Would you buy the GDP?

GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living. Critics of using GDP as an economic measure say the statistic does not take into account the underground economy - transactions that are not reported to the government. Others say that GDP is not intended to gauge material well-being, but serves as a measure of a nation's productivity, which is unrelated.

Those arguments always make me feel this is one indicator that can’t be trusted at all. My work life has taken me to some of our Government market intelligence gathering departments and I would put their data collection methods, at best, as archaic. There’s no way that one can vouch the veracity of the data they had collected through dubious means (sending a query card to a few upcountry wholesalers and accepting whatever they fill in) and generating reports on the basis of such data. When these reports form the basis of computing GDP numbers, you know how reliable that could be.

We all know bulk of India’s property transactions go under-reported if not unreported forcing even the Government to acknowledge it. Is the world so short of talented mathematicians, statisticians and economists that they can’t suggest an alternative? I fret because central banks set/reset interest rates on the back of these numbers and put out inflation rates that form the basis for reining in or letting loose money supply, DCF analysis in major M&A deals etc.

Anyone has a better idea…?

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On my other blogs

All go-rhythmic

Detroit would love this
That sinking feeling
Look who is shorting the dollar

Tech trends and business ideas

Now how do you counter that?
Looks like UN meeting
A phone is a phone is a phone
Shedding P in API

Angel 4 Angels

Get a load of “The New Normal”
Are you sure?
Early Stage Boards
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But they are exporting it all…

Kerala based PSU Hindustan Latex (HLL) today became the world's largest condom manufacturer with the commissioning of a new plant that boasts of an annual production capacity of 1 billion condoms.

The company, which posted a turnover of Rs 2.44 billion and a net profit of Rs 195 million during the past year, exports condoms to over 70 countries around the world. Exports revenue stood at over Rs 270 million during 2006-07. The company aims to boost its turnover become a Rs 10 billion company by year 2010.

Look, they are exporting it all while our guys don't get enough to wrap around while they're goin' in... Now you know why we are 1.1 billion and counting !!!

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It's like yesterday once more...

Remember that sweet song by carpenters "it's yesterday once more"?....

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Most of my leads come from my friends in Investment Banking circles. I guess it’s got to do with their internal policies that do not allow cold calling. Freelancers like me are always game if there’s a deal at the other end, we’ll only be too happy to go the extra mile and kick some butt. The deal eventually will flow to those who gave me the lead and I get paid for the lead conversion into a paying client. Cool.

A couple of weeks back I got a whiff of Subhash Chandra’s ICL developing cracks and is hurriedly looking for Private Equity infusion. I couldn’t believe what I heard. ICL is a nascent concept, has a good format that when priced optimally will give BCCI a run for the money. Where did they screw up?

Today I find, ICL has been facing trouble raising team, ground and on-air sponsorships with several companies – Bisleri and Axis Bank among them – pulling out. As a result, ICL hasn't yet been able to sign any sponsorship deals yet. But for God’s sake, why can’t ICL host its matches from say, Australia or England and beam it into Asian subcontinent…? It can beat BCCI wrath and win the sponsors as well…can’t it? ICL stands a better chance of roping in overseas brands as well…

Subhash Chandra, in the past has had mixed luck. He had hit it off with Zee TV, Citi Cable and slightly off track Essel Packaging but failed in a slew of ambitious ventures like Agrani Satellite program after poaching a few scientists from ISRO. Those were my early days in the business and were almost open source case studies. They gave me some early perspectives into big business that no B-School faculty could ever have imbibed.

I might thank all those experiences for bringing me to where I stand now. It saved me that gouge of a B-School fee in the process…. :)

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Who wants to change...?

Read this.

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Don’t you notice how patient, caring, open and honest our politicians and bureaucrats at RBI and MoF are with this guy, Raghuram Rajan, Finance professor at U/Chicago and till recently, Chief Economist at IMF, despite his absolutely horrible and utterly embarrassing behavior?

Haven’t we heard it – what’s-wrong-with-Indian economy rant – before from others that matter? Jagdish Bhagwati, Amartya Sen and almost every Indian/India born personality that had the view from 30,000 miles up have talked about it. But have we ever changed? Nah… That’s how we maintain our culture and heritage, even at the cost of growth.

We don’t need these guys to tell us how to do things right. We know it all. We are so broad minded that we ask for and accept all in-the-face rip-ins and heed none. That’s our magnanimity, you know. If America is land of the free, we are a land of free-for-all. We would invite people the moment they become famous, occupy the highest seat of a global institution or a corporation and seek out their opinion. How proactive, you see? They come, shower their views, present it all in a platter and we archive them all – religiously. That means it can be opened only on auspicious occasions, after an elaborate puja and tuck it back in to retrieve it only in another auspicious year and hour.

Execution…? Forget it. That’s none of our business. Who wants to rectify the situation and restore the natural order of the universe… Not us, at least…

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Here's my wish list, your honor...

This is friggin' great. Courts tell the state of U.P to go to hell and directs sugar mills to pay Rs.110/- per quintal. The state wanted the mills to pay Rs.125/- per quintal to the cane farmers when in the open market, the finished product was going for Rs.85/-. Some respite this.

I have an idea. Why not put up my own wish list… The courts can take it up suo motu

a) Allow 50% ethanol doping and allow the mills to make it directly from sugar cane (no need to produce sugar and then ethanol). Besides reducing consumption of fossil fuel, it would make us least dependent on crude oil that’s tipping at $100 a barrel. Who wants to be an oil slave? (I’ve bought sugar stocks cheap; I want to make some money, goddammit !)

b) Impose sectoral rotation of stocks to be bought by FIIs and domestic MFs. Give other stocks a fuckin’ chance to run up. (Not just Reliance, Infrastructure, Banks and power stocks. I forgot to buy them.) Give an order that says something like, “no stock should run up by more than 25% unless at least 50% of the stocks arranged in the order of their market cap catches up”. [One more time I read about the Ambani wealth, I’ll choke to death; I hold tech, auto components and sugar stocks and the fuckin’ scrips stay frozen like Ice sheets on the poles! Rate of global warming is too slow at least for me…)

c) Long term capital gains tax can never be reimposed [until I book my profits that is. Go tax wherever I don’t have an interest in. All my investments are long term (by default, stupid !)]

d) If Rupee appreciates any further, there should be a blackout and all satellite links should be automatically down. Allow people to exit investments in technology stocks before the currency trading screens light up. [I need a cell phone alert during the trading hours the day before, bokay?]

e) My mother tells me, onion prices are way up. Take a look at that too. Do something about it.

That’s my wish list for this week, your honor… Will you oblige…? Namaste Ji...!

GSM lottery for landline operators

News – GSM add 5.7 million users in October. Competition says "Congratulations" - and they mean it.

How about putting up some cell infrastructure and attending to call drops…? If they don’t do that soon, the mass user buildup will soon lead to a windfall for landline operators like BSNL / MTNL. This will be that odd instance when wireline telcos feel happy even as mobile competition notches up number of subscribers.

I’ve had a pretty bad experience throughout last week. None of my upcountry calls went through. Finally I made it through my wireline phone. I am sure this is the experience for most others too.

Get your act together GSM guys… Otherwise all those stratosphering valuation numbers you’ve notched would just be vapor in no time…! Can you afford that…?

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"Debt is bad". You must be nuts...

Just saw this report. It says Indians seem to be living beyond their means. We are fast absorbing a consumerist culture and debt isn’t stigmatic to us no longer. Not at all surprising given the Airport congestions, upsurge in the number of cars, traffic problem and parking pains. Everyone is in debt to have everything.

At first, my instincts prodded me to shrug it off. It being a survey sponsored in part by an Insurance company, the findings will have to be something like this to instill fear, a sense of financial insecurity, in the minds of people so that they flock en masse to buy more insurance.

But if it were to be true, I will shudder.

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Got answers, thank you Ravi...

Ravimohan hits it on the head…. Here he kind of answers my question (that ended my previous post) “where are we going wrong or is it just me?”

“Therein lies the fragility in our growth story. Given rapid increase in demand, and the slower response to capacity in select yet vital sectors, asset prices have now become unattractive and, in some cases, limiting. Real estate, as an example, is seriously over-priced. It is taking housing out of the reach of a large section of population and is making business, especially in the services industry, uncompetitive to be conducted from major centres in India. The crumbling city infrastructure is adding to the urban population’s woes by presenting a paradox of inhuman living conditions at a world-class premium.”

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Thank you, Ravi...

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Cloven left off the centre

I hate being a killjoy but every once in a while I have no choice. The stock market surge that India has been witnessing of late, the frequent babble of decoupling and *this time it’s different* theory graven in stone notwithstanding, there are the hundreds of millions that are left out of it all.

Here are two disparate reports I found this morning that tempted me to make this post.

According to the Economic and Hiring Outlook survey by McKinsey for the latest quarter, 77% Indian business executives said they think the economy would get ‘better’ in six months. This is the highest for the executives from any other region including China, Europe, North America and other Asia-Pacific nations.

And then, this. India ranks way down at 96 among 119 developing countries included in the Global Hunger Index (GHI) compiled by IFPRI. This rank is well below all its neighbours, barring Bangladesh, and falls in the category in which the hunger situation is deemed “alarming”. Even Nepal is four notches higher than India at number 92 and Pakistan eight points above India at number 88.

So where does that leave us? Cloven right down the middle? Oops, I can’t say that just yet, since business executives that feel buoyant about India form less than 3% of our 1.1 billion population. It’s slit far left off the centre, one could say. I too am perplexed like any average Indian (“what the hell’s going on?”), feeling totally left out of the so-called joy ride that so few that I-don’t-know-who got to enjoy. Who are those few? Past few months run on the stock markets were so very narrow, restricted to just a few stocks from Reliance group, Power and Infrastructure pack. Breadth of the market has just been the width of the screen and the quarterly numbers have been so good for several stocks that never saw the limelight.

Where are we going wrong or is it just me? Something’s gotta’ give… soon !

Getting religion

“Money’s something you need in case you don't die tomorrow” – could soon be the credo with startups in India. Looking at the relative unease between VCs and startups, the mutual booing of shortcomings that each of them sees in the other’s process, there’s hardly the evidence of the ecosystem thriving. Skepticism is writ large on their wall (ah, the `wall’ thing is because of FaceBook!).

Here’s one from a startup entrepreneur - "Many VCs in India are still not strategic partners, but more like moneylenders who make start-ups perform with a gun to the head. The proprietary attitude they bring to the incubatee's premises is not encouraging.

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When it comes to money, everybody's of the same religion I guess.

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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…?

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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…?

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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.

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It's another thing that he hardly had another choice...

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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…!!
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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 ]

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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…?
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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.

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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.

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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…

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