The Sensex may have given 19% returns over 33 years, however it may not have given 19% in any particular year! This is fairly simple – the standard deviation is quite high, and good years are followed by bad years. Simple.

In the year 2011 the sensex’s performance looks bad because of the poor performance of Reliance, L&T, Infosys, Icici, Sbi….and was cushioned by HUL, ITC,..etc.

Unfortunately for sensex watchers Reliance and Infosys – both very good P/E managers – and perhaps EPS managers too – seem to be in their mid life or descent. This means that even with all their media management, the market’s respect for these companies (read PE) is not likely to increase in the near future. Infosys is in a mature industry with not too many entry barriers and Reliance, well, is Reliance!

Icici bank does not have a single promoter – this means there is no single person ‘managing’ the p/e and its EPS is not really respected. The NPA of Icici bank and SBI will always be a worry for the market – and hence the p/e ratio is likely to be below the industry average. L&T the story is somewhat similar – and the biggest shareholder block could be the employees including the Managing Director and Executive Directors.

Again L&T’s price earning ratio is not very easy to sustain, and it is also a company on its decline rather than a company on its growth. Its finance arm is not likely to show any great performance in the market – and this will make listing its software subsidiary difficult. So there is no great value capture by L&T also.

Given the problems that Reliance, Infosys, L&T, Sbi and Icici bank face, it seems to be difficult for the Sensex to give some fantastic run away performance.

However markets are supposed to surprise or shock us. Clearly there is no trend in these nos…

47%, -52%, 81%, 17%, -24% which are the returns on the sensex in the past 5 years from 2007 to 2011………

OR IS THERE A TREND THAT I CANNOT SEE?

Now to the more important question – what will the sensex do in 2012?

Well frankly, I do not know. I am brilliant enough to know that I do not know.

However, it could tank another 18% – and will cause pain to people doing SIPs for the past 4 years also. Or it could just come down 3-4% but in a very painful process of going nowhere on a month to month basis – giving nominal returns on SIPs.

Of course it could go up 24% – just wiping out the 2011 losses – or it could go up 40% and preparing for a fantastic fall in 2013! All are possibilities – and all of us will know with 100% accuracy why it did what it did. However many of us know that we do not know. The others are predicting.

Remember the market does what the market has to do – fluctuate. You have to do what you have to do – keep your head on your shoulder. Not easy, but very profitable!

HAPPY NEW YEAR TO ALL OF YOU!!!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

When it came to my turn I asked the teachers:

How many of you have travelled by air? (when I was in school asking teachers such a question would be like treason)

Many hands went up, and there was an animated exchange of experiences…

I said if foreign schools came, where would they recruit teachers from….

Again they were excited and said ‘Oh my friend has got a job as a teacher of English in China…etc. etc.’

So I said please understand the following:

Competition is good for YOU the consumer (we all have benefited by the competition among car manufacturers and mobile service providers, have we not?).

Competition is good if YOU are an employee in the industry (so many people from UTI, LIC, SBI and other Psu banks have been poached by private sector banks like Hdfc, Icici, Kotak, etc.).

Competition is good if YOU are a supplier (ask training institutes which is training for Jet Airways, Kingfisher, ….etc.) – there was no market when Indian Airlines was the ONLY airline.

Competition is BAD for YOU if you are the OWNER of the business where there is competition expected.

As a consumer I would be happy if FDI came to India (organised retail, Chinese and Indian labor kept inflation so low in US for the past 15 years). Y

Yes there will be turmoil. There is always some turmoil – in the long term the Indian entrepreneur will adapt – Starbucks cannot compete with a Udipi.

Now I am seeing the retailer wanting FDI in wholesale (LOL).

It is time we as consumers told Mamata, the left and the confused BJP (is it left, right, Middle or NOWHERE?) we want FDI…yes maybe with the speed breakers in place perhaps?

http://www.hindustantimes.com/business-news/WorldEconomy/Kirana-shops-cheer-FDI-in-wholesale-not-retail/Article1-779175.aspx

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

- a friend was offered a 30% discount on a retail purchase of a flat in one of Mumbai suburbs

- a lovely property belonging to Hindustan Unilever Ltd. did not find any buyer in an auction – at Worli

- one girl was killed in Delhi by a bus. She was walking with an Ipod – and did not hear the bus.How do you tell the kids in the office such a morbid story to drive home the point? Hey kids take care of your lives!

- Welcome FDI in retail. Is this the end of the Kirana stores? Not so, says my kirana store friend. Who will give your mom 50gms of kismis, kaju, elaichi? My mom refuses to buy more – she prefers buying fresh whenever she needs instead of stuffing all this in a fridge. Well the Kirana stores have a few more years to go.

FDI in 53 cities says UPA. Well Jayalalitha, Mamta, Maya have screamed murder already. BJP is confused. UPA states like Maharashtra will follow….not very useful UPA!

When FinMin announced a limit of US $ 10 Billion for FII investments in Indian mutual fund (a few months ago) a TV channel wanted a byte. I said ‘it will not attract any money’ ..she was shocked and decide to use somebody else’s quote. Now the figure is NIL. Still waiting. Given our cost structures – and commission structure I think it will be NIL for some more time. Only fund that is likely to get some money is the banking etf. Clearly when you cannot buy shares of SBI directly, you need to invest in the bankex – through a Bank ETF….:-)

-

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

- Icici bank was more profitable because of the Rs. 350 crores from the life insurance arm

- Hdfc mutual fund is the biggest mutual fund, but Reliance is the most profitable in the country

- Banks are fighting with each other to increase interest rates on the savings bank account – Kotak Bank and Yes Bank are willing to pay 6% p.a. vs 4% by SBI…- showing the kind of margins that are still available in the banking industry.

-Sundaram Finance and Cholamandalam Finance have  both reported a nice jump in their eps by a nice percentage…

I stick to my view – as in the title – BANKING IS VERY VERY PROFITABLE….and in the US it is even better. They get fixed deposits (guaranteed by the government) with which they write derivative contracts – when they fail the government bails them out….LOL

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Amazing what lack of training can do.

One small tranche of US $ 400 million borrowing has been downgraded by Moodys (which can do no wrong, because Warren Buffet is a shareholder) to D. However, rest assured this is surely a cheap publicity stunt – it will take SBI about 10 minutes to raise this kind of amount from the Indian public at 10% p.a interest rate….

However our great media has gone to town saying ..why FIIs will sell SBI (or have already sold) ..and SBI shares will go down etc. In fact there is always such a over reaction that more US $ 400 Million has been taken out of the market capitalisation of SBI.

What should you do if you are the shareholder of SBI with a longterm view?

Simple, switch channels.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Been a shareholder also (upwards of 30 years now) – so no regrets on that count too. Good people, good processes, good returns – all this as a construction, engineering giant.

Now coming to L&T finance, I have no clue what is the attraction that big groups have towards finance. Tatas, Birlas, L&T – none of them have a great performance that would make me rush to buy their shares.

L&T finance is a wholesale financing company – clearly the margins would be under tremendous pressure. Yes they have a reputation, but they do not have size. There is nothing that they are doing which a SBI or even a smaller bank cannot do. Also in a prospectus there is no need to disclose sticky assets. Ever-greening is another worry. Do not see the subsidiaries in a hurry to make money – Distribution, mutual fund and capital markets are all TOUGH businesses…

Into all this if I have to enter paying a premium, well I am not in that game.

Will I get the share at a price below the issue price?

No clue.

I am not a buyer of a business where the margins are so tight – I would rather buy a bank share – somebody who is building up fast like Dhanalakshmi bank, Axis bank or a well established bank with good NIM and good asset quality – like Hdfc bank.

PS: I am a shareholder of Hdfc bank and no other private sector bank as of now when I am writing this blog.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

If you are a shareholder who started an asset management company and /or a life insurance company hoping to make money, God bless you! For those of us who are shareholders with the Birla, Hdfc, Tata groups – remember we are all funding the insurance and mutual fund businesses indirectly.

Kotak bank, Hdfc ltd, SBI, are all very profitable businesses (banking is the most profitable business in the world -ask Goldman Sachs, J P Morgan, Citibank or all the psu banks). However the mutual fund and the life insurance businesses are not making sensible money in India – and do not show any chances of making money for the next FEW years. It is easy for people who have not much at stake to say that ‘these changes were necessary and it is for the good of the customer’ but the shareholder will bleed. The bank promoted life insurance companies have it very nice – here is a good retail product whose commissions can be used to subsidise new branch openings. That itself makes Hdfc bank and Kotak bank good shares to buy. One will have to see how Yes bank and Axis bank play out the life insurance business piece. Of course older banks like Hdfc have the ‘trail commission’ which can be used to grow the mutual fund business, but newer banks do not have that luxury.

SEBI has not been able to do anything to regulate the PMS business, the brokerage industry, or the media covering the financial services industry. It is difficult to believe that there are 20 personal finance magazines, websites, etc. depending on the advertising by the financial media. It is difficult to know how all the magazines will make money.

Experts in the life insurance business  forsee a 30% cut in the total salary bill, a dramatic cut in the number of branches (rent gone), travel will be cut down (Jet Airways will make more losses), lesser recruitment (MBA schools will wonder how to cover fixed costs), lesser hiring (students and banks will wonder how the money will come back), and some Mergers and Acquisitions.

And now I R D A wants to regulate agents…OMG…it is scary.

Currently the best place to be now in the financial services industry is in the media. Salaries are good (did I hear Madhu Soman say very good, not sure), there are some regulatory changes every 32 hours (either by SEBI, IRDA, Supreme Court, RBI …or the fin min!!). Talk to a few people in the industry and do a story. However it is not worth being a contributor of stories. The Job is better for the butterfly .

Amen.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Now if you have LIC, SBI, Hdfc, Icici, …each with a few ’000 crores of stake in the insurance business and Mr Bhave on the other side, who thought that Mr. Bhave could win? Well I am not sure.

The media went to town saying ULIPs are bad, so many life insurance companies changed the name of the product to ‘Endowment Fantastic ‘ or something which dropped the unit linked. Simple.

Not sure about whether the amount raised by ULIP is 10, 100 or 300 times the amount raised from the RETAIL investor in mutual funds since the entry load was banned.

FRankly it does not matter what cnbc, ET tv, UTV bloomberg, or the other print media say, if a product is sold, it will sell. Afterall McDonalds, Coke, Pepsi and Lays can spread diabetes and ITC can spread cancer without any problems, can they not?

The government requires millions of rupees for divesting (by the way if we the people are the owners of the public sector, does it matter at what price the IPOs are given to us?) and this can come from LIC. Imagine the LIC chairman calling the FM and saying…’Maalik…Power Grid ka issue ke liye paisa nahi hain…ULIP is not collecting money..”. The FM had to bring this ordnance.

See the Direct Tax code. Only pension plans of the government are allowed a deduction under 80 C (or its equivalent)…OMG the govt’s greed sucks.

Sebi has many good things like cap on expenses, trustees, custodian, r&t agents registration, etc. It is time IRDA accepted that they do not know how to regulate ULIPs and does a ‘cut and paste’ of the Sebi rules and regulations for it s ULIPs. Limit on how much can be invested in one group, in one industry, the advertising norms, who can be a broker, broker’s registration, etc – many rules  should be as much applicable to the Ulips, so I hope the investors benefit…sebi or no sebi.

Reminds me of Rajagopalachari’s (Rajaji’s) statement when the PSUs were started …”Raja bane vyapari, praja bane bhikari”.

When the IRDA was formed, the rules were favoring LIC….now the government is favoring the money bags of the insurance companies.

Over to you Mr. Bhave, will you bring back the loads in the mutual funds?

L O L.

PS:  ‘we are committed to protect the small investor’ …ROFL, LOL, ROFFFLLLL

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Wockhardt and then Emaar had withdrawn their IPOs. Withdrawn was a joke. The public did not buy them, therefore the issue had gone back. What was the learning? Even a rising market nobody, really nobody has any interest in saying that the issue is overpriced and the end customer should not subscribe. A greedy promoter supported by a greedier merchant banker, and then a bunch of bankers, brokers, etc. try to palm of all issues by using the most dangerous market terminology – “this time it is different”. What about the press? The less said the better. No press report spoke about NTPC vs. Reliance Power in pricing! NTPC has actually built the capacity. In case of Reliance we are hoping that the company will build it. Then commission it. Then earn money.

Then the press was full of stories about Emaar being pricey, Wockhardt being far more expensive than Apollo Hospitals! You needed THESE articles BEFORE the issue hits the market.

Ok all this happened a few months ago – approximately 24…this was just to remind you what happened. However now there is an action replay – the government picks the phone and asks SBI and LIC to pick up the NTPC issue. They oblige. No press comments, no merchant banker cribbing (he would have pocketed the fees), brokers still calling up ‘Sir United Bank of India is not an FPO, so pricing is fair, I am told. Fantastic. New IPOs coming, power sector will boom, ..all over optimistic predictions. One big banker was telling me how NTPC was a great buy now – and the price will touch Rs. 300 in a year and Rs. 500 in 2014. I have no clue whatsoever.

What about the Merchant bankers? Enam, Kotak, Goldman Sachs, Morgan Stanley, Merrill Lynch -surely none of them know valuation. Or they do a valuation which is different for their own hi end PMS clients and a different valuation for the masses. Choose your pick.

One merchant banker admitted that Maruti issue would never have come at Rs. 125 if the merchant banker knew it could sell for 1250! That is the truth. The market has acted as it should – prices rise and prices fall. You have to act sanely.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

However if my money has to be invested I prefer Hdfc. Look at the recent Ntpc FPO. Personally I do not like to invest in psu shares – the only 3 exceptions were companies which had built up scale. These companies were Ntpc, Ongc, and SBI. However a Goldman Sachs report says how the government took away $ 20 billion to subsidise the downstream units. Similarly when Narasimha Rao’s son cheated SBI – by an amount of Rs. 130 crores, the matter was hushed up.

Now the NTPC FPO. Personally the shares were attractively priced. However the market did not think so, and rejected it. Companies, merchant bankers, investors, speculators, traders, all have to respect the market. Pranab Mukherjee need not respect the market. LIC and SBI were forced to buy the shares. In the longer run LIC and SBI may make money, but now neither did SBI ask its shareholders nor did LIC ask its policyholders! So once again the shareholders of SBI have funded Mr. Pranab Mukherjee’s deficit.

So if you are worried about ‘directed’ investments, stay away from PSU shares and PSU ‘money managers’. Like it or lump it LIC, SBI, NTPC, BSNL, WILL all be governed by managers who bow to the ‘babu’ and do what he / she says is. Look at the BSNL employee union. They are asking for a good top management that will not bow to the babu and the ministers, the government is not too pleased with this request. Subir Raha stood up to the babus when he ran ONGC….but such stories are rare. So if you want to buy a term plan go to google..and you will find Religare ageon plan on the net. For managing money there is always Hdfc top 200, Hdfc prudence…

Post Footer automatically generated by Add Post Footer Plugin for wordpress.