decades however the paradigm has shifted. The states have engaged themselves fully in the promotion and management of trade and commerce. The pursuit of excellence in the fields of arts, science and technology has been left to the private citizens and entrepreneurs.

Consequently, the work in the fields of art, science & technology has acquired a distinct commercial character. Mostly, these fields are now pursued for immediate economic benefits rather than for the larger benefits of humanity in the interest of posterity.

Our current days heroes are market economists, stock market investors, film stars, professional sportspersons who mainly play for money, pop singers, car & mobile phone designers and pulp fiction writers.

Few miss the likes of Shakespeare, Aristotle, Plato, Galileo, Leonardo da Vinci, Beethoven, Varāhamihir, Panini, Kautilaya, Kalidasa, Ramanujan, et. al.

Few would want another Taj Mahal to be built. Many would pray that no Picasso is ever born so that the commercial value of their art possessions does not diminishes.

Technological evolution is incremental and mostly driven by immediate economic considerations. Music, food, architecture, literature, politics, and other arts are also driven more by markets rather than purely by the pursuit of excellence.

Many may like to completely or partially disagree with me on this. I respect their stance. Nevertheless, I am convinced that under the extant political and market dynamics the global (including India) economic growth will continue to be slow, imbalanced, unsustainable and volatile.

Reading economic history in isolation will not help the cause of investors. Trust me 2015 is not 1930 and 2020s will not be 1950s.

British crown may not have enough money to fund fundamental research and a strong army that will reshape the global trade and commerce. Japan may not dominate the engineering prowess. US universities may not continue to sponsor scientists from across the world. An odd Apple and Google may continue to enrich couple of million people, but nothing beyond that. Natural calamities and water & food shortages will kill more people than the modern medicine could save.

Those claiming that India and China would do sufficient to fill the void created by diminishing spending of developed countries on pure sciences and arts, may please mind their financial security. ...more on this later

Tuesday, July 7, 2015

Consumerism, markets, aspirations and adhocism

Thought for the day

"A liar will not be believed, even when he speaks the truth."

- Aesop (Greek, 620-560BC))

Word for the day

Whodunit (n)

A narrative dealing with a murder or a series of murders and the detection of the criminal; detective story.

(Source: Dictionary.com)

Malice towards none

New Wonder of the world!

The dispensation responsible for one third of the administration of Delhi needs US$90mn to tell people what has been done to make their life better in past five months!

Would people not know by themselves if their life becomes any better?

Consumerism, markets, aspirations and adhocism

A vacation in serene hills of Garhwal Himalaya turned out to be revelation of sorts. Though I always had this slight inclination but picture was never so clear.

I often doubted the projections of India's growth potential by economists and government authorities. The potential that has been seldom accomplished in past seven decades needs to be judged with a great deal of suspicion.

To make the matter even more complex, the evaluators comprising of economists, retired bureaucrats, market analysts and investment strategists etc., have often held the government responsible for the this consistent "below par" performance of the economy.

During the 900km drive and four days in a camp in secluded forest area I got convinced that the "economic growth potential" as projected using mechanical economic models is mostly illusionary. The growth and development projected through these models cannot be accomplished without pre-existence of certain civic and social conditions.

I am confident that it is the people of India who are constricting the economic growth and development. The government and administration are only some of the people who usually after making some small effort decide to join the people in their civil non-compliance. Being in a position of trust, they usually are successful in taking pecuniary advantage of the disparateness and pervasive non-compliance in the society.

Consider the following examples to understand the point I am trying to make.

(A) Driving on NH-58 (Delhi-Badrinath) at night, I observed that (i) most state transport busses plying on the road did not have a working tail light or break light; (ii) cyclists were carelessly cycling on the main road without any protective headgear, reflector or light; (iii) trucks were commonly carrying iron rods hanging well outside their vehicles and no caution sign/light or reflector; (iv) pedestrian were crossing the highway carelessly; and (v) bikes and tractors were freely driving against the traffic to avoid a long U turn.

Discussing the phenomenon with many drivers on the food outlets all along the highway, I found that the immediate outcome of all this is that this slows down the traffic and keeps the drivers in constant fear of accident often resulting in high stress, drunk driving and violent outbursts.

However, the more serious consequences are that (a) after a while everybody stops following the traffic rules and general non-compliance & tendency to cut corners permeates deep into the behavior; (b) the value of human life diminishes and social violence gains acceptance; (c) the disregard for "right of way", translates into the disregard for "right to life".

(B) The staff of civic authorities is perhaps never trained to value human life and time. They bother least about the inconvenience caused to fellow citizens by the carelessness and apathy.

After a repair job, they often leave the debris on road or do not patch the hole dug on the road for carrying repairs, causing traffic snarls, endangering life of travelers at night. They take weeks to do a job that could be done in hours.

The consequences is frustration, stress, and anguish. The outcome is violence, deep disregard for civic courtesies and compliance norms and tendency to cut corners at the expense of fellow citizens.

(D) A hike to the famous Surkanda Devi temple, near Mussoorie was frustrating. The entire path was littered with plastic wrappers and bottles. Considering that this temple is mostly visited by the local people, it was really saddening.

The people of the region are known for their struggle to save environment. Famous Sunderlal Bahuguna carried out his movement to save trees and Ganga (from Tehri dam) here. Now these very people threatening the environment and embracing mindless consumerism would certainly constrict the growth and development.

(C) The ‘jugaad’ mindset has tenaciously constricted the vision of an average Indian entrepreneur. Except for a handful of Indians, most of whom have the benefit of studying and/or working overseas, not many have thought about scalable business models.

‘Jugaad’ in economic field is proving to be as dangerous as in personal (like self medication) and political (caste and religion based politics, adhocism in key socio-economic policies etc.)

The ‘jugaad’ mindset reflects poorly on almost every aspect of the socio-economic life in India. This has severely impacted the pursuit of excellence, a hall mark of Indian art, culture, engineering, architecture, industry till 19^thcentury, at least. Today, “Quality” is something India and Indians are not particularly known for globally.

As said on many occasions earlier, for my investment strategy, I presume a slower ~5-6% (old series) average growth for next decade with rise in mindless consumerism, policy adhocism, dominance of markets and unleashed aspirations.

I would not bother too much about struggle for survival of the bottom half of the pyramid, insofar as the construction of my portfolio is concerned. And I do not expect any major civil unrest, presuming that all Indians will continue to work for furtherance of their personal agenda only. About National Interest - that bird perhaps got extinct on 15 August 1947.

On Greece, I find it sufficient to quote a dear friend:

"Personally I think Germany will buckle under pressure from IMF and US. Between worries of a contagion and the impracticality of kicking Greece out of Eurozone and US worries of a left wing socialist fire in Europe fed by Russia they will arm twist Merkel and Troika to take a big haircut.

But that emboldens the anti austerity wing in Europe even more. All the left wing anti austerity chaps in Europe will have their tails up, especially in countries with high youth unemployment, viz., Italy, Spain, Portugal and France.

We have just seen Season 1 of a six part House of Cards. It's going to be a long and messy."

Pic source: Twitter #JugaadNation

Monday, July 6, 2015

Greeks vote for struggle and self respect

Greek people have voted for struggle and what the ruling party likes to say "self-respect", rejecting the bailout conditions by a 2 to 1.

PM Tspiras must be feeling encouraged by the overwhelming mandate for defiance. Welcoming the result Greek Prime Minister Alexis Tsipras said that Greeks had voted for a "Europe of solidarity and democracy".

"As of tomorrow, Greece will go back to the negotiating table and our primary priority is to reinstate the financial stability of the country," he said in a televised address.

Now it is for the European Union and primarily Germany to decide whether to work with the Greek government or eject the Greece out.

In case they decide to work with Greek government, the other countries on the brink of default might take a cue and try to put their agenda on the negotiating table.

However, if they decide to eject Greece out of EU, it will entail a human crisis of serious proportion.

A summit of Eurozone heads of state has now been called for Tuesday.

In our view, the "NO" vote has in fact put the European authorities and IMF in a quandary. It is now more of a human rights issue than an economic one. The decision may therefore not be simple and quick. It will be sometime before a amicable solution is proposed.

In the meantime, global markets do not appear too perturbed, though down 1 to 1.5%. China is trading up 3.5% propped by the series of policy measures announced over weekend.

Euro and oil are trading down and US and German bonds are trading higher.

Our market may open with ~1% gap down, but may see no further weakness due to Greece factor. We shall be guided more by the 1QFY16 results going forward.

Nifty faces resistance at 8470 level. A decisive breakout shall establish Nifty in 8470-8750 range for next couple of months. However a sustainable close below 8324 shall push it back to 7860-8350 range.

For those interested in rhetoric the following is an indicative list of companies deriving substantial revenue from Europe (not necessarily from Greece directly).

Tuesday, June 30, 2015

The road less traveled has its own perils

Thought for the day

In struggling against anguish one never produces serenity; the struggle against anguish only produces new forms of anguish."

- Simone Weil (French, 1909-1943)

Word for the day

Stinkaroo (n)

Something markedly inferior in quality

(Source: Dictionary.com)

Malice towards none

Is there any study to assess what is the role of incest in worsening sex ratio in India?

The road less traveled has its own perils

The week expectedly started with Greece. Monday morning was overwhelmingly dominated by Greek talk. By the time markets opened, I had already participated in many discussions.

"What is happening in Greece?" Why people are discussing it 5am in the morning! my wife a student of Music and blissfully oblivious about finance, wondered.

"I am praying for Gexit. A vacation in Santorin at cost of Bangkok would then be possible!", a dear friend exclaimed.

"Should I sell everything at the market opening? Will the fall of Greece be as bad as the fall of Lehman Bros?" worried a traders.

"Tell me what to buy this morning, should market open materially lower", an investor who had been looking to increase his equity allocation, inquisitioned.

Unfortunately, I could offer no intelligent input to none of them.

All I could think was that "in 2008 the world reached a point where two roads diverged into the woods; and the world took the one less traveled. Seven years and few trillion dollars down the road, we find ourselves standing at the same fork we left in 2008, only more wearied and less sure about ourselves."

I feel taking the path less traveled was the right strategy back in 2008, as the conventional path was severely damaged and blocked. But the world outside US should have returned to the conventional path the moment US chose to ditch the global cooperation forged in 2008. Following the US was another option available.

If it appears Greek to you, let me get back to simple English.

To understand the problem of Greece and many other countries in Europe and find a sustainable solution, it is essential to understand the root cause.

The core of the European problem lies in the blatant fiscal profligacy in post War era. Both European governments and people have spent way too much more than they have earned in past few decades. Large socialist governments, high wages, inflexible labor markets, huge subsidies ensured that the fortunes collected through industrial evolution and colonial expansion were squandered. The industry thus moved to Asia, constricting the new avenues of employment.

To make things worse, the human lives lost in the two wars were never adequately replenished, making the demography old and dependent on pension. The virtuous cycle of economic development has been replaced by the vicious cycle of adverse demography. Most European nations have more people to provide for than the tax payers.

In post war era, despite all the mistrust, US kept its door open to the talent and capital from across the world. The mass emigration of talented people and real capital to US from Europe has left Europe way behind in technological evolution.

Following the unconventional monetary policy like US is no solution for Europe for the simple reason - US could grow at 3-4% and repay its debt and Europe cannot grow and cannot service its debt.

NEXT POST WILL BE PUBLISHED ON 7-JUL-15

Monday, June 29, 2015

Lull before the storm

Thought for the day

"The intelligent man who is proud of his intelligence is like the condemned man who is proud of his large cell."

- Simone Weil (French, 1909-1943)

Word for the day

Tenderfoot (n)

A raw, inexperienced person; novice

(Source: Dictionary.com)

Malice towards none

Narendra Bhai's friend Barack's country has embraced Yoga.

Will Barack's friend Narendra Bhai's country embrace Gay marriage?

Or we just believe in saying our Mann ki Baat, without bothering about others' Mann ki Baat.

Lull before the storm

As expected last week (see here) Nifty faced strong resistance in the 8350-8386 range and failed to sustain outside this range.

The momentum in the market slowed down considerably despite F&O expiry last week. Volumes were low. Volatility persisted at lower levels. Market breadth was even. FPI selling seen in past two weeks subsided. So did the DII buying. Bonds markets were also subdued with benchmark yields mostly unchanged, despite failure of RBI auction on Friday.

For the week, Nifty is critically placed at the break out point. A positive break out might take Nifty to the higher trading range of 8470-8850.

Failure to breakout may however led the market retreat to 7900 level with a rendezvous in 8170-8210 range.

Given the worsening domestic political environment and Greek referendum scheduled for Sunday, 5th July, it is less likely that a clear direction will emerge this week.

Friday, June 26, 2015

True and fair

Thought for the day

"Deprived of meaningful work, men and women lose their reason for existence; they go stark, raving mad."

- Feodor Dostoevsky(Russian, 1821-1881)

Word for the day

Ennui (n)

A feeling of utter weariness and discontent resulting from satiety or lack of interest; boredom:

(Source: Dictionary.com)

Malice towards none

What is morality and what is legality; and why should they cohabit; and how could morality be tangent on the legality.

True and fair

Someone raised a very pertinent question - should driving below speed limit be equivalent to driving above speed from viewpoint of the legality of the action?

In a scenario when everyone is driving at the stipulated speed limit, the safety of the vehicles and people riding in those vehicles would be endangered in equal proportion if someone decides to drive either below or over the stipulated limit.

A supplementary question that could arise out of this inquisition is - whether something done (slow driving) to avoid being caught in an unlawful act (fast driving) should be equally culpable as the unlawful act itself?

After an annoying argument with myself, I concluded that driving slower than the flow of the traffic is perhaps more perilous to the safety of other people than the fast driving. Because slow driver induces the trailing drivers to jump the lane and overtake his/her vehicle and in the process creates multiple chances of occurrence of an accident. Whereas the fast driver just himself jumps the lane and creates just one chance of an accident, should he lose the control of his vehicle.

I know it will make me hugely unpopular with many tax payers, but I find it very pertinent to extrapolate this logic to the debate of tax avoidance vs. tax planning (saving).

(a) A public company taking business decision based primarily on tax saving considerations should be equally culpable as the company that avoids paying due taxes. For example, a film producing company investing in a windmill!

(b) The tax concessions provided by the government for inducing investment in a specific geographical location, even though not necessarily in the best interest of the minority shareholders also need to be evaluated by the same yardstick.

Why the minority shareholders of a company (whose consent is not sought for making substantial investments) should be burdened with the obligation of aiding the development of a backward region?

Many projects that were primarily conceived to take advantage of backward area have become unviable due to poor infrastructure, higher operational cost, etc. The losses are suffered by the lenders, ancillary investors, families of the people rendered unemployed,

The implications are - (i) investors are induced to invest in a business, they might normally not have done but for tax saving; (ii) government loses on revenue with no direct or indirect benefit at all; (iii) it does not add any economic value to the issuer company or its existing shareholders.

Why then the government should allow this blatant tool of tax avoidance in the garb of tax planning?

Thursday, June 25, 2015

A stich in time!

Thought for the day

"The cleverest of all, in my opinion, is the man who calls himself a fool at least once a month."

- Feodor Dostoevsky(Russian, 1821-1881)

Word for the day

Otiose (adj)

Being at leisure; idle; indolent.

(Source: Dictionary.com)

Malice towards none

In a society where history is quintessentially intertwined with religion & mythology and laced with guilt - how science could progress.

A stich in time!

At the recently concluded annual general meeting of the Reliance Industries Limited, the management of company presented some glimpses of their strategy for the telecom business under Reliance Jio brand.

While the analysts are divided over the extent of damage it might inflict to the existing players, three things are clear:

(a) The Indian telecom industry shall see enhanced competition and pricing pressure in next couple of years. The consolidation and elimination process will continue and perhaps accelerate.

(b) Most players will have to incur material amount of capital expenditure (capex) in next few years to protect their market share and growth.

(c) Though the primary battleground will be "data"; the voice, smart phone and tower infrastructure segments will also see increased competitive intensity.

This essentially means that (a) debt of all major telecom players will remain at elevated level; (b) the financial stress of marginal players and consequently lenders will rise; (c) the lenders may be reluctant to fund further capex of even major players given already leveraged balance sheets and moderate profitability growth visibility.

The solution may come from further equity dilution or higher foreign equity contribution, at the expense of extant shareholders.

Another negative from existing investors' viewpoint would be that the transformation of Indian telecom industry from a high growth industry to a utility is pushed further back by at least 3years. The dividend paying ability of major players will remain constricted.

So while I eagerly wait for full fledged 4G services at promised rate of Rs400/month, I continue to ignore telecom companies for investment.

From policy perspective, I believe the government has been unfair to the industry.

The government has been consistently supporting the Textile industry in the country for past many decade. The primary consideration for such support has been the large number of people employed by the industry.

However, anecdotally I find that incrementally telecom sector has employed much more people than the traditional textile industry. During my travels across the country, I have noticed that mobile telephony has provided respectable and profitable self-employment to millions in past one decade.

The government has however only exploited this sector. Rather than recognizing the sellers of pre-paid cards, mobile repair shops, mobile accessories' sellers as MSME, the local civic authorities often harass them and treat them with contempt. These businesses are seldom considered favorably for organized financing.

May be the policy makers are waiting to see that the businesses in this sector also go the traditional textile industry way before making any concessions for them!

The scenario is neither improbable nor too distant in the future.

Wednesday, June 24, 2015

Let it go!

Thought for the day

"There is no subject so old that something new cannot be said about it."

- Feodor Dostoevsky(Russian, 1821-1881)

Word for the day

Definiens (n)

Something that defines, especially the defining part of a dictionary entry.

(Source: Dictionary.com)

Malice towards none

Government is considering tax rebate for encouraging use of credit card.

Does promoting the use of debt not violate the "Indian Culture"?

Why no champion of "Hindu Rashtra" is seen protesting?

Let it go!

Last week, the government raised the import duties on flat steel products to 10.0% from 7.5% and on long products to 7.5% from 5.0%. Higher import duties on steel products are intended to ease some of the downward pressure on domestic steel prices from cheaper Chinese steel imports.

As per Moody's, Indian steel prices have dropped 27% over the past 12 months owing to a 70% increase in cheaper imports, one third of which came from China. As of the quarter ended 31 March 2015, cheaper imports led to a 6% decline in realized per tonne prices at Tata Steel, versus a year earlier, and a 10% decline at JSW Steel during the same period.

(Via Moody's)

Kotak Research believes that the 2.5% hike in import duties on steel products to 7.5% on long and 10% on flat steel products is too modest to cheer domestic steelmakers in view of the sharp decline in global steel prices. Benefits will be limited given the large imports under free-trade-agreements and high domestic premiums over import offers.

What I would like to understand is that:

(a) If the global commodity deflation due to demand slowdown in China, Europe, and many emerging markets is a realty and it is likely to persist for many more years, how long and how far the government of India is going to protect Indian producers?

I appreciate all the arguments that would be offered in support of this action - but I fail to understand that when the domestic consumer will get the full advantage of global correction in commodity prices.

(b) Would it not be a better strategy to support the consumers of commodities by subsidizing imports so that they could optimize their capacity utilization, begin a virtuous cycle of lower prices in the economy, may be at the expense of few producers who are not globally competitive in the current environment.

Tuesday, June 23, 2015

Look at what you own, Sensex may mislead you

Thought for the day

"Man, so long as he remains free, has no more constant and agonizing anxiety than find as quickly as possible someone to worship."

- Feodor Dostoevsky(Russian, 1821-1881)

Word for the day

Swashbuckler (n)

A swaggering swordsman, soldier, or adventurer; daredevil.

(Source: Dictionary.com)

Malice towards none

Has Bangladesh finally replaced Pakistan in terms of popular cricketing rival of India?

Look at what you own, Sensex may mislead you

The recently concluded result season (4QFY15) was one of the worst in past one decade. The Sensex earnings fell 7% yoy, led primarily by commodities. More companies missed the earnings forecasts of analysts as compared to the companies which met or beat the forecasts. Pharma sector perhaps disappointed most. Consumers, particularly discretionary, also let down the street expectations.

The most disappointing feature was broad based revenue contraction led by both price erosion as well capacity underutilization.

Though most analysts have put up a brave face - downgrading FY16 earnings but upgrading FY17 earnings, top line contraction, first since 2009, must be giving some jitters.

In the whole India story, demand has always been a given. 1.25bn strong population with burgeoning middle class and more than 2/3rd workforce has always supported the assumption of resilient underlying demand.

Now if even in "peacetime" this demand has shown contraction, it needs a close examination. This examination is also important given the fact that revenue growth has been on the decline ever since 2008 (except a stimulus and pay commission led bounce in FY10).

I believe that we need to examine the competitive strength of India Inc in the emerging global and domestic environment. It is probable that even many large companies may not survive in the changing competition landscape. The lost pricing power and market share may never be regained. Though we may see an "aggregate revival", it may not matter much if the companies I own do not grow in their business and profitability.