Buffett's gyan on Investing:

"Rule No 1: Never Lose Money.

Rule No 2: Never Forget rule No 1."

Warrent Buffett

Go N Deal Go!

Well, the left may think that the N Deal is anti national. BS! Maybe the left MPs do not suffer prolonged power cuts at odd hours during summers. The nuclear deal, is in the interest of the aam aadmi (the Common Indian Man). But what about the the the nation's sovereignty. BS! BS!. No body is ever going to use a Nuclear Weapon (read WMD) against the country. How many bombs do you need for nuclear deterrence. One, two, three. (More BS!) I bet that we already have a stockpile, big enough to deter all of our enemy countries.

Anyways, if we feel the need to develop some more WMDs some day, what is to stop us from going ahead and asking IAEA inspectors to leave? Would we not be back in a situation that we are in today?

Coming back to the question of power capacity. We not only need more power, but need to improve the efficiency of distribution as well. The transformer near our house has tripped four times in the last 5 hours, leaving the whole DLF phase 2 (apparently a premier locality in Gurgaon) without power. Another theory we have is that they cut power here so all people buy flats in the new societies that have power back up and can buy their own electricity from power generating companies.

So here's cheers for atomic energy! Go N Deal, Go!

Dawn of PE in Indian education space

As fund managers and investors look for new ideas in the investment universe, Education is one sector that is gaining prominence for both PE and Venture capital. With only a handful of listed players and and a few other organized players operating in the non regulated segment of education, there is ample headroom for growth and possible entry of more players in the next few years.

Educomp, the country's leading education company on the basis of stock market performance (market cap had recently crossed $2b) has a revenue base of 280 crores implying huge growth expectations from the company. Gaja capital had invested in the company and made handsome returns on its exit last year.

Everonn, with revenues of ~95 crores in 2008, has touched valuations of 1700+ crores before correcting over 60 percent recently. Recent investors include New Veron, DB & The India Fund (Blackstone)

NIIT, on the other hand gives investors an exposure to education and to the vocational training space. Its revenues crossed 1000 crores in FY08 and is Asia's largest education & training company, is also down ~40% from its 52 week high. It is expanding its horizons beyond IT education into other employability segments and is a leading player in School education and in Corporate training . Its current market cap is ~$400Mn.

With a 100bn+ population and poor education infrastructure, Education offers a huge opportunity for value creation for private money. However the rule is "Caveat Emptor" as all is not lais·sez faire.

Sensex Valuations

Often, we hear people talking about sensex PE and pointing out how the market is overvalued in comparison with other economies They are implicitly refering to the theory of mean reversion and implying that the markets would correct downwards.

However they completely ignore the fact that that the underlying economy is still growing at 7-8 percent in real terms and therefore the premium over other markets is justified.

Anyways, what i really wanted to point out was that they also imply, that along with the sensex, other stocks should fall as well. While their movement is correlated to an extent, one needs to take a look at the underlying valuations of these stocks independently of the sensex. The sensex PE is at 13-14, but other stocks with similar growth performance are languishing at a PE of the order of 5-6 or below. Which would make sense if the markets were expecting a dip in earnings. i.e. profits next year being lower than in the previous year and not just a slow down in growth, in the short term.


If you were to do a DCF valuation, a short term performance blip anyways has low sensitivity to the overall valuation as a large majority comes from the terminal value. So if structurally the story is intact and long term growth is not threatened, which I believe is, I would be a buyer in these markets

Dividend Yield of Sensex Companies

Dividend yield of the 30 companies part of the BSE-30 sensex is as follows:

Top 10 dividend yield stocks

Recent stock market correction has left many stocks with attractive dividend yields which indicated a huge value (assuming of course that their earnings do not go down even if growth is slower). A list of the top 10 dividend yield companies is as follows. Remember that dividends are tax free in the hands of the investor and to compare yields to bank interest rates you need to remove a third from the bank rates.

Company Dividend Yield -%
ARI Consolidated 16.37
Hind.Housing Co. 15.95
Swastik Safe Dep 15.87
Ashirwad Capital 15.35
Disa India 14.80
Kanchan Intl. 14.79
Schrader Duncan 14.19
Hinduja Ventures 14.04
Assam Petrochem. 14.01
Allsec Tech 13.33

Of Bottled Water

Read Vir Sanghvi's column on bottled water scam in the mint today. I see that happening all the time. Restaurants in India supply over priced bottled water. What he forgot to mention was that this happens in cinemas too. In PVR, for example, you need to pay a bomb for every thing from pop corn to water. Since they cannot sell bottled above MRP, they have come up with a novel scheme. Water bottles supplied to these halls are different from the usual ones available else where. Mind you, just the bottles and not the water are different. MRP printed on them is way higher that usual for similar quantities of even same brand available outside (and people pay for this despite water coolers that are installed in the premises that are filled with filtered water. They could do atleast this much)

I do not know if they pay a higher tax to the govt (vat etc on this ) but it sure makes them a huge margin. I guess every one has to just put his/her foot down and stop buying items that are priced nonsensically.

NIFTY Options Strategy

NIFTY bounced back today. The volatility is likely to continue.

Anyways, for those expecting the market to increase , recommend buying a strap (ie go long in two calls and one put options with same maturity and strike price) or a strip (long in two puts and one call options as before)

Google Ads Slider - Giving in to customers desire to view ads

Only Google can get away with it. Notice the slider (circled here)

Phew !!!!

Technical Analysis

Was reading Graham's "The Intellingent Investor". According to him, its is difficult to benefit from trend following. A number of people I know, deride technical analysis. However, I believe that patterns should be looked at in a way you would look at statistical models.

And therefore like these models, technical pattens represent statistical realities and like all statistical models, would give you predict correctly only a certain percentage of times. As long as this is above 50 percent it has some value. Need is to be persistent with your apporach and to select patterns where predictive success percentage is substantially greater than 50 percent.

Anyways, market held above the 4015 support today. Fundamentally the markets look prime for entry. However, the momentum may take the market down further in the near term.

Technical Support NIFTY

The next support for NIFTY is at 4015 levels. If that does not hold then the market can go down a further 5-6%. However, clearly these are attreactive levels to initiate long term long positions.

June 28, 2008

Financial Analysts and Consultants

Can never forget the following comments by a consultant:

Q. What does he tell a client who desperately wants to buy into the market?
A. "Buy half of your desired position now"

Q. What does he tell a client who is losing money in his position and wants to sell?
A. "Sell half your position now"

Now just imagine what would he tell his clients if the market moved up and what would he tell them if the market moved down.

Making sense of the Oil bubble

Prices of oil cannot continue to rise and sky is not the limit as most speculators would have you believe right now. Yes fossil fuels reserves are limited but human ingenuity would find a way to use alternative energy sources. Already a lot of ways which were not economically viable earlier are now profitable because the price of crude is way above the breakeven mark for them. As for limited refining capacities there is always a cycle of over capacity and shortage similar to all commodities.

Guess it is easier to return to these reasons when the price trend reverses than now. Till then keep looking at the following reasons for price rise and take your pick:

• Limited fossil fuel reserves
• Rising crude demand due to rapid demand increase from emerging economies
• Limited crude refining capacity leading to short to medium term fixed supply
• Cartelization from OPEC/ hoarding
• Speculation / Traders playing on uncertainty due to all of the above / Psychology

On Reverse Outsourcing

Salaries of software professionals rose 18.7% in 2007 while the rupee has gained almost 10% this year to near 10-year highs

Read the rest here

In defence of Blogging

Every reader may find a blog that caters to him/her, while journalism caters to the lowest common denominator

"...All who attack blogs are right, but they nevertheless miss the point, as Theodore Sturgeon could have told them. When Sturgeon, a writer of science fiction, was attacked for the rubbish that came out of that genre, he famously came up with what is known today as Sturgeon’s Revelation: “90% of everything is crud.

Sturgeon’s point was that most attacks against science fiction used “the worst examples of the field for ammunition”. And while he accepted that 90% of science fiction was rubbish, so was 90% of everything else. If one just looked at the crud component of any field, it would be easy to dismiss anything...."

Guess why you did not get THAT shortlist ??

LUCK...............

With a pile of 300 résumés on his desk and a need to pick someone quickly, my boss told me to make calls on the bottom 50 and toss the rest.

"Throw away 250 résumés?" I asked, shocked.
"What if the best candidates are in there?"


"You have a point," he said. "But then again, I don't need people with bad luck here."

- Becky Horowitz (Reader's digest)

Tata-Corus - Analysis

Here's my analysis

Winners
UBS + Goldman Sachs: Had bought 11 percent of Corus before they pushed CSN into the bidding game.(think 0.11*11 billion *(609-455)/455 dollars ) **

CSN: had 36 million of Corus Shares. Put in a bid of 475 pence per share (and did due diligence later, can you belive it, did it get ponied by the bankers or it believed Tata would outbid it anyway)

Corus and its other shareholders: Obvious Reasons

Indian Politicians: Blowing their own trumpet

What does India (or Indian industry) gain through this publicity? Would investors be more willing to invest in India after this?

Potential Dark Horse

Tata Steel:

Got screwed ??

Yes, but it had already decided to build up capacity. Think industry dynamics (consolidation, pricing power) Paid $700 per tonne of production capacity. Would have needed double that amount to build (unless what I read was wrong, some say PV of expanding to that capacity to be $2000)

Verdict

There can be only one loser . (unless the industry consolidation wipes out smaller players) But fingers crossed?

** 400+ million dollars

Tata Corus CSN - Three way Deal?

Instead of fighting over Corus if CSN and Tata Steel combine to form a three way alliance, it may be the best for the shareholders for all three companies (at least for CSN's and Tata's). The ongoing bidding war would only mean that either of the two companies would end up overpaying for the deal and the other would miss out on the synergies.

It may be best to try a new form that companies Corus's access to markets, CSN's access to raw materials and Tata's managerial capability. But would all the managers be ready to give up personal gains for this option? This remains to be seen as the story onfolds.

This week at ISB...

The week has been interesting to say the least. Not only did we get to interact with to top honchos of the corporate world but also had a chance to be in close quarters with our very own 'MAN'. I mean our very own PM Manmohan Singh.

It started with the Capital Markets Conference on the 29th followed by the ISB Leadership Summit on the 2nd of Dec and then the two day GLS. Each of these events were special in their own rights and have been clubbed with the five year celebrations of the ISB.

We are not sure where we may be another 10 years from now but know where we want to be and the promise is worth the wait. But hope is to be a part of that promise than just a spectator.

It is very easy to get disillusioned by what happens at ISB. So you need to keep you feet firmly planted in the reality and work towards what you want the most. The idea is to prioritize they say.

P.C. on microfinance

Chidambaram states yesterday what he should have a long time ago. Recognising that 22-25% percent interest charged by MFIs could reflect actual costs of transactions and put to rest attempt of some states to cap interest rates. What must be kept in mind that even at these rates MFIs cannot reach the poorest of poor. One of the most efficent (SKS) MFIs charges 26% and it may not be possible for others to reduce their costs to this extent.

The need of the hour is innovation in the business of micro credit. But there is hope, only recently has micro-fin become a hot debate topic around the world and attracting talent in some of the top B Schools. ISB has a full time elective on microfinace.

Problems of micro-fin are many fold in India (as in any other state). Lack of information leads to adverse selection and difficulty in monitoring leads to moral hazard. Both of these added to the problem of limited liability of borrowers and high transaction costs. The need of the hour is to create innovative products that make the process efficient reducing the risks ie costs associated with the small loans