Chaitanya Patel

I have a brilliant friend who has worked for many big and important media houses. He told me once – when he was heading a magazine – “I have made up my mind, please do not confuse me with the facts!”. This was when he was doing a story on mutual funds and unit linked plans.

In life I have found many such stories. A friend used to work for Hindustan Unilever (once upon a time when it was actually called Hindustan Lever). A new entrant had launched a product called ‘Nirma’. As a research guy he had to prove how Surf was better than Nirma. Every day he would have to do some experiment. Once he got tired and said ‘let me PRINT the conclusion that “Surf is superior to Nirma” – it really does not matter what I write above that, does it?”

Similarly there are some questions for which I can design calculators which will tell you EXACTLY what i want it to tell you. For example recently I found (in a very reputed personal finance magazine) a retirement calculator which assumed CPI (consumer price index) of 3.1% and had a ‘buy vs. rent’ calculator which assumed that over 20 years you will pay 12% interest on your home loan, and your investments will grow at 7% per annum! Now this is a funny assumption! In a country where interest rates are 12% if equity returns are 7% (for a period of 20 years) what happens to risk premium? Why are stock exchanges in existence at all?

The subprime problem in the USA has happened only because of this! ASSUMPTIONS. There is an old saying ASSUME – makes an ASS out of U and ME. If you take any number and extrapolate it over long periods of time, you can prove anything. But just as the trees do not grow to the heavens, mathematical projections should be used with some brains. I asked my daughter “If a cow has 4 legs at age 1, how many legs will it have at age 4?” In her keenness to show off her ‘table’ skills she said 16. However when this happend she was 7 years of age and not the head of risk in a BOND rating company.

The NHS (national health service) in UK is notorious for its delay. Once upon a time it used to take 4 hours waiting to get an abortion done. Then the time increased to 5 days. Surely an over enthusiastic excel freak can prove at in another 58 years it will take about 10 months to get an abortion done.

Similarly the population of Mumbai grows by a %age far greater than the population of India. In an excel sheet I will be prove that at some point in time the population of Mumbai will be greater than the population of India. Mathematically it should not be too difficult.

Your luck again. I do not head the risk function of any bank. I know some of them – they are the biggest risk the banks run!!

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In the past few quarters, despite rather dismal sales from the retail sector in the all-important Christmas season, the UK’s GDP has been steadily growing. It makes for feel-good reading for politicians like George Osborne and — with 0.8% growth in the third quarter last year — people in the UK are beginning to feel slightly complacent. But what’s worrying those of us who remember the years of 2005-08 is that it might just be another repeat of the same old bad practices that led to the financial crash of 2008.

Without getting into complicated numbers, the big picture is something like this. Yes, manufacturing PMIs are rising — those in the know credit it to outstanding performance from high-end luxury car makers: the Jaguars, Beamers and so on. But exports are dropping like never before, despite all those Jags sold to China, putting the UK’s balance-of-payment position on somewhat shaky ground.

Here’s the bad news. It might just be that all this new-found prosperity is driven by rising housing and property prices — mainly in London, where the price has, literally, gone through the roof. Nationwide’s last survey found that house prices in London have gone up by over 14% in just the past year.

Mortgage lending by banks are at five-year highs, even as lending to business kept dropping. That’s worrying, because instead of lending to productive business, money is being given to individuals to increase their personal debt.

The fears about a housing bubble around the corner are real. The housing lobby argues not, since property prices are rising in a number of regions across the UK, even if unevenly. It’s not just a London-specific phenomenon. But it is still a mainly London-specific phenomenon. It would seem that Mark Carney at the Bank of England doesn’t quite agree, because last month he yanked out a funding for lending scheme, which gave banks government grants to fund mortgage lending.

In case you don’t get why people are worrying, this is precisely the kind of thing that led to the sub-prime crisis.

It’s similar to a stock market rally, when not-so-savvy investors start buying into not-soblue-chip stocks at the peak — and are then left holding useless paper. Unlike stocks, house buyers can’t take a hit and get out, because they’ve taken megamortgages to finance their now not-so-precious asset. They have to default, and that hits banks and starts off that chain reaction of trouble.

Unreal Estate Prices

London’s property market is almost completely driven by overseas demand. From China, from India, from the Middle East, from Russia. Everyone knows that. But in the past few years, it’s been hugely driven by Europeans who aren’t very happy with the state of affairs in their home countries. Italians. French. Greeks. Rich Cypriots.Even Germans.

The trouble is not going to come from Chelsea or Knightsbridge. Prime central London is about as safe a haven as it can get — it’s been outperforming every other class of global assets for years. The trouble is, because of the hype, rates in other areas have been going up as well. When property in Fulham or even Elephant and Castle starts selling near the million-pound mark, or when Earl’s Court is redefined as prime central, I hear alarm bells.

What happens when super-savvy investors from Italy or China, or Russia suddenly find assets elsewhere to invest in? What happens when the hundred or so upmarket residential property projects in London get completed and hit the market all at once?

If you’re the kind of person who might invest in London property because it’s looking so attractive right now, I’d tell you to be very, very careful.

The Reserve Bank of India Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, chaired by Nachiket Mor, has put out a useful albeit wordy and pedantic report, with a profusion of footnotes, subtexts and references. It reiterates that only 45% of urban residents nationally have bank accounts and a lowly 32% of rural residents do so, and goes on to set the ambitious target of bank accounts for all adult residents in two years, aided by digital technology and policy initiatives.

Given that credit availability does boost enterprise, markets and growth, the objective surely needs to be active bank accounts with rising transactions levels rather than merely dormant accounts for namesake.

The Mor panel has called for three broad initiatives to boost financial inclusion. It wants higher priority-sector lending by the banking sector, but sans restrictions on fees, pricing and rates, so as to better address cost structures and eschew cross-subsidies across customers and products.

Next, what's suggested is a differentiated range of banking licences, complete with different capital adequacy norms. The report calls for full-service national banks to wholesale consumer banks, and on to regional banks, to better mitigate lending and attendant risks and lead to greater diffusion of banking services.

The panel also wants regulation for non-banking financial companies (NBFCs) rationalised. For instance, non-deposit-taking NBFCs, it is averred, should be allowed to be banking correspondents or agents of banks. Intra-day reconciliation and technology-based tools can effectively prevent "commingling", it is premised. The objective, essentially, is to have 30 lakh payment points nationwide, for effective financial inclusion.

And, third, the committee wants the authorities to keep a close tab of the credit-to-GDP ratios, including at regional, disaggregated levels and local levels for proactive financial inclusion. In parallel, what's also suggested are insurance and other risk-mitigation products, and supportive infrastructure like warehousing, land registries and those for movable collateral assets.

But the fact remains that the poor spread of formal banking services has much to do with the rigidities in both supply and demand. Take, for instance, the supply side. If banking practices, especially in many of the public sector banks (PSBs), are inefficient and their asset bases (read loan portfolios) leave much to be desired, it would only lead to rising non-performing assets and little financial inclusion. There is rising ministerial intervention in, for example, the selection of PSB chiefs, never mind that in some of them, private stakeholding is as high as 45%. The fact of the matter is also that large borrowers account for a huge disproportionate share of both credit delivery and bad loans. And, unless we have functional institutions for asset recovery and plough back, financial inclusion would remain no more than a catchphrase and a distant objective.

Besides, given that government finances are way overextended, the fiscal deficit revs up governmental borrowings, with the result that small and medium businesses seem perennially starved of affordable formal credit. The onerous paperwork, collateral requirements and personal guarantees necessary can make even routine credit availability seem a daunting task indeed.

Or, consider, the demand side for financial services. Given the preponderance of informal and non-formal sector jobs economywide, we do need policy initiatives to inculcate the savings habit for providence right across the informal economy. There would be possibilities for micro-insurance and other risk products, but we do need to go well beyond mere benefit (read subsidy) transfers and think thorough social support and provident funds for informal sector jobs, including for the self-employed. The point is to gainfully leverage the social support to actualise universal electronic bank accounts.

The Mor panel seeks a modest 10% private credit-to-GDP ratio by 2016, and envisages that it would rise to 50% by 2020. In tandem, we clearly need holistic policy design, including reform and liberalisation of the financial sector, for effective inclusion of all and sundry in credit delivery.

Here’s a letter from a reader:

Hi David,

Hope all is well.

I will be starting an internship with a hedge fund soon and want to contribute;. Any advice?. Are there any skills that I should learn/ brush up on so I  can be productive. 

Thanks a lot.

In one sense, an internship at a hedge fund is like an internship at any job.  Here’s the easy stuff:

• Be on time.
• Dress like those you work with, or just a little better.
• Listen carefully, and keep a notebook, so that you can remember things, or write down questions to ask later.
• You are new to the social hierarchy, and sorry, you are at the bottom of it.  You may get garbage jobs that the junior analysts don’t want to do.  Do those garbage jobs with as much flair as you can.
• Don’t waste time.
• Do ask questions, particularly intelligent ones.  If you are not sure, ask.  If it is still not clear, ask.
• Spend extra time if you need to research something for the business outside of business hours.
• If you can program, and there are projects that could benefit from programming, offer to write some code now to aid processes after you are gone.
• Don’t look down on anyone.
• Be willing to speak up in meetings, but only when you have something of high quality to say.  If they ask you your opinion, and you don’t know, say that you don’t know.
• Try to find some friendly mid-level person who can give you advice.

Now for things that are hedge-fund specific:

• Make an effort to understand how the hedge fund intends to make money.  Once you know that, try to read up on their particular strategy.  Ask those with experience where you can learn more.
• Realize that they are doing you a favor, and not vice-versa.  At the hedge fund I once worked at, we always paid interns, but only one intern out of many was ever worth the cost of paying and training.  So be grateful, and do what they ask, so long as it is not illegal or unethical.
• Show interest in what others do, and learn from them.  People like to talk about their work, so when you have the opportunity, ask good questions.
• It’s possible that they may play some practical jokes on you; bear with that in a graceful way.
• Hedge funds are entrepreneurial, so if you do well, they will throw harder tasks at you.  Don’t be shy; do your best.

So what is the payoff for your hard efforts?

• References for a real job, so impress those that you intern for.
• Advisers on how to find a job if you did a good job for them, but there are no openings.
• Also, they might rather hire privately, rather than expose the firm to risks from advertising a job publicly.  As such, if you showed that you could do great work for them, they very well might hire you.  Stay in touch with them.

That’s what I think you should do.  The comments section is open for more advice to the young man.

Here’s another letter from a reader:

Hi David,

I have been a long time reader of your blog but writing for the first time. To me a key part of the investment process for a generalist investor has to be a way to efficiently screen stocks to generate  investment ideas and also measure historical returns and fundametals for various industry groups under various economic conditions. I am curious as to what data sources you use in your own work for historical stock market and fundamental data? Do you pull this into your own database and do you use Excel or  a statistical package for any quantitative backtests for your screens?

In a previous job I used FactSet to pull historical monthly pricing and quarterly fundamental data for a universe of over 100 regulated utility stocks (both current and past public firms). I also taught myself a fair bit of statistics along the way including logistic regressions and discriminant analysis in order to backtest different models for identifying outperformers, dividend growth/cuts etc. Unfortunately I had to do this all in Excel, which made the whole process pretty painful right on from cleaning up outliers, sorting etc. I guess for simple queries of stock performance and tracking various fundamental metrics over time it would work touse Excel.

One motivation for asking is that I hope to one day become an investing blogger myself, and am wondering if there are low cost ways of accesing this kind of data. Additionally I am always interest in real world methods people follow to prune the thousands of possible stocks to invest in to a smaller more promising subset that people can invest more time analyzing on a fundamental basis. To me the hallmark of a successful investor is the willingness to unturn many investing stones until a promising idea is found.

I am a tightwad when it comes to paying up for data or software.  I use the following:

• FRED
• Yahoo Finance
• Value Line via my local library
• AAII Stock Investor (A screening package, but more than that)
• The Wall Street Journal
• Bloomberg.com
• FINRA TRACE — bond data
• Bureau of Labor Statistics
• Federal Reserve (but not FRED)
• Microsoft Excel
• If I need to do something complex, I can use the open source statistics package R.

AAII Stock Investor and Value Line are my main screeners.  I pay $100/year for AAII, and nothing for Value Line.  Oh, my library gives me Morningstar for free as well.  Both subscriptions are very full, and very useful as well.

Now all that said, though it is important to be able to access the data, developing the ability to interpret it is far more important.  There can be too much rigor in trying to analyze quantitative data.  You need to identify the three most significant variables that affect the result being analyzed and focus on analyzing them.  Most investment questions can be analyzed through the three most important variables.

Though I do backtests occasionally, I am happier to stick with theory, and base my actions off that.  Backtests are fraught with all sorts of bias, and basically say that the future will be like the past, only more so.

It would be great to have Bloomberg, FactSet, and some off-the-shelf statistics/programming package that integrates with them.  But life is tough, and we don’t always have that luxury, so we have to seek out data on the cheap, and analyze it cheaply also.

That’s how I do it now, but if I get more clients, I will start paying up for data and software.

I know of a few mis-sellers in the financial services who excel in mis-selling. Let us call them A, B and C. A is so used to mis-selling that when a ‘friend’ wanted to buy a DVD player, he was convincing her to get a lap top. This in spite of the fact that he neither understands or sells laptop.

However, A recently lost a couple of high end mobiles, spent a lot of money on his health – from dentistry to other illnesses etc. He kept wondering why this was happening to him.

I was reminded about a beautiful story. Once upon a time there was a milkman. He was honest and diligent. He had a few cows and he would sell the milk from the cows and earn Rs.200 a day. In the village that he lived this was a good income for him and he was reasonably well to do.

One day, a management consultant met him and gave him very sound advice. He said “Since you have such a nice reputation, you should add water to the milk and that will boost your income”. The milkman was thrilled with the advice and did so.

On the first day, his income doubled! Instead of earning Rs. 200, he earned Rs. 400 and was thrilled. On his way he had to cross a river every day. On this day he felt like having a swim. He removed his clothes and went for a swim.

A smart monkey saw his clothes and decided to take his shirt!

On coming out of the river he found the monkey sitting on a branch jutting out into the river. The milkman frantically waved out to the monkey. The monkey shook the shirt for some time and then threw down the shirt. The monkey’s shaking ensured that some money fell into the water. However, the milkman was releived to get his shirt and some of the money back.

He then counted the money. He had exactly Rs. 200 – his normal collection. He smiled to himself saying “Ha! water has collected its dues” – or as they say in Hindi – ‘Paani ka paisa paani me’.

I presume all the mis-sellers out there have got the story!

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“Finding the best equity fund to invest in like finding needle in a haystack“, remarked my colleague. Which are the top or the best mutual funds as on Jan 2014.  Sadly there is no one answer. It’s like finding which bollywood actor is Number 1? if you check latest Time Celebx  (nov 2013)Hritik Roshan beat the Khans and Kapoor to be number 1. But a month earlier he was at number 4. While Salman khan has been at number 2 or 3.   What I mean to say is that it is difficult for someone to be consistently be at the top. There are also flavors or the seasons or fads. For investing in mutual funds, we need a mutual fund which is from a good fund house, has good fund manager,good performance both short term and long terms, have seen the various market cycles and is consistent.

Questions , Questions before the investor

It’s not easy choosing a equity mutual fund because of choices, lot of noise,information overload  surrounding the mutual fund industry.

• Time frame of investment : How long is your investment for? 3 years, 5 years, 
• Frequency of investment : How often will you be investing,  lump sum or through Systematic investment plan say monthly ? 
• The category : What category of fund do we want to invest in ? Large Cap, Mid cap, Small Cap, Diversified or Balanced, Sector funds
• Performance, ratings : Which fund has performed well, what are the ratings.
• Other factors : What is fund size, who is fund manager etc.

We went through various websites to find good mutual funds to invest in, such as Top mutual funds from Mint Mutual Fund Schemes to invest in, MoneyControl’s Mutual Fund schemes to invest in  , ET Top 100, Valueresearch India’s finest funds for hit portfolio, Morningstar Best Performing funds . Most of these top funds (such as Mint 50, ET 100) choose from Valueresearchonline’s top rated funds. There was no common fund which we could zero down to.  Given below are Large cap and Large Cap and Mid Cap Funds. Reason for comping up with the list was to start a discussion on which funds can one invest. We have given links to funds on Valueresearchonline for our readers to investigate these funds further.

Large-cap Mutual Funds

Large cap funds invest in some of the biggest companies, which are well represented in the more frequently tracked indices such as the Sensex and the Nifty, are less volatile to market swings compared to other diversified equity funds. These funds mirror the performance of the economy and are geared to handle market cycles better. But they do not deliver exceptional returns in a rising market. The performance of actively managed funds comes out  far superior than passively-managed funds. The 5-year trailing returns indicate that over 50 per cent of the actively-managed funds have delivered superior returns than Nifty. The gap in the two widens when one looks at long-term performance. For instance, over a 10-year period, from the universe of 32 funds, the average of the actively-managed funds posted 22.58 per cent returns compared to the average return of 17.94 per cent delivered by passive funds for the same period. Some of  funds which have made it to Top Mutual funds list of various websites are :

Franklin India Bluechip  : Consistent performer over the past 16 years with a CAGR of 21% against 12% of its benchmark – S&P BSE Sensex which makes it a perennial favourite. It is primarily a large-cap fund which focuses on investing in companies with strong financials, quality management and market leadership. Irrespective of market conditions, it has stuck to its mandate of investing in large-cap companies. . Follows time-tested strategy of value and growth stock picking. Managers are Anand Radhakrishnan (6.8 years), Anand Vasudevan (2.9 years)

ICICI Pru Focused Bluechip  : It is a large-cap diversified equity fund with a concentrated portfolio of 20-25 large caps picked from top 100 stocks by market capitalisation on NSE. The fund manager follows a growth style of investing. It has a good mix of concentration and diversification as it uses a combination of bottom-up and top-down investment approach. It is known to take an aggressive position in high conviction stocks, which has helped in outperformance. Quality of companies has ensured steady performance of the fund. Follows its benchmark weightages. In five years, the fund has given 23% against its benchmark CNX Nifty returns of 16%. Manager is Manish Gunwani (2.0 years)

UTI Equity  :  This fund has a chequered past, but has done very well in recently.  The fund has beaten its benchmark S&P BSE 100 every two-year in the past seven years. It has diversified portfolio and the fund has been known for its first-rate stock selection in the last seven years. Manager is Anoop Bhaskar (6.7 years)

BNP Paribas Equity : The fund struggled in 2008 and 2009. Since then, it has been impressively following a well-articulated strategy to focus on companies with superior earning growth. To this end it chooses companies with pricing power for their competitive advantage or entry barriers. This has translated into a diverse portfolio of quality large caps and few quality mid-caps. This has led to a resilient portfolio during market downturns which also does well in a rising market. Manager is Shreyash Devalker since last 2.3 years.

Large-and-midcap Mutual Funds

There are 14 crore LPG consumers in the country which comprises 60% of the population. LPG cylinder in India is subsidized. From Jan 1 2013 Government limited the number of subsidised cylinders to 9. Each consumer will have to buy LPG at market price and government will transfer the subsidy to his Aadhar linked bank account.  If you want LPG subsidy then Aadhar is compulsory. This article explains about the number of subsidised LPG cylinders, why LPG cylinder is subsidised. Article LPG Cylinders : Subsidy, Aadhar talks about how to link your LPG with Aadhar card

What is Capping of LPG cylinder?

From 14th September 2012, Govt. Of India (GOI) has capped supply of subsidised domestic cylinders to 6 cylinders in a year for all domestic consumers. This was modified to 9 cylinders on 18th January 2013.

What is LPG subsidy?

Subsidized LPG is provided largely for domestic use(use in house), but institutional use is permitted for Government schools, hospitals, canteens, police stations, etc. Subsidized LPG cylinders are red in colour and contain 14.2kg of LPG, whereas commercial LPG cylinders are purple and contain 19kg of LPG.

Domestic Consumers are entitled to nine subsidised LPG cylinders.  The government will send the cooking-gas subsidy directly to the bank accounts of subscribers as  a part of extension of Direct Benefit Transfer(DBT). Annually, this would amount to about Rs 4,000 per year by the government to each household as a cash transfer

How many subsidised cylinder I will get in a financial year?

Consumer will get 9 subsidised cylinders in financial year 2013-14.  Number of Cylinders are counted in a financial year for example from Apr 2013 to Mar 2014.

After I consume all capped quantity am I eligible for subsidised cylinder?

No subsidised cylinder will be delivered after consumption of capped quantity. However refill will be supplied on non-subsidised rate after consumption of capped quantity on receipt of refill order.

What will happen to my subsidised quota when I transfer my connection?

In case of transfer of connection on or after 14th September 2012, the balance available subsidised quota will be included in new distributorship. While obtaining transfer document from distributor kindly check print out of Balance Quota Available.

In case of new connection what will be the eligibility of subsidised quota?

Prorate quota (no fractional quantity) will be fixed basis the balance period of the financial year. It means if subsidy is 9 cylinders for 12 months from Apr  and you have taken new connection in Jul then as 9 months are left the number of subsidised cylinders will be 9/12 * 9 = 6.75 which rounds off to 6.

How can I keep record of my consumption of cylinder?

At the time of delivery of refill cylinder kindly ensure recording of supply details by the delivery person in Domestic Gas Consumer Card (DGCC) book. If you do not possess DGCC book then kindly obtain it from your distributor on payment of its cost. Kindly get the existing DGCC book endorsed by the distributorship by visiting at showroom. Kindly check printed information of subsidised cylinder 1/9, 2/9 etc. upon refill cash memo. You can also check the Transparency portal.

How to get LPG Subsidy?

To get LPG subsidy you need to have following :

• Aadhaar number
• Bank account linked to Aadhar number
• Link the Bank account with Aadhar number with LPG Consumer Number.

The process of linking bank account number with Aadhar with LPG consumer is technically called as seeding of Aadhaar number. UIDAI has developed a Seeding platform termed the Remote Aadhaar Seeding Framework (RASF) which provides States with a utility to enable linking of Aadhaar numbers to beneficiary identities maintained by different schemes, For details one can read UIDAI’s RASF(pdf)

The Direct Cash Transfer (DCT) scheme aims to directly put the subsidy into consumers’ bank accounts. Once implemented, customers will have to purchase non-subsidized LPG cylinders at a uniform rate  while the subsidy component will be transferred to their bank account annually. How to link  LPG with Aadhar is explained in LPG Cylinders : Subsidy, Aadhar

Why Government is limiting LPG subsidy?

• The subsidy was introduced to help the poor raise their standard of living by offering cooking gas at lower rates. But it has proved ineffective as most of the rural poor don’t use LPG and it is the urban elite who benefit most from this. in 2007-08, only 8 to 9 % of rural people used LPG as main fuel for cooking as opposed to 62% in urban areas.
• The huge subsidy had opened it up for use as alternative fuel in other forms also. One such example is LPG cylinders being used in cars instead of petrol or diesel. Given LPG’s low price, it was a lucrative deal and people exploited it by having LPG conversion kits installed in their cars.
• Use of domestic cooking gas for commercial cooking purposes. Given the wide disparity in the rates of domestic and commercial cooking gas, it is siphoned away by hoteliers and dhaba wallas. The VIPs also have many cylinder connections in their name and use it excessively.

I do not want subsidised cylinder, is it possible?

Yes you can opt out from using subsidised cylinder by filling in UnRegister Subsidy or by submission of application at distributorship. Afterwards your refill will be delivered at non subsidised rate. (We were not able to find more information on it other than on FAQ)

What is Direct Benefit Transfer (DBT) program?

Direct cash transfer simply means transfer of cash directly to the beneficiaries’ accounts. The scheme was first announced in Budget 2011-12 and it was to be use to directly transfer the difference between the market price and subsidized price to the beneficiary in the form of cash.The programme was launched on 1st Jan 2013 across 20 districts in six states on a pilot basis. The scheme is rechristened as Direct Benefit Transfer. It will cover schemes like widow pension, educational scholarships for SCor STs, OBC and minorities, etc.   . The government plans to disburse 3,200 billion rupees  under the Direct Benefit Transfer (DBT) scheme.

The primary aim of this Direct Benefit Transfer program is to bring transparency and terminate pilferage from distribution of funds sponsored by Central Government of India, In DBT, benefit or subsidy will be directly transferred to the citizens living below poverty line. No subsidy will be given to those people who don’t require it. So it will reduce waste while ensuring welfare money reaches those who need it most.

What is subsidy?

A sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive is called as subsidy. Derived from the Latin word subsidium, a subsidy literally implies coming to assistance from behind. Subsidies can be

• Direct such as  cash grants, interest-free loans,  reduced prices(ex of petrol). These are explicit and accounted separately in budget documents.
• Indirect such tax breaks, insurance, low-interest loans, depreciation write-offs(ex Air India), rent rebates usually in the form of a cash payment or tax reduction. These  subsidies are  implicit.

What does Indian Government subsidise?

The Indian government has ,since Independence, has subsidised many industries and products, from petrol to food. Of the overall subsidies, the subsidies on Petroleum, Fertilizer and Food make up more than 90%.   Subsidy over the years is shown in picture below :

How is government trying to reduce the subsidy?

Government is trying to reduce various subsidies. The fertiliser and petroleum subsidy bill is largely dependent on the movement of global oil prices .

• The government has allowed oil marketing companies to set petrol prices in tune to the rise in oil prices globally.
• Diesel prices have also been decontrolled though in a phased manner (rise of 50 paise per month).
• The food subsidy has increased substantially in recent years on account of widening gap between the central issue price of wheat and rice and the economic cost of delivering these food grains.
• By disbursing subsidies through cash transfers as in case of LPG subsidy.

How much is a LPG cylinder subsidised?

Domestic LPG is subsidised. Even though domestic LPG cost price is directly related to international prices, oil marketing companies were selling at the government decided issue price. Government was  then compensating them for selling LPG below the cost price, called as under recovery. The huge subsidy, under recovery, burden led to capping of the LPG cylinders. Oil marketing companies incur a loss of more than Rs 350 on every cylinder they sell. The government spent Rs 30,000 crore on LPG subsidy in 2011-12.The Report of the Task Force on Direct Transfer of Subsidies on Kerosene, LPG and Fertiliser (pdf) provides some other interesting figures.

• The total subsidy to the consumer was Rs. 76 per cylinder in FY02-03.
• The total subsidy to consumers in FY09-10 was Rs 16,071 crore, when the per cylinder subsidy was Rs 185.
• With the current international oil prices rising, the total subsidy to the consumers has steadily risen and now is around 350-400 Rs per cylinder.

The process of how LPG reaches the consumer, who all are involved and costs at every stage is shown in picture below :

From HP Gas Price Build-up of Domestic Subsidized LPG (14.2 Kg Cylinder) at Delhi(pdf).

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At a dinner party given this week by the British High Commissioner to India Sir James Bevan in the graciously proportioned house at 2 Rajaji Marg, talk inevitably turned to the creator of New Delhi’s verdant central area, Sir Edwin Landseer Lutyens. After all, had it not been for his expansive, imperial vision, this very area may have become just a suburb of the congested expanse of Shahjahanabad.

Earlier that day I had come across a blog by Lutyens’ grand-daughter Candia that the architect stayed but a few houses down from where we stood chatting – at 10, Rajaji Marg (then called King George’s Avenue) – when he was overseeing the construction of his magnum opus. So it seemed particularly appropriate to talk of him there, especially as Sir James proudly pointed out two Lutyens’ designed benches in his garden.

But even as we reiterated the oftquoted factoid that Lutyens hardly designed many buildings in the city (Herbert Baker, Robert Tor Russell and others did far more), I wondered what he would have thought of the almost annual exhumation (or creation) of some report calling for destroying the “Lutyens Bungalow Zone”. He would probably not be particularly devastated considering he called them “bungle-ohs’ anyway.

The socialist logic – ironically championed most by capitalists (pun intended) who want to monetise the priceless 2,800 hectares the bungalows occupy – is that it is somehow immoral to have spacious houses and gardens in a city where thousands need homes and shelter. In that case, the Taj Mahal, or indeed any grand project occupying an ‘undue’ amount of space should be redeveloped as India grows in size but not land area.

Indeed times have changed, and with it, housing priorities. At table that evening, KS Bajpai, India’s former ambassador to the US, revealed that as a boy he had lived in the very house we now sat in, nibbling at our salads with blue cheese dressing. “Lived here for over a decade,” he smiled. “It was allotted to my father as an under secretary but he stayed on even when he joined the Viceroy’s Council as a member.”

That meant an even bigger house than this lovely colonnaded residence of the British high commissioner? He caught my incredulous look and said, “Of course! The grandest residences were for the six members of the Viceroy’s Council, and Hamid (Ansari) now lives in the only one still left…” If the Vice President’s House is now one of a kind, where were the others and why had they disappeared? Again, he caught my look. His smile broadened. “Udyog Bhavan… Shastri Bhavan…?” he said softly. I got the drift. The destruction of Lutyens’ creation had begun soon after Independence! But why? Did the first Prime Minister – who appropriately occupied Teen Murti House, the second largest residence in Lutyens Delhi, but none of his successors shared that privilege – think they were not necessary?

As the week also saw an intemperate exchange of partisan views centred on the difference between former chief minister of Delhi Sheila Dikshit’s elegant, 6 bedroom, 8,000sq ft Lutyens era bungalow and her successor Arvind Kejriwal’s allotment of a pair of boxy, 6,000sq ft twin duplex DDA houses of 5 bedrooms each, so it seemed a valid thought! More so since the latter first agreed and then rejected his digs.

His reasoning was based less on necessity and more on image, presumably. He probably thinks big houses are immoral. But would an inevitability of small, uniform houses – a genre perfected by autocratic communist regimes – generate a feeling of well-being? Hardly. As I saw in Romania from 1978 to 1981, enforced smallness stifled hope and killed aspiration. Everyone wants the opportunity to make it big– job-wise or space-wise.

Every city has a part that gives its citizens a feeling of space, and probably even instills a sense of pride that goes beyond roti-kapda-makan and bijli-sadak-pani concerns. Victoria Memorial gleaming whitely in the green cushion of the Maidan does that for Calcutta’s jostling denizens, Taj Mahal does the same for those living in the grotty gullies of Agra… Saying those should be ‘redeveloped’ sounds preposterous, right?

Then that should apply to any government’s plans to raze Lutyens era bungalows and erect multistories pleading “housing”. For it will, in effect, not only deprive the city of its green lungs, it will deny aam aadmis a chance to live in the only big houses they can ever aspire to – even if for a few years – as legislators, judges and civil servants as the rest of central Delhi’s houses are private and prohibitively expensive.

So, if not for the sake of preserving the work of an architect who supposedly did not think much of India, then at least for the aam aadmis who aspire to be something more, the bungalows deserve to be preserved. For me, of course, the most over-riding reasons are the least cited: history and legacy. The precedent of the seven preceding cities of Delhi should be maintained, and newer visions should not be at the cost of the older ones!

Under the QEEE programme, courses will be taught by a combination of senior Indian Institute of Technology (IIT) faculty and others. During regular class hours, the students will hear and see faculty deliver recorded lectures. Regular faculty will be present during class hours, in a supportive role. In the evening, e-tutorials will be held to enable live virtual discussions between students and tutors. Real time online experiments will be made available via e-labs.
According to a news report, as many as nine subjects will be delivered in MOOC format, including in the fields of mechanical engineering, civil engineering, computer engineering and mathematics. The courses will all be in advanced subjects such as wireless connections, linear algebra, and heat transfer for mechanical engineering.

Thrun said in an interview he "was realising, we don't educate people as others wished, or as I wished. We have a lousy product. It was a painful moment (when I realised this)."

Thrun's statement came in response to the weak performance of students who took MOOCs over the Udacity platform at San Jose State University in remedial mathematics, college algebra and elementary statistics. Only 25 per cent of the online students passed, less than half the pass rate for students who took the course face-to-face in real time. Thrun is so distressed with the performance of MOOCs that he is changing the focus of Udacity from academic education to corporate education.

I have shouted myself hoarse, and that too many times – investing is simple. A simple savings account, a simple credit card, a simple term insurance, a simple diet, a simple exercise regimen – dammit life is simple.

All the people in the world know it, maybe we Indians do not know it.

People who read my blog and buying ULIP – get my goat! No clue why people pay lip service to all the ‘Knowledge’ they claim to get from my blog – WFT are u doing with all the ‘knowledge’ that you gain dammit?

Some simple steps like spending less than what you earn, saving and then converting that saving to investing, etc. are all simple right?

Many advisers you meet may have compared financial advise to medical advise. Not so fast. Not all advisers have taken 5 years to get their degree. No viva. No 95% rejection rate at admission level. No rigors of internship. No Continuing Professional Examination. So I would be a little worried if you thought that people with all those confusing qualifications are doctors, be warned. It is not so.

So here are another 5 simple steps:

1. Do not borrow: Most people who cannot create wealth for their families are those who spend MORE than what they earn. Simple – whether it be for a function, celebration, illness, vacation, or just living beyond your means it will kill you. Debt is NEGATIVE COMPOUNDING and kills.

2. Save, Invest and for heavens sake leave it untouched for long periods of time: Compounding worked for Warren Buffet, Rakesh Jhunjhunwala, Azim Premji, Tatas, Birlas, Rockfellers, Kennedys – the list is endless. You know what? It works for you and me also. My PPF account was opened in 1979 – imagine how powerful is the compounding effect! Even Warren Buffet was not ‘so’ rich when he was 40. He knew compounding would work for him. It did. So now he is 80+  and compounding has worked wonders for him!!

3. To make money you need not predict markets behaviour on a day to day basis. Unnecessary and completely useless. SIP in a well managed fund is a far more sensible option. Also if you are young try building a nice Blue Chip portfolio. Buy one or two shares a YEAR. You will have to create a funnel (screens as the pros call them) do research for 364 days and buy on one day. That is the ratio of Research: Action ratio that builds a good portfolio. Unless you have a team of pros doing research for you – like Prashant Jain, Siva, Naren and Bala have. You do not. Do not kid yourself thinking you can do all your research just sitting in one place. I get reports, I read them, then buzz a few people ask, then stop thinking about it for a week. Then revisit and find details which I had missed. Seriously, it is difficult if not impossible to teach experience.

4. More than 100 years ago when asked how will the markets be, Mr.  J P Morgan said ‘Volatile’. I have used this quote many times. Only thing guaranteed in the market is volatility. This also leads me to a Tamil saying which is ‘trying to take a dip in the ocean AFTER the waves have stopped’. Read it together – you will never ever be able to enter the markets if you wait for the the volatility to be over. That is IMPOSSIBLE. So enter the market TODAY. Shut out the MEDIA. They are here to entertain, not educate.

5. Keep an Investment diary, write down your goals, and keep track of your investing.

That is all. See no complications at all as promised.

Now just go and Do It.

3.

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With assumptions being bandied around , there is a need to revisit the facts on taxation in India

Tax /GDP ratio is partly a function of the year. In a good year, interpreted as a year in which growth is good, it touched 12% of GDP, almost 6% direct and the rest indirect. The direct part is divided into a shade over 2% for personal income tax and a shade below 4% for corporation tax. The indirect part consists of customs, excise and service tax. There are bits of the direct part connected with expenditure, wealth, gift and estate duty, but those aren’t quantitatively significant.

Read the Figures

Two figures are often bandied around . First, only 35 million people pay income tax. Second, only 42,800 people have annual income more than . 1 crore. Both involve minor misstatements : 35 million is the number of people who submit income-tax returns . In a pedantic sense, they may or may not pay income tax. Even if they do, tax paid could be marginal.

And that . 1-crore figure for 42,800 is taxable income. There are 78.9 million urban households in India. Half of them can be expected to be below the threshold. Indeed, there is some multiplicity: in a single urban household, there can be more than one individual who submits income-tax returns.

But the illustrative point remains . Since rural households are outside the ambit of income taxes, 35-40 million is the maximum income tax base we can get. Why are we so shocked that just 3% of the population pays personal income tax?

Since 2006-07 , Budgets have had a tax revenue foregone statement. For direct taxes, this is divided into corporates , non-corporate firms and individual taxpayers. Notice that all tax exemptions are implicit subsidies to preferred categories of taxpayers . In individual taxpayer category, around half are salaried. Salaried taxpayers are entitled to limited deductions . That’s not true of non-salaried taxpayers. They are entitled to several profit-linked deductions too. And there are many deductions for non-corporate firms too.

Ask the Questions

Depending on what GDP figure you take, all those exemptions, direct as well as indirect, amount to anything between 5% and 5.5% of GDP. That 12% figure doesn’t include all statelevel or local-body taxes. If you include those too, the tax/GDP ratio would be around 17%. However, if all exemptions were to go, tax/GDP ratio would be in excess of 22%.

Also, if all subsidies, Centre as well as state, explicit as well as implicit , are included, subsidies amount to 14% of GDP. Before considering abolition of a tax, we, therefore, need to ask questions. Where will the revenue come from? Which expenditure item will be slashed on a continuing basis, not as a one-shot revenue realisation from asset sales (such as privatisation)?

When figures like 35 million are cited, there is an impression there’s tax evasion. There certainly is evasion . But there’s an important difference between evasion and tax avoidance . When arguments are made about middle class — not all middle class people are salaried or urban — suffering from income tax, it’s really an argument about limited tax avoidance options being available to salaried people.

Second, as long as there are exemptions , compliance costs cannot be reduced significantly. One needs to pin down the expression compliance costs. Does it mean administrative costs of collection? Does it mean costs to taxpayers, including harassment and bribes? And does it include other social costs?

Rework the Argument

For income tax, administrative costs aren’t actually that high. For every . 100 collected, it’s around 60 paise . Through the large taxpayer unit, it’s around 4.50 paise. That’s today. Studies done 10 years ago suggest if all compliance costs are included, compliance costs are 49% of personal income-tax collections and the system is regressive. Of course, there’s an argument for simplification . DTC was meant to do that, but has deviated from original intent. And, yes, one should simplify the appellate and refund process.

If income tax is scrapped, what will replace it? Every economist should argue direct taxes are superior. If income tax is scrapped, it can’t be scrapped only for personal income, retaining it for corporate taxation. So, there will be a transition from direct to indirect taxation.

While actual revenue numbers depend on elasticities, we need a rough doubling of indirect tax rates, which are inherently regressive. The only argument in favour of indirect taxation is that it’s easier to enforce . Since we can’t or won’t tax rural income, let’s do it via the indirect route. This isn’t a new idea either.

For those who are advocating an abolition of income tax, there also seems a presumption that compliance costs will be zero under the new framework, whatever that new framework is. The argument that there are countries with no personal income taxation won’t wash either. Those are either tax havens or those with large natural resource bases. Besides, a precedence is no argument . Just because Peter the Great taxed beards, should we?

Earlier this week, the Reserve Bank of India published the report of the Nachiket Mor Committee on financial inclusion (technically the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households). Its first recommendation was that “By January 1, 2016 each Indian resident, above the age of eighteen years, would have an individual, full-service, safe, and secure electronic bank account.”

The Committee’s mandate was obviously to look at financial inclusion within the context of the current financial architecture and so it could not by any means have recommended a change in the core of that financial architecture itself. But for us sitting outside the Committee, there is no such constraint. We are entitled to day-dream about anything. So I would like to ask the question: if we were designing everything on a completely clean slate, what would we like to do?

Day dreaming begins here.

In my day dream, India would embrace electronic money and give every Indian an eWallet. Instead of linking India’s Unique ID (Aadhaar number) to a bank account, we would link it to an eWallet provided by the central bank. We would simultaneously move to abolish paper money by converting existing currency notes (with their famous “I promise to pay the bearer”) into genuine promissory notes redeemable in eRupees delivered into our eWallets. Financial inclusion would then have three ingredients: a Unique ID (Aadhaar) for everyone which is more or less in place now, the proposed eWallet for everyone, and a mobile phone for everyone. All eminently doable by 2016.

The costs of creating all the computing and communication infrastructure for a billion eWallets would be huge, but could be easily financed by a small cess on all paper money and bank money. The cess would also serve to incentivize a rapid shift to eRupees. (At some stage, we could even decide to make demand deposits illegal just like bearer demand promissory notes are illegal today, but I think that a ban would not be necessary at all.)

The operating costs of eRupees would be easily covered by the seigniorage income on the electronic money. Because of its greater convenience, safety and liquidity, eRupees should become at least as large as M2, and probably would grow to 25-30% of M3, making it about twice as large as paper money. The operating costs of eRupees should be significantly less than that of paper currency, and the seigniorage income much greater. The government would earn a fatter dividend from the Reserve Bank of India after covering all the cost of eRupees.

A huge chunk of the current banking infrastructure is now devoted to the useless paper shuffling activity that constitutes the current payment system. If this infrastructure is re-purposed to perform genuine financial intermediation, this would support much higher levels of economic growth. Divested of a payment system, the banks would be more like non bank finance companies and would pose far less systemic risk as well.

All this would allow India to leapfrog the rest of world and create the most advanced payment system on the planet (something like a Bitcoin backed by an army). In a world that struggles to ensure that systemically important settlement systems like clearing corporations settle in central bank money, we would have a system in which every individual could settle in central bank money. It is even possible that eRupees would find international adoption in the absence of any competition.

Day dreaming ends here.

The bubble has become an inescapable element of modern economic discourse. Every day somebody is proclaiming a new one, arguing that there isn’t one, proposing ways to prevent one, or complaining about how hard they are to prevent.

What wielders of the term seldom do, though, is say exactly what they mean by it. And the definitions that do get offered can vary pretty dramatically. In November, for example, David Kestenbaum of NPR’s Planet Money asked two just-anointed economics Nobelists, the University of Chicago’s Eugene Fama and Yale University’s Robert Shiller, what they thought a bubble was.

Fama is convinced that financial bubbles don’t exist, and until the dot-com era he was able to keep most of his colleagues in academic finance from even using the word “bubble.” Here’s what he told Kestenbaum: “If you interpret the word ‘bubble’ to mean, ‘I can predict when prices are gonna go down,’ you can’t do it.”

Fama is surely right that nobody can reliably predict exactly when prices are gonna go down. But he’s way off base when he implies that this is a widely accepted definition of “bubble.” In fact, hardly anybody interprets the word to mean this. When I ran Fama’s wording by former Fed chairman Alan Greenspan — love him or hate him, you’ve got to acknowledge that the guy knows something about bubbles — he said, “The nature of a bubble as I would define it makes it impossible to determine when it will deflate.”

Fama’s fellow Nobelist Bob Shiller, meanwhile, believes that bubbles are “like a mental illness,” in that there’s a checklist of symptoms. They are, as paraphrased by Kestenbaum:

1. Rapidly increasing prices.
2. People tell each other stories that purport to justify the bubble.
3. People feel envy and regret they haven’t participated.

Then Shiller jumped in with a fourth: “The news media are involved. There were no bubbles before there were news media.”

But all those things have been true of Google’s stock price since the company went public almost a decade ago, as Fama pointed out in the NPR interview. They’ve also characterized the San Francisco Bay area’s real estate market over a far longer period. Yet neither has collapsed. Instead, Google’s fast-rising earnings and the Bay area’s skyrocketing wealth (and NIMBYish tendencies) have kept those “stories that purport to justify the bubble” sounding pretty plausible.

This gets at what seem like they ought to be the two crucial elements in any bubble definition:

1. You may not be able to say exactly when it’s going to happen, but if you call something a bubble you are implying that you think it will come to a precipitous end.
2. You think this because you believe that the price of an asset has risen well above its fundamental or intrinsic value.

Sure enough, Markus Brunnermaier, one of the chief scientists in what The Wall Street Journal once dubbed “Bernanke’s Bubble Laboratory” at Princeton University, defines bubble thusly in the latest edition of the New Palgrave Dictionary of Economics (the full text is behind a paywall):

Bubbles are typically associated with dramatic asset price increases followed by a collapse. Bubbles arise if the price exceeds the asset’s fundamental value.

That’s pretty good. Concise, yet complete. Shiller’s list of symptoms may be helpful in diagnosing a bubble, but as a definition Brunnermaier’s is far better. And its (less concise) third sentence gets at some of the things Shiller is talking about:

This can occur if investors hold the asset because they believe that they can sell it at a higher price [to] some other investor even though the asset’s price exceeds its fundamental value.

So we’re done here. Everyone can agree on this definition, right? Actually, not quite. The problem is the phrase “fundamental value.”

Writes economist Peter Garber, in the 2000 book Famous First Bubbles:

Fundamentals are a collection of variables that we believe should drive asset prices. In the context of a particular model of asset price determination, if we have a serious misforecast of asset prices we might then say that there is a bubble. This is no more than saying that there is something happening that we can’t explain …

The man has a point, but only up to a point. There has been only one widely accepted and durable “model of asset price determination” for stock, bonds, and the like.  In the classic 1930 formulation of economist Irving Fisher:

 The value of any property, or rights to wealth, is its value as a source of income and is found by discounting that expected income.

Estimates of future income are full of uncertainty, and choosing an appropriate discount rate is often more art than science. Fisher is of course infamous for declaring in 1929 that stock prices were not in a bubble but atop a “permanently high plateau.” But his definition does provide a baseline.

During the dot-com era (and long after), Fama argued that the high prices of startups like Amazon.com and Pets.com could be justified as rational gambles in the face of great uncertainty. It wasn’t crazy to think that a couple of these companies might end up as big and as profitable as Microsoft, and since it was hard to tell which ones it would be, high prices across the board made some sense. Sure enough, Amazon is now almost as big as Microsoft (in terms of revenue), although not yet anywhere near as profitable. And Google, which didn’t go public till after the dot-com bust, appears to be on track to pass up Microsoft in both. It already has a higher market capitalization (although of course some think that’s a bubble).

But dot-coms weren’t the only stocks with prices going through the roof in 1999 and 2000. And a former Fama PhD student, hedge fund manager Cliff Asness, argued at the time that even if his professor was right about the dot-coms, there clearly was a bubble in the equity of already established, already profitable tech companies. In an essay that was never formally published but became something of a cult favorite among finance professors and some finance practitioners, Asness looked at Cisco Systems and concluded that even if the most optimistic projections about its future growth came true, it was still priced to disappoint current investors. That is, it was selling at a price that no plausible growth scenario could justify. The actual outcome for Cisco turned out to be a 156% increase in net income from fiscal 2000 through fiscal 2013. Its stock price, meanwhile, fell from $80 in March 2000 to $9 in October 2003; it’s currently trading in the low 20s.

Asness sure seems to have nailed that bubble, huh? He now argues that the price/fundamentals gap has to be similarly extreme to merit use of the word. As he writes in the current issue of the Financial Analysts Journal, “to have content, the term bubble should indicate a price that no reasonable future outcome can justify.”

So maybe we should tweak the second sentence of Brunnermaier’s definition, to something like: Bubbles arise if the price far exceeds the asset’s fundamental value, to the point that no plausible future income scenario can justify the price. A little clunky, and of course “plausible” is a judgment call. But it does get at the idea that we shouldn’t be calling every last rise in P/E ratios a bubble.

What about “bubbles” that have nothing to do with asset prices? When people claim there’s a lawyer bubble, an MBA bubble, or a higher education bubble, they are talking about things that they think have gotten out of hand and are due for a collapse. That is bubble-like, but I still don’t think the term is really appropriate for these particular phenomena. My Webster’s New World Dictionary says bubble is “anything that is ephemeral or insubstantial.” But the higher-education boom of the past half-century-plus was built of tangible stuff — degrees enabled their recipients to make lots more money. If this is about to end, it’s more because of changes in the economy and in technology than some sort of irrational degree frenzy. It’s a sea change, not a bubble. Shiller, meanwhile, thinks the kind of social contagion that characterizes bubbles can be found outside of financial markets (his main example is Mao’s Great Leap Forward in China). But I’m not sure what’s really gained by calling such events “bubbles.”

Not that it’s really up to me, of course. If you’ve got a better bubble definition, let’s hear it.

Barry Eichengreen and Poonam Gupta have written a paper on how the “Tapering Talk” by the US Federal Reserve in mid 2013 impacted emerging markets.

In order to determine which countries were affected more severely, Eichengreen and Gupta construct a “Pressure Index” based on changes in the exchange rate and foreign exchange reserves. They also construct a Pressure Index 2 that also includes the impact on the stock market. By both measures, they find that India was the worst affected within a peer group of seven countries. The peer group includes all the countries that Morgan Stanley have called the Fragile Five (Brazil, India, Indonesia, South Africa and Turkey); in addition, it includes China and Russia. The Pressure Index 1 for India was 7.15 compared to a median of 3.46 for the peer group. Since the Indian stock market did not do too badly, the Pressure Index 2 for India was slightly better at 6.57 compared to a median of 4.63 for the peer group.

Turning to why some countries were hit harder than others, the paper finds:

What mattered more was the size of their financial markets; investors seeking to rebalance their portfolios concentrated on emerging markets with relatively large and liquid financial systems; these were the markets where they could most easily sell without incurring losses and where there was the most scope for portfolio rebalancing. The obvious contrast is with so-called frontier markets with smaller and less liquid financial systems. This is a reminder that success at growing the financial sector can be a mixed blessing. Among other things, it can accentuate the impact on an economy of financial shocks emanating from outside

In addition, we find that the largest impact of tapering was felt by countries that allowed exchange rates to run up most dramatically in the earlier period of expectations of continued ease on the part of the Federal Reserve, when large amounts of capital were flowing into emerging markets. Similarly, we find the largest impact in countries that allowed the current account deficit to widen most dramatically in the earlier period when it was easily financed. Countries that used policy and in some cases, perhaps, enjoyed good luck that allowed them to limit the rise in the real exchange rate and the growth of the current account deficit in the boom period suffered the smallest reversals.

Clearly, India’s increasing integration with global financial markets imposes greater market discipline on our policy makers than they have been used to in the past.

I have done many posts on what Subramoney as a blog will do…so here is a negative list. I hope it helps:

- there will be no political commentary: I have strong views on AAP, BJP,  Congress, Narendra Modi, Kejriwal, Ra Ga alias pappu, but hey why the hell should I bore you with my views?

- be consistent: I refuse to be cast as an investor, trader, speculator, student, teacher, delivery based speculator, author, father, son, brother, mentor, mentee, uncle, nephew,  - I wear various hats at various times. However when I see people trying to copy me or asking ‘what do you do in your life’ or ‘what u do with your investing’ my take is simple ‘these are things done by somebody who has been in the markets since 1979 so do not do a cut and paste’ Please, I beg of you.

-  give tips: when I say I traded in Bharti Airtel or Reliance – it is completely useless for you. You do not know my profile, portfolio size, brokerage rates, opportunity cost of funds, patience, portfolio composition, entry price, holding period, exit price, – and I trade with time frames of 1 day to 100,000 days. So my examples are just that. Examples.

- write nice things about real estate: rarely do i write nice things about real estate, but I can assure you that I do have real estate positions. Some sensible, some forced, some legal and some moral.  Can assure you NOTHING EMOTIONAL…

- write nice things about ULIPs: I did buy one ULIP – which is doing well in terms of costs (which is normally the biggest grievance) but doing badly in terms of performance (they recruited a joker from a failed place). ULIP is good only if you know how to reverse engineer a financial product, can squeeze a kickback from the insurance company, and tell your banker ‘see i have paid Rs. 83 lakhs as a premium so give me a Rs. 100 crore term loan’ – please adjust the numbers to suit yourself.

- give you ‘top 20 funds to buy’ and such shit. This is also known as financial porn. Refuse to get into smut. Not that I think it is wrong – just that it is not my cuppa …

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Except when you are in a gym and doing a continuous non stop exercise – a string I mean you normally do not like the word change! When you are 2 minutes into skipping or jumping and the trainer says ‘Change’ you LOVE him, do you not!!

This is not about a gym here let us see what we can do to become better investors. The process of becoming a better investor or a better human being is a process meant to DISCOVER oneself. IT HAS NOTHING to do with markets. So for a given period of time concentrate on the following attributes (this is a take from Edward De Bono’s Six thinking Hats, if you have read that book).

How long should you concentrate? Well it could be an hour, a day or even a week. What are the attributes to concentrate on?

Gratitude, Courage, Love, Loyalty, Trust, Honesty, Sharing, Belief, Respect, Achievement, Health

‘Concentrate on’ means what?

First think of the word. Say the first word you choose is Gratitude.

What figure comes to mind?

Who are you grateful to? What are you grateful for?

When you think of gratitude to whom do you want to show the maximum gratitude? why? what impact did that person have on your life? on your investments? Think hard.

Make a list. Have you told them about this? why? why not?

Can you write a nice thank you note?

can you take that person to dinner? Have you introduced that person to a million others who could benefit?

The list could be endless. Then there are parents, siblings, spouse, colleagues, children, – God the list can be endless.

Frankly if you decide to write down everything, would it not take you a week? Of course there is God for the believers too!

So call it the ‘Gratitude Week’

Now do it for each of the attributes! In 11 weeks you would have a wonderful book with wonderful thoughts.

Now apply the same to your investing. When it comes to Investing you will HAVE to include NEGATIVE thoughts also – like Fear and Greed. See what you did because of Fear and what because of Greed. Try to conquer that.

Next time when you are investing read about G and F. Then look at your portfolio.

When you feel depressed read your notebook. All this will improve your life. And your investment. Of course if you know them well enough make them your ‘Gratitude guru’ and LEARN how to behave like them – THERE IS NOTHING WRONG IN COPYING.

All my writings are copied from somewhere. At times I know where, at times I do not.

This one for example is from De Bono’s book that I read about 20 years ago…and he uses 6 thinking HATS….i am saying use thoughts…

Worst case scenario? at least you have sat down, introspected and done something more useful than watching me on Cnbc!!

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