Time to rethink on the HNI ?

The response to the Adlabs issue is interesting.

HNI Segment subscribed to just seventy percent of what was kept aside for them.

Retail got sucked in and did 140% of what was kept aside for them.

An issue where the Retail has got suckered in big time, I think. Of course, they can still do a "STOP PAYMENT" and withdraw their application before allotment.

 The HNI segment used to be the biggest one when IPO financing was in vogue. Rightfully, the RBI put an end to that racket. So now the HNI segment (i.e. those who are not institituions and investing upwards of two lakh rupees) is deprived of IPO financing, I think it is the end of this segment as a viable window dressing for any IPO. The HNI segment used to leverage extensively, sell on listing and make money (not always). The category of retail and HNI can be folded together. Retail can always get a preference if SEBI does a simple thing of ensuring that allotments also take in to consideration the number of applicants. Need not be proportionate to the money invested. If cricket could invent a Duckworth Lewis to solve problems, this should be leasf of the problems.

Cairn, Vodafone etc- The bumbling and fumbling tax authorities of India

The Income Tax department are like the Keystone Cops Now they are harassing the shareholders of Cairn India by slapping a demand on it for not deducting tax at source on the consideration paid to the existing shareholder by the incoming shareholder.
In Vodafone case also, the department did the same thing.
Here is a link to the Cairn story :
http://timesofindia.indiatimes.com/business/india-business/Cairn-India-slapped-with-Rs-20495-crore-tax-demand/articleshow/46550758.cms 

Modi and Jaitley merely seem to be mouthing promises of not harassing people. If I read between the lines, it looks like the new owners of Cairn India have not fully met some demand of you-know-who.
Like in the Vodafone case, the Income Tax dept of India is the only body in the world which does not approach the seller who made the capital gain (In Vodafone case, it was Essar & Hutchison Whampoa) but rather wakes up after a few months or years to chase someone else. It clearly is a sign of a failed extortion attempt..

PPF- The building block to a happy retirement

I have always tried to keep a distinction between ‘Savings’ and “Investments”.  To me, savings is the first level of comfort I must absolutely have and where I do not want to take ANY chances with capital erosion. Generally, we are asked, how much money do I need  when I no longer can bring in a regular monthly pay cheque home?

Blessed is that person who can give a precise answer. Too many imponderables, that include things like longevity, health, dependents (it is possible that you stop working at sixty and your children are still in college, given the late marriages that happen nowadays), loans etc. And to that we have to add a guess number for the monster called inflation. And of course, our ‘needs’ at that age can vary from person to person.

I do not like to walk that track. I would like to make the best of  what I earn, what I can save and what I can invest.  My approach does not start with economics or finance or numberwork. I am merely trying to address mental security or stability.

This is where I start with PPF as the first and compulsory outlay, each year for the entire working life. The initial period of fifteen years can be extended by five years at a time. Do not close your account after the first fifteen.

If you have the will to put aside a lakh and fifty thousand, every year, in the first week of April , then this is the tax free amount that awaits you:

            At the end of  15 years                                 Rs.44 lakh

            At the end of  20 years                                 Rs.74 lakh

            At the end of  25 years                                 Rs.118 lakh

            At the end of  30 years                                 Rs.183 lakh

Even accounting for inflation, the amounts are not small. And the importance of starting early is apparent from the above table. Simply take sixty as the retirement age and work back to see how many years of PPF investing you will do. If you start five years late, the amount you have drops dramatically.  For not saving in the first five years of your earning life, your final corpus could be lower by as much as Rs.65 lakh!

This amount provides the first level of savings that accumulate over time. So long as inflation is under eight percent per annum over this thirty year period, your monthly savings are protected. And all interest is tax free.

At the end of thirty years, if we close the PPF account and put the money in to a liquid fund, it will easily provide us with a lakh of rupees every month for nearly twenty years.  So a core part of your lifestyle could easily be met.

Yes, your investments will be there too. The amounts that you put in to equity after putting away the full extent of PPF every year. Depending upon your earnings, the investment portfolio will take care of the rest. I do not think there is too much number work involved now, if you take this approach.

Of course, if you are a double income family, then the PPF can be double of what this is. Once you see the numbers, you realise the magic of compound arithmetic.

Wealth that you create through your investment portfolio should be yours to liquidate, at a time of your convenience. Never depend on liquidating an investment to meet a known need. What could happen is that at the point where your need materialises, the market value of your investment may not be what you want or you are forced in to liquidating at a distress price. Barring medical emergencies, I guess most needs can be estimated in an approximate fashion. The important thing is that for known needs, the money we need should be without risk to the capital amount.

What I am saying above is not guaranteed to get you the best returns. At the same time, you will not be at the mercy of market forces and worry over economic uncertainties.  I am a strong believer in equities as the vehicle for wealth creation, but to me equities can never be part of any savings portfolio.

The important thing is to start saving as early as possible. Today, most of the younger generation can afford to start early. It is a question of choices. Whether you want to spend the money on a movie or at a pub or put the money in to a PPF account first and then plan the finances.

R Balakrishnan

(balakrishnanr@gmail.com)

February 23^rd, 2015

MONEYLIFE- THE FIRST FIVE YEARS

Moneylife has completed FIVE years. Five years in which it has established a strong fan following. You may like it, you may not- but it is there, making an impact on investors and regulators. I would like to think that if any investor were to sit in a corner, with every published issue, it would be a full journey in investor education; and some more.

I have been privileged to know Debashish and Sucheta and am glad that they have deemed it fit to let me ramble on in the magazine right from the first issue. Surely, a pleasure, a privilege and at times, a bit stressful as I keep searching for a topic, and finally pushing it to Debashish and Sucheta for making sure that my communication is fair and proper and fit for reading.

In these five years, NEVER once have either of them told me to change my view, even if it be at odds with a stance they have taken in the magazine. And the freedom they have given me, is without boundaries. I respect them for that.

I must also mention the pain that they must be going through each time I push in my contribution at the eleventh (sometimes thirteenth) hour- unedited, full of errors, grammar haywire and disjointed. In the twelfth hour, they piece it together. Often, after seeing my article in print, I am surprised at the way the words flow and my article makes sense, even to me. Thanks, Debashish and Sucheta, for putting up with the spiel that I often send you, and making it look intelligent.

We generally have a tendency to remember only the latest. However, going back these five years, I look at several things that Moneylife pioneered. Honest to God interviews with fantastic achievers (not possible to name one in a galaxy that had stars like Dr Mashelkar, Glen Saldanha, Hafeez Contractor et al). And more importantly, to me, the choice of subjects and people always justified both halves of the magazine’s name. It was never just finance.

On the day of the launch, I recall a promise that was made by Sucheta and Debu- Moneylife will not be like other magazines which presume that every reader is from the financial markets and use terms and jargons that leave us all scrambling for Google (more likely that we switch off after some time). And I believe that this promise has not been breached. Yes, sometimes, I have been guilty of using some ‘hifi’ terms which have left the common reader stumped- my apologies for that.

Some of my friends tell me that there is too much ‘negativism’ in the magazine. To them, I say that the financial regulations and markets have taken a heavy toll on investors. Scams and chicanery is second nature to the financial markets. In such markets, a strong voice is needed. To keep regulators alert and also to warn and educate investors and would be investors. From the first issue, Moneylife has fought battles for the investors.

And when it comes to taking on the regulators, I do not believe that any other publication is as forthright or forthcoming as Moneylife is. The launch of the Moneylife Foundation was another momentous one. And all these are continuing without selling space and words for money. Yes, money is needed for all the seminars and the financial retrieval that is done for the members. A lot of good people have realised the contribution of Moneylife in today’s world of financial chicanery and kept the flame alive. I exhort everyone to give. Especially those who have gained from intervention of Moneylife can spread the word.

I can go on.. For me, each issue has been one to look forward to. I must also say that Moneylife has received bouquets, but no bouquet is complete without a fair number of brickbats. In this journey, it is perhaps natural that the brickbats sometimes outweigh the bouquet. It is not my aim to please everyone, but to tell the truth. And of course, some will dispute the truth. I normally check my sources and based on my experiences, have a fair knowledge of what is reliable and what is not. Agree, not infallible, but works nine out of ten times.

The team at Moneylife is also fantastic. Too many to name, but there are many who work quietly and ensure that the curtain rises in time, for each and every show.

The best to team Moneylife

Five is just a number and many more fives will touch Moneylife.

A “Hi Five” to everyone ...

Cheers

Bala

Acting responsibly as a government- Do not sell family jewels

Governments give away land to private enterprise in the name of encouraging industry or investment. After a few years, the industry or the business shuts down,, jobs are lost and the promoter ends up with a fortune in real estate.

Governments should NOT be selling away any asset to private or public sector. What assets are with the government is also the assets that belong to all the generations yet to come. It is not fair that a family jewel be sold off to satiate immediate hunger. When later generations come, there is nothing left in the larder.

Let the government only give away land by LEASE. Say for 10 or 20 years at an annual rent. To encourage an industry, the rentals could be small in the initial years. However, any business which cannot afford market rents does not make commercial sense, especially in the private sector. No private sector business should thrive with a public subsidy. As it is business and industry are encouraged with a host of tax incentives, soft loans etc.

Rents can be linked to an index of inflation. This will ensure that all future generations also get a fair revenue out of what is the citizens’ property. It is not ethical or right on the part of a government to sell off an asset, no matter what the price.

There are cases like Infosys or TCS, where so many governments have given away land at throwaway prices. Today, these companies are making money hand over fist and the taxpayer (who gave up the land to a group of businessmen) do not get any joy or benefit from it.

Land is the asset which is most abused by politicians by giving it away to businessmen who make super profits out of it. Look at the textile mills of Mumbai. So many jobs lost and so many bank loans written off. And NTCs supported with tax payer money. Is it fair for the promoter or someone else to sell this land and take away the money? These lands belong to the citizens of today and tomorrow. They can be used to generate income. They cannot be sold.

Similarly, when it comes to spectrum for the telecom companies, let it be given on an equitable basis, but on a revenue share. It could be five or ten percent of revenues. That way, the revenues of the government will keep growing. And industry need not find up front money.

Let no asset of the government be sold. It is not ours to sell. It belongs to the generations yet to come. And benefits of these assets should keep flowing in perpetuity.

Budget 2016- Great Expectations?

TRADERS’ BUDGET OR INVESTORS’ BUDGET?

In less than a month, the BJP government will present its first full budget.  Even with no changes, the financial numbers should look reasonable enough, given that the external environment of falling Oil and commodity prices will give a much needed fillip to our un-resolvable fiscal deficit issue. I would be looking for some key policy actions (which logically should happen outside of the budget) that will mean some change. Small tinkering with taxation rates (whether excise or customs duties) are a normal quid pro quo to drive some vested interests and these are part of any and every budget. I will be looking for changes that will impact the industrial environment in a way that it will set the base for a higher growth rate in business and profits that the businesses can make.

The last budget, though an interim one, simply extended the shelf life of the budgets being formed by the previous government. At one level, there is some concern that the new regime is simply trying to tinker with the policies and actions of the previous government instead of thinking afresh.

For example, the “Make in India” slogan would logically be backed by the government encouraging new investments in manufacturing. This phrase can be widened to include majority ‘foreign owned’ companies to operate out of India. It is a reasonable assumption given that we have no technology to set up anything relevant in the manufacturing space. This would mean changes in labour laws.  In India, it is a very complex affair to shut down a manufacturing unit. Every politician sees a potential vote bank issue and will resist closure of units. What the government and the militant trade unions have to understand is that unless they stop their shenanigans, no one is interested in setting up a factory in India, simply because the local government wants investments in the country.

The government should logically be giving a boost to manufacturing sector and also a big push to the infrastructure segment. Hopefully, this government will not give in to the builder lobby and give them any incentives.  This sector is a simple ‘integrity’ test for every government.

Given all this, I think that the beneficiaries of the budget would be those companies that are engaged in infrastructure building (steel, cement, contractors, etc) and capital goods manufacturers. Maybe there would be a boost to some defence contractors too. There could be policy shifts which also benefit the real estate sector, given the high nexus the sector has with every colour of government. I do not expect any tinkering with the taxation rates. I do not expect any other sector to specifically be impacted. There would be ‘consequential’ favourable impact on the banks. This government seems equally keen to maintain the socialism face so I do not expect any bold moves on privatising state owned banks or PSUs.

So if there is a play for prices in this budget, it would be mostly in those sectors that are in infra and capital goods manufacture. Real estate could gain due to the rub-off impact of overall wellness feeling.

Interestingly, I see gains only for those sectors where the earnings quality is always suspect.  Also, most of the players are saddled with huge debts. Most of them should go in for liquidation, but will be allowed to survive by a benevolent system of banking. So, the opportunity, at best would be a ‘trading opportunity’. Buy before the budget and sell on budget. Most of the companies in infra or capital goods would not qualify as ‘investment’ stocks, in my scheme of things. However, given that markets are generally immune to quality of earnings in the short term, there would be some upside potential in these infra and capital goods stocks. I am not suggesting that we buy simply because the prices are far below their historic highs and hence offer some margin of safety. I find that our markets are well priced and upsides are possible only when there is augmented anticipation. So remain alert on trades that you make on this budget. There are no value investments in the market now and there are only trading opportunities. And there is a downside potential should the budget fail to impact our bets. So have the stomach to bear losses. And when one trades, one has to be sure to get out of the trade, profit or loss. Holding on to something simply because it went below your purchase price is a sure way to destruction of wealth.