Which Bank to Choose? Is my money safe?

(Today’s Deccan Chronicle. I have been talking about RBIs role as a regulator. It is unlikely that RBI will ever be able to prevent scams or frauds. As a depositor, it is time we started to think about where we keep our money. A bank is no longer going to be as safe as one imagines)

Investment and frauds

My column in Deccan Chronicle today.  People get carried away. Especially if they own the stock and there is a discovery of wrong doing. They refuse to let go. And some games that get played

Note: One error has crept in. Discuss 3 types in the article. Investments for the long term will go in to type 2. Where we can check promoter . In the article I have perhaps wrongly typed it as type 1. Apologies.

Aarey Colony- Memories

(My memories of Aarey Colony. This appeared in Moneylife nearly a year ago)


I Weep for Aarey Colony of Mumbai


Aarey Colony. Goregaon East. Jaiprakash Nagar-Where I grew up. From our chawl, we could see the hills and the lights. It was our ‘backyard’.
Aarey Colony was a go to place when we had visitors from our ‘native’ place. To show them the bottling plant of Aarey. It was open to the public and it would be a full day picnic. From Goregaon East, we took a BEST bus and it wound its way through the forests (starting from a ‘check naka’, which still exists I guess) and passing mango trees and other trees, a few stray people walking, past the ‘observation post’ called OP or “Chhota Kashmir” and on to the Dairy Farm.  Join the queue there, go through the plant and then come out. There was a stall selling ‘flavoured’ milk (much later, it was branded as “Energee”) and each one would savour the taste for long. Rose, pista were the early flavours and other flavours were introduced much later.
After the swig of cold flavoured milk, we would take a bus back and get down en route at “OP”.  Walk up the steep road to the garden, play there and finish the food that we had packed from home. There was no plastic to dispose. Everything was brought in steel or aluminum vessles and carefully put back in to the nylon wire-net bag that was woven by mother.  There was a tap dispensing cold water and we had our fill. Chased each other round the garden and those who had money would buy some peanuts or bhel from the vendor. But the cold water was free.
After spending some time there, it was time to get back. Walk down, wait at the bus stop and take a bus back to Goregaon station.
There was also the “PICNIC SPOT” beyond OP and before Aarey Colony that has vast open grounds, had swings, merry go rounds and other playing things for the children.
Very often, schools in Goregaon would take children for a full day picnic to that place. It has some wonderful old trees, some banyan trees and a water body that was close by. The fun of the picnic was the open spaces to run about, the trees to climb and the food that was a treat. Teachers would mix “Bhel” and some rich kids would try to sneak to an ice cream shop that was housed in the “aarey market”. It would be bhel, ‘patti samosas’ and lemon juice.  And we would go home with our clothes colored in the red clay of the parks.
There was a building at the highest point, that was called ‘New Zealand Hostel”. I recall that the Govt of New Zealand had been generous in putting together the dairy farming and there was a college up there.
At night, from our chawl near the station, we could see the clock face of the New Zealand Hostel, which was at least a distance of four to five kms as the crow flies. The air was pure and there was nothing. There were clusters of ‘tabelas’ which were labelled as ‘units’. Unit number five, unit number seven etc.  And there was a quaint fire brigade station inside, with a water body close by. The entire place was an escape from the yet to be crowded city.
On the Western Express Highway after we crossed from the Seminary on Aarey road, there was the check naka. To the left of the check naka, there was the “CIBA Research Centre”.
There used to be one bus route that would go through Aarey Colony and beyond. It was route not 341 (I think it still runs) from Goregaon East to Sion bus depot and back. For the longest period, I recall that the ‘full’ ticket for a trip from Goregaon to Sion was 45 paise! And to Aarey Colony, it was 20 paise.  Apart from that, there was 342 and 343, which would go up to Aarey/New Zealand Hostel only. Private vehicles were a rarity and cabs would not go through that property. Auto rickshaws were not yet born.
OP was a location liked by our Bollywood. Quite a few films had some songs picturised there. That gave birth to the name, “Chhota Kashmir”. Poor man’s Kashmir. With bright sunshine.
To get your supply of Aarey Milk, you had to have a permit (a metal card embossed with the name of the ‘head of the household’ and the quota were mentioned in it). You had a steel wire carrier, to which the card was tied by a locking wire. You got milk in glass bottles.
So you carried your empty bottles, paid money for the milk (recall price of 85 paise for the ‘blue cap” and 52 paise for the ‘white’ cap bottle of 500 ml). The blue was ‘whole’ milk and the white was ‘toned’ milk.
Come rain, come shine, you went to the milk booth every day (I recall timings of between 1230pm and 2pm) and got your quota of milk. This price was in the late 1960s and early 1970s. Private dairy milk was around twice this price, but would be delivered before 6am at home. Goreagan still had a few ‘tabelas’ (stables), which were within the city and outside of Aarey Colony.
Sometimes, a few of us would hire bicycles and cycle up to OP, have a swig of water at the tap at the top and come back. Twenty to thirty minutes of furious pedaling. Around 5 kms each way. And on the climb from the base of OP to the tap, it was pushing the cycles. And coming down was one scream as we did our stunts of ‘hand free’ and what not. Those were joyous times.
During our later school and college years and also the early years of working, a few of us would walk after dinner in to Aarey colony. Cross the check naka, go in a few hundred meters, talk what young boys of that age would talk, sneak in a cigarette and walk back home. It used to get cool in the nights and Aarey was a part of our life. Green and refreshing.
On a few adventurous days, we would go in to the side roads (there were a few pathways from the Western Express Highway in to Aarey Colony) We were the locals and experts. We would go in, ‘steal’ some raw mangoes in season and generally spend time walking and talking. Aarey was very much part of our lives.
As we grew older, the politicians have grown bolder and the builders’ mafia has got in. Gokuldham did not exist as open space. It was forests. That was the first encroachment. And since then, it is only encroachment.
I weep for the children of tomorrow who will never know this green belt named Aarey. As politicians give away to builders what is our children’s, I know that the move is in place to make sure that no leaf of grass will remain over time.
We will have ugly buildings and unhealthy children coughing away in them. In a way, I am glad that I left Goregaon in the mid-eighties. Gokuldham was the first blot. And now the ball is in motion for more and more encroachment. Allowing private vehicles to pass through Aarey Colony was another sad development. It is sad what our politicians can do for a few rupees.



FUDGET – Nothing to do with Budget 2019

(This is not an analysis of the Budget- These are random thoughts about the Fudget. Why is it in this form? It is nothing that a budget in a corporate board room would be about. As I was listening to the talk yesterday, scribbled some views…)

Fudge. Budget. Fudget. That is what all government budgets are. Bureaucracy is clever enough to make sure that the number-work is good and there is now enough things that are pushed outside the budget, to hide problems. We do not even bother about accounting propriety. Revenue and capital is all mixed up. We sell family jewels to meet living expenses.  We sell the assets that belong to future generations, to fund some grandiose scheme.


I have stopped reading budget documents. Today, I heard most of the budget speech. The first part took so long that it stuck me that by the time the second part comes, most of us just want it be done and over with. The first part was an enumeration of schemes and plots that the government has done in the past. Strictly, I do not want all these in the budget. A budget is an estimate of receipts and payments. It should not be a narration of past achievements. You can put it as an annexure to the budget document and focus on how you will raise money, where you will spend, why you will spend etc.  And then come down to brass tacks. How much are you short by and how will you meet. And do you have a plan B? What will happen when there is a revenue shortfall? And do you want to give us a quarterly break down of broad numbers and then give us a report about where we stand.

Today, there were a few things that stood out:

  1. The first budget is the ONLY one where big changes in policies can be made. Missed the bus by making this a pure plus/minus game;
  2. The attempt to curb corruption of the Income Tax officials is welcome. Personally, I would have also added severe punishment (confiscation of all property etc plus a minimum jail term of 25 years or so) for those accepting and giving bribes;
  3. There is no intent to let go of the PSU Banks. In fact another 70,000 crores is being thrown away;
  4. Worried when there is mention of reincarnation of Term Lending Institutions;
  5. Amused to hear the intent to set up an Aircraft financing business;
  6. NHB being stripped of regulatory powers over HFCs is very good;
  7. RBI being given additional responsibility is scary- They have failed in every role given to them thus far;
  8. Why this sudden love for NBFCs? Another scam in the making?
  9. Why this pathetic increasing surcharge on the uber rich?
  10. Nothing for the middle class;
  11. Another cess on petrol. Will there be a separate accounting for that?
  12. Good moves on affordable housing;
  13. The government seems to be moving towards extreme left, with room for a limited number of friends;
  14. Gold smuggling will increase ;
  15. Single brand retail – Welcome liberalization. Might as well make it multi brand;
  16. Angel tax is not eliminated- Just one more level approval needed;
  17. Aadhaar is here to stay. Ego and compulsion win over common sense and fairness;
  18. Farmer can forget doubling of income. Only way it will happen in the time frame as promised is by folding the currency note in to two;
  19. Borrowing in foreign currency is never a good idea, unless you can raise perpetual debt;
  20. Debt servicing takes away so much of our revenues;
  21. We are talking about elections for Centre and State together. It is time to think of a budget for Centre and States consolidated;
  22. Some discussion on revenue share with states and centre;
  23. Government expenditure needs a discussion. Why? Why so much? Why it never reduces?
  24. Government manpower plans needs to be seen. How will we reduce wasteful headcount?
  25. A note on pension liability for the future that is being built up;
  26. The push to Electric Vehicles is good. Also make it time bound. A calibration based on time- For example, a zero GST in year one and two and then increasing gradually. Give the early movers the most;
  27. APMC is still hanging in there. No action to help the farmer from farm to shelf. That is where the room to improve farmer income lies.;
  28. No government ever addresses incentives for farmer to increase farm productivity;
  29. We are not able to see an actual vs budget. Like companies give audited accounts, government should present it within three months of year end- Line by line ;
  30. We are moving towards protectionism. The whole world is being pushed and what it means is that each nation is shrinking its GDP;
  31. Once again talks of export incentives. Give incentives only for increase beyond actual achievements of last year;
  32. Why should budget mention rubbish like introduction of new coins etc?
  33. Why should the Finance Minister be constantly praising the Prime Minister?
  34. Was the budget finalized in the PMO?
  35. Plugging the tax loophole on the buyback of shares was good.
  36. Why does the budget document have to mention changes in regulation for HFC etc? These are things that do not have to wait for the budget. SEBI, RBI etc should not be part of an annual budget.

I am sure a lot of us have different thoughts. Till the path breaking VP Singh budget under Rajiv Gandhi, the only thing we wondered was the quantum of hike in excise or customs duties and tax rates. Now, the focus has shifted to silly things in capital markets. Why should it matter if public holding is 25% or 35%? If the market thinks that increased free float will crash the market, it is very amusing.

In terms of quality of ideas, this budget is very poor. And seeking to increase taxes on the Uber rich is not a great thing to do. Clearly smacks of the policies of Indira Gandhi.

The PM has made a grand statement about our economy becoming a five trillion dollar one in some time. Big deal. Simple arithmetic. As my friend commented,  the politician wants to take credit even for compound arithmetic. And this BS line became the theme song of this budget. It tells me that there is no thought to pull this economy out of its slumber. Jobless growth?

Valuation- Established, Large Companies

This article was published in Moneylife Magazine.  Some thoughts about the valuations of large cap companies. Basic thoughts are that we have to study trends in them. What is happening to the profitability of dominating players. What happens is that trends in profitability can be good indicators over a period of time. Often when we find that old P/Es do not come back, the answer will often lie in a secular decline in ROCE/ROE.


How To Pick Large-cap Stocks

I have always tried to segregate investment in equities into two categories. The first one is to buy into established companies with a long history. I know that I am unlikely to find spectacular returns; but I still hope to get better than index returns, provided I can buy the scrip at the ‘right time’. The second category is to buy young companies with the potential to grow exponentially from where they are when we get in. In a sense, it is akin to venture capital investing, because not every bet will pay off. The hope is to pick as judiciously as possible and hang on to them for many years. Let me talk about the first category. The old and the boring ones, so to say. I will start with a bunch of companies from the Nifty 50 and put down some numbers:
The table above needs some explanation. These are established companies with longish history and are very likely to continue to be in business for the next decade or more. Thus, the single important metric to evaluate them will be the amount of money they can make as profits each year. Their growth is not going to be spectacular and the 10-year averages are more likely to hold over the next 10 years or probably get weaker as the base effect takes its toll. Thus, RoE (return on equity) is an excellent tool to measure how good they are. The RoE could swing in a good year or a bad year; but is unlikely to shift to a different plane altogether. Generally, over time, RoE will tend to remain in a very narrow range for mature businesses.
I have done some slicing of the 10-year numbers. I have chosen four time periods to see what is happening to the key metrics. I start with the latest 10 years’ data. Then, I chose the latest five out of the 10, the latest three and then, finally, the latest 12-month period also known as trailing twelve months (TTM). These are large companies and, by and large, their top-lines would have some correlation to economic growth. The table below helps me to:
i) Find out the trend in sales, profits and RoE. If TTM is lower than the latest three which is lower than the latest five which is lower than the latest 10, then there is a declining trend and vice versa;
ii) Use the trend to figure out which companies in the Nifty 50 will outperform or underperform the index, by using the first two columns ( average P/E and P/BV) in conjunction with the findings above;
iii) Use the trend to add or reduce the portfolio.
To give an example, in the grid below, based solely on numbers, some of the oil companies look very attractively priced. They are trading below their historic averages in terms of P/E (price-to-earnings ratio) and P/BV (price-to-book-value ratio). The basic premise is that they will continue to maintain their historic RoE. There is a probable distortion here because oil price deregulation is a recent phenomenon and, hence, the future should look better as do the more recent numbers. Thus, if government policies do not get any more restrictive than they are today, it is very likely that this bunch of stocks will deliver better returns than the overall index, given their attractiveness. Of course, fundamentally, one could point out to a number of reasons why one should,  or should not,  invest in a stock. I am referring to a visible pattern in the numbers that make decision-making simpler. If I extend the same analysis to the entire Nifty basket, I get some very interesting observations. For the sake of curiosity, I will list  a few:
I) Bosch Ltd has a 10-year average RoE of 17%, with progressively lower recent numbers, trades at nearly 50 times earnings, has an average top-line growth of 10.4%, with the recent five years’ being 5.6% and recent three years’ being 6%. What this means is that growth in real terms has probably not happened or the company has lost its pricing power (if volumes have grown);
II) Bajaj Auto Ltd has a 10-year average RoE of 38.2%; but, in the latest five years and three years, RoE is dramatically down to 28.7% and 25.3%, respectively. Clearly, there is increasing competition in the industry. The other auto companies have a similar trend; but Eicher Ltd has delivered increasing returns to its shareholders. Its 10-year average is 26.2%; but the RoE, over the latest five years, is over 32% and that over three years is 36%.
These are purely quantitative trends. At some point, market memories fade and prices catch up with performance. The numbers of the large software companies are a clear revelation. There is slowing growth, slowing profitability and worsening RoE. Thus, their ‘average’ valuations and current valuations reveal a story of deterioration. I am not advocating this approach for all companies. It is merely another tool to help make a decision when it comes to established companies. When you spot a statistical opportunity, do not jump in blindly. Use it as a starting point. Fundamental analysis cannot be replaced. Quantitative analysis can only be a decision support system rather than a stand-alone method for investing.