3 unconnected stories – all important!

1st news item: Pawar hints at sugar decontrol. Sugar stocks go up.

Amazing news item! Sugar decontrol is as difficult as fuel prices decontrol but the government will go ahead and do it. However all this thought will only be when sugar is in SURPLUS. When sugar is in surplus, many (if not most) sugar companies will make a LOSS or report very low profits. So it should be a time to SELL sugar stocks if there is a decontrol coming.

2nd News item: PriceWater House is going to court

PWC is gone to court that SEBI does not have jurisdiction over them. They feel only the ICAI (Institute of Chartered Accountants of India) has any jurisdiction over them. Good contention. If a director or partner drinks and drives a car, I think the CA institute will fine him Rs. 500 (which must have been the limit in 1949). I thought along with Greenspan and 2008 the joke of self regulation should have been over. Not so says PWC. Who better than PWC to know about the delays of the Indian legal system? Not sure whether to sell all shares where these people are the auditors. And they are setting up a new business to render “providing selected client service and back office support to multiple firms….”. Clearly PWC is in the ‘business’ of being auditors so that they can gain entry and then sell all other products. Amazing that they continue to be auditors – honest audit does not pay as well as other ‘ancillary businesses’. Good show.

And to think my senior partner (of Sharp & Tannan where I did my CA training) said ‘How can we take the task of installing an internal control system – do you not know we as statutory auditors have to ‘comment on the adequacy’ of the system). He thought it was basic – you cannot comment on a system that your colleague has done. What a man! Did not know how things will change in 25 years. Happy I knew him, and I did not do my articles in an American firm. Thank you Mr. H K Bilpodiwala, Mr. P M Phadke, and the others of his ilk.

3rd news item:

STT falls by 74%: our broking firms have gone a little slow or our clients have got a lot smarter – they are not trading as often as they were trading earlier. The easiest way to lose money in the equity markets is by dealing with a ‘Relationship Manager’ who gets a 8% of aum target on YOUR AUM. If he is charging you 0.5% brokerage he has to churn your portfolio 16 times. Many of them do it. Sebi has taken the sting out of the mutual fund churn (no entry loads) and ulips (the surrender charge hurts the insurance company) BUT they have not done anything about the churn by the brokerage industry. Either they do it or the client gets better / smarter.

None of the 3 news items are connected, but are all very imp for the end customer.

1. Read the newspaper only for news. Make your own views. Or ask somebody willing to teach you AT A PRICE.

2. Take auditors report with a pinch of salt. Keep checking if the auditor is commenting at all. Keep learning. Information and understanding are the only ARMOURS against fraud.

3. Trade less frequently. If your ‘broker’ asks you to sell, keep track of the shares that you are selling. If at the end of 20 days he asks you to sell check whether the shares that you sold in the first place have also done just as well :).

The financial world is changing. Are you learning? (nice by line, I think it can go to my visiting card – currently I say ‘We make smart people richer’. Ha ha ha

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4 Responses to “3 unconnected stories – all important!”

  1. Subra –

    Regarding the 3rd point , i think that in the last year markets have pretty much gone nowhere (Specially after the May ’09 election upper circuits) .. Human Beings, as we are and our memories being short , it is appearing that most of the traders are now bored of the range and not able to make money trading….. and as happens almost always most of them will miss on the upcoming big move of the market (or get it wrong)… the move can be either way and many will get it wrong. And then greed / and – or fear will be back to take STT up again….. It’s a cycle …

    You punch line is really nice “The financial world is changing. Are you learning?”

    – Kapil

  2. Subruji,

    wen are u going to write about DTC (especially tax on capital gains)? finmin site posted the discussion paper with provision for comments.
    u must av submitted your comments on the finmin site. can you share them with us?

  3. i hav no expectation from media, regulators or the government. You have to do what you have to do. Governments have no morals. STT was introduced for removing cap gain. Now we have cap gain and STT.

    Anyway I know NOTHING about the DTC will wait for it to become an act..then react

  4. But if there is a thin chance that the govt has given us to shape the DTC for the best, wouldnt u take it? (by finmin site, i meant finance ministry website). Dont you want to give your inputs to Pranab and Manmohan??

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