Finance
February 28, 2011
Renewable Energy Certificate (REC) are one of the most important tools for promoting alternative energy in India.The Central Regulatory Commission (CERC) alongwith energy exchanges has been working on making trading in RECs happen since the last one year.Trading in RECs started last week with small amounts of REC trading at the Delhi based Indian Energy Exchange.Note most of the volumes are expected to be traded in the July-Sept Wind Season and October Bagasse planting season.While only small amounts were traded as physical trade is only allowed for 2 hours on last Wednesday of every month,volumes trading should start in 2012.The IEX is targeting around $8 billion in REC trade by 2017 as Renewable Energy in India grows at a faster rate.
February 28, 2011
The Reserve Bank of India has clarified that Indian individuals cannot trade in the forex markets under FEMA rules.Note a number of Indian brokers and forex companies were advertising heavily promising big returns to retail investors.Note forex markets are extremely tough to trade even for professional traders for institutions.For retail investors they are a sure shot way to lose money in large amounts.Note forex markets offer much higher leverage than normal Futures Equity markets.Being an effectively zero sum game and requiring high amounts of knowledge ,forex markets are just too sophisticated for retail investors in my view.But they are quite lucrative for forex trading portals and companies whose main target semgent are retail investors.
December 14, 2010
Asian Development Bank (ADB) may rescue the JNNSM process which seems to be headed for certain problems.The Bank is committing to provide loan guarantees for under 30 MW projects to Indian Banks and upto 25% equity investment into >30 MW projects.Note debt financing is a major issue which was talked about by the biggest Indian utilities for not participating.Note ADB has already committed to setting up 500 MW Renewable Energy Capacity in India in JV with NTPC.This will further increase ADB's exposure to Solar Energy in India.It remains to be seen if ADB give equity and debt to many of these projects which don't seem to be feasible at these prices.Will ADB willing to take losses in these ventures and provide loans to many of these unknown firms with no track record.
December 14, 2010
Note the issue size of the IPO is quite small at around $100 million which means the retail portion is only $30 million.Coal India IPO with a $3 billion issue and $1 billion retail portion got subscribed by almost 2-2.5x.This mean that Punjab and Sind Bank can get subscribed by almost 60x since MOIL IPO got 55-60 times overall subscription with almost 31x retail portion even when the issue size was almost triple that of Punjab and Sind Bank.Note though MOIL IPO in my opinion was more undervalued than PNSB,still I think oversubscription in case of this PSU Bank would be higher than that and could easily cross the 31x retail that MOIL IPO got
December 9, 2010
Indian Small Cap and Mid Cap Stocks got massacred today even as the rest of the global markets were up.There was no specific catalysts for the sharp sell off in the small cap space which was down more than 5% with a large number of stocks hitting circuit filters on their way down.FII and brokerage favorite mid cap stocks were the worst off declining by anywhere between 10-20%.Note India has seen a huge wave of scandals hitting the political and business spheres in the past couple of months.While Corruption is nothing new to India with India's Supreme Court calling "Corruption a Way of Life" ,the rising frequency has unnerved the investors.The Stock Market has also seen a number of scams hitting the news with well regarded stocks tanking by more than 50% in less than a week.Since its hard to explain all the scams that have been hitting India,I am listing out the blog posts explaining the scams here.
December 8, 2010
Punjab and Sind Bank is a National PSU (Public Sector Undertaking) which is coming with a Rs 480 crore IPO by selling 4 crore shares at around Rs 113-120.The Company is offering 18% of its equity in the offering which would give it a market capitalization of roughly Rs 2500 crore ($550 million) at the upper end of the price band.Note there are a large number of mid cap and large cap PSU banks listed on the Indian markets.Note most of the PSU banks have seen a very good bull run in the last year and a half significantly outperforming the rest of the market.However the last 3-4 months have been tough with a LIC Housing Finance Scandal implicating top PSU Bank Officials for taking Bribes for Loans.The rise in deposit rates and tight liquidity has also hurt the sentiment for PSU Bank stocks.However,Banking remains one of the best ways to play the Indian growth story as financial inclusion remains very low.PSU Banks in general trade at low valuations compared to the private bank peers and mid cap PSU banks at lower multiples than larger ones like SBI,Bank of Baroda and PNB.
Summary
Punjab and Sind Bank seems a no brainer due to its significant discount on its fair valuation.At 5x P/E and around 1.2x P/B ,Punjab and Sind Bank is being sold at a substantial discount to the rest of PSU banks which are lower quality in terms of growth and margins.There are some mitigating factors like the low NIM ratio however the valuation more than covers for that up.The only problem in case of the Punjab and Sind Bank IPO is going to be oversubscription.Like MOIL IPO which saw 55-60 times oversubscription,same thing could happen here also.
December 3, 2010
India's Banking Sector is highly profitable earnings very high Lending Deposit Spreads.India's Central Bank RBI has said that this spread (NIM) needs to come down in order for India to grow by double digits.However the Banks are in no mood to change their highly profitable business model.With India's Economy growing at a rapid pace the banks are seeing high credit growth and net interest income as well.They are opposed to any change in the status quo which allows them to make supernormal profits in the highly regulated banking sector.Note I am calling the Financial Sector as an Oligopoly because the Central Bank strictly controls the entry of new players in the Banking Sector.RBI has recently proposed giving new banking licenses to some more companies but it won't change the structure of the industry.
December 3, 2010
India's Stock Market Regulator has been hardly proactive in cracking down on stock market manipulation except for some inefficient scolding.It has banned some companies and a stock market operator for artificially rigging up stock prices through a nefarious scheme so that the stock could placed through QIBs at higher prices.Recently GMO,Goldman,Morgan and Fidilety got conned by a fly by night Indian financier who managed to place $100 million of his company's shares a hugely inflated price.A cursory due diligence by these high flying financial institutions would have shown his business model to a sham.Realty Investing in India is always a dangerous game with real estate firms involved in all sorts of corruption scandals.Akruti City whose shares had seen a massive rise some months ago has been implicated by SEBI for rigging up its share price with the help of a "stock market operator" Dangi.Some other firms like Murli Industries,Welspun Corp have been found to be part of this corruption game as well.Broking Firms like Ashika and Anand Rathi were broking for the Operator.Note SEBI has not done much except banning these firms.I would have though that these white collar crimes should be punished more stringently.Banning some entities without any jail time will lead to more and more of these stock rigging in the future.
December 1, 2010
The number of advertisements by Foreign Exchange Retail Trading Companies have increased dramatically in most of the popular Internet websites in India.These Websites try to lure potential retail suckers by showing pictures of ordinary people making regular monthly income by trading in Foreign Exchange.These ads are total misinformation as hardly any retail investor makes money from FX activity.FX trading is a complex activity at which even professional investors from bulge bracket financial institutions have a hard time in making money.Retail investors almost always lose money in FX trading particularly as Foreign Exchange Trading is a zero sum game compared to equities.Huge amount of leverage makes attracting gullible investors even more easy.The FX retail trading platforms have proliferated in recent days with Retail Trading having multiplied by 900% in the last 10 years to around $100 billion daily.FXCM.com one of the popular trading platforms is coming out with an IPO in the US.These companies have benefited hugely on the back of suckering retail investors.Note these firms need a constant supply of new suckers (sorry customers) in order to run their companies.Here is a article from FT which describes the modus operandi of these firms taken right out of their handbook (IPO prospectus ).
November 26, 2010
India's new Corruption Scandal involving a Housing Loan Scam involving Bribes paid to India's top public bank officials has ensnared top notch financial institutions in the West as well.The whos-who of Wall Street got dazed by spectacular growth and profits of a 3 year old financial outfit in India which had been built on a foundation of lies and bribers.This Corruption Scam was started by a Financial Outfit called Money Matter Financial Services which started as a 2 person outfit.However through arranging of debt to big corporate houses by paying bribes to top officials of India's large government owned institutions such as Bank of Indian,PNB and others,the outfit saw its share price increase by 7 times.
November 25, 2010
I have been repeatedly pointing out the dangers of investing in Real Estate Companies as more and more skeletons tumble from the closet.Its an open secret that Real Estate Companies in India fudge their Financial Statements through Creative Accounting and other means such that even Fund Managers don't invest in the Realty Sector.Major Real Estate Companies like IREO and Emaar MGF have played prominent role in some of the major corruption scams rocking the country.Now more big Real Estate Firms have been implicated for their role in other corruption scandals.DB Realty a Mumbai based Realty Company has been found to be a prime suspect in the LIC Housing Finance Scam where the CBI has arrested.Some construction companies like Man Infrastructure,HCC have also become a target of investigation.
November 17, 2010
India's Fast Growing Economy is seeing substantial churn in the Top 10 Rankings for Companies.Coal India which recently did a successful IPO straightaway went from being a Government Owned Private Company to the Top 5 in Market Capitalization Rankings.The Top 10 Rankings are dominated by State Owned Companies known as PSUs in India.Despite Privatization in the 1990s,Government Companies Lead the Rankings.Note the Top 10 Rankings don't have any Private Companies because of the lack of good information about their Financials.Note Most of the Largest Companies in India are related to Banding and Oil/Gas as is the case worldwide.India's Technology Companies like Infosys,TCS and others are still way behind in Revenues compared to the dominant Materials,Fossil Fuel,Industrial and Financial Sectors.However note that the diversity is much greater when you rank the companies by their market capitalization.TCS and Infosys are both amongst the top 5 recovering strongly in 2010 from their 2008 underperformance.You also see a Capital Goods and Telecom Representation in this Top 10 Rankings
October 22, 2010
Microfinance has become one of the hottest growth sectors in India attracting Private Equity Companies eager to take advantage of India's Growth Story.A Number of For-Profit Microfinance Companies have grown exponentially in recent times with funds raised from Foreign PE Firms.The Business Model of these Financial Intermediaries is highly profitable with 25-40% Interest Rates being charged from India's Poor Population who don't have access to credit facilities.Borrowing from Banks at 10-12% and lending at 25% gives a huge spread which more than covers the cost of operations in dealing with a huge number of very small borrowers in far flung areas.The recent IPO of SKS Microfinance was a huge success instantly makings it promoters instant millionaires.The stock which was expensively valued nonetheless managed to climb by almost 40% in the last 2 months.It brought into focus the whether making such huge profits through essentialy usury from the poor was ethical or not.
October 21, 2010
India does not have a lot of good information on the Internet about various common things and it is frustrating and time consuming to go about in choosing the right option.I tried to buy insurance on my 3 year old car and there was not a lot of good blogs/websites which would indicate how to go about buying the cheapest car insurance out there.Most of the websites and insurance comparison websites that have come up are in general biased and promote companies in order to generate commissions.So I decided on doing investigation on my own and finally managed to get extremely cheap car insurance which even surprised me.So even though this blog does not deal with personal finance issues much,I though I would write my experience so that others could benefit without without wasting time and money.
October 18, 2010
India is one of the largest consumers of Gold in the world with a strong cultural and religious affinity for this "barbaric relic".Giving of gold jewellery during marriage is sort of compulsory and is even bought as an investment.The high prices of gold has failed to dampen the enthusiasm for gold amongst India's increasingly wealthy classes.While Silver is also bought during some auspicious days such as "Dhanteras",Gold rules the roost as far as precious metals are concerned.Traditionally Gold has been bought from jewellers in the form of jewellery by Indians,however sophistication of the Indian Financial Industry has increased the gold buying options for Indian investors.Here is examining some of the pros and cons of different investment options .
Summary
The best way to buy gold in India is through Gold BeEs ETF for low expenses and liquidity.However if you want to buy physical gold then your trusted family jeweler may the best choice as Banks and Reputed Retailers of Gold charge an exorbitant 8-10% transaction cost one way on gold.Can't understand why the Banks have to fleece the customers in case of selling Gold.But knowing Indian Banks who love Regulation in fear of competition amongst each other it does not come as a big surprise.
October 12, 2010
Indian IPO Rules allows the Merchant Bankers of the Issue to give favored institutional clients a part of the IPO even before the issue starts.This has the advantage for both parties as funds get a guaranteed portion of the IPO and Bankers can tout the quality of the company.However you would have to question these "Anchor Investors' on how they invest in such IPOs.Prestige Estates a Realty Company coming out with an IPO is another low quality company to come out with a high valuation.So finding 21 Anchor Investors is a surprise.Despite the Real Estate Market being avoided by Fund Mangers due to questionable practice,23 Funds have found it worthwhile to add Prestige Estates to their portfolio.Makes you wonder if Institutional Investors are Plain Incompetent ,Compromised or Both
October 10, 2010
In the last 4-5 years, the real estate investment community seems to have been a victim of optimism bias. This is most exemplified in the severe under estimation of time/duration required for construction/operation of project investments. For fund managers who have made investments in major parts of Asia (China, Vietnam, India, Indonesia) in the last 4-5 years, under estimation of timelines is the one area in which they all concede to have erred. The experience has shown how easy it is to fall into the optimism bias trap and start believing that once the finance is secured and the contracts awarded, things just roll on in an automode. Following are some of interesting reasons (these are all true) by which projects have gone significantly delayed
It is believed that the only section of the population that isn't susceptible to the optimism bias are people with major depressive disorder. Probably funds should consider hiring some of them.
September 24, 2010
India's Central Bank RBI had proposed to deregulate the savings rate on Bank Deposits as part of the Financial Reforms.Note Savings Rate is the only regulated interest rate in the Banking Sector.This has led to a huge windfall for Indian Banks.With a savings rate of around 3.5% and lending rates of 12%,Banks manage to reap profits from this huge spread in the rates which is commonly known as the "Net Interest Margin" or NIM.Indian NIMs are very high compared to that of other countries because of this discrepancy.Indian consumers are known to deposit most of their savings in Banks as Stocks and other Assets are considered untrustworthy.Banks with high proportion of their deposits in the form of these savings deposits have much higher profitability.Note RBI has increased the returns on the savings deposits recently by shortening the length of the cumulative returns.
Indian Banks don't want competition in this space as they will lose the supernormal profits that they make because of this regulation.Private Banks are at the forefront of this opposition which is ironical as they should are the first in welcoming deregulation and competition
July 19, 2010
While their growth and margins are comparable to the private and foreign owned banks in India,the P/E multiple is much lower despite lower risks.The cause of this discount become apparent when you consider some of the loans these banks make.LIC had come under a cloud in nineties for making investments and loans to favored companies
July 3, 2010
India’s Rising Inflation crosses into Double Digit territory India has seen inflation increase at a rapid pace in the recent months with the Wholesale Price Infalation […]
June 26, 2010
Exchange Traded Funds or ETFs have revolutionized the Investment Industry in recent times due to their simplicity,low costs and ease of use.The US Market has seen […]
June 17, 2010
Introduction India’s Central Bank RBI is proposing to free up the Savings Deposit Rate which is currently fixed at 3.5% . All banks whether they be […]
June 11, 2010
Standard Chartered IDR closed below its listing price of Rs 104 in the Indian Market.A Review of Standard Chartered IDR had revealed severe disadvantages for retail […]
June 7, 2010
The detente between the Ambani brothers which lead to the rescinding of the non-compete agreement has resulted in Reliance Industries Ltd (RIL) being the biggest Winner […]
May 31, 2010
Life Insurance Corporation (LIC) has requested India’s stock market regulator SEBI for price secrecy during Initial Public Offerings (IPO) and Follow on Public Offerings (FPO)s. The […]
May 29, 2010
An In Depth Review of Standard Chartered IDR revealed that its was heavily disadvantageous for retail investors and that’s what the final subscriptions numbers of the […]
May 28, 2010
Standard Chartered Indian Depositary Receipt (IDR) remains 90% unsubscribed till the last day of the issue.In the first 3 days it has managed to get subscription […]
May 27, 2010
I had earlier written about Seven Reasons for Not Subscribing to the Standard Chartered IDR based on a high level analysis.Going through the massive 811 page […]
May 24, 2010
Indian mega industrial groups led by Ambani brothers decided to rescind their non-compete agreement which allows oil and petrochemical giant Reliance to enter the financial,telecom and […]