Thursday, January 29, 2009


Sometimes you get to read funny combination of headline news. Today I had one such - on Wall Street bonuses and another on PE firms unlikely to invest now.

Even as the whole world reels under recession triggered by Wall Street excesses, they have no qualms in collectively showering upon themselves billion $ bonuses as usual. Barack Obama felt it’s “outrageous”. Indeed.

Another is not so retchy, yet funny. Now that valuations are at their near lowest, PE firms are unlikely to invest. May be they are waiting for hyper valuations to return so that they can stir in right earnest burning bigger holes in their investors’ pockets!

What they teach only at B-schools ?

Tuesday, January 27, 2009

After thoughts governments

Placing a fielder after the ball gets struck

This is my favorite cricket metaphor. It typifies a late riser, usually a fielding team captain that moves around his fielders to spots after the ball gets hit and not before. Smart batsmen will sense this and occasionally mislead the fielding team by offering unorthodox strokes to spots where they are not so good at stroking (say, a right hand batsman playing a risky shot to the gully or extra cover on the off-side) – it’s just a ruse to rattle the field so that he can freely score at his favorite spots where there shall be no fielders. Smart captains normally set a field and make sure his bowlers bowl to the field, not letting the batsmen settle down.

Our administrators are of the former variety - of late risers. When our real estate market was red hot, global strategic and financial investors including PE were making the major mistake of investing large amounts of money in overvalued assets, our government came down with a slew of regulations – P-Note bans, setting high water marks for FDI, classifying convertible debentures as equity etc. They made sure that they punctured the swell until there was nothing but flat tires. Now after the investors are gone, the globe in a recession, real estate developers are broke, sense prevails.

The government is tweaking FDI regulations to exempt mixed development projects from the $10 million capitalization requirement, reduce the project size to 10 acres (from 25 acres) and cut the minimum built up area to 10,000 (from 50,000) square feet. The lock-in of three years after the date of completion of the project shall continue. The only condition is that 50% of the area will be kept open for hotels / tourism activities, shall be subject authority supervision and residential buildings shall not be put to use otherwise.

It was pretty much the same thing that RE developers earlier clamored for. Now after they are long broke or even dead and gone, the government is waking up to the idea. Anyway, I will stock up on some real estate stocks - expecting a rally :-)

Monday, January 26, 2009

Tax cuts or higher public spending - which is better recession remedy?

This is often a confounding question that baffles governments and right thinking citizen alike. Arguments fly back and forth – tax cuts generate higher disposable income that goes to buy stuff and keeps demand buoyant. The opponents figure saved tax money just stays locked in. It doesn’t create jobs because businesses have put on hold large capex spends.

But then economic stimulus has its own detractors as well. Increased public spending on infrastructure, healthcare and education have long gestation periods. Committing the tax payer’s money to long term projects especially in recessionary times is not exactly sensible because there is no guarantee that businesses will continue to make profits in future years on which the government can expect to collect more taxes and keep those jobs in tact.

Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all, that system is paid for with fees on air tickets — and surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.

The common knowledge is that tax cuts are not always better than public spending. Tax cuts work when a particular industry is marred by business cycle or has been subjected to excessive levies or if it contributes to larger public good, like say clean tech. In general otherwise, public spending provides much more bang for the buck than tax cuts — and therefore costs less per job created — because a large fraction of any tax cut will simply be saved.

This suggests that public spending rather than tax cuts should be the core of any stimulus plan. But rather than accept that implication, conservatives take refuge in a nonsensical argument against public spending in general.

But I would rather weigh it on case to case, time to time than offer a sweeping solution.

Friday, January 23, 2009

L&T had no other option

As more than active observer of stock markets, I was just wondering what would I do if I were heading Larsen & Toubro, that bought 4% of Satyam stock at Rs.170 apiece earlier this month, after which the stock just collapsed to Rs.20 levels...?

I would have just bought up more. Not just for averaging, since L&T has an infotech arm that isn't going anywhere, this is the best opportunity to hire a company that has some marquee customers like GE.

And they seem to have done exactly that... I, like anyone else was stunned by the volume of over 300 million shares that got traded in NSE and BSE tody. First I thought it was the interest because of new suitors (iGate). Later I get to know L&T was buying up. But it certainly didn't hurt... I exited my positions when the stock touched 39.25 and made a neat profit...

Will re-enter tomorrow between Rs.35 - 40 levels, if I get it.... I feel L&T should still be bying up until its 15% with them and then proceed to make an open offer for further 20% and as usual I wouldn't wait to tender, will just exit during the melee in the market and retreat to the sidelines...

Monday, January 12, 2009

IIP numbers, a mirage?

Oil price is down, inflation is down, Rupee is down, Exports don’t look up. Still Banks don’t cut lending rates enough in proportion to cut in repo and CRR nor do they start some serious lending. This has created a sort of optical illusion in our IIP numbers that got released yesterday. The index showed an increase of 2.4 per cent over November 2007, which is not a great performance but apparently different from the 1.4 per cent decline in the previous month. However, the base effect seems to be largely responsible for both numbers. The October base was relatively high, with the index having grown by about 12 per cent in October 2007, while the November base was just the opposite, with the index having increased by a mere 4.9 per cent over the previous year. Stripped of the base effect, the optical improvement disappears and there is little question that the industrial sector is in a virtually no-growth period. On the face of it, this is likely to persist for some time. Even if the successive interest rate cuts and the various other measures that have been taken by the Reserve Bank of India and the government are enough to reverse the slowdown, the effects are unlikely to be visible until later in the year.

If the slowdown in manufacturing, gems & jewellery and other sectors is largely attributable to high interest rates, then the recent rate cuts must favor a turnaround in these sectors, though the cuts have not gone far enough. The missing link, of course, is the apparent reluctance of banks to lend money to people who might want to buy houses, cars or appliances. Until this flow of credit begins, a turnaround is not in prospect. However, the conditions, in terms of liquidity, are hopefully being put into place.

Wednesday, January 07, 2009

ASATYAM COMPUTERS books weren't cooked; that was 3D virtual reality

Here, I suspected it's no longer SATYAM.... Now I stand vindicated...

Speculations glaore. I go it's all worthless. May be it's worth the value of some pricey real estate that it occupies in India's southern city of Hyderabad provided its overcooked balance sheet has truth enough in its declaration of the company's debt-free status. Otherwise, one would assume that even the properties may have been pledged or worse, being that of a software company, it's created out of 3D virtual reality. Something as in Second Life.
I begin to doubt the Indiaworld acquisition that Sify (Satyam Infoway, sister concern of Satyam then) did for a mind boggling Rs.499 crore ($115 million in 1999 $). Did money really changed hands to that nondescript entrepreneur Rajesh Jain, CEO of Indiaworld? If so, why is he still stuck with some never-to-start startup? People with $100 million certainly will have a lot more options that the world would be curious to track. I have this feeling the price that Sify paid would have been far less, far far less and bulk of the money would have been stashed away by Rajus in some secret tax haven accounts.
But then they also say the liabilities are underfunded to the extent of Rs.1230 crore (about $24 million) that Raju has arranged by pledging his shares. Anyway, too bad that Raju used a wildlife metaphor while attempting to clear his conscience in his letter to the Board- "it was like riding the tiger and not knowing how to get off without being eaten" - and disgrace the animal.
It sure is a murky mess and it's only getting murkier. But there are some bravehearts too... And I sure can't stop envying the folks that were short on the stock yesterday...!

Saturday, January 03, 2009


It's the scam season, no doubt... First came MADOFF that made-off with billions of $ of investor funds, then closer home it was SATYAM COMPUTERS being sought to be shortchanged by its founders currently holding 5.3% minority stake by exchanging their loss making businesses in lieu of huge cash in Satyam balance sheet. To hell with valuations, due diligence or even corporate governance.
After SATYAM-MAYTAS fiasco, here's another; Hiranandani (Builders) attempts to take co-investors for a ride by opting for a merger with loss making family business HIRCO Developments with its AIM listed outfit HIRCO. The investors are irked because the decision is taken without undertaking appropriate valuation of the target, eerily similar to the Satyam deal that fell through because of shareholder revolt. In the Satyam deal, the promoters of SATYAM COMPUTERS (later found to be holding less than 6% stake) had decided to buyout their family concern MAYTAS infrastructure and MAYTAS properties both real estate businesses heavily in debt by using $1.6 billion cash in SATYAM's balance sheet. Later all the independent directors in its Board had to tender resignations owning up moral responsibility for their tacit concurrence by remaining passive during the Board meeting at which the issue was hush hushed.
Why does the expression chutzpah come to my mind...?