...of Money, Crazy notions and Emotions

Now, REC goes the NTPC way

Amitesh Jasrotia — 2010-02-23T22:52:12-08:00

Government's often touted concerns about the participation of retail segment in PSU issues have started to sound a little flimsy. NTPC's failure to attract retail investor population has been quite sadly backed up by REC. Of a total of nearly 6 crores shares available in retail quota, only 1.3 crores were subscribed to. In percentage terms, that is a paltry 23%.

It won't be long before the jury is out again on the cause of REC debacle. However, instead of going witchhunting, I believe the Empowered group of Ministers need to look inward and conduct a simple root-cause analysis. Hell, you don't even need to have investment bankers in the room to tell you what's been going wrong with PSU issues. There is not an iota of doubt that PSU's, in the last 5 years or so, have brought about a substantial change in their perceptions. From being having an image of also-rans in the corporate arena, several PSUs have now reached a revered status, courtesy, the awe-inspiring performances even in one of the worst slowdowns ever.

Now PSUs may have been going from strenght to strength in their operations, but what has failed to change is the risk perception of retail segment, especially, in the aftermath of the financial crisis. A reasonable discount on the further issues (read: reasonably priced) could have had small investors participating in throngs, no pun intended. When markets are range-bound, and the floor price* of the issue is like a next door neighbour to the current market price, expect no miracles. Let's face it. A majority of retail investors interested in a public issue wants to subscribe and book profits on listing. Amongst this vast majority, there would be a fringe of long-term investors, too. Many of these investors would be holding on to the stocks from the initial issue and in case of a decent opportunity/discounted rates, I make an assumption, they would lap up even more. So, Government and the PSUs, in totality, have nothing to lose since the share flippers will in any case flip out and long-term investors would always stick along.

The onus is with the EGoMs to change this apathetic attitude of retail segment towards public issues. NMDC's FPO is next in the line, and, if things don't change for better, then the Government and i-bankers should stop wooing small investors and concentrate on entities which matter - the QIBs.

NTPC FPO - A disaster with retail segment

Amitesh Jasrotia — 2010-02-06T11:34:02-08:00

In my last post, one day prior to opening of NTPC FPO, I had cast my suspicions on it success with the retail segment. Quite sadly, the issue hasn't come close to the expectations from a PSU issue. And, now when the issue hasn't delivered up to the expectations of the Government - retail segment subscription being less than one-fourth of the allotted quota and QIBs saving the day - a witch hunt has been started probing into the likely causes behind this fiasco. Irrespective of the conclusions that would be drawn in the aftermath, the question whether this FPO was indeed a well-structured product needs to be answered first.

Government's planning with all its emphasis on disinvestment program and retail participation has actually come a cropper when it comes to gauging the minds and hearts of small investors. Stock markets, after staging an impressive comeback, have continued to plummet in the last three weeks almost in a precipitous fashion. For some strange reason, it seems to me that neither the EGoM nor the consortium of elite i-bankers could read the ramifications right. The floor price of the issue was frozen at Rs. 201; this was also the offer price for retail and HNI segment. Cut to 5th February - the last day of the issue - NTPC's counter on the secondary market closed at Rs. 205. Why would someone who has only got to buy 50-100 shares invest in the issue when the variance between the offer price and the market price is as thin as a wafer-cake? And worse yet, with markets still on a downhill trip, and with the monkey of disappointing public issue on its back, NTPC stock might just drop more than expected. So, those who wanted to subscribe but couldn't need not despair because they haven't missed anything. Wait for next week, bad news from Eastern Europe is still flowing in. Who knows? A couple of bond market collapses mixed with weak market sentiments and there you are - proving yourself to be smarter and wiser than investment bankers.

The truth of the matter is that there were no incentives for retail segment to invest in this issue. A floor price in the range of 180-185 might have done the trick. Hope the Government and bankers get it right in the next round, as for now, it's too late.

NTPC FPO - Subscribe or not to subscribe?

Amitesh Jasrotia — 2010-02-02T08:33:44-08:00

The behemoth of power generation sector NTPC is ready with its FPO (follow-on public offer). As bidding opens tomorrow, there is something about this issue that sets it apart from any other issue hitherto. This is the first public issue in which 50% QIB portion of the total allocation would be auctioned where as the 35% retail portion and 15% HNI portion would be sold at a relative discount. QIBs will have to start bidding from the floor price and the higher they bid, the higher are their chances of getting substantial allocation. Towards the end of auction, EGoM (Empowered Group of Ministers) and investment bankers will decide on a minimum and maximum price. Any bids higher than the maximum price would be cancelled. This kind of auction is called French Auction.

As I write this, EGoM and a group of i-bankers have zeroed in on Rs. 201 as the floor price of the issue. Now the dilemma, most retail investors are going to find themselves in is whether to subscribe to this issue at the floor price or wait for market to slide further and then subscribe. Ministry and I-bankers, three weeks back, were in discussions over a floor price of Rs. 250, thus, bringing the mop-up money to be around Rs. 11,000 crores. However, due to the current slump, the consortium of bankers has quite reasonably set the price at Rs. 201/share.

The only thing that may set back the expectations of the ministry and the investment bankers is the lack of any swashbuckling performance by the stock in recent times. Contrary to expectations, NTPC's performance since 2008 hasn't been close to mediocre. Yes, for those who have stayed invested since its IPO would have bagged spectacular returns by now. But, let's say, if you had invested Rs. 1,00,000 in NTPC two years back on this day, i.e., Feb1, 2008, your hard-earned money would have grown to Rs. 1,00,270 today. Yes, that's a return of 0.27%. You don't have to be a genius to realize that you would have been better off investing in bank FDs and other fixed income instruments. Nevertheless, NTPC's been touted as a long-term investment, courtesy its status as Asia's largest power generator and a strong balance sheet. In my opinion, any investor who can't hold on to this stock for at least 5 years should stay away from this issue.

Where is the bad news ?

Amitesh Jasrotia — 2010-01-07T11:42:03-08:00

Indian stock markets have started year 2010 in a peachy fashion. Both Sensex and Nifty continue to inch their way towards the historical highs of year 2007. Except for some degree of anxiety on interest rate hikes and on eventual yet systematic withdrawal of stimulus, Indian markets look in fine fettle. Again, with the exception of telecom, all other sectors look to boom. And this is what I find quite unsettling - absence of bad news. There is no detrimental piece of information that could induce jitters in investors. Or is there?

It's an acknowledged fact in markets that the damaging information, before full eruption, is always hidden behind a facade. Now, this might sound like a weird analogy but I find it quite akin to those ladies in a masquerade ball wearing lorgnettes. On the face of it, they all look very seductive, however, the truth underneath is always shrouded. Same goes for the stock markets or for the stocks, to say the least. Picture the current scenario. Metals as a sector, after having rebounded sharply northwards in the second and third quarter, has already received a thumbs up from the analysts for the final quarter. Autos are on a roll. Sugar, Cement, Banking, Realty are all looking good. This anticipated jubilation has started to gnaw at investors' foresight and circumspect approach. How? Well, observe the trading volumes in some of the abhorrent penny stocks, of late. While I grapple with the absence of bad news and wonder how everything is so hunky-dory, simultaneously, I remind myself of Warren Buffet's witticisms about such euphoric times.

War of the Bourses

Amitesh Jasrotia — 2009-12-28T09:48:52-08:00

What should have been a cooperative competition between India's two stock exchanges has turned into a bizarre game of oneupmanship. Asia's oldest stock exchange BSE has been at loggerheads with the newfangled NSE for some time now. This battle only got intense with the change in the top echelons at BSE. Madhu Kannan, the new CEO of BSE had turned on the heat on NSE ever since his selection to the coveted post.

In a recent twist, however, both the exchanges have embroiled themselves into a situation that could have been best avoided. BSE after having failed to leverage its brand equity has been trying hard to wrest volumes in Derivatives segment from the leader NSE. When BSE advanced the trade timings by 10 minutes, NSE not only followed suit but later, temporarily, outdid the oldest Asian bourse. As I write this piece, both the exchanges will be opening one-hour in advance from January 4, 2010.

The consequences of this grotesque conflict could be far-reaching for small-time brokerage firms and for those who play on margins. For small brokerage firms, this move is an ostensible kick in the groin. Longer working hours would be accompanied by higher operating costs which small brokerages will find hard to digest. What I found quite amusing was the manner in which regulatory watchdog SEBI absolved itself of any role in the issue, whatsoever. One can only wonder whether this was a calculated decision on SEBI's part allowing scope for consolidation in brokerage space.

What are they thinking?

Amitesh Jasrotia — 2009-12-23T09:27:07-08:00

Anyone who knows the ropes in business slightly would be abreast with the kind of fix the state-run Oil marketing PSUs (HPCL, BPCL, Indian Oil) find themselves in every year. According to the latest news, oil companies are staring at an estimated loss of over Rs. 45000 crores in this financial year. I believe panoptic subsidies have not only plunged the state-run companies into losses but at the same time have made these enterprises inefficient. Come to think of it, what kind of business would sell its products below its cost and for how long?

Now, every year, Government compensates the Oil PSUs for their under-recoveries (a euphemism for revenue losses) by way of issuing them bonds. However, this time around, Government has opted for cash instead of bonds. Now, technically speaking, it doesn't make any difference whether the Government issues cash or bonds. Nonetheless what matters is that bonds can provide a short-term cushion to the Government (since Oil companies will only redeem them after a certain period) whereas the issuance of cash will only strain Government's increasingly worsening fiscal deficit. Meanwhile, as I write this, the debate is on as to how the losses of Oil marketing PSUs should be calculated. This one has caught my fancy and I will be following it in the weeks to come.

Dubious Dubai goes Downhill!

Amitesh Jasrotia — 2009-11-30T11:26:25-08:00

It's a random world - a world which we not only don't understand but also the one which we will perhaps never understand. Just when everything seemed to be getting back on track, life once again takes a U-turn, thus, mocking the soothsayers who had declared the end of recent crisis. In the last 8-10 months, bad news from Dubai was coming in thick and fast. It was just that Dubai's plush prominence on the global landscape, somehow, seemed to extinguish the underlying sparks near the tinder box called Real Estate.

Though emerging markets would hope that this flare-up doesn't have a fatter tail, the truth is that there would be an impact. The intensity of that impact might be debatable, though. Whether it raises a whiff of dust or creates a whirlwind remains to be seen. For one, capital flows to the emerging markets are going to take a hit. Countries such as India, for which, UAE is the top export destination may suffer more. Also, not to mention the consequential impact on remittances from Dubai, too.

Dubai's vertical growth in the last one decade or so has been truly bewildering. Of all the realty Behemoths, Dubai's was one of the biggest and its fall was expected to create a huge noise. According to an estimate, Dubai owes an external debt of $80 billion which is 103% more than its GDP. If I have to draw an analogy - Dubai's real estate market at present is like an overheated stock with a towering leverage and highly skewed debt-equity ratio. Investors of all classes might prefer to stay away from it unless it gets down to fair valuations. So long, Dubai!

Peter England sports shoes- Who's interested?

Amitesh Jasrotia — 2009-11-26T21:16:02-08:00

Perceptions are arguably the lynchpin around which the whole world of marketing revolves. Merit of having strong perceptions has been proven one time too many. So has the consequences of deviating from established perceptions. History is proliferated with instances of companies tampering with existing perceptions of their brands. Much of this is only to pick up short-term victories at the expense of long-term gains.

I came across this news story the other day that a lot of companies are eyeing the fast emerging sportswear market in India. For the starters, sportswear market is estimated to be around Rs. 35000 crores and is expected to grow at a CAGR of 45% in the years to come. It appears only logical if a formal men's wear brand like Peter England also declares its foray into this segment. However, it remains to be seen whether Peter England's marketing brass gives their brand a 'logical extension' or they decide to go against the grain and create a new brand. Positioning gurus Jack Trout and Al Ries have asserted the creation of a new brand while venturing into a new segment, time and again. Their idea: Perceptions are hard to change; perceptions always trump facts. Come to think of it, who would be interested in buying a Peter England sweatshirt or a Peter England pair of sneakers? Peter Enlgand stands for only one thing in mind and that is, formal shirts. Well, I won't even buy their trousers, let alone their sports apparels. Nevertheless, it's going to be interesting to see how they resist the temptation of not using an existing, established brand name.

MoCap fatigue lands me in Uncanny Valley

Amitesh Jasrotia — 2009-11-21T22:55:10-08:00

It may sound a little weird but Robert Zemeckis' latest movie 'A Christmas Carol' has left a distasteful feeling somewhere inside me. Robert Zemeckis, In addition to being the brains behind such award-winning movies as 'Forrest Gump', 'Back to the future' trilogy and 'The Polar Express', is known for his penchant for Special effects, especially, motion capture technology.

For the uninitiated, with the help of Motion capture or MoCap techniques, filmmakers record the live actions of human actors and then render them to animate digital character models in 3D animation.Motion capture brings 3D digital characters to life with a mathematical precision. Quite oddly, it was this photo-realistic nature of MoCap that gave me a sickening feeling. Why? I had no clue either before I stumbled upon Uncanny Valley Hypothesis. When robots/3D humans look and behave like actual humans, it causes a feeling of revulsion among some human observers. This hypothesis is called 'Uncanny Valley Hypothesis'.

Motion capture is a groundbreaking technology, and it will be unfair if I hang the whole blame only on technology. Zemeckis' has also failed to provide a meaty storyline to the movie. A dreary, slow-as-a-snail script compounded with overemphasis on special effects make for a heady cocktail of a movie.

Yet another entry for Murphy's Law

Amitesh Jasrotia — 2009-11-18T00:36:54-08:00

For weeks, I had been looking for James Surowiecki's 'The Wisdom of Crowds'. After having combed all the big bookstores for this book, I, finally, got my hands on it at a low-key bookstore in my vicinity - place that I walk past everyday but never bothered to visit until the last weekend. I am not sure whether this observation has the potential to be added to ever-increasing list of Murphy's Laws. However, seemingly, it works for me all the time.

"It's always the place I think of first and end up visiting last, where I usually find the stuff I am looking for."

Who wants to be rich?

Amitesh Jasrotia — 2009-11-03T11:00:19-08:00

Stock markets all across the world are in a brilliant recovery mode. And moving in lockstep with the recovery are the increasingly fading memories from last year. One section of investors that has certainly got its chins up is the 'retail category'. You know, regular guys, who are often happy trading 100 odd shares for paltry profit-bookings.

Being in business media helps me keep tabs on the mood of this segment to a certain extent. So, barring the declines of the last few weeks, the mood of this section has certainly turned from being 'cautiously optimistic' to euphoric. And if history has any lessons to teach, station 'mania' is only a few miles away from station 'euphoria'.

I am not sure if any technical analysis can help you tell mania from euphoria. Nevertheless, there are certain facets of human behavior that can give the existing mood away. It's quite easy to fathom out, you only need to be a keen observer -

a) Tune into any morning call-in show on any of the business channels. Most of these shows have retail investors as their loyal audience. If you hear a question like the one mentioned below, think it's time for desperate measures:

Caller: Sir, I have 100 shares of Demons ltd. I bought them at Rs.40 yesterday; closing price was Rs.41. Should I hold or book profits?

Expert: (Profits? 100 bucks? Jackass, did you figure out brokerage, transaction costs, taxes?) Ok...uhm...I think you should exit. Hey, did you rehearse for this one, really?

b) Eavesdrop on one of those free-advice sessions. They will almost always sound like this:

Advice-giver to advice-seekers: Hey, you all wanna be rich? Follow my tips. What? Did my wife just call? Darn it! She hates my 'Guru' status.

Highlight the means, it works.

Amitesh Jasrotia — 2009-10-31T11:41:38-07:00

Trust me, this works. I have seen it work. One of my now �formerized� colleagues used to pull it off in a fashion that would put the likes of Dilbert and co. to shame. Don�t call me insane before you actually experience it.

No matter how meager your monthly sales generation is; if you talk it up in the right manner, you can actually prevent the imminent confrontations with your boss. Modus operandi is simple. Every bit of business should be a moment of elation for you. Just jump around, let everyone know. If you are a cubicle mouse, then make friends with the guy/gal who sits right across the rear corner of the room. Still didn�t get the picture? It�s simple. You don�t have to go to everyone, just shout your point across to your corner-buddy. Tops. I know some people are inherently brilliant at this while others like me need to put in a lot of practice. And the practice may include checking your voice inflexion every day before heading to office, eating a lot of vitamins, doing a few mock-ups etc.

See, the point here is to get attention and impart a serious reflection of your penchant towards your work. After all, failure to achieve the ends should not prohibit us from highlighting the means. Relegating yourself to your shell only makes the matters worse. And anyways, pessimism is never a better option.

Planetary motions and stock prices

Amitesh Jasrotia — 2009-10-27T22:40:17-07:00

Stock markets are a crazy place. And even if they aren't, trust me, there is a certain section out there hell-bent on making them appear so. I stumbled upon this piece of news in 'The Economic Times' yesterday. It says that a delhi-based famous astrologer has claimed that fundamentals and technicals can't accurately predict stock price movements since stock prices are a function of planetary motions and movements of celestial bodies. Now I can't stop imagining what it would be like if astrology dislodges all the existing venerable practices for predicting the markets. Picture this, you call up your broker for daily trading tips as usual and he goes all astro on your ass.

You: "Sir, I have 500 shares of Demons Ltd. Suggest further trading tips."

Your astrobroker: "Hmmm...Demons Ltd. runs the sub period of Jupiter in the main period of Venus. Both these planets are functionally malefic for this company...Have you tried my gemstones and protective shields yet?"

You (pulling your hair): "How are fixed deposits looking?"

5 Key Aspects of Leadership Branding

Amitesh Jasrotia — 2009-10-20T11:35:51-07:00

a) There is often a mismatch between what the organization stands for and what its leaders stand for. Alignment between what drives the company and its leaders is the essence of leadership branding.

b) The need for 'leadership branding' has never been as astounding as it is now. Courtesy, proliferation of media and networking, consumers have become cynical and often demanding.

c) A brand is only a brand when it's somebody else's mind. This is also the biggest issue with leadership. It's not what's said and thought in an organization by its leaders that is important; it's what's received and emotionally accepted by the stakeholders that is more important.

d) Most successful brand builders have a lot of good stories to tell about them. Some of them may be apocryphal. It doesn't matter. Truth of the matter is that stories are impeccable pieces of personal branding as well as an excellent way of communicating company values.

e) The leaders of today have to have strong personalities of their own to act as role models. If you don't know what you stand for, or if you try to hide behind your role as a leader, you'll be anything but convincing.

Madoff: Corruption, Deceit, and the Making of the World's Most Notorious Ponzi Scheme

Amitesh Jasrotia — 2009-09-08T12:35:00-07:00

A quick-paced read. Low on research. Intelligently written, nonetheless.

"The fall from grace is steep and swift, and when you land, it does not make a sound, because you are alone." � Cari Williams

The financial crisis of 2007-08 left many individuals and institutions scarred for life. What began as a seemingly curable flu slowly transformed into a pandemic that devoured many a prestigious, long-standing financial institutions across the world. Casualties were several - from inconsequential entities to world-cup competitive ones. When Lehman brothers went down on 12th September 2008, the usual suspects for the tumult were not too difficult to nail � greed, towering leverage, oversight, misconceptions, etc. Typically, the institutions were caught in the eye of this maelstrom. However, the events of December 2008 turned the spotlight on an individual for the first time in the whole crisis. His name was Bernard L. Madoff, chairman of Bernard L. Madoff Investment Securities LLC (BMIS). Until the news broke on 8th December 2008 that he had masterminded the biggest Ponzi scheme ever, Madoff�s status in financial circles was as reverential as it was enviable. Madoff�s apprehension was akin to the storyline of a suspense movie wherein the guy you suspect the least turns out to be the culprit. Madoff, for one, had reputation that preceded him and credentials that were formidable enough to awe any mortal being. He had served on the executive committee of the NASDAQ and was also the chairman of the board for several years. To his clique of investors, he was nothing less than a demi-God. Nonetheless, Madoff�s human frailties got the better of him and in the end, marooned him for life.

The bursting of Madoff bubble created waves everywhere, even the world of business literature was awash. Much had already been written about the global financial meltdown, sub-prime goofups, credit freeze, Bear Stearns, Lehman Brothers. Madoff�s $50 billion grand betrayal had everyone scurrying for a piece on him. Peter Sander, the author of "Madoff: Corruption, Deceit and the making of the world's most notorious Ponzi scheme", I speculate, must be the one of the few who got there first. Candidly, Peter Sander's "Madoff" is by no yardstick a biography on Bernie Madoff. It can't even be credited with a complete, inside-out, threadbare research of Madoff�s scandal. Yet Sander deserves all the applause for having written an intelligible and unambiguous book. Madoff scandal broke on 8th Dec, 2008. And by the references in the book, it�s quite clear that author had wrapped up his research on Bernie Madoff and his dirty work by January 2009. There is no doubt in my mind that author was in a hurry to publish this book. After all, when it�s a $50 billion con game expos�, you can be rest assured that even those resting in the graves would be itching for the low-downs. Right from the first chapter, Sander gets down to the brass tacks. He expands upon the various con artists that existed before Bernie Madoff and reasons why Madoff is the grand-daddy of them all. Sander takes the readers through facts, whatever little were available by January�09 end about the scandal. He relies on a lot of assumptions and second-hand confirmations, credibility of some of which could be dubious. I admire author for his forthright attitude in his admission of the lack of availability of facts. That said he leaves no stone unturned when it comes to research. From the interviews of whistle-blower Markopolos and the members of Jewish charity foundations whom also Madoff duped to the excerpts of various reports including the FBI charge-sheet against Madoff, Peter Sander lets everything roll.

"Madoff" is abound with invaluable pieces of information. As a reader, you can glean a lot of information about the financial world not just Madoff. Author has quite elaborately outlined the following in the book - Madoff's self-proclaimed style of investing, history of SEC and its functions and role in Madoff Scandal, Hedge funds and why aren't they regulated, functional differences between NYSE and NASDAQ and various financial concepts. Finally, Peter Sander�s Madoff is not a play by play account of the scandal or the man himself, nonetheless, it�s a very well-though-out and well-written book. Read this one or wait for the yet-to-be-published tomes on Madoff and his scam.

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