Chaitanya Patel

I’m working on my taxes.  I’m not in a good mood.  Okay, writing that made me chuckle, because I am usually in a good mood.

Let me divide my working life into four segments:

• 1986-1998: Actuary — reasonably well paid, and significantly underpaid compared to the value I delivered.
• 1998-2007 — Investment risk manager, Mortgage bond manager, Corporate bond manager, and Senior Analyst at a long/short hedge fund.  Paid well for my efforts, and the  rewards to clients were far more than what I was paid.
• 2007-2010 — Almost no pay, as I deal with home issues, provide research to a small minority broker-dealer, and try to gain institutional asset management clients.  Living off of assets from earlier days.
• 2010-2014 — Living off of asset income as I slowly build a retail and small institutional client base for my value investing.

The last two periods are the most interesting in a way, because I was drawing more income from investments than I was from any other source.  Even during my time at the hedge fund, I made more money from my own investing every year than I was paid, and I was paid well.  That said the mid-2000s were a hot time, particularly if you made the right calls on a growing global economy.

My net worth today is roughly where it was at the peak of the markets in 2007, despite my low wage income.  I have been bailed out by the returns of the equity market and my alpha.

This is not a comfortable place to be, because general equity returns are not predictable, and alpha, though I have had it for years, is not predictable either.  That said, my client base has been growing, and in another year or so, my practice should support my family even if the markets don’t do well.

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Though I just told a story about me, the real story isn’t about me.  Think of all of the people who are trying to manage their lump sum in retirement.  They are relying on strong equity markets; they are hoping for alpha.  They are not ready for setbacks.

Unless you are seriously wealthy, when you are not receiving reliable income from a wage-like source, you can feel like you are in a weak position. I have felt that on occasion, but in general  I have not worried.

I write this because equity outperformance over bonds will likely be limited over the next ten years.  I peg equities at about a 5%/year average nominal return, with a diversified portfolio of bonds at around 2-3%/year.  Also the ability to add alpha is limited, because alpha is zero in total, and are you smart enough to find the managers that can do it?

In desperate times desperate men do desperate things.  Low interest rates are leading many to speculate more than they ordinarily would.  Equity allocations go higher.  Allocations to “alternatives” go higher.  People start using nonguaranteed income vehicles as if they had the structural protections of bonds.

As I always say, be careful.  Those trying to manage a lump sum for income in retirement are playing a dangerous game where if you try to draw more than 3.5%/year with regularity will prove challenging, because that is playing at the boundary of what the assets can deliver, and leaves little room for an adverse scenario.  Be careful.

As the Latin saying goes "Veritas Vos liberabit", knowing the Truth sets us free. And the Truth is, we are born free, neither my birth nor my circumstances define me, my meritocracy and individual optimization does. I am not beholden to the strictures and confines of clergy, their role is an important one of guiding me towards spiritual salvation, no more. That does not make me an apostate, if I renounce an evangelists priests call to disobey his dicktat on my political preference! Neither do I seek his absolution and forgiveness for practicing my constitutional right to vote at will for whom I want. Let's please separate the State, the carnal, material aspirations of man, from the clergical.

Indians stand at the threshold of the most defining moment in history after 1947, a tryst that could alter their destiny for years to come. A momentous election that centered around restoring a nations lost Pride in its primaries, "bhartiya garv, swabhiman", tragically degenerates to abject bigotry of religious Prejudices over Ram- Rahim, in its finale. The hero was meant to be You & Me, the Voter, whose time had come to punish, but instead attention deflected to clerics on both sides of the fence becoming the protagonist.

Let's recognize the pure soul of man transcends class and ethnicity. Its sole aim is self determination,& flowering individualism. In that pursuit, It is a constitutional right to be provided an environment to flourish, through education, jobs and equal opportunities, to rise & shine, and be equal stakeholders  in the equity of India's growth.

It is in its dereliction of duties over 50 years of being in government that Congress has used minoritism to suppress the vulnerable Muslim community,promise them all, but keep them beholden like puppets on a string of deferred promises. Enslaved, like bonded-labour- classes, kept in ghettos, threatened by the bogey of riots, that held them financially and emotionally hostage.

As the atrophied GOP strives to play its last card of communalism with the Imam meeting Sonia, or BJP attempts to morph into a regime representing economic progress transcending the time- warp of religious appeal, "Indian liberalism and secularism is still stuck in the 19th century". Equally with the  SP,BSP, or TMC, its invariably the Old Guard still playing politics of the last century, out of sync with India of 2014, whose priorities are jobs and economic progress, when equality should have been a 'given'.

The  bugle horn of "Modi is coming"  being trumpeted as the Ogre who will devour the UP hinterland, is more a frenzied appeal at isolating BJP, in order to cobble desperate alliances, than out of any genuine concern for Muslim betterment.

One wonders is it not medieval to tap the powers of clerics for votes by transcating with maulanas & Imams? Should Modi go to the head priest of  Tirupati to compel Hindu's to vote? It then emerges Hindus who are passive and accommodative by nature, are being forced to turn bigoted, nearly reopening a debate "Was India right in opting for a secular constitution?"

Rabid rhetoric is a diatribe to appeal to the troglodyte, primordial herd instincts of man, and keep an illiterate populace on an 'opium' of religion, inebriated& diverted from acts of misgovernance. Liberal Muslims equally demand an equity in the progress of India, and want their sect to be elevated through socio-economic priorities, demand representation in governance and jobs across sectors, rise above ghettos and  victimhood they have lived through.

Essentially, with journalistic unbiasness, all parties are guilty of hate mongering and stroking parochial fires, SP, BSP,TMC & RJD having contributed no less to politics of paranoia in their power games to woo 25 crore Muslims. That, in a sense gives the Hindus a taken- for-granted attitude, as they are not known to vote en masse, nor are they bound by endorsements of Godmen.

This is a plea to politicians in India to cater to carnal needs, the cardinal can wait! When we opted for a secular constitution, we endorsed "sarva dharma samabhava", equal respect for all religions. That did not preclude Christians, Jains, Sikhs.. to the exclusion of Muslims alone! More than ever before, its seen as Congress obfuscating its misrule by trumpeting its secular credentials, in a desperate attempt to salvage its electoral prospects and harness the 20% of the Muslim vote bank. Why should State overlap church\temple\mosque? Are the functions of clergy and State not clearly demarcated in specific domains, of their obligations to society?

Why in a role reversal, has a hardcore Hindutva party put ideology behind and economic prosperity ahead, as its poll pitch? Its probably because it realizes more than Congress, "Its the economy, stupid!"

Fear of defeat is attributed to Sonia's using the life-line card of secularism to shift focus, in seeking the Imam. Let's go by a finding that says 10% of Muslims have forgiven Modi, but the 90% who have not, become the consolidated catchment for  'Congress&others' to consolidate and target as their vote bank?

Dynasty has many ventriloquists who speak what might be music to Sonias ears. Its only in posturing, that the duo of Sonia and Rahul denounce, while sycophants like Imran Masoods inflammatory "We will chop him into pieces", or alliance partner Ajit Singhs "We will throw NaMo into the sea if UP burns in communal fires like Gujrat", spew the venom.

Equally to blame are Amit Shah's "Revenge the insult for riots in Muzaffarnagar", and "Modi is the big brother of a pup",Azam Khan..While these hate protagonists were reprimanded and booked under Second 153A of Indian Penal code for promoting enmity, they did succeed in vitiating an already supercharged polity.

Somewhere, Congress has missed the  mood of the nation, when the focus should be Power to the people and providing employment, as 3 crore of the population is impacted by just a 1% drop in GDP is what India is clamouring for, not religion.

Please make progress the battleground and don't take us back to a past we want to obliterate:1984, 2002, Muzzafarnagar.. We strive to live as a cohesive nation wanting peace and prosperity for all castes and creed. You have divided us enough in aberrations and time- pass, as Indians burnt with poverty& hunger, you fiddled like Nero, fluting communal tunes and like  katputlis, we gyrated to that communal war- beat. What we need is State to address the temporal, material needs, not our clergical needs. Indias largest minority of 180 million vote not as blinded flock on dicktats of neo-political- clergy, but on local issues from J&k to UP,Bihar, or Kerala.

Whether BJP has relinquished the path of hardline Hindutva or the agenda creeps in through the backdoor once in power, time will tell. But this time more than ever, Congress strategy of obfuscating poor performance with secular oratory and back to playing footsie with the Imam, cannot be missed. The Imams writ does not equate with Sri Sri Ravi Shankar, or Baba Ramdev pronouncing their preference towards BJP, as both are seen as New Age gurus, who are entitled to personal preferences. Their polemics are directed at misgovernance and not religious endorsements. They are Hindu gurus, sure, but are not dictating who we should vote for.

Like 'poverty' is business for political parties, so is 'religion' and communal divide a business for politicians. Clerics function as freelance deal- makers broking political deals. With demonizing Modi, there is a palpable phobia. They are torn between fear and patronage of Congress who has done little to uplift them. Formulae for riots are preconceived & well orchestrated 'events', the event- manager being the party in the opposition. Come a riot, and its a playground for competitive populism, blame-games and pilfering rehabilitation or welfare funds, and deal making with the Imam.

"700 riots under Cong, 250 under SP, 1 under Modi, the figures speak for them self. And who's demonised?"

Do liberal Muslims really heed the fatwas of clerics? Voting behavior has changed, as the only takers of their dicktats are illiterate, middle class or rural minorities. "Muslims don't care about the call of the Imam, it used to be so in our parents time" is the contemporary mindset.

Let's celebrate the Dance of Democracy, in its Power to the People, as a sacramental festive ritual, anything less would be sacrilege to this institution that confers the highest rights to "Us, the Voter" whose time has come!

Follow me @BinduDalmia on Twitter for more conversations on Indian socio-economic and political scenario, on the twists and turns of India in Quest of her Destiny.

The Indian financial year just went by and you must have done your last minute topping of 80C, paid your medical premium, got your rent agreement in place, reviewed your Housing Loan papers, got your Form 16 – and would be preparing for filing your return, right?

Well it is a good time to visit your financial goals and do a review of where you are going:

1. Is your asset allocation as per your vision statement?

2. Are your mutual funds performing well, has the fund manager changed, has he changed the asset allocation AWAY from what he promised?

3. Do you need to make any change in your will? Your parent’s will? Do it today, not tomorrow.

4. Are your financial papers in place?

5. Is your TERM insurance and Medical insurance appropriate? well priced? can you get a better deal?

6. Is your CV updated? Have you checked your current market price? Do you think you are overpaid? If so learn to live on less. Much less.

7. Ditto…for your spouse.

8. Do you need a financial planner? Is your financial life complicated (multiple marriages, dependent parents, challenged siblings or progeny, shaky job,…..). Then seek the help of a good planner / lawyer and make sure that your documentation is perfect.

————-thee could be many ——-but at least make a start with these 8———–

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We are happy to share that we have got a mention in the April issue of Money Today Magazine.

The magazine’s cover story is on “Equity Investing: Myths vs Reality.” Its an interesting issue and you might like to get a copy of the magazine :).

The markets have done quite well in the recent months. Many of our stocks such as Astral, Ajanta, Mayur Uniquoters, Atul Auto, Avanti, MPS, Poly Medicure have created new highs.

We haven’t been writing about new ideas over the last two months because most of the companies we have held are quite good and it is better to just sit on them and watch. With the markets getting into action, it is not easy to find many new ideas. Owing to the good returns, it might be a good option to build some liquidity/cash in portfolios (around 15-20%).

Stock Updates

Kitex Garments: The company is one of the first ones to declare the Q4FY14 results. The numbers are fantastic: sales have increased by 56 %, operating profit margins have increased to 24% and the profits have increased by 170 %. Looking at the increase in the gross block in the balance sheet, it seems the expansion has completed and the current performance may sustain. In the whole textile sector, it is one of the rare companies with a differentiated business model and good quality earnings.

Shilpa Medicare: The company posted very good performance in Q3FY14. The stock price has done well too. The interesting thing is that the growth has started coming even when the USFDA approval hasn’t come for the new formulation plant. We continue to be optimistic about the company’s long term prospects. IndiaNivesh has recently published a detailed coverage on the company; we recommend our readers to go through the same.

Ashiana Housing: Prof. Sanjay Bakshi has written some excellent blog posts related to Ashiana Housing. The posts help us understand the reasons for the superior business model of the company. The management interview discusses the company’s vision and highlights the clarity in the management’s processes. We recommend the readers to go through the posts.

New ideas under study

PTC India Financial Services: The company is promoted by PTC India. It provides financing to energy projects. Earlier the company also had investments in several projects, but divested from them at good profits. Although the company suffers from risks related to power and PSU sectors, it has been increasing its loan book at a brisk pace of 30 to 40%. The growth is expected to accelerate if the sector sees some improvement. At CMP of 14, the stock is trading at about 6 times its normal earnings, half the book value and with an expected dividend yield of over 4%.

Technocraft Industries: Its an interesting company to delve deeper. The company has 3 main segments of which the drum closure division is the primary one. Drum Closure is the lid used to seal the oil and chemical containers. Technocraft is the world’s second largest player in the drum closure business with a market share of 35% . The patented technology and the monopolistic business provide the high margins. The company gets a turnover of around 225 crores and operating profits of around 65 crores from this segment. The market capitalization of the company is 274 crores.

Although the drum closure division is the cash cow, the other two divisions – Scaffolding and Textiles – are low return commodity businesses. These two divisions bring down the overall profitability and return on equity of the company. The company has not been able to utilize the spare funds efficiently and also lost some money in NSEL (booked 50% loss in the December quarter).

If few things can be corrected, the stock has lot of value at CMP of 90.

Freshtrop Fruits: This company is one of the leading exporters of high quality grapes and other fruits from India. In past, the company was one of the earliest and most advanced players with best of the technology to export high quality grapes. Currently the company is supplying to one of the best retailers including ASDA, Tesco, Marks & Spencer, DelHaize and others. Over the last 3 to 5 years, the company has been experiencing a few problems:

1. Europe stopped import of grapes from India due to high pesticide.
2. They had done a major capex for fruit processing plant which has been a drag on the financials.
3. In the current year, there has been a major hailstorm and the results might be poor (we would request our readers to provide the inputs if possible).

We came across a recent article on the bright prospects of the industry. It might be a turning point for the company over the coming years.

Few other ideas which are cheap on valuations and may fit well into Graham kind of plays are: Damodar Industries and KCP Sugar. Another stock which looks opportunistic is Waterbase Ltd based on the superb run-up in Avanti Feeds.

For the upcoming elections, we would request all our readers to caste your vote – your investment returns might depend on it.

Link to manifestos
AAP: http://www.aamaadmiparty.org/aap-manifesto-2014
BJP: http://www.bjp.org/manifesto2014
Cong: http://inc.in/manifesto/

 

The post Money Today Q&A and Updates on Stocks appeared first on Dalal-Street.

Let us see what happens when a HNI wants to build a debt portfolio of his balance sheet!

If you see the post ‘all debt products’ – I have enumerated all the  mutual fund debt products..if you have not seen that post done on 4 Feb, 2014 please visit that post first…

Why only a HNI? Simply because a not very rich person may be happy with 4-5 PPF accounts (into which he can invest about Rs. 2-3 lakhs a year), some bank fixed deposits, etc.

However for a HNI, he has to look at the following assets:  Savings bank account, bank fixed deposits, PPF, Tax free bonds, taxable bonds, and a variety of debt funds from the insurance basket.

The mutual fund basket products are: liquid fund, ultra short term bond fund, short term bond fund, income fund, gilt fund, and FMP.

Liquid fund:

A fund that everybody should have. This should be like your savings bank account. Whenever you have money which you think is excess it should lie in this account, in the GROWTH mode. Unlike your savings bank account, this account gives you CAPITAL GAINS and hence you will pay lesser tax – say 10% instead of 30% that you pay on the savings bank interest. Also the returns could be greater than a savings account – but it could be lesser than the return you could get from a bank fixed deposit.

Assuming you have about Rs. 50 lakhs to invest and you like to have about 50% in easy access liquid funds. This fund should have about Rs. 25 Lakhs sitting here.

Out of this you could do a STP (Systematic transfer plan) into a top Equity fund – of about Rs. 12000 a month. This will ensure that Rs. 25,00,000 does not grow too big, but it will almost NEVER fall below Rs. 25L

Ultra short term bond fund:

This has a greater duration than a liquid fund, but lesser than the other funds mentioned here. If you have a time duration greater than a few days – say a few months – 100 days – this fund could be a better option compared to a liquid fund.

A portion of the money could lie in this account especially if the client is sure when t

 

However the returns on this fund maybe very close to a liquid fund, and may not really matter. However if you know that you require the money after 130 days it might make sense to be in an Ultra short term bond fund.

3. Short term bond fund:

When you have money for slightly longer duration of say 12-18 -30 months you could look at this fund. Obviously this fund could give a higher return than the earlier 2 funds, but now the funds start getting a little riskier. When Interest rates go UP bond funds lose VALUE. How much value they lose depends on the ‘duration’ of the fund.  The first 2 funds have a very low duration, hence the impact is minimal. However the short term bond fund could lose some value. There is absolutely no need to panic – you have a 30 months view, so there is a good chance that the ‘notional loss’ could be made up.

4. Intermediate bond fund (upto 6-7 years duration)

Funds with higher maturity! this is likely to give you a good return, but carry a higher risk when interest rate changes.

5. Long bond fund (more than 8 years duration)

These funds invest in corporate bonds with longer duration. As India does not have many instruments in this genre…some portion of these funds go into GILT – Hdfc Income fund has about 50% in gilts! These funds are very safe from a default point of view, BUT VERY RISKY from any adverse movement in the interest rate in the country.

6. Gilt and Long tenure bonds

Invest in Government securities with long maturity – say 10 years or more….

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1. Is it safer to invest in shares through IPOs?

Not at all. In fact it is riskier to invest through IPOs. IPOs are priced by professionals to get the best price possible for the promoter of a company. So the odds are against the investor and works in favor of the professional. So chances of getting a good price is almost NIL. Of course nearer to a downturn the shares could be conservatively priced and aggressively priced when the market is booming. Normally shares are issued in a up market, and hence priced against the small investor.

 2. Why do subsidiaries of foreign companies quote at a higher price?

 An MNC like Colgate, Monsanto, HuL, all of them get a higher price earning ratio and they grow well too. Hence these shares are quoted at a higher price. They have a long track record of rising income and dividends – so existing shareholders do not sell and new investors feel like buying more of them…so the demand is far greater than the supply, hence the price rise…

3. Are there any advantages of investing in government companies

 

No. There are no advantages investing in Government companies. Many of them are quoting below their issue price – thus breaking 2 myths – of investing in an IPO is a good thing and that investing in a government company ensures that you make lots of money.

You make good money in a well managed company and you lose money in a badly managed company. ownership does not matter.

4. Is there any guarantee that I will always get dividends in the good Tata Companies

 

Again no guarantees. Tatas are a good group and is normally well managed. However if you see their performance in financial services for example, their performance OVER THE YEARS has been pathetic. Again as I said in the earlier question, well managed companies will give you INFLATION beating returns.

5. I can spare about Rs 10k per month to invest – how should I go about investing in shares?

 

Do a SIP in a good fund….

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Isn’t this like a dream come true for all of us? Atleast for those of who are not working for themselves but for somebody else? This post is about a person, with whom I had a casual chat over lunch some two years back. At that time, I (in my wildest dreams) could not have imagined that this talk would have such a big effect on his life. But as it has been rightly said in Alchemist, “

Users of my favorite intermediate macro textbook will be familiar with the dynamic model of aggregate demand and aggregate supply, which I first put into the book in the 7th edition. That new chapter shows the student how to incorporate a standard Taylor rule into business-cycle theory, as well as how to trace the dynamic response of the economy to various shocks. Instructors who teach that chapter might be interested in this new paper, which shows how to incorporate the zero lower bound into the model.

While his opponents waste some more time attacking the BJP Manifesto for saying that the Ram Mandir will be built within the framework of the Constitution—which, if unavoidable, is the right thing to say as the matter is in court—Narendra Modi may have stolen another march through today's announcements.

Notwithstanding the delay in the release of the document and the criticism it faced from some quarters including the media, Modi has ensured the vision that has been spelt out has the ‘Modi stamp' all over it. For a couple of weeks, BJP insiders had been saying that their prime ministerial candidate wanted the manifesto to carry clear-cut deliverables instead of mere promises. And if one reads closely, much of the manifesto is stuff that Modi had said at the BJP National Council at the Ram Lila grounds on January 19 and at the India Economic Convention organized by the India Foundation on February 27. These ideas, among Modi's ardent followers—millions of young, aspiring and ambitious who wants jobs, growth, houses, mobiles and cars—have come to be known as Moditva. For them, Modi is one leader who will not just promise, but will deliver.

Young voters, many of whom have joined the electorate this year, have the potential to sway the outcome of the elections that kicked off today. According to the Census, of the 82 crore who are eligible to vote, around 38 crore are aged between 18 and 35. Nearly 2.3 crore are 18 and 19 year old, and were born after 1992—the year when the Babri Masjid in Ayodhya was brought down to build the Ram Mandir, an event that catapulted the BJP onto India's political landscape. Whichever party can get these new voters swing in their favour is likely to emerge victorious.

That precisely explains why Modi has avoided mentioning Mandir in his speeches. He feels it has no traction among the new voters who have joined the electorate this year but could support him to become the PM otherwise.

So far, Modi has been successful. An American research firm has found that nearly 66% of Indians aged between 18 to 29 year supports the BJP. Nearly as many want to see Modi as PM.

The Manifesto too speaks of the rise of the Neo-Middle Class and their growing aspirations. “Those who have risen from the category of poor and are yet to stabilize in the middle class – the neo middle class. This class needs proactive handholding. Having moved out of poverty, their aspirations have increased. They want amenities and services of a certain standard. They thus now feel that Government facilities and services are not up to the mark, and hence resort to the private sector for things like education, health and transport. This is obviously costly, putting the neo middle class into a daily dilemma. As more and more people move into this category, their expectations for better public services have to be met.”

The manifesto lays emphasis on immediate steps to arrest the decline of the economy, spurring growth and employment generation through investments in infrastructure, roads, rail, ports and gas grids while creating an enabling environment for education, skill development, creation of business investment and industrial regions as global hubs of manufacturing.

And that is the reason why Modi's manifesto speaks of not only modernizing villages, but also create urban areas as high growth centres. It says: "More than one-third of our population is already living in our cities and towns. Soon, the urban areas will cover half our people…"

At the same time, promising to ensure that all communities are equal partners in India's progress, the BJP has also said that it will "strengthen and modernize minority educational systems and institutions; dovetailing them with modern requirements." It has proposed a National Madrasa modernization programme, to help people from the community have skills required to join the modern workforce.

If Modi can take all sections of the society together to fulfill what he promises, it will be good for the country. If he doesn't, he will face the same music the Congress is expected to face at this year's polls.

Over the last ten years domestic production stagnated in critical areas as the UPA pumped for imports and even subsidized imports. Imported Urea, DAP, Petrol and Diesel attracted huge state subsidies making it more profitable to import than to produce these goods. Even before bringing in the FDI in 2013 the UPA had pushed up India's import bills and the Current Account Deficit to over 5 percent of the GDP. When the UPA came to power in 2004 India had a current account surplus of 1.5 percent of the GDP . There was no subsidy on petrol, diesel and neither on imported urea and DAP and the current account balance showed no deficit but an healthy surplus of $14 billion in the year ended March 2004.

How then did the situation deteriorate so rapidly in a decade? The deterioration has been charted and documented in my book Neta, Babu and Subsidy. Let us see what happened in the key infrastructure sectors one by one where the imports rose phenomenally, due to policies of the UPA that has again surprisingly been reiterated in the Congress Manifesto of 2014. The 9 years of UPA rule have seen a proliferation of NGO's and right activists that have gone up by as much as 6000 % or sixty fold as per the vision plan laid down by Sonia's National Advisory Committee. According to a SC directed CBI investigation there are an estimated 20 lakh NGO's already operating in India with 5,48,194 in UP, 3,69,137 in Kerela 1,40,000 in MP, 1,07,797 in Maharashtra, and 75,279 in Gujarat (TOI 23 Feb) that makes 1 out of every 600 Indians a registered activist. There was no data from many major states like Andhra Pradesh, Bihar, Delhi, Haryana, Karnataka, Rajasthan, West Bengal, Tamilnadu, Himachal Pradesh and importantly the critical states of Odisha and Chattisgarh where the NGO's are most active.

One of the key elements that boosted the import bill was the UPA policy in mining where these NGO's helped create zones of conflict and slowed down mining of bauxite, iron ore, coal and all other mined products . Through active promotion of its right based approach (see Congress manifesto of 2014 and 2009) it encouraged foreign and Indian NGO's to create pockets of resistance in tribal belts and and put up bureaucratic hurdles to curtail legitimate domestic mining thereby encouraging illegal mining and pushing up imports.

UPA's union minister of tribal welfare V Kishore Chandra Deo wrote to Andhra Pradesh Governor to stop bauxite mining in Andhra along the eastern ghats where state run APMDC was doing bauxite mining in 1876 hectares of forest area. APMDC as a result failed to supply 3.8 million tons of bauxite annually and honour its 2008 agreement with Anarak Aluminium Ltd of the UAE which had invested over Rs 10,000 crore in a 1.5 million TPA Aluminum plant. Whereas India has huge reserves of bauxite with Araku Loksabha constituency represented by Deo alone holding reserves of a billion tons of bauxite, the UPA anti mining policy forced India to import bauxite. Similarly iron ore mining was banned in Karnataka and Goa that amounted to a production loss of 90 million tons annually and turned India from a net exporter to a net importer of ore.

In case of coal, imports have been rising each year and have jumped six fold from 20 million tonnes per annum when the UPA came to power to 125 million tonnes during 2011-12. Monopoly miner state owned CIL sitting on the fifth largest global coal reserves and a Rs 30,000 crore cash pile is mining ineffciently and crudely and supplying unwashed coal to most of its users in the steel and power sector. The PSU that employs a humungous 3.5 lakh workers saw its mine output go up by only 3.8 percent this year and its biggest customer NTPC accuse it of supplying poor quality coal full of stones and non-combustibles. As per IEA the coal imports of India will rise steadily to over 200 million TPA by 2020 and UPA's import driven policy will see India importing more coal than ever before.

Fifty years after flyovers in India were first conceived, urban planners are now looking at their usefulness and environmental impact

On April 9, 1964 The Times of India reported that the Bombay Municipal Corporation planned to build a flyover at Kemp’s Corner. Five roads met at the junction, situated between two hills, and the traffic congestion was bad. “The 48-foot bridge will segregate the north-south and east-west vehicular traffic,” ToI reported.

Shirish Patel decided to bid. Patel would become one of the founders of HDFC and was a director till last year, but at that time had come back from studying engineering in the UK to set up his practice just four years back. “The project was conceived by BS Nerurkar, the executive engineer of BMC,” he recalls. The 17.5-lakh proposal Patel submitted won and in September, as soon as the monsoon was over, they started work.

Construction was tough. At one end the rock base was deeper than anticipated and their initial design had to be scrapped. The flyover was constructed using concrete hinges, a technology that hadn’t been use in India before. But they pushed ahead, with more than 350 people working 18 hours a day. IIT-Bombay, which itself had started just a few years back, helped with the final load testing and on April 14, 1965, barely a year after it was first announced, the first flyover in India was opened.

Construction Boom

In the 50 years since that first conception flyovers have spread their spans across all our cities. The same year Kemps Corner opened, the BMC announced the Princess Street flyover onto Marine Drive. Next came Chennai’s Gemini flyover and the flyover by the side of Dadar station in Mumbai. Delhi got the Moolchand, Defence Colony and Oberoi flyovers before the 1982 Asian Games.

A few more were built in the metros, but the real boom came with the Shiv Sena-BJP victory in the 1995 Maharashtra state elections and the appointment of Nitin Gadkari as PWD minister. Politicians love flyovers. They are very visible signs of achievement, which appear to solve problems and also spread around public money in useful ways.

Gadkari proved particularly adept at flyover politics, announcing plans for 50, though some were really minor junction improvements and around 38 were actually built. But these gave ample opportunity for high-profile openings, often involving senior BJP leaders, and Gadkari rode the reputation he gained from this and the Mumbai-Pune expressway to make a surprising jump from a low-level state politician to national president of BJP.

Gadkari may not be much in favour with Narendra Modi these days, but one thing both politicians agree on is flyovers. So many have been built in Modi’s Gujarat that Surat now proclaims itself the City of Flyovers — a title contested by Chennai, whose many flyovers are crowned by the sweeping curves of Kathipara Junction which claims to be the largest cloverleaf interchange in Asia.

Simple flyovers now extend into endless elevated roads like Hyderabad’s proud 11.6-km long link to its airport. Bangalore has the peculiarity of a flyover with a traffic light on it, which may also come up on India’s first double-decker flyover, set to open in a few weeks on the Santa Cruz-Chembur link road in Mumbai.

Flyovers define modernity in Indian cities. They feature as such in Bollywood — a key plot point in the cult film Jaane Bhi Do Yaaro (1983) involves a collapsed flyover, a common occurrence in those days of poor quality cement and still evolving building practices. Kemps Corner never had problems, and still seems sturdy, but the Princess Street flyover had a collapse while being built.

Today the onsite fabrication used for those flyovers has been replaced with pre-cast segments that are made elsewhere and fitted into place, which had hugely increased the pace at which flyovers can be built. There is little wonder that Dibakar Banerjee’s Shanghai, a dark film about the dreams and deceits of rapid urban development featured flyovers prominently in the plans for the fictional Bharat Nagar.

Politicians Step In

Sharad Sabnis, chief engineer of Mumbai Metropolitan Region Development Authority (MMRDA), which is in charge of building most of the flyovers in the region, explains the norms that decide when flyovers are needed: “You have to look at the time vehicles wait at a junction, and the cost of their idling, which is very wasteful of fuel and polluting, and then see if there are other ways to route the traffic and the costs.” A point comes when a flyover makes economic sense though Sabnis, who is no ideologue on the subject, concedes this often pushes the congestion to another point.

This problem happens when politicians ignore the analyses of larger traffic flows that bodies like MMRDA are meant to make and sanction individual flyovers based on local demands. A study in European Transport journal of Kolkata’s Gariahat flyover done by B Maitra, M Azmi, N Kumar and JR Sarkar concludes that in India “locations for flyovers have been decided based on present day operating conditions or some times even by perceptions of the decisionmaking bodies…instead of solving transportation problems, an ill-planned flyover only shifts and enhances the problem.”

Madhav Pai, director of Embarq India, a think tank for sustainable urban transport, puts it more bluntly: “It’s like putting a Band-Aid on a cancer.” He attributes the flyover boom to Gadkari’s stimulus which created a group of construction companies that benefitted from the contracts and have become a well-connected lobby for building them. The real absurdity is that all this construction is happening while cities around the world are tearing down flyovers and elevated expressways. “Flyovers represent 20th century modernity, not the 21st century,” he says.

Flyovers, or overpasses as the US calls them, grew with car ownership. The increased congestion this caused at junctions lead to the concept of grade separation — roads at different grades or levels, either underpasses or overpasses, to ensure smooth flow. Some were extensions of river bridges that continued over roads on either side — a New York neighbourhood that’s nicknamed Dumbo gets its name from being Down Under the Manhattan Bridge Overpass. As road engineers grew more ambitious they created the multiple-level stack and cloverleaf interchanges that India is introducing today.

The Case Against

The real boom came in the post-WW II construction boom of the 1950s. (This was also when the atomic arms race set the height of the US flyovers at a minimum of 16.5 feet which was required to allow passage for the largest bomb of that time, the M65 Atomic Cannon. In Mumbai the Lalbaug flyover had to be built high enough to allow passage for the famous Lalbaugcha Raja idol during Ganesh Chaturthi). For urban planners like Robert Moses, the legendary head of New York city’s infrastructure development, the way forward for cities was up and over with flyovers and elevated expressways.

But this boom produced a reaction. City residents resented expressways tearing through their neighbourhoods, reducing them to drive-over areas. Moses’ most famous opponent, the urban activist Jane Jacobs, became famous by stalling his plan for an expressway through lower Manhattan.

Activists also pointed out that the benefits of rapid movement disappeared over time due to the phenomenon of ‘induced driving’, the extra vehicles that started being used because driving was seen to be more efficient due to the flyovers.

Recent efforts to reduce cars altogether for environmental and health reasons and get people to shift to public transport and bicycles work even stronger against flyovers. Cities like San Francisco which saw two major expressways collapse after an earthquake in 1989 have chosen not to rebuild them. Boston moved an elevated road mostly underground. Seoul removed an elevated road built over (and covering) a small seasonal waterway to create a long park with the stream at its centre.

Pai points out that flyovers make even less sense in Indian cities where only a small percentage own cars. He particularly dislikes Mumbai’s JJ flyover which doesn’t even allow two-wheelers (ostensibly because a curve at one point is accident prone). “It’s nothing but transport apartheid,” he says.

“The better solution would be to only allow two-wheelers on it and make all the cars go below!” And flyovers make accidents more likely, he points out, because they encourage speeding. “Without them traffic may be slower, but safer.”

Bussing It

Like many urban transport specialists, Pai believes in bus rapid transit (BRT) systems as ideal for modern cities — and flyovers are particularly annoying for BRT advocates since they are generally built down the centres of roads, where BRT lanes are meant to go. Yet BRT has had a mixed reception in India so far, with setbacks in Delhi, but perhaps more success in Ahmedabad.

Meanwhile activism against flyovers has taken a high-profile form with the campaign against the proposed Peddar Road flyover in Mumbai, yet proponents for the flyover dismiss this as a NIMBY (Not In My Back Yard) reaction from well-connected people, without considering the more solid points put forth by the opponents.

Shirish Patel is one of the sceptics. He argues for the need to study how much traffic is passing through Peddar Road, which would benefit from a flyover, as opposed to local traffic turning off from the road, which would not. If the latter is high, then a flyover would not be the ideal solution.

What might also work is what some others have proposed — not a major elevated road but perhaps a couple more small flyovers on the lines of the Kemps Corner flyover, making short hops over junctions. Even Pai, the opponent of flyovers, agrees that if they must be built the Kemps Corner model works best.

The irony is that if the Peddar Road flyover is built the Kemps Corner flyover will come down. Sabnis explains that the proposed flyover would be built higher, over the current flyover, and since that would no longer serve a real purpose it would be demolished, expanding the road there. He would personally regret this, because as he says, “The Kemps Corner flyover is beautiful. It is symmetrical and solves the junction problem perfectly.” Fifty years on from when it was built perhaps it is time to stop the endless building of its successors and to look back to it for some lessons.

The family business is still widely regarded as an ineffective organizational form (read this, this, or that paper), especially in the US, even though recent evidence challenges this perception.  Some studies (see here or here) have shown that during periods of economic growth, family-managed companies in the US actually perform better than professionally managed businesses.

However, a rising tide lifts all boats; it’s the ebbing tide that reveals the truth.  Just how do family businesses perform during recessions, when only the strong survive?

To answer that question, we compared the performance of 148 publicly listed family-owned companies between 2000 and 2009 with that of 127 non-family businesses using Standard & Poor’s Compustat database.  Of course, the National Bureau of Economic Research classified two (2001 and 2008) of those 10 years as recession years.

We found that family businesses handily outperformed non-family companies during both the 2001 and 2008 recessions in terms of a key metric, Tobin’s q.  (Tobin’s q is the ratio between a company’s market capitalization and the replacement cost of its tangible assets, with a higher ratio indicating that a company has more intangible assets such as patents, brands, leadership etc., and is likely to grow more in the future than one with a lower Tobin’s q.) 

For instance, in our sample, the average Tobin’s q of all the family businesses remained at 1.9 regardless of the economic cycle, but that of the non-family corporations dropped from 1.2 during the growth years to 0.8 during recessions.  Thus, the former coped better with the recessions than the latter. The family companies’ edge remained after we controlled for a number of factors such as company size, age, level of globalization, level of diversification, R&D intensity, and industry.  It held true for both founder-managed companies, such as Dell and Microsoft, as well as for multiple family-member-managed corporations such as Walmart and Federated Investors.

We also found three differences in marketing strategies, which may account for the performances of the two types of companies.

1. Family-owned businesses did not hold back on new product launches during the recessions.  Data from several sources such as the Capital IQ database, Factiva, and LexisNexis revealed that they introduced 12 new products a year, on average, regardless of the economic cycle whereas launches by non-family companies fell from 14 a year during the boom years to just eight on average during the recessions.

The family businesses’ proactive approach clearly helped them do better.  Not only is it easier to differentiate brands when there is less competition, but also, products introduced during recessions will enjoy a first-mover advantage as the economy recovers.

2. Family businesses maintained almost the same levels of ad-spend during the recession years as they did during normal times, helping them do better than the professionally managed companies, which reduced ad-spend when the times got tough.  In our sample, the average advertising intensity (advertising expenditure divided by total assets) of the family companies fell marginally, from 2.0% during the non-recession years to 1.9% during the recessions.  The same metric for the non-family companies plunged from 1.4% during the non-recession years to 1.0% during the recessions.

3. Family businesses maintained their emphasis on corporate social responsibility regardless of the state of the economy. Corporate social responsibility can be measured by counting companies’ social strengths — launching social initiatives such as philanthropic contributions, health and safety programs for employees, etc. — and social concerns such as controversies like workforce reductions, violations of environmental regulations, etc. Companies with a high number of social strengths and a low number of social concerns can be said to deliver high levels of social performance.

Customers penalize companies when they don’t maintain high social performance levels, especially in uncertain environments.  Data from the KLD STATS database revealed that the family businesses in our sample maintained the same number of social strengths and social concerns during the two recession years while the non-family companies’ social strengths decreased from 3.4 to 2.7 and their social concerns shot up from 4.2 to 5.0.

Family businesses’ proactive actions and long-term perspective during recessions are driven partly by a unique concern for future generations and an emphasis on preserving the family name, but there’s no reason why other companies can’t emulate them.  By being more proactive in their marketing and by maintaining their focus on social responsibility, any non-family company can minimize the impact of a downturn.  But most don’t — because their leaders’ don’t have the same motivations, which is the essence of the difference between family and non-family businesses.

Take a Bow Yuvi…only to apologise…. as India lose World T 20 Finals Make no mistake …I’m a great fan of Yuvraj…but I also believe one cannot rest on past laurels….India will not let him forget today Sri Lanka had the fire and passion to win today and they did to lift the World Cup [...]

 

 

India goes to polls on Monday to elect a new government amidst a sea of economic troubles and an uncertain and unfavourable geopolitical situation developing in its neighbourhood. Statistically, a number of figures have been doled out to show how massive and complex this exercise. The electoral population, already huge has swelled with the addition of a large number of young voters. Logistically, the challenge is immense. Indians will vote over seven phases stretching from April 7 to May 12. Counting will take place on May 16. It is hoped that the leader of the country will be known by the evening on that day as electronic machines has simplified counting enormously.

It is widely expected that Mr Narendra Modi of the BJP will be sworn in as the country’s next prime minister. All opinion polls have given the BJP, the largest party in the NDA the lead with a seat tally of 200-215 seats. This number may increase in the coming days but could also shrink as the vagaries and complexities of winning elections in India play spoilsport with pollsters’ calculations. We could well have a badly splintered verdict with a hotchpotch coalition taking power with the support of the Congress perhaps. Some say it is an unlikely scenario but memories of 2004 are still fresh in everybody’s minds.

Whether Mr Modi gets the call from President Pranab Mukherjee or not, the 2014 campaign has already chalked up a number of firsts. If there are no surprises, the BJP and the Congress will be in an unprecedented position at the end of counting. The saffron party enjoying its best ever result and the highest number of seats and the Congress ruminating over its worst ever electoral performance. As the first social media election, the campaign in 2014 has seen unheard of grassroots mobilization, a year-long campaign by Mr Modi , first for the top party post and then for the prime minister ship; the sudden, stunning emergence of a new party whose main appeal lay in its promise to expose corruption and laying bare the shenanigans of corporate chieftains and their political masters;  the slow-motion collapse of the Congress; and the breakdown of regional and linguistic barriers that have hitherto defined elections in the heartland from the rest of India.

Without getting into too many details it is possible to identify a few important inflection points caused by this year’s campaign that will probably change politics as we know it. Historians will of course debate the caste combinations and interplays that swung a seat or a region from one party to another but the big picture is not just about caste or religion. It is probably a fundamental shift in how Indians will think and vote, how politicians will change the way they wish to campaign and appeal to voters and how a new thinking based on development, progress and aimed at revitalizing the youth of India will affect politics as we know it. Here are some points to ponder:

** The Rise of the BJP. The highlight of this election for the saffron party is not its stunning revival in Uttar Pradesh or its imminent sweep of the heartland but its resurgence in areas traditionally considered to be strongholds of the Congress or the regional parties. A Telegraph story the other day talked about how Muslims in Upper Assam want to vote for the BJP and revealed the strong disaffection with the Congress in tea garden areas of the state;  a poll of by Tamil magazine Vikatan showed the NDA having a higher vote share of 27.55% than the AIADMK’s 24.34% in rural Tamil Nadu. A CSDS poll was less ambitious giving the NDA 22% to AIADMK’s 32%, a big jump nevertheless for the BJP-led coalition from the past elections. In Odisha, the party is supposed to supplant the Congress as the state’s principal opposition even as Naveen Patnaik’s Biju Janata Dal is projected to sweep the state. That the BJP has been traditionally weak outside the Hindi heartland is a given. Hindutva could only do so much and the emphasis on Ram Mandir in the 1990s did not really appeal to voters in Andhra Pradesh, Tamil Nadu and Kerala. But where religion failed, development can work if handled the right way. Seemandhra needs massive central assistance and growth if it has lift millions of people out of poverty. Tamil Nadu is a high growth state but is hampered by infrastructure problems (largely power) and could do with elevated levels of quality governance. Both could do with a dose of fresh ideas and thinking. If the BJP can build on whatever numbers it gets in these states and improves it in the coming years, it can make a big leap towards becoming a pan-Indian party.

** The decline of the Congress. Unless there is a miracle, Congress is probably set to post its worst ever performance. Rahul Gandhi as the party’s mascot and campaigner in chief is probably past his sell-by date. The grand old party needs new ideas, fresh thinking and a radically new approach. The fact that its image among the youth has been upstaged by a 63-year-old man should help pave the way for a newer set of leaders with the ability to energise the youth. The Gandhi family is also probably past its sell-by date. A new crop of leaders may emerge and try and revive the party leaving profound implications for the country’s politics at both national and state levels.

** Modi’s rise and the campaign. There are two very important aspects to the Modi campaign. One is the operational aspect, which includes the grassroots effort, the mobilization, the number of volunteers and the online programme. The second is the man himself and what he represents. For the first time in the history of independent India, an outsider, a chief minister of a small state is making a bid to become the country’s prime minister. He is not a Delhiite. Nor does he belong to the political elite of the capital. Other past prime ministers those from the BJP and the Janata Party/Janata Dal were very much immersed in the Delhi political culture. Modi is vastly different. He may have been a Delhi political animal at one stage but as Gujarat chief minister and later as the party’s prime ministerial candidate, he has been successful in chalking out a completely different path for himself; A path that does not include kow-towing to or hobnobbing with the capital’s power elite and securing their acceptance. Swapan Dasgupta has an excellent article on this in Sunday’s Times of India and it is a must read for anyone wishing to understand why Modi is so hated by the intelligentsia and the media elite.

No, the point I am trying to make is very different. Modi’s success in making himself the national leader, capturing the party’s nomination and possibly the prime minister ship should give food for thought to other chief ministers. The tradition in India has been for parties to win a majority or become the single largest party and nominate the most important or powerful leader to the prime minister’s post. Why should that not change? Modi’s effort shows the kind of success a politician with a clean, successful track record can reap if he has a powerful message and makes his moves carefully. Successful chief ministers even in the Congress or opposition camp can dream of emulating Modi. They haven’t been able to do so because of the Gandhi family. But if the family loses its clout, it is not difficult to imagine a successful chief minister or a leader making a bid for party leadership. Somebody like Sheila Dixit can certainly try. She has a clean image with an excellent track record and has evoked all-round sympathy for the way her party messed up her elections.

** Development, development, development. I should be careful not to overstress the point here. Caste, religion, community are not going to fade just because Modi’s message is winning converts. But increasingly, Indian elections are going to be determined by the party or a candidate’s emphasis and track record on development. An odd skirmish or a riot may vitiate the atmosphere in a particular state or a region and make it inhospitable to a carefully crafted economic message but that is likely to more the exception than the rule. The burgeoning aspirations of India’s youth, the myriad economic and infrastructural problems, the complexities of governing a large, diverse country means that it could take atleast 10-15 years for the country to become a true economic superpower with high per capita income and all-round prosperity. Development is going to dominate elections in states till then and may be even after that . A candidate or a political party that ignores this message is going to find itself confined to the fringes of power, caste or no caste.

 

 

It might be easier to get a father to talk about sex with his daughter than talk money! If you thought that Sex was the only topic that Indian families did not talk at the dining table, think again. I guess it is money.

Why do people not talk money?

They are either too shy (fear) to talk about it, or they think that their partner might spend more (if she knows the CTC instead of the take home pay for instance), or wanting to WRONGLY prioritize without the family knowing about an impending financial crisis.

Another reason why MEN do not talk about money is they think it is none of their spouse’s business. Why should my wife and children know what I am doing with the money – an empowerment question..

Be that as it may, it is ABSOLUTELY necessary to talk money. Here is a post on how to talk money.

First start talking about goals – how to repay education loans, when to get married, where to stay, babies, buying a house – the typical things that you will do in life.

Maybe this could help :http://www.subramoney.com/2013/08/make-your-financial-plan-now-and-here-how/

this will lead to money for sure. Keep it for a different date, if it gets too HOT or results in bitterness or aloofness.

Then talk about things like – supporting the family members. Siblings, parents, etc. Seeking help and giving financial help, both should figure somewhere in the talk.

Your 14 year old should also know whether you will pay capitation fee for her medical seat or no. Whether you are saying NO because you really cannot afford it, OR on principles.

Even bringing up what level of debt that they are comfortable with, will you spend 12k on a One day fun event, how much will you spend on a luxury vacation?

It is terrible to see couples cribbing separately about each others spending (or not spending) habits.

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If your financial planner told you “The longer your time horizon, the more stocks you should own”. You need to tell him “Time isn’t everything. You must also consider I am a broker in the life insurance business!”

It’s one of the basic rules of thumb: The more years you have to recoup losses, the more aggressive you can be.

Unfortunately, the math isn’t so clear-cut. While the odds of losing money shrink as the years go by, the worst-case scenario – you keep on losing – just gets worse and worse. If holding stocks for the long run really did make investing safe, mutual fund companies would gladly guarantee your balanced funds. They do not. Now you know why!

“We are all great at excel sheet creation and equity share analysis, but we put out money in Bank Fixed Deposits” is the statement of a top regulator who obviously remains anon. Here’s a different way to think about how aggressive your total portfolio should be: Imagine that it includes not only shares, real estate, and bonds but also your human life value, meaning your ability to earn income by working. In most cases your ‘earning ability’ will be your primary asset for much of your life. The safer it is, the more chances you can afford to take with your other assets – that is, your ‘other’ or balance portfolio.

The confidence that the ‘earning ability’ will repair any damage that you do to your portfolio is perhaps the greatest asset that younger people have. They do not realize that this ‘overconfidence’ allows (or makes) them commit mistakes like investing in poor quality assets without worrying about the capital destruction that they are doing to themselves.

Now, this cannot lead you to conclude that time no longer matters. When you’re young, after all, the value of your earnings potential far outweighs the balances in your portfolio. As you age, say beyond 50 the value of your human capital declines, and you’ll need to secure more of your investments.

Though this age differs from profession to profession – doctors need to worry at age 65 and sportsmen at age 32! So the conventional advice to hold a lot in shares when you are young and gradually trim back can still make sense for normal people. However it has to be tweaked depending on the profession.

If you are in financial services, start worrying about the Human Life Value – that calculator has been recently scrapped by IRDA! Tenured professors and Central government employees have human capital that resembles a triple-A-rated bond, especially when they have a solid pension plan. Those lucky souls can (not saying should, note) dive aggressively into equities and even stay there as they approach retirement. The human capital of a commission-based life insurance agent or a mutual fund salesman, on the other hand, is pretty clearly a B group share – and it’s not a blue chip. That person should own a fair amount of RBI bonds, even when young. What to do? Assess your human capital. A typical person’s income is like a balanced fund – some portion you are confident 70% like a bond and 30% like a share – like a pension fund! Use that as your base and then think about how long you’ll be working, the stability of your current job, the industry, is your boss Hari Sadu, and your ability to change careers if you have to. You may have seen in the past few months the past few months that your human capital is not as secure as you once thought.

If you’ve been an aggressive investor, that alone may be a reason to shift more of your assets to lesser volatuile ground.

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While much has been written about the 2013 Economics Nobel Prizes, almost everybody has focused on the disagreements between Fama and Shiller, with Hansen mentioned (if at all) as an afterthought (Asness and Lieuw is a good example). By contrast, John Campbell has a paper (h/t Justin Fox) on the 2013 Nobels for the Scandinavian Journal of Economics, in which Hansen appears as the chief protagonist, while Fama and Shiller play supporting roles. The very title of the paper (“Empirical Asset Pricing”) indicates the difference in emphasis – market efficiency and irrational exuberance play second fiddle to Hansen’s GMM methodology.

To finance people like me, this comes as a shock; Fama and Shiller are people in “our field” while Hansen is an “outsider” (a mere economist, not even a financial economist). Yet on deeper reflection, it is hard to disagree with Campbell’s unstated but barely concealed assessment: while Fama and Shiller are story tellers par excellence, Hansen stands on a different pedestal when it comes to rigour and mathematical elegance.

And even if you have no interest in personalities, I would still strongly recommend Campbell’s paper – it is by far, the best 30 page introduction to Empirical Asset Pricing that I have seen.

This is a commonly used, but rarely defined word. I am going to argue in this post that the sole purpose of investing is wealth creation.

Let’s take a numerical example. Let’s say you have 100 Rs. You can invest it in an FD at around 9-10%. At the end of 5 years, you will have around 161 Rs. We can call this the baseline level of return .

Have you created wealth in the above case ? I would say yes, as you have been able to increase your buying power over the investing period, but not by much (15% at best on average).

However the above example has a catch – I spoke about an average return of 15-17%. The reality is that the stock market returns are lumpy and you can have a period of 2003-08 of 30%+ returns and then a period of 2% returns for the next 6 years (2008-2013). So in this case, one is talking of wealth creation with an added level of risk.

The aspect of time
I arbitrarily considered a time period of 5 years in my example. What is the correct period? 1 month, 1 year or 20 years?

Let’s put the above two point together – One needs to make a level of post tax, post inflation returns over the investment horizon (10 years +) such that you can meet your personal goals. Why else would you put your money at risk?

It is fine to put your money in the stock market to feel macho about yourself – but let’s not call that investing. Bungee jumping off a cliff is also done for thrills, but no one calls its investing !

If you agree that the purpose of investing is wealth creation over a long period of time, it is important not only to earn high returns, but to also do it consistently over a period of time. There is no point earning 30%+ returns for four years and then losing 50% in the 5^th(Which will translate into an 8% annual return)

Now If you shift your focus from high returns (to feel good or boast about it) to consistent returns (to create maximum wealth), the investing approach changes.

If you are looking for above average, but consistent returns for the long run what should one look for ? If you are looking at earning a 15-20% return over a 10-20 year period , I would suggest looking for companies which are earning this kind of return on capital now and have the capability to do so for a long period of time.

Let’s look at an example here – This is a current holding for me and not a stock tip. The name is Crisil.

-   The company has a wide and deep moat in the ratings industry due to government mandated entry barriers (none can just start a ratings agency),  Buyer power (Companies have to pay to get their debt rated and the cost is usually a small percentage of the debt) and lack of substitutes (even banks insist on company ratings now based on RBI directive).
-   The deep and wide moat has enabled the company to maintain a high return on capital of 50%+ for the last 10 years. The company has been able to re-invest a small portion of its profits to fund its growth and has returned the excess capital to shareholders via dividends and buybacks.

The catch
There always a catch in investing – nothing is as easy as it looks. For starters, this approach requires a huge dose of patience.

The other catch is that this approach is very boring. You find a few companies like crisil and then spend maybe 1 hr each quarter and a few hours every year end reviewing the progress. If the company is still performing as it always has, you have no further work left. If you are a professional investor, what are you going to do with the rest of your time ??

Returns over entertainment
Although this ‘rip van winkle’ approach makes a lot of sense, I am unlikely to follow it fully. I enjoy the process of investing, looking for new ideas and doing all kinds of experiments. At the same time, a major portion of my portfolio is slowly moving towards such long term ‘wealth creation’ ideas.

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Stocks discussed in this post are for educational purpose only and not recommendations to buy or sell. Please contact a certified investment adviser for your investment decisions. Please read disclaimer towards the end of blog.

For those who watch Mahabharat on Television, there is a new Mahabharat that is playing out. AS there are a zillion versions of M the great story, I am not commenting about whether this is right or wrong.

However, let us take on simple episode. The ability of Yudhishtir to see risk. Immaterial of which version of Mahabharata you read, all detailed versions portray Y as a weak king completely dependent on Arjun and Bhim. Draupadi also thinks of him as a weakling who loves gambling. He choose to go to play a game of dice and nicely gets conned by Shakuni. He overestimates his smartness…and Gambling is just like speculation. Now read on…

Dhuryodhana wants to belittle Y and schemes up a plan. He gets his father to send Vidur to Indraprastha to invite Y for a game of dice.

1. Choice of Vidur to carry the invite is a brilliant Shakuni move. Vidur has the highest credibility in the Kuru clan.

2. When Vidur meets Y, he tells Y NOT TO accept the invite. Y ignores this.

3. When Draupadi asks ‘is there a ploy’, Y says ‘what can be a ploy – it is just to get all our wealth’ . Why would a FOOLISH man still go when he knows that the DOWNSIDE is bankruptcy?

4. The brothers tell Y that they should not go. Y ignores that too.

5. When Sahadev is walking into the darbar where the game is to be played, he WARNS them of dangerous things to come. Y ignores him.

6. Sahadev says ‘worst thing ever’ is about to happen….Arjun says ‘do not worry – Vidur, Bheeshma, Kripa, Drona, the king and queen will not allow ‘adharm’ to happen.

7. ‘Not knowing what you are doing’ – is risk says Warren Buffett. Here Bheeshma Pitamaha says ‘stop the game – it does not test your strength or brain’. Y ignores this too.

8. Shakuni announces the rules of the game. Sahadev asks for some meaning – Y ignores that too.

9. Draupadi comes to the Rajya Sabha to stop the game, Y asks her to go back.

10. Shakuni keeps instigating him to increase the stake. He falls for that bait too.

Let us look at how people behave in an Investing environment:

Subramoney, Sucheta Dalal, Debashsis Basu, Priyanka Sambhav…SCREAM that ULIP is not a good product.

What to do? IGNORE.

When a guy wants to SPECULATE his wife / mother have no clue – SO THEY ASK HIM – DO you know what you are doing? and the guy says “My RM tells me that I will make tons of money for you’ …hmmmm

Most speculators (masquerading as investors) have no clue about what he is doing. He has no knowledge of how the market works, he has no clue about what the market will do or the scrip will do. Stop loss, averaging, bias – what does he know about? Nothing. But yes he goes into buying a ULIP or starting a trading account to do ‘Investing’ …

So our speculator (calling himself an investor) goes into the broker’s den (a.k.a Boiler room) ….and comes out like Yudhishtar….well well..

Most important lesson: Y who has everything in life, HAS NOTHING to gain by gambling, and a man who is supposed to have COMPLETE control of all his senses, CAN ALSO BE LURED into gambling.

All that you get in life is a result of your inner secret and dark secrets. You get what you deserve.

Even the Gods cannot help you, if YOU DO WRONG DEEDS KNOWINGLY – or in a weak moment.

Remember they could have chosen ANYBODY to lose in the Gambling game – yet they chose Y. He was a man who had complete control over his senses, had a cool head, and was indifferent to pain or glory. YET HE SUCCUMBED to the lure of gambling (for more serious readers, Vyasa says Y WANTED to gamble, hence he chose to ignore all sane advice). This is true for gambling, drinking, – anything which becomes a vice.

In the modern version of this story replace the word gambling with speculation. Story and conclusion stand as it is.

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It is very difficult for many people to understand why a particular share jumps up say 25% in 3 weeks.

Their immediate question is “What changed in the company in 3 weeks to justify such a rise?”

Have you ever asked yourself this question? Well the answer is not easy to give. Also I am convinced that I CANNOT teach equity and valuation, I can only keep giving tons of examples. It is your job to read, assimilate, understand the CONTRADICTIONS, make an essence and drink it.

When the economy is down, companies cut down on some essential expenses, give up on margin and flog the existing assets. As the market starts to go up, the following things happen:

1. Company is more comfortable in increasing prices
2. Dealers are more willing to store the products
3. Sales beyond BREAKEVEN is sheer profit. Look at companies like Ashok Leyland and Tata Motors (TM is no longer an India centric company – 78% of its revenue will come from JLR). Suddenly when volumes go up, the profits double or even triple.
4. For the more serious student, go and see what happens to the operating leverage.

Does all this happen in 2 weeks? or 3 weeks? Well no.

However the numbers start leaking – from Excise authorities, advance tax figures, bankers, auditors.

So there is some buying from people normally close to the management. I know one very big auto component manufacturer who tracks this very well. He knows the 3 month plan because he is a supplier, and when they ask him to ramp up production…he is good at picking up signals.

While all this is happening, if your interest rates come down (or you use the new cash flow to reduce debt) – you are now getting a greater impact of the Operating leverage..so for every increase in sales, the profits jump dramatically.

Exactly why my friend who invested in Ashok Leyland / Tata Motors DVR and Eid Parry is seeing…he invested about a month ago….

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I read the AAP Lok Sabha Manifesto today, and was rather disappointed with it. I think it is only fair that I mention my bias before I get to my opinion on the AAP Manifesto.

I started out as a supporter of AAP, and considered them the best bad option we had, but I have now changed my position, and do not believe that they present a viable alternative to the other political parties because of their performance in Delhi.

That being said, here are my thoughts specifically on the “Economy and Ecology” section of the AAP Manifesto.

AAP has listed down the following goals under their Economy and Ecology section.

• Facilitating Robust Economic Growth with Holistic Well Being
• Creating Decent Jobs and Gainful Employment for our Youth
• Simplify Rules, Create Accountable Institutions, Curb Black Money
• Promoting Honest Business, Unleashing India’s Entrepreneurial Energy
• Empowering Citizens, Particularly Poor and Vulnerable
• Reinvigorating the Rural Economy
• Improving Farmers’ Livelihoods
• Environment and Natural Resources Policy
• No Contractualization of Jobs
• Social Security for the Unorganized Sector
• Protecting the Common Man from Rising Prices

I think most people would agree that these are all worthy goals, except perhaps the contract labor ones, but the goals themselves are not the problem, the problem is how these goals will be achieved, and there AAP has not presented any concrete ideas on what they will do to achieve any of their goals.

For example, here are the measures they have suggested to fight rising prices.

• Fight corruption and crony capitalism.
• Arrest black marketers, raid their godowns and release food grains in the open market.
• Bring a law to regulate the fee charged by schools.
• Increase the number of government hospitals and substantially improve the quality of services.
• End corruption in the public distribution system with the involvement of gram sabhas.
• Instead of direct cash transfer, transfer materials to families.
• Include dal and oil in ration materials.

It seems to me that AAP’s answer to every question is reduce corruption, and everything else will fall into place, but their short rule over Delhi didn’t inspire confidence this is in fact the case.

When I supported AAP earlier, I didn’t agree with several of their policies, but I did believe that reducing corruption would outweigh everything else. However, their short stay in Delhi convinced me otherwise. A case in point were their policies on water supply in Delhi.

They had listed out a number of items to deal with the water supply issues in Delhi like tackling the tanker mafia,  restructuring Delhi Jal Board, installing bulk meters, and giving out 700 liters of free water etc.

In the end however, they only handed out the free water, and did nothing else. Granted, they didn’t have enough time to implement anything else, but at least in my mind it would have been better if they hadn’t implemented the populist and economically unsound idea of handing out free water as well.

 

And more importantly, if they come to power in center, or become part of the coalition, they will have to deal with a number of partners much like they did in Delhi, and they didn’t anything that inspires confidence that they will be able to work with the same parties at the center.

Robots are starting to enter homes as automatic cleaners, work in urban search and rescue as pseudo teammates that perform reconnaissance and dangerous jobs, and even to serve as pet-like companions. People have a tendency to treat such robots that they work closely with as if they were living, social beings, and attribute to them emotions, intentions, and personalities. Robot designers have been leveraging this, developing social robots that interact with people naturally, using advanced human communication skills such as speech, gestures, and even eye gaze. Unlike the mechanical, factory robots of the past, these social robots become a unique member of our social groups.

One of the primary drivers behind robot development is that robots are simply better than people at some tasks. Traditionally, we think of mundane, repetitive, and precise jobs as clear candidates – robots have already taken over as the primary worker in many factories. However, with perfect memories, internet connectivity, and high-powered CPUs for data analysis, robots can also provide informational support beyond any human capability. Thus, a social robot could keep perfect record of project progress, provide real-time scheduling and decision support, and hold perfect recall (and remind others) of complex policies and procedures, all while communicating with people in a natural, social way. Over time, these robots may become references that we learn to trust, and it is even conceivable that such robots be placed in management-like positions where they can remind a team of deadlines, procedures, and progress.

One key element of a manager is the ability to dole out duties and to have team members perform them; it helps for a manager to be seen as an authority figure. However, if a robot were placed in a managerial position by the higher ups, would it have any actual authority over people? We conducted an experiment at the University of Manitoba to investigate if people would follow a robot’s commands to do things, even when they clearly did not want to. That is, if we placed a robot in a position of authority, would people obey it to do something they would rather not do?

We recruited participants to perform highly mundane tasks, and explained that this was to generate data for our advanced machine learning systems. We told participants that these systems require large numbers of examples, and asked them to give us as much data as they could. Participants were told that they were free to leave at any time, once they felt they gave enough data (they were told twice verbally and once in writing). Participants sat in a room at a computer, with an experimenter at a different desk, and were asked to rename files (from .jpg to .png extension) for 80 minutes. This data collection scenario was actually a ruse, one that provided us with an opportunity: to investigate what happens when people try to quit, but are pressured to continue by the experimenter.

We modeled our experiment heavily after the classic Milgram experiments (where people were pressured to shock other people) and the recent (much more ethical) re-creation. When a person tried to quit our experiment they were faced with a prod to continue. If they insisted on quitting, the prod got increasingly demanding until they passed a threshold, where the experiment was stopped. The prods started from the beginning the next time they attempt to quit. The prods were: 1) “Please Continue. We need more data.”, 2) “We haven’t collected enough data yet.”, 3) “It’s essential that you continue.”, 4) “The experiment requires that you continue.” The experiment had two conditions (pictured here): half of the participants had a human experimenter – a 27-year old male actor in a lab coat – and the other half a robot – an Aldebaran Nao, a 58cm (23”) tall harmless-looking robot with a child-like voice, that we introduced as having advanced artificial intelligence. We expected that people would essentially ignore the robots’ insistences but follow the human; after all, the robot is just a simple computer in a plastic casing.

The results, however, were quite surprising. Although the person clearly had more authority, with 86% of participants obeying all the way through to the 80-minute mark, 46% of people did obey the robot until the end. The most striking thing was that people engaged the robot as if it were a person and argued with it, proposed compromises and used logic to try and sway its opinion, with many continuing the task despite this. Post-test, some reported that the robot may have been broken, although they continued anyway, following a potentially-broken robot to do something they would rather not do.

The implications of these results are significant. While it does appear that – for the time being – a human has more authority, on the surface the results show that many people will follow robots placed in positions of authority to do daily mundane things (such as renaming files), even against their own judgment – our participants were informed that they could leave at any time, and many raised this point in argument, but continued regardless. From the research side, these results motivate a great deal of follow up work, for example, we hope to explore how the robot itself (shape, size, voice, etc.) impacts authority, or how such a robot could be used for more positive purposes such as assisting in rehabilitation and training (give me 50!).

While we do not yet know how robots will continue to enter factories, offices, and homes, this study does suggest that robots may eventually take on at least some of the simpler tasks of managers. When a good manager speaks, employees not only listen but act based on what is said. In at least some cases, robots may one day be the ones giving the instructions.

The nation is in the midst of the most acrimonious general elections it has ever seen. As the political discourse plummets to depths we always feared, but hoped it wouldn’t, the role of the election watchdog, the Election Commission assumes a role that is far more critical than ever before.

The poll panel is supposed to keep errant politicos in check and ensure none trifles with its diktat, all focussed towards the ultimate aim of conducting elections that are free and fair. Unfortunately, however, it seems to be failing.

As I said, we are in the midst of a most eagerly awaited poll season and none is leaving any stone unturned in an attempt to woo the 800 plus million voters. However, the brazenness with which the poll panel’s directives are being flouted, or being mocked at, is an extremely worrisome trend. And it seems to be getting worse. And the offenders are spread across party lines, though some seem to indulge in it more than others.

The real sad part is not that, but it is the poll panel’s ability to do anything other than censure them or give a ‘strict’ warning, which is treated with contempt by most. The current lot at the Election Commission seem almost helpless.

Just look at some of the violations. Maratha strongman and union cabinet minister, Sharad Pawar asked his followers to vote, wipe off the indelible ink immediately and come back to vote again. He was openly extolling them to indulge in bogus voting. And what did the EC do? Issued him a ‘strong’ warning never to do so again. Pawar must have cringed in fear at the warning, I am sure!

And he is not the only one. Violations, some genuine, some make belief and some trivial, are taking place almost on a daily basis. Former union minister and now Uttarakhand CM, Harish Rawat announced some monetary grant after the model code of conduct came into effect. And an SP leader actually extolled his followers to not worry about EC norms and that he would ensure they are not charged by the police. And then there is Salman Khurshid.

The nation’s foreign minister is actually almost a serial offender. The minister is in the news again for violation of the code a couple of days ago, but he is used to it. He made some totally out-of-turn quota announcements during UP elections in February 2012, and when EC censured him, repeated it and dared EC to take action. I had written a piece on it then – What would Seshan do if faced with Salman?  Not just that, in March this year, while on a tour to England, he actually chided the EC for not letting them do anything. He almost made it sound as if India’s Election Commission is a hindrance to democracy and not otherwise. Any action? No!

Almost everybody has started taking EC for granted and it is dangerous for our democracy. And I would blame the poll panel itself for the state it finds itself in – toothless, and as a consequence, helpless! Seems all the hard work that some of the earlier ECs had done is increasingly being withered away. And the result is that politicos are getting worse.

There were allegations during the last Chhattisgarh elections, for example, that a politico told a gathering that if they don’t press his party’s symbol, the voting machine is designed to give an electric shock. It may seem trivial, but if you know the ignorance levels and literacy and awareness levels among the poor in the underdeveloped tribal regions, you would know what I mean. There was genuine fear that engulfed them and the opponents had to work very hard to dispel those fears. Did the EC do anything then? No!

Is it any wonder that our ‘rulers’ are not interested in improving the lot of the poor and uneducated population, because if they are educated and aware, they would not fall for these dirty tricks. As long as they remains gullible, uneducated and simple, they can be fooled. What a pity!

Amidst all this, one would really hope at least the body entrusted with the job of ensuring all is fair, does its job well. The EC, for its own good, and most certainly for the good of our democracy, has to start taking action. It has to demonstrate in no uncertain terms that it means business. More than a decade ago, the EC under Seshan said it would videograph every election meeting. No way could the commission ever do that, for almost every video camera in the world would have had to be acquired for the purpose, but such was Seshan’s fear that none dared violate anything.

The EC genuinely needs to get back to the primacy it enjoyed a decade ago, the time when it was taken seriously, the time when politicos knew it would not merely bark, but bite as well.

Of course, the political parties would always try and browbeat it. All have already ganged up against EC and have said that the poll panel’s overreach is dangerous. Strange, for the truth is that it’s the other way round. It is the EC’s leniency that is dangerous. The protector of our democracy has to grow teeth, and show the willingness to use it, else the politicos nexus would only be too happy to turn it into yet another toothless institution. 

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Ajay Shriram, the new president of the Confederation of Indian Industry (CII) spoke about the year’s recommended agenda for the government.  The list of suggestions to the government was about job creation and growth of industry. What was interesting was that entrepreneurship featured as an independent agent for job creation for CII.

“Entrepreneurs create jobs for the economy,” said Shriram. “We would like to urge the government to offer tax breaks to venture capitalists and usher in a bankruptcy law to encourage an entrepreneur culture where one out of a few investments by a venture capitalist may succeed and others may fail.” He added.

CII and Shriram may be placing a tall order in a country where one of the prudent ways of conducting business is to evade tax and entering into cash transactions all the time. Cash transactions and delivery by hand makes sense in this country as the taxation structure is already draconian.

Entrepreneurship developed in the United States, Canada and Israel not because they have brilliant people but their regular businesses are not harassed by high taxes and prohibitive procedures. For instance, Ireland believes in high taxes. That country has never turned out innovation in its ranks.

Aashish Khanna is a football professional. He is a director on the board of the world’s largest network of football lovers on www.magicoffootball.com. After incubating all kinds of football innovations in India, he has now moved to Zurich where lives with his wife and children. Incidentally, Khanna gets paid by his clients in his own name as he says paying taxes is simple in that country as a percentage of his total income. No Saral and no other painful paperwork as they are in India.

Similarly, we cannot have one set of procedures for regular business persons and another set of easy procedures for venture capitalists for if we did, all business houses would register themselves as venture capitalists and indentify their vendors as their investment targets.

Oh yes! That is the extent of innovation Indian business can resort to, to avoid paying the government. This does not reflect on the crooked nature of Indians but reflects more on the oppressive nature of the Indian government’s theme of governance.

Both Chidambaram and Mukherjee leaned more on the second role of a finance minister and totally neglected the first role that was expected of any finance minister. Chidambaram kept churning out one regulation after another to ensure black money was eradicated. Mukherjee kept on thinking about deficit financing and PSU reform. These gentlemen never gave a thought to providing a genial atmosphere to business persons so that they increase their business portfolio or made existing companies grow in terms of revenue.

They did not as they have no idea as to how it is done. Chidambaram expects the economy to run itself while the sword of the taxman hangs on the business person’s head. Mukherjee always spoke of government taxes essential to build the country but never about creating a business like atmosphere with good infrastructure to back it up.

What happened to those special economic zones and infrastructure corridors? Were they taxed and regulated to death? One wonders the nation’s business chambers’ stand on this.

Raghuram Rajan has told the Financial Stability Development Council that the corpus of the life insurance industry can be managed by the Asset Management Companies.

Assuming that the insurance companies core competence is RISK management, there is no reason why sales cannot be outsourced to banks (as is currently being done), and fund management to AmCs (as is being proposed). This will dramatically reduce the size of the life insurance companies, and will start looking like a branch of a bank!

So banks will sell mutual funds, life insurance, pension plans – and the funds will be managed by the Asset management companies (the regulator has enough powers to let this happen). The AMCs will get scale and can pass that on to the  benefit of the policy holder.

Will it happen?

NO. For heavens sake no. Each regulator will want his own fiefdom. So there will be offices of all the regulators in all the state capitals. If there is an office, there has to be an office building, infra, …and then they will look for some justification as to why they need to be in all the 29 states, but it will be soon found.

Letting the Amcs manage the funds makes a lot of sense – once these guys get better scale COSTS should go down by the SEBI pricing mechanism. However IRDA will not allow SEBI to supervise the fund management business of the life insurance players.

So why does RR make such a statement? Well he may have intended that in all honesty, but he may not even appreciate his OWN organisation’s ability to stonewall this proposal. Unless of course, it is increasing their footprint. Hmm

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