Portfolio Plan with PE at 20

 PE = 20, https://primeinvestor.in/nifty-pe-ratio/

market may have a trailing effect 

My threshold is 18-19 to touch equity, but I have to start somewhere, 

so I will begin my build-up game

Where to start? 

Index-linked direct plans, as I don't have time

Debt 

Indian Railway Finance Ltd                          7.61%

National Savings Certificate (VIII Issue) 6.80%

SBI Regular Income Corporate Bond            6.34%

5 Year Time Deposit on Indian Post          6.70%

Kisan Vikas Patra​​                  6.90%

Indian Oil                                                        6.14%

Source - Bondskart.com

Indications from Bond Yields in India for savers in Fixed income returns products

 Just couple of weeks ago, everyone was surprised by the absence of RBI in the market when the yields moved upto 5.97% and now all of a sudden 179/180 bn INR of 10-year benchmark bond was purchased by primary dealers. Still prices of bonds increased ?? Very strange

The hint lies in the yields of 6.02% which seems is not comfortable level with RBI. It seems RBI has put its foot down on yields and market has sniffed the discomfort of RBI.

Also, it also indicates that there are concerns around oversupply of Govt. debt in India and that 12 tn INR plan is still on the books. 

Anyway, it seems the real inflation will cross 7% sooner or later. What this means for savers and retail investors in fixed income products

Effectively fixed income products are giving negative returns of around 1.5% (5.5%-7.0%). There are losers and winners due to this negative real rate of interest. 

Plagiarism at Indian Schools

Today, when I was doing some browsing about the success factors for a successful M&A for Indian companies, JLR came to my mind. I first came across a research report by an Investment bank and then a project report by some IIT/IIM students. I was shocked that these project reports were copied word by word from the Investment bank report.
http://www.slideshare.net/purval/tata-motors-jlr-deal-part2
http://www.scribd.com/doc/9156583/Merger-and-Acquisition-Tata-Jlr-garg
These students would have been turned out of school if it would have been any global Business or Technology school. There is zero (and it is definitely 0) tolerance for plagiarism at any top school, but that is not the case at premium schools in India.

Well I never want to badmouth the so called premium institutes in India but then this does not mean that we become irrational. They are degrading in quality and reports about this degradation are surfacing in media. Just 2 days ago, Jairam Ramesh spoke something, which everyone knows – “Faculty and Research at IIM’s and IIT’s sucks”. There were reports of IIT’s thesis being copied and other. IIT Kanpur recently was in media for a copied thesis case. 2 days ago Sandeep Dikshit voiced the same about a reputed college.

Hope Kapil Sibal, Minister – HRD is listening and start doing something radical instead of fighting with Jairam Ramesh..........Ha Ha .......I am definitely away from any politics

Is Recession Round the corner?? - Part 2 (Slowdown)

This is in reference to my earlier article on recession. Now I am bit convinced that India is on edge of a slowdown at least for the moment

http://luckylehana.blogspot.com/2011/04/is-recession-round-corner.html

Consider these
1. Real Estate Slump – After a booming 2010, there is considerable overcapacity in Real Estate, which have been responsible for revival of downstream industries such as Steel and cement.

Cement have already shown that the overcapacity will push the margins downwards
http://www.moneycontrol.com/news/business/india-cement-sector-to-see-overcapacity-aheadfitch_437483.html

A very good note
http://www.thinkindia.net.in/2010/08/an-unreal-market-.html

I have myself taken note of the situation – The labor costs are cutting the margins of the small business owners

2. Governance Issues – I think (my personal opinion) Congress is responsible for many of the woes India has currently. I have lost the count of the scams and Congress leaders are still hiding around (including Manmohan, Sonia and PC). They are shedding their responsibilities by playing aloof.

Anyway, I think there are more 2G, CWG, Adarsh in the bag.

3. Outflow of Funds – India is the only BRIC country to have net outflow by FII in 2010-11. This indicates that the FII does not believe in the Indian story or they are scared away by the 2G, CWG etc

4. Inflation – I don’t buy the contention the inflation in India is only due to poor Supply Chains. Having seen the loosing of purse by the Government in 2008-09 for the cheap lending and popular schemes, I am convinced that wrong fiscal and monetary policies are responsible for this monster

I consider Inflation as the worst factor to derail the Indian growth story.
Inflation is nothing but redistribution of wealth. Inflation makes worth of the currency you hold to tumber but increases the worth of the land and the house you are building to increase. A real estate developer (assuming input prices takes time to increase) gains in real terms through inflation but the workers and the engineers working for him loses in real terms through inflation. So, inflation is equivalent to shifting of economic benefits from a lagging earner to a leading earner.

Unfortunately, increase in wages is a lagging indicator in economic recovery. Hence, wage earners will be the one, who will suffer the most in an inflation cycle.

Is Recession Round the corner??

I was thinking about the business situation in real life and found a very interesting case in my home only.

My brother has an AC sales, distribution and repair business in Gurgaon. In last 5 years, he had seen his percentage margins going south slowly but steadily. The trend accelerated in last 2 years due increase in
1. Cost of Capital (10% Fixed income rates in India)
2. Cost of Labor

The repair is the worst hit business as cost of spairs and labor cost of mechanic has increased by 100% literally, while the unit repair rates are pretty same. Much of it has to do with the 15% food/commodity inflation in India. He has to decide to either run at loss or shut down repair business totally.

I am not sure what is the way out of this situation. I have advised him that Recession is round the corner. Wait for the inputs to subsidize.

Things apart, some of the concepts of marketing such as finding blue ocean of niche segments seem to be too hard to implement if you just have 0.001% of the highly fragmented market.

Coal India IPO - Is Indian Govt. giving too much away

I was not surprised by the 17 times over-subscription of Coal India Ltd. Given by the reserves (Biggest reserves in the world), the valuation was bit of a tough task. Even the company had a huge cash in hand.

Some 2 months ago before the deal, I calculated that the cash in hand per share would be around Rs.40 per share. Though I was not sure about the exact valuations, but analyst were quoting around Rs. 300 in contrast to highest band price of Rs. 245

This brings a critical issue in privitisation of the PSU's in India. Is the Indian Govt giving away a lot of assets too cheap??

EIL and others were not so exciting as markets were not so buoyant in 2009. Next in line - IOC, PGCIL. I would place my bets for PGCIL - Power sector is going to have a good boost in coming years.

IOC will still suffer from existing price restrictions on retail fuel prices in India.

First week in US

I would say right on the very first week, I got to realize that
1. Why people call US to be greatest country in the world
2. Why economist say this country is going down.
and
3. Why I think USD will go down (below 42 INR/USD by December)
4. Why India and China is future of the world

Let me illustrate 1 by 1

1. People are really warm here. They are not only open, they are willing to lend you an extra hand. Infact I would say - After travelling so many countries around the world, I found people in US to be most cooperative. Though I am bit biased as I live in North Carolina which is known for friendly people. But this soft power is absent in India and China. In fact, I found China to be most unfriendly place till now. I think it is due to the culture that Chinese people do not want to cooperate and they are too mean and selfish in negotiations and relations. India is in between. But yes US is true soft power.

2. Lot of inefficiency and overcapacity all over the place. Lawyers earn more than engineers. Value destroyers (lawyers) are powerful enough. Taxes are really high. No incentive for creating value. Informal channels such as tips in restaurants. Free buses, which are mostly empty.
Hence, the economists seem to be right.

3. An overburdened economy can survive this for long. Broad unemployment (not net) is close to 20%. This means that 1 in every 5 person is facing blues. In absence of any expansion space, inducing inflation and hence, lowering the relative wages and taxes seems to be the only method of escaping the deflation spiral.

4. China/ India - Wage and taxes are low, Lawyers are not powerful, People want to become Engineers (read value creators). Though there is some BS going on in India, China seems to be spearing ahead with unprecedented pace.

India Managed the crisis better

Well a very nice article about Indian Economy robustness and the reasons behind it.......
http://www.nytimes.com/2008/12/20/business/20nocera.html?_r=2&pagewanted=1


One of the biggest reason - Strong regulations to check speculative activities and profiteering.


BUT STOP A MIN - WAS BAD FINANCIAL REGULATIONS A REASON OF FAILURE FOR US - I BEG TO DISAGREE