Competition in Personal Loans Market Driving Interest Rates Lower

Not sure if you have noticed, but the number of calls I am getting, offering a Personal Loan at low rates has increased multi-fold. The number of spam emails is also increasing.

The interest rates have fallen sharply as well. Loans that charged 15-18% annual interest rates in the past, are now being offered at 12.5%. The offers also include discounts on processing fee.

Interestingly this has happened despite the fact that RBI has not yet decreased interest rates. But this is likely an impact of the prevailing liquidity in the market. Of the various banks, Stan C seems to be offering the lowest rates on personal loans (checked online and this phenomenon is happening in UK market as well). 

Anyways, if you are looking for a personal loan, this is perhaps a good time to consider taking one. 

Khobragate: Notes to Self and Importance of context

US View:

1. A case of violation of rights to fair and equal pay, and a case of mistreatment of domestic help 
2. Tough to sympathize with the high flying diplomat that breaks US laws 
3. Indicative of social inequality in India 
4. Cavity search: Standard Procedure

Can't argue against that. However the view in India is different. 

India view 

1. Case of a powerful nation throwing the book on an Indian national
2. Hard to sympathize with someone (the maid) who gets paid more than an average IT programmer in India 
3. While Indians have faults (which need to be discussed separately), but they definitely need to draw a line on humiliation, even if it comes from the most richest national in the world 
4. Cavity search as humiliating as Rape (Just as calling someone 'Monkey' be branded as being racist in another famous situation) . US cannot get away with it hiding behind 'Standard Procedure' tag. To further rub salt into (emotional) wounds, it was supposedly for Khobragade's own protection. Cavity search is de-humanizing for anyone, let alone a self respecting woman, who thought that through education and hard work, had left behind the tag of being untouchable and being low caste in India and come to United States, the land of equality and supposed fairness for all.  
5. US diplomats get away with murder (remember what happened in Pakistan last year, where a diplomat shot dead 2 Pakistanis and was allowed to go back to US), while here another diplomat is being charged for visa fraud. If this is not double standards then what it is. 
6. Can think of several big wigs in the US corporate world who mis-represented facts (US sub-prime crisis) who have never been touched or arrested, let alone cavity searched. Seems there is an alternate set of laws and 'Standard Procedures' for them. Ironically, a certain Preet Bharara is a vocal, local champion crusader against such people, who should have empathized with Khobragade's angst and humiliation as he hails from India, is believed to be acting 'whiter than white' and going after a few famous Indians in his quest for a political office. 
7. The same Preet Bharara which vouches for US legal system and champions US laws, is seen as being implicit in breaking laws in India  and seemingly does not think it is a crime to do so. 
8. Last while US lectures Indians on morals and ethics, it needs to see itself in the mirror and remember it is home to racism, atrocities and distrust against minorities at even the swankiest of places (against mexicans, african-americans, asians, Pakistanis, even the chinese are not spared and are stereotyped) and regularly justify religion and racial profiling of people. Its history is littered with crimes against humanity. Still not convinced, think Hiroshima. 

Anyway's my note to self is to be mindful of the context. What is okay in one place and time may not be okay in at another place or even same place at a different time. 

Are markets being rational or irrational with these stocks?

Someone shared the following information with me. Showing it verbatim 

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Markets can stay irrational longer than investors can stay solvent, said Keynes and it is as true today as it was when it was said. There are aberrations that leave the most astute investors stunned. Please find below 10 such stocks that have risen or fallen contrary to market expectations, defying logic.

1. Jubilant Foodworks: Here is a case of “analyst proposes market disposes”! Jubilant is holding on to it fort despite a 40% earnings downgrade this year and notwithstanding expensive valuations (37x 1-yr fwd earnings was sustained thro the year) that implied expectations were sky high. Surprisingly, the stock fell only 1% YTD. FY15 EPS estimates, which were Rs44 in Jan 2013, were cut to Rs32 by Nov 2013. Furthermore, estimates for same store sales (SSS) growth for FY15, which were at 22% YoY in Sept 2012, were cut to 12% now.

2. Just Dial listed at 40x PE in May 2013 and enthused the markets further by being re-rated to 60x+ PE within six months. Guess it is cheap at 16x currently, but not to forget that this valuation is at 16x sales and not Ebitda or Earnings!

3. The stock prices of Mindtree, HCLT, TECHM, Persistent, and Infotech shot up 100-150% this year. In sharp contrast, FY15 earnings upgrades for these companies were only 15-30%. Still interesting, these earnings upgrades were almost entirely due to currency and not due to improvements in the business outlook for these companies. Therefore, there is no major change in growth assumptions. However, what defies logic is not the sharp upward move in these stocks. BUT, it would be interesting to inquire why these high ROE/ROCE companies with relatively clean managements traded at <10x few="" for="" past="" pe="" span="" the="" years="">

4. Westlife still finds takers at 150x+ PE, and it is only a franchisee, not even a brand owner. Going by the Jubilant example, earnings expectations do not seem to matter. The stock already discounts years and probably decades of robust growth. The last time I saw a stock at ~150-200x PE was Wipro in 2000, 13 years down and still 30% shy of its peak!
5. Bajaj Auto’s market share in 2W has almost halved in three years. A couple years back, the difference between the mkt shares of Bajaj and TVS in domestic 2Ws used to be 500bps (Bajaj @ 20.5%, TVS @ 15%). Now it is down to 200bps (Bajaj @ 13.5%, TVS @ 11.5%). Bajaj Auto is up 100% in three years. Bajaj’s export volumes that are close to peak margins may have aided the stock. However, is it not pertinent to ask why Bajaj has not been penalised for failing to protect its domestic turf?

6. Axis Bank – the MSCI havoc: With no FII headroom, the Axis stock collapsed after it was removed from the MSCI India Index. Furthermore, NPAs worries etc amplified the “fear” factor. The stock corrected from Rs1500 in May 2013 to May 2013 to

7. HDFC: Despite one-year forward book value growing by 48%, the stock has returned zero returns in the past 38 months. How can one forget the blurb “cumulative NPA of just 3bps since 1977” that sustained its appeal? Not to forget the various stakes — 1) 22% stake in HDFC Bank, which is up almost 100%; 2) stakes in HDFC Life (from loss of Rs2.75bn in FY10 to net profit of Rs4.5bn in FY13): AMC (profit up from Rs2.1bn in FY10 to Rs3.2bn in FY13), HDFC Ergo - General Insurance (from loss of Rs0.9bn in FY10 to net profit of Rs1.5bn in FY13) where profits are up massively in the past three years.

8. United Breweries – Scottish and Newcastle entered into an alliance with UB Beer in Dec 2004. Since 2004, the stock is up 60-80x. Ebitda margins did go up from 6.5% in FY04 to 14.5% in FY06. However, since then, for the past eight years, Ebitda margins have remained flat at ~12%. Scottish and Newcastle was acquired by Heineken in Jan 2008. Since Jan 2008, UB Beer is up 130%+. There were considerable expectations about growth opportunity in India, given under-penetration and a young population etc. However, in the past five years, volume Cagr was 12.3% (lower than many other FMCG categories). In fact, in FY12 and FY13, volume growth slowed to ~5% pa. And lo and behold, despite all these factors, the stock re-rated from 40x to 90x PE in the past five years! Logic, where art thou?

9. ITC – Consider this: ITC’s five-year Cagr in (sticks) = Philip Morris’s 2.2% pa vs. ITC’s 0.4% pa. Furthermore, dividend yield of Phillip Morris is 4.5% in dollar terms whereas that of ITC is 1.6% in rupee terms. Nonetheless, in the past three years, the ITC stock was up ~90% whereas the Phillip Morris stock increased 45%. This is not even adjusted for buybacks by Phillip Morris and ESOP dilutions by ITC.

10. Decimation of the PSUs: The “navratnas” do not seem to sparkle anymore! Not surprisingly, these companies seem to be languishing close to or below their list price. HPCL is below its listing price of 1992, IOC is at the same levels as 2003, Power Grid’s price is the same since its IPO listing in 2007, and Coal India is below its IPO listing price in 2010. And do not forget MTNL, which is below its 1993 listing price !!

How to spot a valuation bubble? .. and profit from it!

Look at the following chart to decide if you are tracking a bubble (forming or bursting) to profit from it and avoid huge losses.