Time to take money off the table

Asian paints has rallied 30% in the last two months and is currently trading at 30x FY12 earnings. Time to book profits on this one.

RBI changes provisioning norms for banks

The RBI recently amended norms relating to provisioning for banks. Banks have to make provisions for loans so that in case some of the loans go bad (i.e. the borrower delays payments or cannot pay), the bank can use these provisions as a cushion. These provisions are made out of the earnings of the bank for that year.

The technical term used for bad loans is non-performing loans (NPLs). Of course, there are several more terms like write-offs, loan losses, past due loans still accruing interest income etc. But for purposes of our current analysis, the term NPL would do.

In 2009, the RBI had mandated that all banks should have a minimum provision of 70%. This meant that if a bank had INR 100 crores of NPLs on its books, it should have (from its revenues each year), cumulative provisions of INR 70 crores to cover these NPLs. However, this was changed recently when the RBI declared that for loans made after Sep2010, the requirement would not apply.

What does this imply for an equity investor in the banking space?

From a bank’s performance perspective, it bring no dramatic changes, therefore long-term investors don’t really benefit (or gain) by this relaxation of norms.

For banks which have had historically low provisioning, they will now have to meet the 70% target only for loans made before Sep2010. Since provisioning comes out of earnings, it means that the EPS (earnings per share) of these banks will go up in the short-term – all of course at the cost of lower coverage for the last 2 quarters of FY11.

Among the larger banks, SBI and ICICI Bank have had below 70% provisioning. Axis bank and Bank of India have just about met the 70% coverage ratio. But banks like HDFC Bank, Yes Bank, Bank of Baroda, PnB and Canara Bank meet these coverage requirements more than adequately.

Interpreting RBI action
The relaxed provisioning norms for loans made after Sep 2010 may be part of preventive action taken by RBI to thwart the threat of NPLs given that rates have increased by 100-125 basis points between Sep 2010 and Mar 2011 and are close to/at their peak.

Impact of Egypt crises on Asian Paints is marginal

Asian Paints operates in Egypt through a company called SCIB Chemicals SAE in which Asian Paints has a 60% shareholding. Due to the recent crises in Egypt, Asian Paints had temporarily closed two of its plants. However, with effect from yesterday, the company has partially restarted its operations in its two plants in Egypt.

From company reports, we note that the middle-east (ME) region accounted for 9.6% of revenues and 7.5% of PBIT for Asian Paints as of 1HE FY11.The Egyptian market has performed well in the ME region and therefore is important to Asian Paint's international operations. Per analyst estimates, ~5% of total revenues are attributable to Egypt. Thus, the impact of the crises due to a few days of plant shut down in Egypt looks marginal for Asian Paints.

The company has been aware that political conditions in Egypt could go awry. In one of the reports dated Nov 2010, the company has identified an operational risk by stating that, " market conditions in Egypt are expected to remain tough due to forthcoming elections." Hence, the company has not been caught unawares and unprepared for the situation.

Asian Paints currently trades at a historical PE of 28x. With street estimates for growth in EPS at 29%, this implies a forward PE of 23x. At current levels of INR 2,500, the stock continues to look attractive.

Is this for real?

I keep getting a lot of marketing calls on my mobile phone, most of them either to do with caller tunes or Insurance. However, in recent times, I seem to get calls for charity donations. Usually the caller says that she is from an NGO and there is a child who is suffering from so-n-so disease and that the treatment requires INR 10,000 only. Can you please help this child?

I have never followed up on such calls i.e. never cross questioned them to figure out if they are genuine, but I find it odd that NGOs (if this is indeed not a racket) have started calling up people randomly from some phone list that they have acquired. And I have never heard of the name of the NGO (it is not the familiar CRY or Helpage).

Is this a new form of "you have won $1000,000 from our lucky draw/I am from Africa and am inheriting $2bn"?

A woman is an individual too

Women never seem to have an independent identity it seems; no matter how good they may be in their individual capabilities.

Take for instance today's front page in Business Standard today which carried a picture of Chelsea Clinton. The title of the photograph is " Just married - Mr. and Mrs. Mezvinsky".

Before marriage, Chelsea was known by her father's name and now after marriage by her husband's name.

On a similar note, I wonder when newspapers print such things, do they bother to investigate (in this case for example), whether Chelsea wants to be known as Mrs. Mezvinsky or would rather use her maiden name?

Dork by Sidin Vadukut

Dork - ' The incredible adventures of Robin Einstein Varghese'
Price Rs. 199
Penguin Publications

A refreshing change after reading poor quality so called literary pieces of fiction that are being written by taking advantage of the alumni 'brand name' - this book does not fall in that bad literature category.

The book is engrossing, witty and humorous and tells the story of Robin Were Geese - who is a dork and his experiences in a consulting firm. For those who enjoy humour, this is a 'must not miss'. Written in a diary format, which has suited the story very well, the book describes the inane work that a lot of us do in the corporate world.

I have seldom come across books which have good humour primarily because writing humour is much tougher than acting it. A great source of entertainment, it is bound to keep the reader glued to the book till the very last page.

DST - Delhi standard time

It happens every time I go to some party particularly if it is an evening function. In Delhi, the invitation will always say 6PM or 8PM but the function will never start until it is well past two hours after the stated time?

If it is a marriage then you can add a good 4-5 hours after the stated time.

This month I attended a wedding. Before leaving, Hubby and I finished dinner at home (brushed our teeth and gargled too!) and left well after 10PM to reach the venue. The barat had just entered at 1030PM. And it took till 1130PM before the groom came onto the dias and we could give our gift and politely return home. We could not meet the bride.

Why are people in Delhi extra passionate about the lack of timeliness? Why do they lack respect for other people's time?What is so great about stating a particular time on the card but starting the real function much later?

How do you refuse a 'fraanship' request?

What do you do when you find that someone who you are merely 'acquainted' with and who you hardly know, sends you a 'friendship' request on one of those several social networking sites that you are registered in?

Frankly, increasing the number of friends I have in my list does not appeal to my ego as it does ( if you were to believe the newspaper articles) to some youngsters. Further, I do not like to display my profile publicly - that goes for those sites as well which are supposedly there to 'help you network for business reasons' (no frannship mails here).

Surely there is no harm in 'accepting' the invite of an 'acquaintance'. But if it were a social networking site, I may not want to share photos of say a vacation with everyone who is listed as a friend on the site. (One solution is to use some other site and send a link to only those who you think are relevant). Further, there may be personal information that I may not want to share with merely an 'acquaintance' I met at some party. Besides, what do you do, if you had taken an instant dislike to that 'acquaintance' and would certainly not want to be seen as being 'friends' or whatever with him/her?

Getting yourself de-listed (is that the right word???) from the site is not the correct solution. After all, I know more about my friends and relatives these days through these social networking sites than I do from talking to them or e-mailing them. But what can one possibly do about some people who I think are a pain in the ***?

Of the usefulness of campaigns

Save the tiger campaign has drawn flak from some quarters because while it makes people talk about it (with comments like 'oh the cub is chooo sweet/cute'), it does not tell people what they can do to help (monetary contribution to the cause or other kinds of contribution). And I would tend to agree with the conclusion that by simply talking about it and joining the 16-odd facebook groups, how am I really contributing to save the tiger? How many people in those awareness groups have done anything concrete to save at least one tiger?

Saying that talking and voicing concerns will help (even if indirectly help the cause by raising awareness) is like asserting that people who play farmville on facebook are contributing to India's agrarian economy. This is not like an AIDs campaign where creating awareness will lead people to take precautionary measures (like using condoms or using disposable needles). Why doesn't the Save the Tiger ad suggest some concrete measures about what urban masses can do to really save the Tiger? And let those suggestions be practical - not something like - stop using tiger products (I do not know any one in urban areas who uses Tiger skin or eats Tiger meat or uses any part of the Tiger for curing any ailment).

The breast cancer awareness campaign 1 month ago was also on similar lines. Apparently, women had to put the colour of the bra they were wearing on that day on their gtalk/yahoo chat/other chat/facebook status board, to 'raise awareness about breast cancer'.

I felth such a measure was the most useless method (indeed of the highest order). Firstly, how can someone's status message on the bra colour raise awareness about breast cancer? Secondly, it was not an awareness campaign so to say - no handouts or accompanying e-mails which would tell you how you can prevent/reduce the incidence of breast cancer.

When the Internet and e-mail was new to India, there used to be these peculiar chain mails sent for 'helping' a certain cause (justice/appeal for someone) - something similar to a signature campaign, 'please send this to 10 people and add your name to the below list which will be sent to President of India'. And people would (irritatingly) forward those lists. Till date, I do not know of any such spam mail eventually solving the cause for which it was forwarded by scores of people.

I really wish people would stop focusing on such useless methods of raising awareness about an issue and come down to implementing some thing that is practical and aligned to the cause instead.

Wedding gift question

Recently, husband and I were invited to the wedding. As usual, we were haunted by the key question, what gift should we be giving to the couple?

In our own wedding, we received tons of glass vases. Initially, we thought that maybe this is what people liked, so even we gifted other people glasses and glass vases for weddings. But after several months of storing vases in our own house (which after nearly 3 years are still collecting dust), we realized they were of no practical use to us and neither would they be to any one else. So we stopped giving gifts altogether when we went for weddings.

Early this year however, we again had a spate of weddings to attend to in February - some included NRIs. Giving any gift in kind to an NRI is useless since they are anyway unlikely to carry it with them. So we gifted them money. Since we were gifting our NRI friends money, we decided to gift the Indian ones money too. Since there were at least 15 weddings we attended in a row, we did not place any great significance on the amounts we were gifting - which were different for different couples for no reason.

This time during the wedding season however, we were confronted with another question, how much is good enough to gift? Should it be based on your earning capacity, or should it be based on the cost per plate of food that we eat in the wedding? Or should it be based on how close we were to the couple getting married? Is INR 500 too little and INR 1500 just touching the mark then? We had no clear answers. Eventually, we decided, it is neither costs nor how much you earn, nor how close you are that should determine what you give. You should give what you feel like giving from your heart to that couple.

Bullish mode today

The Dow closed on a significantly positive note due to lower joblessness claims. Taking the early opening cues from US markets, European markets also rallied between 1-2% yesterday. Key Asian markets have opened in the green and we expect a positive opening for our markets too. Crude closed higher at $79.97/bbl while gold also rallied to $1047/oz.

Institutional activity on the cash segment saw significant volumes yesterday with FIIs selling INR 2546 crs while DIIs purchased INR 977 crs. Yesterday was expiry day and Nifty October futures rolled at a higher rollover cost - implying bullish bias. Nifty November put options are congested around the 4600/4800 levels while call options indicate 5000 as the upside hurdle.

Market closed at 4750 yesterday and we expect a positive opening close to 4800 levels. As I mentioned yesterday, it was a good day to start putting money back into the market.

In the short-term, oscillators and stochastic indicate oversold positions. On upside if market breaks 4870, then we are likely to test 4900 again. On the downside, 4770/4665 continue to be strong supports.

Time to start putting money from investing perspective

The Dow closed negative note on account of concerns about slower global recovery. European markets also closed deep in the red.Today key Asian markets have opened on a negative note and we expect a negative opening for our markets too. Crude closed lower at $77.15/bbl and gold also saw a fall and closed lower at $1032/oz.

Institutional activity on the cash segment mixed with FIIs selling INR 723 crs whileDIIs purchased INR 896 crs. Today is the expiry day so expect a choppy session. Aggregate rollovers so far have been over 61% indicating willingness to participate despiterecent nervousness. Key supports for the day are 4770/4670 while on the upside 5065 remains a crucial resistance level.

4700-4800 is a good time for long-term investors to start putting money in the market. Market has been making higher tops and higher bottoms on the charts. In the last pull back from 4800, we saw a bottom at 4450-4500. From the current high top of 5200, the 50% retracement level of 4665 looks unlikely to be breached at the moment.

Market in a consolidation phase

US markets closed in the red yesterday based on poor housing starts report despite strong earnings report by heavy equipment maker caterpillar. European markets also closed in the red yesterday. Key Asian markets have opened marginally in the red and we expect a subdued opening for our markets too.

Commodities were little changed with oil ending at $78.50 and Gold at $1,056.

The results season is on the full swing and yesterday majors like Sesa Goa and TechM declared results. Sesa Goa results were lower than expectations (performance is usually lower in 2QE due to monsoon). TechM results were per expectations if one were to exclude the forex gains made by the company. Yes bank also came out with a good set of numbers and the bank is expected to raise further capital to strengthen its Tier I and II capital base.

Among results to watch out for today are Hero Honda and JP Associates.

Further, from tomorrow onwards, the Nifty composition is going to include JP Associates and IDFC to replace Nalco and Tata Comm.

Market is currently in a consolidation phase and it is tough to conclusively say which direction the market is going to head towards. Based on technicals if the market trades below 5100 it will test support of 5077 and 5049 while in case the market breaches the level of 5135 then it will test recent high of 5180 and test even 5300.

Rediscovering board games

In recent weeks, husband and I have taken fancy to Scrabble. Apart from being a good distraction from TV (where we can never agree on channels) which seldom has good programs except on weekends probably, we found this a better way to spend time and exercise our rusted minds. At the moment the novelty factor has not rubbed off so every day our TV time is spent on Scrabble. We plan to add Carrom and other board games to our activity list soon.

During my childhood days, I seldom associated late evenings with TV. There was no TV till early mid-80s. And then also there was a black-n-white box. As long as I can remember there was boring Krishi Darshan that used to come at 7PM. All the interesting programs would come only after 9PM by which time, I would be fast asleep. Once it got dark and we stopped playing outside, it would be time to play indoor games like Carrom, Scrabble, Chess, Slots. Monopoly was reserved for Sundays since it was a long game.

As adults, our perspective of fun and entertainment has changed radically. TV, cinemas and eating out occupy most of our weekend time-pass. The best form of entertainment we can get during Diwali is only teen-patti. And yet we find 'entertainment' in the monotony of these activities. We've forgotten the joy of painting, drawing, knitting, philately, numismatics or doing any fun activity that we used to as kids. Hubby and I hope to change this for ourselves and rediscover the joys of board games.

Searching for a good english music channel on TV

Why is it that our Indian TV network does not have any channel which plays only English music all day? Channel V and MTV - traditionally the 'English' music channels hardly play (English) music during regular hours.

Is there no market for English music anymore? Is Bollywood music the preferred music of the times in India? After a long search of surfing through various channels, I finally found one channel VH1 which was unfortunately only playing only one type of music - Hiphop.

Is no one interested anymore in listening to good old classics 'Green Green grass of home', 'Lipstick on your collar' or something from ABBA and some less recent ones from the Corrs or Shania Twain?

Is there any way to check this?

Very often my mobile phone rings from numbers that play pre-recorded messages. These particular numbers begin with +965XXXXXXX. I get these calls at least twice a day with one call definitely coming while I am driving or early Saturday/Sunday morning when sleep is dear.

Have these telemarketers bothered to find out how effective such a strategy is? I often get such pre-recorded ad calls even on the land line which we hardly use.

I wonder which businesses find telecalling a successful way of getting clients. In my business, it is one of the worst methods of salesmanship. I myself have never agreed to purchase a product solicited over the phone.

Further, numerous SMSes urging me to buy a Sauna belt, learn baking and purchase a second hand computer spam my mobile inbox. Is there no way to stop this nonsense? I will never make a purchase decision based on a faceless, character devoid, monologue. And majority of people I know have not done so either.

Who are these people purchasing products because of one SMS or because of a telemarketer? What causes them to make a purchase decision over the phone?

Why insurance agents should be done away with and insurance sold on a non-commission basis

I recently came across the following from a CLSA report which I thought was quite informative in terms of putting exact numbers to what I always have suspected – that majority of Life Insurance agents work more for their own benefit (sell products with highest commissions) rather than trying to genuinely meet needs of clients. Consider these (Italicised from CLSA report):
1) Equities account for only 10% of total household assets in India

2) Life insurance in India has seen AUM grow 5 times in 5 years (as compared to only 4 times in 5 years in case of Mutual funds). Higher growth in Insurance is attributed to perception of ‘greater safety’.
A perception arising from fact that Insurance agents constantly belittle direct investment in equities or even Mutual funds for that matter. They have helped spread the idea among lesser aware clients that equities is risky but Insurance is not. Never mind that Insurance industry is one of the largest Institutional force that invests in equities – so where is the risk argument coming from?

3) Only 70,000 agents sell mutual funds, versus 2.5 Million (yes – MILLION) life-insurance agents. The main reason is that life-insurance agents earn higher commissions.
4) Unit-linked insurance plans (ULIPs) account for 90% of the new business of private life-insurance companies.
Because ULIPs often have commissions of as little as 30% and in some instances they have been more than 100%!!!!

Kudos to SEBI

SEBI’s move to remove entry load charges (which go straight into the distributor’s pocket) from Mutual Funds (MFs) is a welcome move for consumers. MF distributors have been notorious (but not half as much as insurance sales persons) in mis-selling MF products to consumers and also churning MF portfolios of individuals in order to earn extra-commission.

For example, Mr. A who is a MF distributor once told me how he had sold an ELSS fund to a client. The client was looking for a tax-planning MF and was very keen on HDFC’s MF. HDFC had two MFs under ELSS - one which had a 2% commission and another which had a 4% commission. Mr. A did not tell the unknowing customer about existence of two funds. Rather than discussing which of the two fund’s portfolio comprised what, Mr. A simply told the client that HDFC’s 4% fund was ‘good’. And therefore invested client money in the 4% fund.
It is a shame that these distributors like to call themselves “investment advisors’. Ask them why a fund is good and most of them will not go into fundamental reasons why a particular MF is suited to that client. Their reasons will typically range from ‘everyone is investing in this, ‘good fund’, ‘popular fund’ etc. Some of the smarter ones will take out their laptops and rattle out numbers like ‘five star rating’, ‘Sharpe ratio’ out of a software that pulls all data from valueresearch. None, will ever go into the portfolio composition, defensive/aggressive portfolio or sectoral allocation of the fund.

During the bull run, a cousin of mine had invested some of his money in 5 different MFs through a distributor. Ever quarter, he would find his portfolio allocation of 5 MFs changing because the distributor would ‘churn’ the portfolio as if it were a portfolio of stocks. With each churn, the distributor would earn the entry load on the new fund that he had switched the money into. So even with a 2% entry load, with a quarterly switch, that is at least 8% commission earned per MF invested. But since it was the bull run and practically all MFs did well, no one minded.

Insurance agents are notorious for promising unrealistic returns verbally. Rather than selling ‘insurance’ for the sake of insurance, they sell insurance as investment products (the insurance cum investment products make maximum commission for them). One only hopes that the proposed measures to curtail commissions in the insurance sector are implemented soon.

Beauty of the LV bag

I have been wanting to say this for a long time, but this 'popular' (wonder how it is popular – just snob value?) Louis Vuitton bag is the ugliest bag I have ever seen. Why pick such an dull color for one? I don’t’ care what kind of patent leather the bag is made up of, or what expensive materials went into making of that bag, that accounts for its significant price, I fail to understand why some women will pay INR 25,000 to buy this tasteless bag?

Besides, why would I want to advertise LV for free while carrying my bag with me where ever I go?

May the day never come when I have willingness to spend INR 25,000 on a handbag and end up buying such a disaster.

What kind of sissy girls are these?

Consider the following story that was making TV ‘breaking' headlines yesterday.
http://www.hindu.com/2009/09/11/stories/2009091161301100.htm
Apparently, the stampede was caused when some girls ‘panicked and fled down the stairs’ because some boys were engaged in eve teasing them. The incident occurred in a ‘girls’ school.

What kind of girls are these that a few boys come into their ‘ilaaka’ and these girls instead of ganging up and beating those boys, instead start running away? What kind of parental upbringing do such girls go through that they don’t’ think that unity is strength and give those erring boys who have come into their domain what they deserve – a good thrashing? They should have simply carried those boys and thrown them from the first floor – after all in school; boys are not all that big – physically; to be impossible to pick and throw (having done that myself during my school days).

I remember an incident during my college festival – I studied in a girl’s college. A boy was trying to enter into the premises without a pass – pass was mandatory for men to enter our college. The boy attempted to enter the premises thrice and all three times –a girl called Sevantika beat the hell out of the boy single handedly and threw him out each time. So much so that the boy tried to scale the wall and enter the college and again Sevantika alone was enough. But had Sevantika even whispered for help from other women, there would be hundreds who would have come immediately to the rescue and beaten the wits out of the boy. And that is the kind of spirit that should be inculcated in women of our country rather than being scared nincompoops.