Blood Bath in the Stock Market

Long back, I read in a novel, "If your cobbler is talking about the stock market, then it is the time for you to get out the market". That was the case in the recent past. Everyone (housewives, small traders, businessmen, salaried etc) were all pumping in money to get a chunk of Reliance Power IPO. People borrowed money to get in to the IPO. 3 days after the IPO closed, there was a blood bath in the Indian stock market. Market has lost more than 30% in the last 10 days.
There is an interesting article on www.moneycontrol.com which talks about people forgetting the fundamentals. People are not studying the market before investing money. There is a lot of liquidity in the market and people want to stay put. They read all the success stories and go after making quick money. The retail investors have lost a lot of money now.

Udayan Mukherjee of money control writes

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The thing about life is that one makes mistakes. Many mistakes were made in the second half of 2007 and those sins have to be washed away by blood, such is the way of financial markets. Some participants will go down under and never be able to get back to the market again but most will survive. The pain will linger for many months, maybe years but lessons have to be learnt. Every such debacle has lessons for us and the sooner we forget them the more we suffer.

The first lesson is not to let stock price performance become the sole reason for buying, a mistake which was made in abundance in the last 3 months. What couldn't be explained by fundamentals was credited to liquidity. The present lost all relevance as people chose to focus on the distant future, perhaps simply because the present could never justify those ticker prices; only a hazy dream of the future could. Traders and investors had no time for fundamental analysts, in many cases they were labelled "cribbing fools". Chartists became the most celebrated tribe on the street as only they could see and predict the one way run to glory for many of the hot stocks even as fundamental watchers cringed at valuations....till the music stopped. Don't get me wrong, charts do work in trending markets but once stock prices veer away completely from fundamental value, people need to get careful. But they never are. Now that the blinkers are off, people should ask themselves why stocks like RNRL, Ispat, RPL, Essar oil and Nagarjuna fertilisers have lost 50-70% of their value. It is simply because their stock prices had snapped all connection with underlying business fundamentals, earnings and value. Their stock prices became the only reasons for buying them which works for a while but not forever.

The other big lesson, one which should have been driven in earlier in May 2006, is the danger of overextending oneself in the futures market. The lure of stock futures is easy to understand. Put in some margin, take a big exposure on a fast moving stock, make a killing when prices shoot up. Repeat exercise. Just that people forgot that prices may also come down and at a pace which noone can even imagine, maybe their friendly stockbrokers forgot to tell them that part of the story. The result : unbridled speculation that ran into lakhs of crores, excesses that we are paying for today. Even this fall will not cure investors of their love for futures speculation but if at least some amount of caution is injected it would have been a worthwhile learning. Futures are not toys for amateurs, they are time bombs in the hands of inexpert and inexperienced traders, it's only a matter of when the fuse runs out.

The other learning which I hope will play out in the future, as it has in the past, is that it pays to be brave in times of panic such as these. If I was allowed to invest myself , which I am not, I would have no hesitation in deploying serious money into the market today, knowing fully well that prices may fall more tomorrow. And I would be standing there tomorrow to buy more of the same, till my money ran out. India is going to be a terrific stock market story for many years to come, even an intermediate bearish patch cannot shake that conviction of mine. At best, one will have to wait a bit for the returns to follow. That's alright. You are happy to put money in a bank FD and then wait for one full year to collect that measly 8%, aren't you? Then why does the stock market need to give you 20% every month? In the last one year, I haven't seen so many good stocks trade at such mouth watering levels. Forget trading, avoid the duds which were fuelled up by operators, just go out and buy those bluechips. They will deliver, even if there is a global market meltdown for a while, and if you are a bit patient you will be rewarded. But do remember January 2008, as history will repeat itself again in the future. Just that our memories tend to be too short and our greed too much.

Udayan Mukherjee

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(source - www.moneycontrol.com )

Nikhil turns one

Time flies, Nikhil is already one year old. We had a small party at home to celebrate his birthday. After the birthday, I took a big cake to a school for special children. I met the principal of the school and told her that I want to share the cake with the kids. The principal of the school was very excited to see the dog shaped cake and exclaimed 'Oh, you have got Jimmy. The kids are going to love this'. I had to leave for my office immediately. I gave a call to the to principal of the school in the evening. She sounded very excited. She told me that the kids were thrilled to see the cake. They all sang 'Happy birthday' to Nikhil and enjoyed the cake. I was very happy to hear this. I wished, that I could have been present in person to enjoy the moment with the little ones. This was the most satisfying way of celebrating Nikhil's birthday.

Tare Zameen Par

I Watched Taare Zameen Par (TZP) last week and trust me, it is one of the best movies I have seen in the recent past. The concept,narration, direction are all excellent.
The movie highlights the problem of dyslexia, one thing that many people don't care about, or in many cases, people don't know about it. Atleast in India, after seeing this movie, I guess many people will be aware of it, if not act take action.
I have known children with this problem. There is an immense pressure from parents and peers to perform well at academics. Little do they care or realize that all kids cannot scale up to all the challenges. I am told that in the western countries, the schools/parents identify dyslexia at an early and put the kids through a different learning process. In India, off late, a few schools have started this, but this trend has to catch up.
This movie is a real eye opener. Amir khan has done and excellent work in bringing out the good talent in Darsheel Safari (Ishaan Awasti in the movie). Unlike other movies of Amir Khan, this movie is not 'Hero centric', but 'concept centric'. The songs are very good. I am not going to discuss the movie here. If you are reading this blog and haven't still seen the movie, then it is time to do it. It is a must watch movie

The Great Sir Edmund Hillary Dead

May his rest in peace.


What an achievement by these two - Sir Edmund Hillary and Sherpa Tenzing Norgay.
I was reading this article on espn site which talks a lot about his life. I didn't know before reading this article that he had done a lot for Nepal.







Read the article at http://sports.espn.go.com/espn/news/story?id=3190797
It is quite an interesting read

Tata's Rs 1-lakh car - the Nano

So the much waited Tata's Rs 1-lakh car - the Nano is here. There were a lot of people questioning if Tata's could stick to their word of getting a car at such a low cost. Yes, they have proved it again that they can revolutionize this industry.
Thinking about this car, so many thoughts run through the mind - both positives and negatives.



Positives

This is definitely a boon to the middle class for whom affording a car is a dream of their lifetime. Thinking about the dust and heat that is present in our cities, this car is a big relief.
As the families grow and get little ones in to their family, people have to start thinking about getting 4 wheels. It is definitely not safe driving in India on a 2-wheeler. It is a scary picture when I see women sitting on 2-wheelers, balancing on single side of a 2-wheeler with a kid in her arm, where the kid is getting squeezed between the two parents. Sometimes, in bigger families, the elder kid is fighting for his space on the petrol tanks of the motor cycle when the driver is struggling to balance the vehicle. At times I see 3 kids and two adults on a single 2-wheeler. I think it is time for these people to upgrade to a small family car.
Rains are another nightmare times when it is very difficult to travel on 2 wheelers. Public transports are never reliable in such conditions.

Nano Taxi

Today, an auto rickshaw costs around 1 lakh to purchase. With the introduction of Nano, I think a lot of auto drivers will probably think of buying a Nano and using it as a taxi. I am sure, some smart company will quickly come out with an LPG kit for Nano, which can lower the cost of running. Given a choice I would prefer traveling by a Nano than an auto rickshaw. But for that the price of traveling by a a Nano-taxi should be comparable to traveling by a rickshaw

Negatives

Well, without having seen the car personally I cannot comment anything negative about the car. Ofcourse, one cannot expect too much for 1 lakh. The car doesn't come with most of the features (rather - no features). As they say, 'you pay peanuts, you get monkeys'. I wanted to bring out my thought on the implications that this car might bring on our infrastructure. In cities like Bangalore, people are already struggling with the terrible infrastructure. Bangalore has one of the highest vehicle density in the country. This city already boasts of the highest number of 2-wheelers in the city. The roads are all cramped. This car is just going to add to our agonies further. There are days when people take over 2 hours to reach their home after work, and in 2 years if there are a lot of cars on road, we can only think of reaching home the next day morning.
Today there is an auto rickshaw strike in Bangalore. It was a pleasure driving to office as there were no auto rickshaws on the road. I didn't have to use breaks much and I didn't have to change gears often. I think rickshaws constitute anywhere between 5-10% of vehicles on Bangalore roads. After removing more than a lakh of autos from the streets, the roads had decent traffic. Now imagine if around a couple of lakhs Nano's got added to our streets - "God help us please - are you listening". A few months back I read in News Papers that someone was making a few under passes in Bangalore in 3 day's time. I wonder when that project will see the light of the day. I hope it is time for the Govt to seriously has to start thinking about these kinds of projects.
I am not even going to talk about the fuel consumption which will add a burden on our reserves, nor am I going to talk about the heat and noise emitted by these cars.

Pricing

1-lakh is just the dealer price and one has to shell out atleast another Rs 25,000 to drive a car home. If one decides to add a few accessories like seat covers, better tires, AC,etc, then the car price will come close to 1.5 lakhs, which is still a reasonable.
If one can make a down payment of Rs 25,000 and take a loan for the rest of the moeny, then they can have a car for an EMI of around Rs 2000 p.m.

Happy Driving ...