ponderings & pennings

Mint carried an article on Investment Analysts that their jobs are in danger owing to bad showing of the stock markets.

What it says is that with stock markets providing negative returns, and the analysts revising their price for a stock towards south, their perks, compensation and even jobs are at stake. While that is true and will be for the kind of business they are in, I am not sure if they can be called "Investment" analysts. They, according to me could be analysts for anything but "investment".

A decision to invest happens after making sure of the robustness of the investment on the business which emanates from the roubustness of the business notwithstanding the ocassional macro & micro economics factors. The investment analysis takes into considerations all the downsides in the horizon the investment is being considered for and a horizon less than one year, in my opinion does not make the decision an investment decision. Once invested, only the events that are kind of out-of-the-blue can make the analyst reverse his/her decision. None of the macro-economic parameters are out of the blue.

Now if, as the report suggests, the anlaysts who were a few months giving optimistic views on stocks are busy scaling down the price of stocks, then it shows that they were not giving prudent investment views on the first place. An analyst should give a "buy" signal only if (s)he is sure that under normal and moderately deviated conditions, the stock will give decent returns - though there could be a few exceptions where the analyst may have to revise the decision or the price but it should not be in large numbers as has been reported. The prime reason why that report talks of this happening is that the analysts do not follow one philosophy. Their analysis methodology encompasses all styles ranging from perfectly efficient markets to perfectly inefficient markets which leads to not so robust fundamental analysis which is the first and probably the only requirement for "investment" - a long term one (atleast one year).

Why the analysts do this could also have a cause - that Indian public has short memory is well known and drawing from the same, it is pretty certain that Indian public looks for faster gains. I have no problem with that but then they should not use the word "investor" to classify themselves. They should call themselves dabblers/gamblers/players if not speculators.

I dont think India has an investor besides Rakesh Jhunjhunwala. Its sad that we dont follow him or his philosophy which is similar to those of Warren Buffet and Graham B. To quote Graham B (if you have ever received any e-mail from me then you would recall this quote as it appears below my signature):

"An ‘investor’ is often better off if he does not even know what changes are taking place in the market price of his securities".

This statement clearly indicates that the investor/investment analyst should have done his/her job so thoroughly that (s)he can afford to ignore the price changes as (s)he is sure of that the target price will be achieved in the horizon set forth.

While we realise the definition of investor as referred to by Graham, lets see this video:

The BBA (British Bankers’ Association) is undertaking reforms in over two decades old LIBOR, a benchmark for worldwide financial transactions. You can read in detail about the steps being considered here.

One can judge the significance of this benchmark from the fact that over $ 350 trillion deals in IRS and over $ 10 trillion deals in loans worldwide are linked to LIBOR.

I took the news with mixed feelings. Firstly I felt proud that a couple of things that are under consideration of the BBA have already been implemented in India on MIBOR. India already has more than one fixation per day for its MIBOR while LIBOR continues with only one fixation per day and are considering to increase it. In India MIBOR is managed by NSE and kind of supervised by FIMMDA, both are pseudo-regulators or SROs as they are known as while the BBA, which manages LIBOR has no regulatory standing of any kind (just like IBA in India).

However, I wish that India moves to define the MIBOR as per the way LIBOR is defined. When collecting data for MIBOR the banks in India are asked the rate at which they’d lend in interbank market for various time periods. In case of LIBOR, the question asked to the bankers is what rate they think they would be charged if they went to the market today to borrow money. And thats what the O in LIBOR (and also in MIBOR) stands for - "offer". So we are actually not collecting the data as per the nomenclature (though we have MIBID for it, but then thats an ocassional reference in any deal).

I will be eager to follow, how the international markets react when the reforms are undertaken. And I have a wish: BBA is looking to expand its LIBOR basket from current 4 currencies and I wish they include INR!

Too wishful? Lets watch another wishful song:

When will the elephants dance?

I have been a very satisfied customer of MTNL’s broadband services and today when I went to MTNL’s office to ask for a connection (I had given up my earlier connection over an year back when I moved to Ahmedabad) they told that it will take no less than 6 months. Though disheartened I still thought I’d go for it and asked for the various plans to choose from. The lady handed me a plan list and marked out three plans saying that they were no longer available. On asking the reasons she said that these plans had not been making any money for MTNL.

No prizes for guessing which plans were they: the unlimited usage/download plans (the one I was using earlier). Contrast this to Reliance and Tata who are selling their net connections on the strength of these unlimited connections. How is it that private space is able to offer the customer a much better service despite the size, coffers, regulations etc being on the side of these PSUs.

Take any space: steel, telecom, oil, aviation and we find either the PSU is not making as much money as its private counterpart and if it is then it is because of its monopoly as customers have no choice. Its not that private players are using some way advanced technology, or that private companies emply people from Mars and Venus. I also don’t agree to the argument that employees in private sector are much more because the kind of perks the employees of pubic sector get bring them almost on par besides the power and influence they get to wield (I have the first hand experience of it when in public sector). I believe that this is because PSU ignore cost management. The costing costs these PSUs their profits, their market share and ultimately their reputation heavily. The public sector needs to make sure that the costs are managed scrupulously as declining profits threaten the nation’s savings (tax).

Given the economies of scales & scopes that the PSU manage, it is not tough for them to earn huge profits if only they paid some close and detailed attention to their costs. I am not talking of the wages and salaries (the PSU employees are already a harried lot). I am referring to costs of management, costs of running their businesses, costs of contacts, costs of sourcing, and the biggest of them all the cost of widespread tiny and medium level corruption (I have my solid reasons to believe that top level corrpution is almost out of the public sector machinery spare a lone instance once in a while).

Take IOC, a fortune company and I am sure that had it kept a good watch on its costs of operations it would have had better margins like its counterpart in the private sector. Its really surprising to note the difference in the margins that are earned by the public and private players in the same industry. I hope all the PPP’s are eclectic in the sense that the better of both comes out for the benefit of the nation.

Here is the video of the song that I had been listening to during major part of this week: