Very good and insightful article
The most critical thing is the experience of the advisor and the skin in the game.
The traditional consulting model of putting up the generalistst and fees upfront model doesn't fit this.
Sunday, August 30, 2020
What may spoil the market party ?
Fact - Market is in a party mood
Reasons
- Hopes for a V shaped Recovery
- Heavy Retail participation (what to do when WFH)
- Song of India overtaking China playing too frequently and too hard
Disruptions
- More or less clear that Recovery will not be V shaped as some sectors such as Tourism, Travel, Hospitality may be silent for long and some sector will have deep tech disruptions
- Retail participants will get bored and move to other excitements and fun stuff.
- Even a slight correction may have a catastrophic effect on retail participation
I march I wrote this article
and I still hold my strong belief that this is once in a century kind of event and will wipe out may be 25% of the NIFTY companies and may be around 50% will have deep pain at least for more than 3 quarters.
Regarding Indian Dominance song, there is an excellent article by Prof. Rama here
Actually WSJ just wrote an article on the faltering consumer story of Indian Middle Class here
https://www.wsj.com/articles/covid-19-hits-indias-already-faltering-consumers-hardest-11597921200?mod=wsjtwittertest19
Regarding Valuations, I think it makes sense to identify companies in public market from Private Equity point of view, in the current scenario as expressed in this article
there are some interesting companies such as ITC, which always amuse me and there is an excellent article on the same
This article tear down the business and try to highlight the dichotomy of value based investing
Sunday, August 09, 2020
Changing Fundamentals of Value Investing
Value Investing has long been postulated as holy grain of investments in public markets. I come from PE (Private Equity) background, where they don't give any weight-age to traditional value investing parameters such as
- Book Value
- P/E Ratios
I was always thinking that there is a disconnect between the real economy and market. However, offlate, it has been observed that the analysts in institutional investment funds are more focussed on traditional PE concepts such as
- EBIDTA
- De-risking of Cash flows
- Stakeholder Analysis (eg. Power Plant, Mining)
- Impact - Influence Matrix Analysis
It seems that Post COVID public markets investment is no different than the investment theme of Project Finance / PE Funds where they put in extra efforts to evaluate these parameter
Concepts like book value has totally lost relevance. I am not sure why these people on CNBC or market news media keep on shouting P/B etc.
Value Investment has moved ahead of traditional / bookish evaluation as we are amid a once-in-century kind of event.
Advisory post COVID public markets
- High Retail participation may have propelled the markets to unrealistic valuations, which are absurd
- Be focused on staples and tech story
- Don't use Value Investing (as it is taught or professed)
- Cut the crap and be focused on EBIDTA similar to PE/Project Finance
Thursday, August 06, 2020
RBI toffee of 90% LTV limit on Gold loan
Today, RBI did something phenomenal - LTV was increased from 75% to 90%.
As usual, Retail investor got excited and bought Muthoot at such high valuations and increased the share by 5% and then the institutional investors cashed in and booked the profit. Retail investors once again found on wrong foot.
Anyway, gold loan is a complex business and that is why it is very difficult to disrupt this business. Even the marquee VC investors and their portfolio Rupeek.com has failed to disrupt the market
The complexity of the gold loan business is due to
- Requirement of physical custody of gold
- Low margins
- Requirement of stringent testing amid so many frauds
- Special Jewelry which is made fraudulently just for gold loans (This is the category which is evolving very fast over last couple of years)
Muthoot and other NBFC's have developed skills and expertise related to gold loans and RBI has made their job easy by putting up 75% limit in the past. This limit derisked the gold loan business and these NBFC's expanded very fast. Cash for gold was booming due to increase in value of gold in last couple of years. Recently, due to COVID, banks also expanded very fast in gold loan as it was low risk business
It seems this move was instigated by the bankers lobby as the NBFCs were left high and dry. RBI have tied both legs of NBFC's by 75% LTV and made the banks to run full fast by 90% LTV.
Is this fair?
Is this prudent ?
Isn't this repeat of 2013 movie of sudden drop in gold prices ?
Why not NBFC, they dont have any public money?
RBI has far too many questions to answer on this unwarranted step. Without going into this argument, it is interesting too into the after-affects.
Today's change disrupted the market irreversibly and made gold loan as risky business
- Banks will now be confused as they will not be able to take so much of risk of higher LTV and lower LTV will not fetch them business
- Big NBFC's can't trust their employees for accurate testing and give 90% LTV
- Smaller banks like CSB, Federal, Fincare may take a good pie but again at the risk of default. (Is RBI really prudent in this step??)
Future Projections
New contours of competition will evolve as under
- Banks will project themselves as low interest high LTV lender
- NBFC's will get confused first and then they will develop their own positioning with multiple products with multiple LTV's
LTV will become a real weapon for competition and gold loan will now shift towards personal loan and quality of borrower along with the quality of gold will become the new criterion for evaluation of the loan quality.
What will AGLOC do ?
Will Muthoot Mannapuram file case against RBI?
Can this be treated against the Article 19 of constitution ?
Article 19 (1) (g) guarantees that all citizens shall have the right to practice any profession, or to carry on occupation, trade or business.
Is this strong enough ground to challenge RBI ?
Sunday, August 02, 2020
Indo-Chinese Organisations for people to people contacts
Around 10 years ago, I was living in China with my wife and she developed some medical complications, which we googled and found were similar to Vertigo (google used to work at that time in China). We have to take help of our colleagues to find the right hospital and the right doctor and to explain the exact nature of the symptoms.
They gave a very good medicine - Vertigo Calm (a TCM)
A month later they gave - Gingoba Biloba (a TCM)
10 years fast forward, my wife again developed similar symptoms. We tried n number of doctors and medicines but nothing seemed to work. Finally one of my colleague and a Chinese friend fetched both these medicines one by one from China.
I have studied, worked and lived in China for long and feel a deep connect with Chinese people. Though there are border tensions between India and China and deep mistrust between the governments but I still believe that the destiny of both the Asian Countries are connected. Both the countries are immediate neighbors and next superpowers and both have to live peacefully with each other. Infact, I strongly believe that both countries can never go for a war. The current scenarios are due to historically follies of British cartographers and both the countries need to move ahead of the historical follies.
At the same time, there is lack of strong people to people contact organisation between India and China. I casually google through and found some organisations, which are focused on
- Trade
- Economy
- Culture
- Specific Causes
- Policy Making and Research
But there is no organisation, which is focused on
- People to people contact
- Helping Indians in China or Chinese in India for petty issues related to passport, local police, rentals etc.
Hope, one day, the dark clouds will get over and genuine people to people contacts will start between two great nations.
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