Warning Signals for the short term?

Over the years, a country's stockmarkets' total market capitalisation to its GDP ratio has done a very good job of determining long-term returns that an investor can expect from the stock markets. For India, the average market cap to GDP number over the past 2 decades has been 52%. Indian markets were trading near this ratio in March 2009 (when this rally started). And as we stand currently, the markets are back at almost their 2008 peak!

India's Mkt cap to GDP Ratio

A 70-80% range on this ratio indicates that markets are somewhere between moderate valuation and fair valuation. If the ratio exceeds 115% (we are almost there!), the markets are in the overvalued zone where odds of investing are not in the favor of investor.
This ratio is definitely sending some warning signals for the short term. Isn't it?

Advantage FM!

They say if one has to figure out where Private Equity money is headed, look for a country’s macro numbers. Fund managers would perhaps appreciate Finance Miniter Pranab Mukerjee’s pursuit of getting the math right. He is pegging the FY11 fiscal deficit at 5.5%, and is focused on getting the economy back to the pre-global slowdown levels of 9% and also figure out means to breach the double-digit barrier. He has placed a huge emphasis on infrastructure, affordable housing and education while choosing to raise a large chunk of his revenue from disinvestment and 3G auctions. In what appears to be a lesson learnt from the global financial meltdown, the FM has proposed to set up a Financial Stability and Development Council, which will monitor and maintain financial stability. Besides, he is open for the mushrooming of more new-generation private sector banks. Some of these policy directions have a huge impact on the way the economy will be steered in the coming fiscal.

What has perhaps really worked for Budget 2010-11 is that nobody expected anything transformational particularly as it comes when the global economy is just coming out of the grips of a worst slowdown. Budget 2010-11 has been the perfect case of no surprises and no bad news. In times like these, that actually translates into good news. Perhaps, everyone is just relieved that the finance minister did not rock the boat too much. Bringing growth to the pre-slowdown levels seems to be underlying theme of the Budget. What is significant is that the government wants to achieve higher growth but without losing sight of fiscal discipline. But, it might take more than conventional measures like hiking outlays to see some real action.

The Great Man- Sachin 10dulkar!

When Sachin Tendulkar travelled to Pakistan to face one of the finest bowling attacks ever assembled in cricket, Michael Schumacher was yet to race a F1 car, Lance Armstrong had never been to the Tour de France, Diego Maradona was still the captain of a world champion Argentina team, Pete Sampras had never won a Grand Slam.

When Tendulkar embarked on a glorious career taming Imran and company, Roger Federer was a name unheard of; Lionel Messi was in his nappies, Usain Bolt was an unknown kid in the Jamaican backwaters. The Berlin Wall was still intact, USSR was one big, big country, Dr Manmohan Singh was yet to "open" the Nehruvian economy.

It seems while Time was having his toll on every individual on the face of this planet, he excused one man. Time stands frozen in front of Sachin Tendulkar. We have had champions, we have had legends, but we have never had another Sachin Tendulkar and we never will.

Is Mumbai going the Kolkata way?

What do the Thackerays read? Did they read the report last week which said that more flights now operate from Delhi’s than from Mumbai’s airport? It wasn’t so long ago when Mumbai accounted for half of all flights in the country, so this is a big change. It is after all a global rule that any city which becomes the transport hub becomes the centre of much other activity as well.

And did they read, a couple of weeks earlier, that Bengaluru now has about the same number of hotel rooms as Mumbai (with Delhi having many more, of course)? They must have known for a long time that Delhi is a much bigger market for cars and two-wheelers, but do they know that Delhi is now the bigger retail market for both consumer durables and consumer softs? And do they realise that, when an international company decides to set up shop in India, Delhi and Bengaluru usually score over Mumbai as the preferred location?

For the best part of a century, Mumbai has prided itself as India’s commercial capital, but it is now more correct to call it the country’s financial capital. As the place where its stock markets, central bank, main commercial banks and other financial services institutions are located, Mumbai has no challenger as a financial centre. But as a business capital, though Mumbai still houses the Tatas, Birlas, Mahindras and Ambanis, it is clear that Delhi is upstaging Mumbai.

It isn’t hard to understand why. Greater Delhi (including Gurgaon and Noida) offers substantially cheaper office space of comparable quality, and lower living costs. It is quite simply an easier place to live in, and offers a better quality of life (public transport, choice of universities, golf courses, intellectual discourse). While there may be car thefts galore in Delhi, there is no organised gangland of the kind that Mumbai lives with. Above all, there is no one in Delhi to protest against migrants coming to make the city their home. Indeed, the city has thrived on migrants — as have other cities. It is not an accident that Kannadigas are in a minority in Bengaluru, and perhaps Bengalis in Kolkata. Successful cities are magnets.

As the national capital, Delhi has some natural advantages — and, let’s face it, it has been a relatively pampered city for decades (it shows!). But who is to account for the decline of what used to be the country’s premier metropolis? Not its good citizens, its hardworking millions, but its rulers — which is where the Thackerays and others come in. The city is an organisational mess (multiple authorities working at cross-purposes), a civic disaster, a transport nightmare, a housing impossibility, and a sprawling eyesore of slums.

None of it need be this way. When the textile mills shut down, Mumbai had a once-and-never-to-return opportunity to re-invent itself, to make mid-town Mumbai a modern, citizen-friendly living-cum-work-cum-recreation hub with homes and offices and parks of the kind that would have revitalised the city. That opportunity was lost as the city surrendered to the builder-developer mafia (and Raj Thackeray made a killing too).

So why have the Thackerays, who lord it over the city and declare who belongs and who doesn’t, watched passively as Mumbai has given way at the seams, and focused on dividing people, setting off street violence? Do the Thackerays really believe that Mumbai will not lose jobs if banks and companies lose the freedom to hire whom they choose? There was a time when businesses fled Kolkata. Heaven forbid, but there could come a time when they decide to stay away from Mumbai too.

The month of OCTOBER for the Indian Telecom Industry

October 2009 marked a significant milestone for the India Telecom Services sector, as the industry recorded its highest ever monthly subscriber additions. The industry added 16.67 mn subscribers in October 2009, thus taking the country’s total number of telephone connections to 525.65 mn, with its tele-density standing at 44.87%. India’s wireless subscriber base now stands at 488.4 mn, driven by a strong subscriber growth in the ‘B’ and ‘C’ circles.

Tata Teleservices’ GSM venture, Tata Docomo continued to outperform the GSM incumbents, such as Bharti Airtel, Reliance Communications and Vodafone Essar, on the subscriber addition front in October 2009 as well. Tata Teleservices added 3.87 mn net subscribers in the month, followed by Vodafone Essar at 2.98 mn and Bharti Airtel at 2.7 mn.

Bharti Airtel remained the leader in terms of subscribers, with a market share of 23.2%, followed by RCOM at 18.1% and Vodafone Essar at 17.6%

MahindraSatyam: Some more lies left...

It appears that erstwhile Satyam (now Mahindra Satyam) still has a lot of lies veiled in its accounts. According to the latest charge sheet issued by the CBI, the total financial toll of the scam can be as huge as Rs 140 bn. This is nearly double the amount (Rs 78 bn) confessed by the disgraced former owner Ramalinga Raju. Triggering new round of uncertainty, the CBI had now charged Raju for illegal diversion of funds and fraud in filing of income tax returns. This is in addition to a plethora of charges related to deflated liabilities and inflated revenues. What is more, the fudged accounts also reported fake customers and ghost employees.

The wrongdoers left no stone unturned in perpetrating India's biggest accounting fraud. I hope that the miscreants will be duly punished (moreover I know that this hope will only remain a HOPE and nothing more). However, the innocent investors have no way of recouping their huge losses. Another instance that shows that investors have to do a very careful study of companies and their managements before taking any investment decision. One must not blame the regulator but do the due diligence himself to remain on the safe side! (Comparing the company performance with its peers on a quarterly basis is one small way of doing it.)

The genius of Warren Buffett

Everyone was surprised a year ago, when Buffett bought US$ 5 bn of Goldman Sachs preferred stock. This is after Lehman Brothers had just collapsed and Wall Street was yet to recover from the shocks. Moreover, Buffett's past involvement with bankers like Salomon Brothers had turned out to be time consuming affair.

But then, he rarely misses on a good deal, even if there is a tsunami of bad news all around! The next day Buffett had said, "The price was right, the terms were right, and the people were right." He also secured a margin of safety from the terms of contract - a 10% dividend and also the right to buy US$ 5 bn of common stock at a strike price of US$ 115 per share.

A year later, his decision has turned out be correct! Investment in Goldman has made Buffett's Berkshire Hathaway richer by US$ 3 bn in twelve months! Given the current share price of Goldman Sachs at US$ 183, the warrants alone are worth US$ 3 bn ((US$ 183 - US$115)*45 m warrants). Of course, the warrants were not available to the ordinary investor in the US. But then, all he needed to do was buy the common stock to comfortably outperform the broader market. Easier said than done! Don't you wish that there is a Buffett in everyone of us?