Sunday, October 28, 2007

Do away with P Notes - Give us infrastructure

Has the recent crackdown by SEBI on P Notes issued by FIIs been effective? Will it yield the desired fruit – that of controlling copious flows of capital from unidentified or least regulated entities? Well, time will tell.

But RBI still has to deal with its daunting problem. The surging capital inflows continue to pose a policy challenge for the Reserve Bank of India (RBI), as it undertakes its mid-term policy review tomorrow, despite some measures taken to contain unregulated inflows. The central bank is unlikely to signal any easing of monetary policy with surplus liquidity in the system, as any lowering of interest rates at this point, could hold upside risks to inflation.

The Prime Minister's Economic Advisory Council had estimated that an increase in the forex reserves of the RBI of $26 billion in 2007-08 could be consistent with the current real growth of the economy, moderate monetary expansion ( 17.5 per cent) and a tolerable inflation rate (4 per cent). "In the current financial year up to early October 2007 itself, forex reserves have increased by over $50 billion and tackling this problem is the most crucial policy dilemma," S S Tarapore, former deputy governor, RBI has said.

I often wonder – why not RBI absorb the excess liquidity thro infrastructure bonds and divert the entire corpus exclusively to address India’s appalling infrastructure needs – better Airports, Ports, Dams, Roads and the like… Given the pathetic state of our infrastructure, no sum of money would be found to be `excessive.’ We pay humungous sums anyway by way of Airport tax, fuel surcharge, toll etc. Is it not time we expect something in return…?

Saturday, October 27, 2007

Lend but don’t call back

Looks like India has its own subprime disaster in the making. ICICI Bank recently took the unprecedented step of paying Rs 15.5 lakh in the form of fixed deposit and insurance covers to the family members of a Mumbai borrower who committed suicide allegedly after being harassed by recovery agents of the bank, there was a case of recovery agents being beaten up when they approached a borrower to ask for payment against overdue amounts.

Until recently, personal loans were one of the most sought after segment by banks after they found that individual lenders default rates were far lesser than corporates and other organized borrowers. They relied on agents to press recovery from defaulters and mostly it worked. Now this segment has also crept up to `organized’ category – at least in beating up recovery agents that come calling – the threat of willful default looms large even by those who can afford to repay.

Time to short banks? ICICI, HDFC, Indusind, Centurion Bank of Punjab have all built up a good deal of personal loan books. Great shorting bets, I guess…

What do you think…?

Strange things the Rupee does

The relentless run up of the Rupee has one major outcome. It drove xenophilic Indian companies like Infosys to focus on burgeoning Indian markets. Even as IBM, Accenture, Microsoft, Oracle, HP and other IT majors drove in to have a slice of the Indian market, Infosys was unmoved, stayed riveted westwards. It didn’t like the low margins. Sat smug under the illusion that juicy 25-30% margins that it kept gouging from overseas clients will remain forever.

I had written earlier about the short life of those obscene margins here and here and the folly of ignoring the domestic market. After getting dented in earnings and sensing a fast eroding market cap (and the worth of his own holding besides that of other co-founders), it looks like Kris Gopalakrishnan has heard me.
It's another thing that he hardly had another choice...

Thursday, October 25, 2007

The art of getting FII accounts

The din is rising. The clamor from brokerages to get FII accounts. At every turn as I meet a head honcho of a brokerage, they have one question to ask – can you give us some FII account?

Now this puzzles me. I have a lot of friends that work for FIIs. I come across them when I meet them on business and at parties. They have the same interests as we have and they are ready to listen to all that talk that makes sense. No big deal. Why make them such “in-demand” exotic beings?

I made friends in FII circles because of just straight talk. Many of them started out as my blog readers, enjoyed or debated what I wrote. They became friends anyway. I don’t tell them what they’d like to hear or ask for their account. I just listen to them, digest their needs and share my personal philosophies about investing. Perhaps they enjoyed it, they’re still my friends.

But if you want those contacts, well, I suggest you do it the old fashioned way. Get your existing clients to make some money and have them walk the talk…. Or just let me do it for you…!!

Tuesday, October 23, 2007

Review of PE / VC ecosystem in India

Here’s a great article and a review of PE / VC ecosystem in India... Nice read.

[ Hat Tip : Alok Mittal, VentureWoods ]


Monday, October 22, 2007

A quick and clean surgery...?

He may not have gotten the coverage like a Chris Cox gets. But M.Damodaran, Chairman of SEBI is no less charismatic.

He stood his ground on restricting the use of participatory notes (P-notes) by foreign institutional investors, but made two important announcements.

The first is to allow proprietary sub-accounts of foreign institutional investors (FIIs) — i.e. sub-accounts that are formed to invest their own money — to issue P-notes provided they apply to register themselves with SEBI in the next 24 hours.

The second is to put registration of FIIs on the fast track. Addressing FII representatives from all over the world through a video conference, Damodaran, however, said the issue of offshore derivative instruments by other sub-accounts of FIIs will not be possible after the changes it proposed last week come into force.

Hope Damodran performed this surgery quick and clean, like he fixed the mess at UTI. Now will the market get back to its surge up north…?

Monday, October 15, 2007

Can't buy a bank stock

I can never buy any bank stock; Public sector or Private Sector – no matter what a multibagger it may turn out to be.

All I can remember is sitting there all day tearing my hair out and screaming within (at the teller) why can’t she release a banker’s cheque quickly or trying to figure out how to get the lady to stop updating her colleague on her latest jewellery acquisition and wondering if you need to call an exorcist because maybe the bank is possessed by the devil. You need to be a bit psyched up too to buy the bank sock. I know it’s not very smart – but then you know I am only human.

Saturday, October 06, 2007

As long as it lasts

If you can't sleep, then get up and do something instead of lying there and worrying. It's the worry that gets you, not the loss of sleep. Don't worry about things that you have no control over, because you have no control over them. Don't worry about things that you have control over, because you have control over them. This seems to be the credo of global markets that are either behaving as if the worst is over for credit and housing problems or they remain convinced that the central banks can offset whatever bad news may unfold.

I say the credit squeeze is much centered around mortgage finance that resulted from subprime crisis in the US. Other sectors are pretty much insulated. After strenuous effort, banks have managed to find buyers for $9.4 billion of the $24 billion needed to finance the takeover of First Data, a payments processor, by Kohlberg Kravis Roberts, a private-equity firm. According to JPMorgan, even the structured products that caused so much disquiet during the summer are moving again—$6.2 billion of collateralized-debt obligations were issued in the last week of September.

Somehow that flies against other theories that float around. Who knows? Markets have their own logic.

Wednesday, October 03, 2007

LIC in for a bounty

As bidders line up to buy 26 per cent equity in Industrial Finance Corporation of India (IFCI), they will have to keep an eye on the next move of Life Insurance Corporation of India (LIC), the domestic behemoth. IFCI owes nearly Rs 500 crore in debt to LIC, which has the option to convert it into equity and take its total stake from 8.4 per cent now to 49 per cent. IFCI’s proposed strategic sale has attracted expressions of interest from 10 entities, of which 8 have been shortlisted.

The successful bidder will also have to make an open offer for another 20 per cent to take its total holding to 46 per cent.

Companies interested in buying a stake in IFCI will be aware of LIC's option to convert its debt into equity at par (Rs.10/- that is, now the share price is Rs.96/-) value.

Talk about the advantage of being a (very) early investor…