Apropos of the article Bihar's Growth article" published on 28th feb 2010. [ http://www.bihartimes.com/Newsbihar/2010/Feb/Newsbihar28Feb3.html]
Below is my analysis of the article which got published as comment in Bihar Times.
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Rome was not built in a day nor will be Bihar.
I congratulate you Mr. Bhattacharya for coming out with such a bold and illusionary article either with an intention to disparage the credentials of a Bihar or to gain political mileage by showing the other politician “ Nitish” down.
Generally conclusion follows research. However, in your article it seems that you formed ex-ante notion of performance of Bihar accordingly fed statistics as per need to meet the malicious objective.
No I’m not supporting that the miracle was brought completely by Nitish and Bihar as a whole performed well. At the same time the picture portrayed of Bihar by you too seems to be pregnant with mala fide intentions. The accuracy of 11% doesn’t matter much to me what was more important was there a serious effort of Biharis to grow the state economy.
Below is my analysis based on the article mentioned:
1) CSO is the central body in India maintaining all statistics. In order to arrive at your analysis I’m sure you’ve dig the figures from CSO or any other source whose ultimate source was CSO.
Then why is that data related to rosy picture of Bihar “alone” is blamed to be tainted? Sir, you’re not attacking your political rival Nitish’s work rather you are giving a bad face to Bihar’s economic growth which you know would hit inbound investment. Which should not happen intentionally or unintentionally when this changed image is really needed by this state?
2) Your statement that the NSDP of Bihar is paltry again to me sounds ridiculous. We know that Bihar doesn’t have industries which drive the economy. Now most of the bread earners are not living in Bihar. GSDP of Bihar is not capturing the accurate receipt of all the income generated by the Biharis. People like me is drawing salary and filing return in other state which certainly is not getting captured in GSDP of Bihar rather in other state. Above all Bihar has more unorganized sector as compared to other state which results in under-reporting of receipt of income.
It is not important that GSDP is low as compared with other state which certainly will be due to several years of mis-governance. What is more important is that in spite of all odds Bihar dared to grow from Rs. 66,040 crore in 2004 to nearly Rs. 1,19,443 crore in 2008–09.
3) Noted your point that there was stagnation in agriculture during 2005-06 because of which growth seemed brilliant. However, there also was Koshi crisis, less cold storage and blight in potato, these problems were not with Maharasthra, Gujarat or Pondicherry. A state which is depended on agriculture and 1,20,000 hectares of land went under water affecting 22 districts apart from other problems mentioned supra. If Bihar still manages a GSDP growth from 66,040 crore in 2004 to nearly Rs. 1,19,443 crore in 2008–09 it is simply commendable.
Besides, if 1,20,000 hectares went under water and agriculture still manages to grow 4.5% must have come from higher productivity ( i.e higher crop coming from decreased arable land). I salute the Bihari farmers for giving extra-ordinary performance and boosting productivity at a time when it was most needed.
4) I admit and admire centre’s role in construction of Bihar but I cannot comment whether central assistance to Bihar as compared to other state was higher, as the article is silent of similar centre’s assistance given to other state. May be statistics was not supporting your ill-conceived theory.
However I was going through economic survey of Bihar which states that in Bihar, the total road length in 2008 was 82,959 kms. which constituted National Highways (4.50 percent). For the sake of repetition, merely 4.5% of NH is in Bihar.
Were national highways, bridges in other state made without central allocation? The statement that Bihar grew of because of central assistance cannot be held to be conclusive.
5) We are a learned people and let’s not find taboo in liquor industry as long as it bring growth and is a source of employment. And mind it every protest of people is not reasonable simply because a bunch of people think in a different way it doesn’t make them right.6) Now few statistics from Economic survey of Bihar FY 2008-09 which seems you overlooked while doing research which I believe is worth mentioning.
a) Among all States and union territories, Bihar with a crime rate of 118 stood at 28th position in the country. There has been a sharp decline of around 50 percent or more in the cases of dacoity, kidnapping, road dacoity and bank robbery in 2008 over 2001. Pondicherry of which you were boosting in this article topped the rank of highest number of crime followed by Chandigarh.
b) The number of motor vehicles in Bihar has increased by 239 percent in 2007.
c) The total number of GSM subscribers in November 2008 registered a phenomenal increase to 1.24 crore, compared to only 9.70 lakh subscribers in 2004-05.
Let’s assume for the time being that Bihar didn’t do well and it’s performance is mere statistical illusion even then I congratulate Bihar for marketing it’s economic growth out of nothing and compelled economists across India to discuss this case.
My intention is not to communicate that Bihar performed exceptionally well but to pin point that it was not as bad as portrayed by the you Sir.
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Disclaimer: I've tried my best to include the correct facts and statistics. However, readers are discouraged from quoting this anywhere and apply their intelligence. Kindly also go through the disclaimer of blog which applies here
Saturday, March 6, 2010
Sunday, February 21, 2010
What is expected from Budget....????
Budget Day
As was expected this year FM will stand to present the Budget on 26th. For me the day of Budget has always been an interesting day in Deloitte. People sit in group analyzing and printers are busy taking out print defying “IDEA” advertisement of Abhishek Bachaan. I never watched Live Budget before joining Deloitte rather relied on the Economic Times for complete synopsis. But Capital market taught me the importance of every jiffy.
We at Deloitte sit in front of big screen making synopsis, as in few hours time presentation has to be prepared for media and different business forums. If you think few hours is very less time to analyze the impact of Budget, think of investors which takes merely fraction of seconds to pour & suck crores of rupee.
Takeaway: If you don’t trust me and not noticed earlier, then have one eye on the lip movement of FM and other eye on movement on sensex/nifty.
Emotions
Every industry expects sops, reduction of tax and more tax friendly environment. Wish lists are invited from every industry and they have their huge expectations. But expectations are not necessarily meant to be culminated as per one’s whims and desires.
Takeaway: That’s the reason even an average Budget is perceived as bad budget and causing market to tumble down.
Fertiliser subsidy
Fertiliser is a political sensitive sector and historically the price has been supported by huge subsidy. Last week the government took U-turn by deciding to de-control prices of fertilisers. The subsidy now would be nutrient based instead of per bag basis which to me seems more logical. It would encourage farmers to buy more nutrient based which would be available at subsidized rate. However, this step is a bold decision from the government side and is a step further towards the economic reform process.
Takeaway: Remember, if Government has guts to kick start reform by de-controlling fertilizer none of the sector would be spared in this Budget.
The Politics
The congress led UPA government has been formed almost on its own therefore it needs not to fear from its allies pulling down the government. Further, in the first year of tenure every government takes bold decisions as they’ve to face the election only after 4 years now and public has very short memory. There might be few elections lined up which I’m not fully aware apart from Bihar state election in october. However, my experience has been that state elections deals mostly with regional and local issues. Each state minister writes it’s own fate and national level issues has not got major impact.
Takeaway: The Government would not be afraid of taking bold decisions in this Budget.
Fiscal Deficit
Fiscal deficit is the gap between government expenditures and government income. The fiscal deficit has been hovering around 10% of GDP which certainly is high at the time of recession due to increased spending. In general, High fiscal deficit is not good for economy. PM’s Economic Advisory Council (EAC) is insisting to reduce the fiscal deficit at least by 1%. Therefore, it is likely that if Government takes this suggestion seriously it will lead to withdrawal of stimulus package.
Takeaway: Government needs money to rein Fiscal deficit and is expected to withdraw stimulus packages. However, withdrawal of stimulus package should be an evolutionary instead of revolutionary.
Quarterly results
India has already returned to 7%+ growth path, FM might think of gradually withdrawing stimulus package. Economy is showing signs recovery and economists are sanguine on above 7.5% GDP growth. Does it not mean that we should do away with few of the stimulus packages?
Government met huge resistance in Direct Tax Code (DTC) wherein it proposed minimum alternative tax (MAT) on 2% of gross assets. DTC might be modified to make it more acceptable. Government might also decide to increase indirect taxes in selected industries which were decreased as part of stimulus packages.
Takeaway: I expect, better the Q3 result shown by the Industries worst will the axe of FM will fall in budget in that industry. I expect government might increase few of the taxes as government need money.
In a nutshell, this week the market might see a good amount of correction in expectation of harsh budget. In case there is no correction in coming days then on the day of Budget I expect a bloodbath on Dalal street.
______________________________________________________________________
Disclaimer: This article I’ve written based on the fact available at this spur of moment with me and based on my understanding and judgement. Facts change every moment so will the analysis. However, I won’t be able to update my analysis as frequently as the fact changes. Therefore readers are recommended to apply their judgement and seek professional advice before taking any decision based on the above article.
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As was expected this year FM will stand to present the Budget on 26th. For me the day of Budget has always been an interesting day in Deloitte. People sit in group analyzing and printers are busy taking out print defying “IDEA” advertisement of Abhishek Bachaan. I never watched Live Budget before joining Deloitte rather relied on the Economic Times for complete synopsis. But Capital market taught me the importance of every jiffy.
We at Deloitte sit in front of big screen making synopsis, as in few hours time presentation has to be prepared for media and different business forums. If you think few hours is very less time to analyze the impact of Budget, think of investors which takes merely fraction of seconds to pour & suck crores of rupee.
Takeaway: If you don’t trust me and not noticed earlier, then have one eye on the lip movement of FM and other eye on movement on sensex/nifty.
Emotions
Every industry expects sops, reduction of tax and more tax friendly environment. Wish lists are invited from every industry and they have their huge expectations. But expectations are not necessarily meant to be culminated as per one’s whims and desires.
Takeaway: That’s the reason even an average Budget is perceived as bad budget and causing market to tumble down.
Fertiliser subsidy
Fertiliser is a political sensitive sector and historically the price has been supported by huge subsidy. Last week the government took U-turn by deciding to de-control prices of fertilisers. The subsidy now would be nutrient based instead of per bag basis which to me seems more logical. It would encourage farmers to buy more nutrient based which would be available at subsidized rate. However, this step is a bold decision from the government side and is a step further towards the economic reform process.
Takeaway: Remember, if Government has guts to kick start reform by de-controlling fertilizer none of the sector would be spared in this Budget.
The Politics
The congress led UPA government has been formed almost on its own therefore it needs not to fear from its allies pulling down the government. Further, in the first year of tenure every government takes bold decisions as they’ve to face the election only after 4 years now and public has very short memory. There might be few elections lined up which I’m not fully aware apart from Bihar state election in october. However, my experience has been that state elections deals mostly with regional and local issues. Each state minister writes it’s own fate and national level issues has not got major impact.
Takeaway: The Government would not be afraid of taking bold decisions in this Budget.
Fiscal Deficit
Fiscal deficit is the gap between government expenditures and government income. The fiscal deficit has been hovering around 10% of GDP which certainly is high at the time of recession due to increased spending. In general, High fiscal deficit is not good for economy. PM’s Economic Advisory Council (EAC) is insisting to reduce the fiscal deficit at least by 1%. Therefore, it is likely that if Government takes this suggestion seriously it will lead to withdrawal of stimulus package.
Takeaway: Government needs money to rein Fiscal deficit and is expected to withdraw stimulus packages. However, withdrawal of stimulus package should be an evolutionary instead of revolutionary.
Quarterly results
India has already returned to 7%+ growth path, FM might think of gradually withdrawing stimulus package. Economy is showing signs recovery and economists are sanguine on above 7.5% GDP growth. Does it not mean that we should do away with few of the stimulus packages?
Government met huge resistance in Direct Tax Code (DTC) wherein it proposed minimum alternative tax (MAT) on 2% of gross assets. DTC might be modified to make it more acceptable. Government might also decide to increase indirect taxes in selected industries which were decreased as part of stimulus packages.
Takeaway: I expect, better the Q3 result shown by the Industries worst will the axe of FM will fall in budget in that industry. I expect government might increase few of the taxes as government need money.
In a nutshell, this week the market might see a good amount of correction in expectation of harsh budget. In case there is no correction in coming days then on the day of Budget I expect a bloodbath on Dalal street.
______________________________________________________________________
Disclaimer: This article I’ve written based on the fact available at this spur of moment with me and based on my understanding and judgement. Facts change every moment so will the analysis. However, I won’t be able to update my analysis as frequently as the fact changes. Therefore readers are recommended to apply their judgement and seek professional advice before taking any decision based on the above article.
---------------------------------------------------------------------------------------------
Sunday, January 10, 2010
The Rabbit is out
The rising of the Phoenix
What do you think is mind, just a bundle of thoughts? Well…!!! My mind has been innocent of any innovative thought which made my article seemed as rare as the proverbial phoenix. So was the stock market recently rising from its own ashes like the phoenix?
The Subprime crisis
All the major indices around the world were chopped down to “Davy Jones's Locker”. Under this subprime tsunami highly prestigious Investment Bankers went as dead as Dodo. Broker community was of the view that such financial crisis happens once in lifetime, what they were silent at, was that such opportunity to invest also comes once in a lifetime. You needed the eye of an eagle to identify gold in the stock market getting sold at the cost of dust. (Please refer my earlier article circulated to you in trailing mail for Subprime crisis).
The Dust which got settled down
Every Bubble ends with a bust and the stock market acted in no way different. You will agree that everything in this world tends to move towards equilibrium. For instance, if some scrip is overvalued it must fall to reach the equilibrium i.e has to justify the right valuation and the vice versa.
When the choppy market goes hopeless and is of opinion that “ nothing can happen of this market”, or say “ market will now never rise”. This is when foundation for new Bull run is laid down. Which is based on simple premise that when people are most frustrated they sell like anything and market factors in all bad news in today’s price resulting in bottoming out? The dust settles down quietly and the right time to investment begins.
The gentleman and his promises
Like a true gentleman keeping all his promises, I followed the suit. In last article I promised I will talk on individual stock. And here it unfolds the story of Edserv.
In less than a year this scrip gave me 800% return. Let’s make it simpler what 800% stands for. If I would have kept my saving in Bank with 4% at Simple Interest, it would have taken 200 years to earn this. Mind it this is just one such stories in my kitty.
My Strategy for Edserv
The Valuation
I generally buy scrip with strong business model and where no investor is interested and in all respect can be called as undervalued scrip. I never heard of Edserv before but it simply met my parameters mentioned below:
P/E Ratio 10 means= You pay Rs 10 in order to earn one rupee. Do I need to say, Lower the ratio, better is the investment. I bought at around P/E of 7, today it is at around 70.
Book value per share= Value the shareholders would receive in liquidation. I bought almost at Book value.
D/ E ratio= At time of crisis, company with High debt gets the most hit. Besides, interest payment dips the EPS irrespective of profitability. Edserv is a debt free company.
Qualitative Analysis
Niche Market: The company is almost in niche market which means, it can demand higher profitability. It is in business of making software for educational institutions.
Education sector: Interesting sector which gets benefitted in almost all the budget for social cause. Long live the politicians.
Poor management: Share price plunged because of poor management apart from subprime crisis. The result was expected to be poor or average. This was what tempted me.
Stock Price: I knew stock price is present value of future cash flow. In this scrip, almost all future bad news seemed to be factored in today’s price. Now this involves risk which can be mitigated by analyzing that what is the probability of favourable outcome of an event to occur. The probability of downside movement in this company was limited as all bad news was already factored in but the probability of upside was tremendous.
I didn’t give a second thought. It was not about money, it was about conviction to stand by your decision. You’ll burn your fingers if you dare touching Edserv at such high valuation. It’s days are over now.
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Future is uncertain
First quarter of 2010 would be interesting. FIIs is returning in market after festive season. Q3 Results of companies are awaited and are expected to do well because of low base effect and robust advance tax collection numbers which increased by 22.72 per cent, contributed largely by automobiles, consumer goods and metal firms. 26th Feb is the expected date of Budget which will be an important determinant in setting trend. Government may withdraw stimulus package as economy is already back at growth path.
Beat the Inflation
I don’t know much about the principle of economics, what I know is that basket of goods get costlier than last year by say “x” factor. Some erudite creatures called Economist coined a term inflation for this “x” factor. Say what I bought last year at 100, because of inflation of say 5% I’ve to cough up 105 this year. While Rs 100 kept last year in Bank, became Rs105 (inclusive of 5 % interest). Real rate of return from bank after factoring in inflation would be nil.
It simply means my investment whether in Bank, Mutual Fund, Bond, Equity, Gold should give me a return at least higher than the inflation figure. For me Bank is the worst place to park my saving as it gives a return which can hardly beat inflation. In layman term Inflation erodes the purchasing power of the currency.
The tentacles of Inflation
Two important factors which will lead to inflation in near future are Liquidity and Incongruity of Demand and Supply.
Liquidity: When surplus money follows few goods it lead to inflation. Last year lot of stimulus package was given, the surplus money circulating in economy may lead to Inflation globally. In order to rein inflation, RBI or any Central Bank will be forced to suck liquidity through various measures which will result in market tumbling down. As Freidman and Anna Schwartz once said "inflation is always and everywhere a monetary phenomenon."
Incongruity of Demand and Supply: Incongruity in demand-supply leads to inflation. For instance, India’s agriculture which is poorly irrigated gets impacted due to poor or erratic monsoon. I believe the festive and marriage season will lead to shortage of key food items particularly sugar. Food prices which have higher weight age on Inflation will lead to its upward movement. Logically, Government should either import or discourage the export of sugar during these months.
Often do we hear strike of Bus, Auto, Taxi but recent strike of Trucks is little uncommon. A strike of Truck which is a cargo carrier will lead to severe gap in demand and supply and will have domino’s effect on economy as a whole. Disrupted supply will increase the price of essential goods or perishable goods leading to inflation. Similarly, an increase in price of petrol will hit pocket of common man but an increase in Diesel on which cargo industry depends will hit the economy badly. So, government is always biased in setting prices for Petrol and Diesel.
In a nutshell, I believe market is waiting for major correction and I don’t recommend buying at this level. Remember, I may go wrong as I’m no Warren Buffet.
The Rabbits
There are more rabbits lying in magician’s cap, wait for the next one to come out. Till then Happy Investing…!!!
What do you think is mind, just a bundle of thoughts? Well…!!! My mind has been innocent of any innovative thought which made my article seemed as rare as the proverbial phoenix. So was the stock market recently rising from its own ashes like the phoenix?
The Subprime crisis
All the major indices around the world were chopped down to “Davy Jones's Locker”. Under this subprime tsunami highly prestigious Investment Bankers went as dead as Dodo. Broker community was of the view that such financial crisis happens once in lifetime, what they were silent at, was that such opportunity to invest also comes once in a lifetime. You needed the eye of an eagle to identify gold in the stock market getting sold at the cost of dust. (Please refer my earlier article circulated to you in trailing mail for Subprime crisis).
The Dust which got settled down
Every Bubble ends with a bust and the stock market acted in no way different. You will agree that everything in this world tends to move towards equilibrium. For instance, if some scrip is overvalued it must fall to reach the equilibrium i.e has to justify the right valuation and the vice versa.
When the choppy market goes hopeless and is of opinion that “ nothing can happen of this market”, or say “ market will now never rise”. This is when foundation for new Bull run is laid down. Which is based on simple premise that when people are most frustrated they sell like anything and market factors in all bad news in today’s price resulting in bottoming out? The dust settles down quietly and the right time to investment begins.
The gentleman and his promises
Like a true gentleman keeping all his promises, I followed the suit. In last article I promised I will talk on individual stock. And here it unfolds the story of Edserv.
In less than a year this scrip gave me 800% return. Let’s make it simpler what 800% stands for. If I would have kept my saving in Bank with 4% at Simple Interest, it would have taken 200 years to earn this. Mind it this is just one such stories in my kitty.
My Strategy for Edserv
The Valuation
I generally buy scrip with strong business model and where no investor is interested and in all respect can be called as undervalued scrip. I never heard of Edserv before but it simply met my parameters mentioned below:
P/E Ratio 10 means= You pay Rs 10 in order to earn one rupee. Do I need to say, Lower the ratio, better is the investment. I bought at around P/E of 7, today it is at around 70.
Book value per share= Value the shareholders would receive in liquidation. I bought almost at Book value.
D/ E ratio= At time of crisis, company with High debt gets the most hit. Besides, interest payment dips the EPS irrespective of profitability. Edserv is a debt free company.
Qualitative Analysis
Niche Market: The company is almost in niche market which means, it can demand higher profitability. It is in business of making software for educational institutions.
Education sector: Interesting sector which gets benefitted in almost all the budget for social cause. Long live the politicians.
Poor management: Share price plunged because of poor management apart from subprime crisis. The result was expected to be poor or average. This was what tempted me.
Stock Price: I knew stock price is present value of future cash flow. In this scrip, almost all future bad news seemed to be factored in today’s price. Now this involves risk which can be mitigated by analyzing that what is the probability of favourable outcome of an event to occur. The probability of downside movement in this company was limited as all bad news was already factored in but the probability of upside was tremendous.
I didn’t give a second thought. It was not about money, it was about conviction to stand by your decision. You’ll burn your fingers if you dare touching Edserv at such high valuation. It’s days are over now.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Future is uncertain
First quarter of 2010 would be interesting. FIIs is returning in market after festive season. Q3 Results of companies are awaited and are expected to do well because of low base effect and robust advance tax collection numbers which increased by 22.72 per cent, contributed largely by automobiles, consumer goods and metal firms. 26th Feb is the expected date of Budget which will be an important determinant in setting trend. Government may withdraw stimulus package as economy is already back at growth path.
Beat the Inflation
I don’t know much about the principle of economics, what I know is that basket of goods get costlier than last year by say “x” factor. Some erudite creatures called Economist coined a term inflation for this “x” factor. Say what I bought last year at 100, because of inflation of say 5% I’ve to cough up 105 this year. While Rs 100 kept last year in Bank, became Rs105 (inclusive of 5 % interest). Real rate of return from bank after factoring in inflation would be nil.
It simply means my investment whether in Bank, Mutual Fund, Bond, Equity, Gold should give me a return at least higher than the inflation figure. For me Bank is the worst place to park my saving as it gives a return which can hardly beat inflation. In layman term Inflation erodes the purchasing power of the currency.
The tentacles of Inflation
Two important factors which will lead to inflation in near future are Liquidity and Incongruity of Demand and Supply.
Liquidity: When surplus money follows few goods it lead to inflation. Last year lot of stimulus package was given, the surplus money circulating in economy may lead to Inflation globally. In order to rein inflation, RBI or any Central Bank will be forced to suck liquidity through various measures which will result in market tumbling down. As Freidman and Anna Schwartz once said "inflation is always and everywhere a monetary phenomenon."
Incongruity of Demand and Supply: Incongruity in demand-supply leads to inflation. For instance, India’s agriculture which is poorly irrigated gets impacted due to poor or erratic monsoon. I believe the festive and marriage season will lead to shortage of key food items particularly sugar. Food prices which have higher weight age on Inflation will lead to its upward movement. Logically, Government should either import or discourage the export of sugar during these months.
Often do we hear strike of Bus, Auto, Taxi but recent strike of Trucks is little uncommon. A strike of Truck which is a cargo carrier will lead to severe gap in demand and supply and will have domino’s effect on economy as a whole. Disrupted supply will increase the price of essential goods or perishable goods leading to inflation. Similarly, an increase in price of petrol will hit pocket of common man but an increase in Diesel on which cargo industry depends will hit the economy badly. So, government is always biased in setting prices for Petrol and Diesel.
In a nutshell, I believe market is waiting for major correction and I don’t recommend buying at this level. Remember, I may go wrong as I’m no Warren Buffet.
The Rabbits
There are more rabbits lying in magician’s cap, wait for the next one to come out. Till then Happy Investing…!!!
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