The NREGS is taking serious proportions...

...according to this article in the Financial Express. Some of the interesting points from the article are:

• Expenditure on the NREG has gone up from Rs 12,074 crore in 2006-07 to Rs 19,279 crore in 2007-08, and further to Rs 36,153 crore in 2008-09.
  

• There were 2.12 crore households demanding employment in 2006-07. The numbers rose to 3.43 crore in 2007-08 and to 4.52 crore in 2008-09.
  

• Total person days of employment created have shot up from 90 crore in the first year to 144 crore in the second, and 339 crore in the third.

I think the above are serious numbers and maybe they had a significant impact on the results of the just concluded General Elections. In 2004, when the NDA ran its India Shining campaign, a large part of that shine was confined to urban areas, leaving the rural folks wondering whether they really lived in such a shining India? The result of which was there for us to see...NDA lost heavily despite almost everyone on the street predicting a win for the NDA.

Fast forward to 2009 and I think we have a repeat, although the shining and the non-shining parts seem to have switched corners. It's the rural India that is really shining today. Multiple years of decent precipitation, substantial increase in MSPs, debt loan waiver and now this super cool NREGS (which in fact in my view is the second best thing to have happened to our country since the Right to Information Act!). This is because, it is a well known fact that most of the small and marginal farmers or farm labourers are hugely underpaid in India. Till the NREGS came to existence, most of such farmers workers were paid in the range of Rs.40-60 per day! Imagine, any of us living in this part of the world earning that kind of a salary and compare it with the kind of work & effort being undertaken in return? It's a joke really. However, with NREGS, the government in one shot has more than doubled the average remuneration paid to farm workers to above Rs.100 per day. Now because the government offers atleast Rs.100 per day, private employers have to offer more than that to attract workers. And they are doing exactly that; in some parts of the country, private employers are now offering Rs.120-130 per day plus food to hire contract farmers/labourers. It a significant change, and a good one!

Never been so satisfied and hopeful of the future...

...than after looking at today's election results. For a change, I am not sulking too much to not have committed more to my equity investments...I still have about 20-25% of my portfolio in cash! But, it does not matter, I am more happy as a citizen today.

Misbehaved rally?

Action in the last three trading sessions:

• Essar Oil Ltd. up 72%
  
• Reliance Industrial Infrastructure Ltd. up 102%
  
• Jai Corp Ltd. up 46%
  

when i see the above happening, i fear its a misbehaved rally that may not last for too long!

When the boring turns beautiful...

...and where beauty starts getting eschewed - what stage of the stock market are we in?

Take a look around...

...is a famous theme song from the movie - Mission Impossible II. The song has interesting lyrics, part of which says:

----------------
...its like russian roulette
when your placin your bet
so dont be upset
when your broke
and your done
cuz i'm a be the one till i jet(i'm a be the one til i jet)
i know why you wanna hate me
i know why you wanna hate me
i know why you wanna hate me
cause hate is all the world has even seen lately
i know why you wanna hate me
i know why you wanna hate me
now i know why you wanna hate me
cause hate is all the world has even seen lately
why you wanna hate me
cause hate is all the world has even seen lately
why you wanna hate me
cause hate is all the world has even seen lately
does anybody really know the secret
or the combination for this life
and where they keep it
its kinda sad when u don't know the meaning
but everything happens for a reason (everything happens for a reason)...
-------------------

sounds a lot like the overall sentiment prevailing in the stock market these days! But it's times like these that set the base for out-sized returns in the future. The skill really lies in surviving the turmoil, both, emotionally and ofcourse financially!

Live to fight another day, literally!

Heads - I am bruised, Tails - I am crushed...

...where Heads means a company reported numbers that were "either in-line with the street estimates" or were "better than expected", and where Tails means a company reported poor numbers for the just concluded quarter ended Dec 2008.

Further, where "I am bruised" means that the stock witnessed a small decline in price or remained unchanged (more or less!), and where "I am crushed" means the stock is sharply down since the current earnings season began.

Some of the companies drawing Heads include Oriental Bank of Commerce, Axis Bank, HDFC Bank, Wyeth Ltd. etc...where each of these companies reported healthy growth in profits given the current business environment and yet each of them is down by anywhere between 7-20% since the beginning of the year.

Companies drawing Tails include Divis, Reliance Capital, Zee, etc...where each of these companies fared poorly (it wasn't a disaster though!) only to lose a third of their market value in a little more than a months time!

It seems as though stock prices have just one desire - to keep losing value; little by little every week! Looks a lot like 2001-02 and early 2003, isnt it?

Ofcourse, we all know what followed then, dont we? :)

How I learned to stop worrying and ignore volatility...

...is a nice little strategy note released by Michael Mauboussin. [link to the article]

The article talks about the times we live in and what strategy a long term investor can adopt. The note is timely and insightful to read. Mauboussin concludes the note with the following advice:

1. Decide if you can be or should be a long-term investor. There’s nothing sacred about it—you just have to make sure you properly align your thinking, policies, and processes around your time horizon.

2. Don’t overbet. Constantly consider the problem of induction and the deleterious effects of leverage and incentives.

3. Work to reduce stress and maintain perspective. Some documented ways to lower stress include:
a. Exercise
b. Maintain and cultivate social connections (family & friends)
c. Get sleep and maintain a healthy diet

4. Don’t dwell on short-term portfolio moves. Sidestep loss aversion if possible.

5. Remember the story from Abraham Lincoln. He recounted that an Eastern monarch once charged his wise men to invent him a sentence that would be true in all situations. They came back with the words: “And this, too, shall pass away.” As Lincoln said, this phrase “chastens in the hour of pride, and consoles in the depths of affliction.” This too shall pass and long-term investors stand well to gain. I agree. [link1, link2]

Good advice from the man who has seen it all...

...Irving Kahn, one of the earliest members of the Value Investors' gang led by Benjamin Graham. This fortnight's issue of the Outlook Profit is carrying an interview of Mr.Kahn. The interview is worth a read, and so is the magazine (atleast thus far it seems to be reading better than many of the other finance related magazines available in the market).

In reply to one of the questions in the Outlook interview, Mr.Kahn gave the following reply:

"Yes, you are quite right, when it is raining you wear a raining jacket and when the sun in shining you don't need an umbrella. I think that you should have to be prepared for bad times and short-term depression but you have to recognize that when stocks (are trading) below fair value, that is the time to get your money out and buy equities. Also, if you are a good invetsor, you do not ask about which month or in which three months or in which year (you can get returns on your investment). Instead, you hold, waiting for a number of years for something to happen. You must allow time to pass (for market participants) to recognize what needs to be done."

The above statement makes a lot of sense. And, since a large section of today's market participants are overtly worried about the next month, quarter, year, it makes sense for long term investors to use it to their advantage. As I mentioned, in one of my earlier post,

"Growth will not be a problem so far as India as an investment destination is concerned, its the price that one pays for the investment that will determine returns over the next decade. And it is this factor that is now in the favour of the long term investor..."


A brief about Irving Kahn:

Irving Kahn (born December 19, 1905) is an American value investor and, with over 77 years experience in the investment business, one of the oldest financial analysts on Wall Street. Educated at the City College of New York, Kahn served as the second teaching assistant to Benjamin Graham at the Columbia Business School. At the time, other notable students and/or teaching assistants to Graham included future Berkshire Hathaway chairman, Warren Buffett, and future value investors William J. Ruane, Walter J. Schloss and Charles Brandes, among others. Graham had such an enormous influence on his students that both Kahn and Buffett named their sons after him. (source - wikipedia)

King Solomon & Happy New Year

Here's a small but an awesome story, which i think is quite apt for the times we live in -

One day King Solomon decided to humble Benaiah Ben Yehoyada, his most trusted minister. He said to him, "Benaiah, there is a certain ring that I want you to bring to me. I wish to wear it for Sukkot which gives you six months to find it." "If it exists anywhere on earth, your majesty," replied Benaiah, "I will find it and bring it to you, but what makes the ring so special?" "It has magic powers," answered the king. "If a happy man looks at it, he becomes sad, and if a sad man looks at it, he becomes happy." Solomon knew that no such ring existed in the world, but he wished to give his minister a little taste of humility. Spring passed and then summer, and still Benaiah had no idea where he could find the ring. On the night before Sukkot, he decided to take a walk in one of the poorest quarters of Jerusalem. He passed by a merchant who had begun to set out the day's wares on a shabby carpet. "Have you by any chance heard of a magic ring that makes the happy wearer forget his joy and the broken-hearted wearer forget his sorrows?" asked Benaiah. He watched the grandfather take a plain gold ring from his carpet and engrave something on it. When Benaiah read the words on the ring, his face broke out in a wide smile. That night the entire city welcomed in the holiday of Sukkot with great festivity. "Well, my friend," said Solomon, "have you found what I sent you after?" All the ministers laughed and Solomon himself smiled. To everyone's surprise, Benaiah held up a small gold ring and declared, "Here it is, your majesty!" As soon as Solomon read the inscription, the smile vanished from his face. The jeweler had written three Hebrew letters on the gold band: gimel, zayin, yud, which began the words "Gam zeh ya'avor" -- "This too shall pass."



Resolution for 2009, therefore, is:-

1). Invest We Must (in Equities) in 2009 & one of the other (& more important one) is

2). Vote We Must, with all Due Diligence.

Happy New Year to all.

Out of the woods? Well, almost there...

In the first quarter of the current calender year, we had a whole host of hammers hitting on our head:

- Inflation (rising, and rapidly to historic highs 12-14%).
- Ballooning import bill (thanks to crude oil rallying to USD 140 a barrel)
- Rapidly deteriorating Corporate India's earnings quality
- Cost of financing shooting through the roof, thanks to the RBI
- Slowly, but surely drying up of domestic liquidity, owing to the Global Financial Crisis.
- Last but not the least, historically high valuations and euphoria on Dalal Street

Result: Sensex & Nifty posted their single largest peak-to-valley drop of close to 60%.

Flash-forward to the last week of Dec'08 and we NO LONGER have the problem of:

- inflation, which is soon expected to drop below 5%
- a ballooning import bill due to rising crude oil prices thanks to a 70% drop in intl. prices of crude oil
- high cost of financing, thanks to a sharp interest cuts seen in the past few weeks
- easing of domestic liquidity, thanks again to RBI's cuts in the CRR, SLR, et al.

And yet: The Sensex and the Nifty continue to struggle. They are now threatening to breach / kiss their October lows. They may, they may not. But, that doesn't matter. What matters is the fact that we are NO longer staring at an ever worsening macro economic situation. And, that to my mind is a big "Go-Ahead" in itself to make investments for the long haul.

One important factor that is still worsening is Corporate India's performance. Dec'08 numbers are likely to one of the worst we've seen in recent history. But, then as the broader macro-economic variables like interest rates, inflation, easing of liquidity, etc. keep improving, performance of companies will surely follow suit, albeit with a small lag. And, as we all know, markets are forward-looking, so maybe we may soon (even if painstakingly slowly) be out of the woods.

What I've not accounted for in this note is a possible war breakout btwn India & Pakistan or a Third Front taking centre stage in India politics in the coming general elections. Both are highly unlikely, but not impossible...

If not now, when? If not at these, then at what prices?

The 13th Wealth Creation Study organized by Motilal Oswal was held on the 19th December. Among those present included- Rakesh Jhunjhunwala, Raamdeo Agrawal, Sanjoy Bhattacharya and Ramesh Damani. The key speakers exuded great confidence [read the full transcript] in the India Growth story, which to my mind remains pretty much intact irrespective of what the stock markets makes us believe.

Consider the following:

- With a real GDP growth of around 5% over the next decade (a pessimistic estimate) and an inflation of around 5% we are looking at Nominal GDP growing at the rate of "atleast" 10%, which will also reflect in Corporate India's earnings.

- We are still way behind in terms of our physical infrastructure, be it Roads & Highways, Ports, Airports, Hospitals, etc. , when compared some of the other developing nations like CHina, Korea, etc. The investment boom in India has only begun and right now we are only seeing a temporary slowdown.

- Unlike many economies in the West, we will have no bank/insurance company going down under, we have no housing crisis (except for within the developers, and well, they deserve it!), we have no over-leveraged consumers that live beyond their means, we have a corporate sector that is leveraged within a comfortable range whichever one looks at them - Debt to Equity or Interest Coverage, we have a huge middle class building up that will lead to massive explosion in demand for consumer goods over the next decade, the list is really endless...


Bottomline:

Growth will not be a problem so far as India as an investment destination is concerned, its the price that one pays for the investment that will determine returns over the next decade. And it is this factor that is now in the favour of the long term investor...


Dr. Ajay Shah has similar views [link]

I agree with him 100% on the fact that 2009 will indeed be a stock pickers market. It's time to work @ 150% capacity utilization :)

All the way to 2018?

Today's Financial Express had a nice article on what an investor can expect from equity markets over the next decade. The article concluded with the following lines:

--
The bottom line is the bulk of equity price declines are behind us, but the equity market is unlikely to recover quickly as a whole. Returns will come from stock picking not market timing or asset allocation decisions. But be aware that while in the past markets were overly optimistic, ignoring any bad news, we are currently in a position where markets are pessimistic and they appear to be ignoring an important bit of good news from the oil markets. So study your stocks now and creep back in, very, very slowly. Add to positions, no faster than 5% per week. The best traders are good averagers.
--

I concur with the author of this article and am of a firm belief that markets hereon will indeed be a stock pickers heaven given that a large part of price destruction is already done with, nevertheless, on the whole I am not as bearish.

The entire article can be read here [link]

Last two months the Most volatile ever...

...atleast since 1997.

I am trying to get hold of Sensex data prior to 1991, which might indicate whether we've been _here_ before (in terms of volatility) for such an extended period of time. However, it is quite clear from the post that bull-markets have begun only after a prolonged period of low volatility (as was the case in 1998-99) or during (2002-03). So the next bull market may only come about when we witness a dramatic drop in volatility, that too over an extended period of time. Even in December we've had days of sharp moves, both on the upside and on the downside.

















The bigger question is: whether this is an opportune time to make long term investments?

Inspired by series of such threads initiated by:

Dr.Ajay Shah: Crisis Watch
Kaushik Gala: Daily Dose of Deflation

I am initiating a new thread "Time to Invest: Dec'08-Jun'09". This is because, I personally believe that this indeed is a good time to make long term investments. Markets may come back to re-test the lows of Oct 27, or it may have already bottomed out. But, we are surely not looking at another bull run for sometime now. However, that's the advantage one has, if one is looking to make long term investments.