Category Archives: Observations

Geodesic Investors Go To War

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Fed up by the Geodesic management,retail shareholders of Geodesic have decided to launch an online campaign to muster enough votes to oust the current Board/management.

According to Geoinvestors Blog,

Like all long term Geodesic investors, I am anguished at the sheer incompetence and possible fraud by the existing management.

A Company that has a book value of Rs.188 being traded around Rs.8 is something that is truly unbelievable.

It is clear that if the stock price has to be near its book value, the existing management has to go and be replaced by a new professional management.

Investors based out of Mumbai/Pune are planning steps in this regard and want to reach out to other investors of Geodesic.

For investors who are interested in ousting this management and replacing it with a professional board/management may write to me with the following details:
Name:
# of shares:
DP ID:
Client ID:
Folio No:
Phone No:
Email Address:

My email address is iamshilpamane@gmail.com

 

This is probably the first time in India that ordinary retail investors are trying to get rid of an existing management.

Am reminded of this great AC/DC number…This Means War !!

 

I just love the lyrics of this number

AC/DC – This Means War from the Blow Up Your Video album.

(You get your head down, will you)
I
I want you
I want you to
I want you to march

Eyes go right, shoulder arms
Left wheel turn, show your charms
Change your clothes, cut your hair
Ain’t no joke, ain’t no place for kids
When the flags are high, hear the battle cry
Treaty gone, see the bandit fly
Dig that trench, watch the blast
Shell shock come, coming fast

Name and rank on parade
Might get laid by a hand grenade
Do you know what this means?
Do you know what this means?
This – means – war

This means war, this means war
I said this means war, this means war
This means war

(Run for cover, hit the deck, call for your mother)

I
I need you
I need you to
I need you to fire

Cock your gun, wet your sights
Get the bull dead to rights
Volunteers, one pace back
On the beach ain’t no place for kids
When the flack is high on a bomber run
You don’t talk back to an ack-ack gun
Fire range, and you’re in the blitz
Keep your head or you’re blown to bits

Name and rank on parade
Might get laid by a hand grenade
Do you know what it means?
Do you know what it means?
This – means – war

Who’s going there, is it a friend or foe?
Propaganda time on the radio
Top brass shout as they clown around
Peace talks die in Geneva town

Do you know what it means? (This means war)
Do you know what it means? (This means war)
Do you know what it means? (This means war)
Do you know what it means? (This means)
This – means – war

This means war
I said this means war, this means war
This means war

(Where’s the second gun?)
This means war,
I told you before, this means war
You know the score, said this means war
This means war
This-means-war

You’re all dead

My predictions get a 4/5 !

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I normally refrain from making predictions.As regular readers of the blog would know, I even started a series called forecasting folly to highlight the follies of making predictions and setting target prices.

In a moment of temporary insanity, I had written a post about the implications of Chidambaram becoming the Finance Minister.In that post, I had predicted the following:

1.He will focus on raising revenues via spectrum sale.Most telcos are already bleeding, these auctions will increase their debt burden further.Negative for telcos like Bharti etc

 

2.He will kickstart the disinvestment process by selling stakes in state owned enterprises such as SAIL,NMDC,Coal India,MMTC.If past history is any indicator, expect these stocks to underperform the market.

 

3.He will push for RBI to cut rates.Positive for NBFCs and private banks

 

4.He will announce interest waivers for farmers and weaker sections of society.Negative for PSU banks.

 

5.He will target business groups aligned with opposing political parties.Negative for Adani,Torrent,Aurobindo Pharma etc

These predictions were made on Aug 10,2012 and around 8 months later, the first four have come true.There has been no adverse impact on the business groups who seem to be close to the opposition parties.

Memo to myself:Stop making predictions now that you are ahead !

Banks have been exposed…and the market has yawned

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Today there was a press conference by Cobrapost where they alleged that HDFC Bank,ICICI Bank and Axis Bank indulged in money laundering.

The markets saw this breaking news conference and yawned.At the time of writing this,

Axis Bank (-0.82%)

HDFC Bank (-0.33%)

ICICI Bank (-0.47%)

These declines are par for the course when Nifty is down by 0.18% and Bank Nifty is down by 0.13%

Does this mean that the markets already knew this “news” or does it mean that markets know that these banks will not face any material fines/penalties?

This is India !

If you want a friend on Dalal Street

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One of the oldest adages on Wall Street is “If you want a friend on Wall Street, get a dog”

Nothing illustrates this more than the carnage of NHPC.

In the case of NHPC, talk in the market is that a big trader was holding sizeable positions through a combination of margin funding, loan against shares and stock futures. This trader had been told by one of his many brokers that he would have to shift a chunk of his positions elsewhere, as the broker was unable to finance it. The trader had been in the market for the last couple of days, scouting for financiers to fund the position. He is said to have sought the help of a former BSE President who is renowned for his bearish calls on the market.

And while this bear operator declined to fund the position, he is learnt to teamed up with another old hand in the market, also renowned for his bearish calls. The duo is said to have short sold NHPC futures heavily last week. Open interest in NHPC stock futures shot up from under two crore shares (the equivalent of) to over 20 crore shares in a week. On Friday, NHPC March futures were trading at a 5 paise discount to the spot price, indicating massive short selling.

Open interest in NHPC futures declined around 40 percent to 14.55 crore shares on Monday, indicating that bears may have used the steep decline in price to cover up a good part of their short positions.-from MoneyControl

The best part of Warren Buffett’s 2012 letter

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The best part of the letter is Buffett’s lament that his record of beating the S&P 500 over five-year periods, which he has never before discussed publicly, as far as we can recall, is endangered:

 “To date, we’ve never had a five-year period of underperformance, having managed 43 times to surpass the S&P over such a stretch… But the S&P has now had gains in each of the last four years, outpacing us over that period.  If the market continues to advance in 2013, our streak of five-year wins will end.”
The fact that a guy who, with the help of Charlie Munger’s key insight on the importance of buying good businesses rather than cheap stocks as well as the hard work over many years by a lot of smart managers who could have made themselves far richer working on their own, has compounded the net worth of a company 19.7% a year for 48 years (when you compound something nearly 20% a year for 48 years, it adds up to a lot…like, 586,817%—ed.) worries about a 43 period “streak” of five-year wins against the overall stock market, tells you everything you need to know about what it takes to create a track record like Warren Buffett (a flat-out competitive instinct that never quits—ed.)
 So don’t let the “Uncle Warren” veneer fool you.  He set out to be the richest man in the world, and he made it, but not by sitting back and spouting homespun pearls of wisdom: it was by outworking—and outthinking—everybody else.
 And doing that every day, of every week, of every year.

Chidambaram’s gifts to India

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Mr.Chidamabaram has presened eight union budgets, 2 short of Moraji Desai’s record 10 budgets.

In these eight budgets, Mr.Chidambaram has introduced taxes whose acronyms have become part of daily usage.Have enclosed the list below:

Chidambaram’s Budget # Year New Tax/Proposal Introduced New Acronym introduced
1 1996-1997 Minimum Alternate Tax MAT
2 1997-98 Voluntary Disclosure Scheme VDS
3 2004-05 Securities Transaction Tax STT
4 2005-06 Fringe Benefits Tax FBT
4 2005-06 Banking Cash Transaction Tax BCTT
7 2008-09 Commodities Transaction Tax CTT

Is Narendra Murkumbi trying for a backdoor listing of Renuka Energy?

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(Full Disclosure:I have shares of Renuka Sugars in my personal and family portfolio)

Ravindra Trading (BSE Scrip Code:504341) is one of the many scrips in BSE which are under suspension.

In Oct 2008, Narendra Murkumbi, promoter of Shree Renuka Sugars made an open offer for the compay.The offer was for  Rs.10/share.

Subsequent to the offer, the control of the company passed on from the original promoters (the Somani group) to Narendra Murkumbi who now holds 73.85% of the stake.

Once Narendra Murkumbi took over, the company got the kiss of life and it started trading coal.

In 2012, the company earned around 1.18 Crores as profits and gave a Rs. 1 dividend to its shareholders.

On Aug 20, 2012, the Board of Directors met and granted in-principle approval for the amalgamation of Shree Renuka Urja Pvt Ltd (under incorporation) and Shree Renuka Energy Limited into the company.

Now, Shree Renuka Energy is a subsdiary of Renuka Sugars.It is setting up a of 3×350 MW Coal Based thermal power plant at village  Vantamuri, in Hukkeri Taluk, in Belgaum District , in Karnataka.

It is headed by J Suresh Kumar (former CFO of Lanco Infratech) who oversaw Lanco’s A$750 million buy of Australia’s Griffin Coal.

While the power plant is still awaiting various permissions and will take time to come up,it appears clear to me that eventually  Ravindra Energy will be renamed as Renuka Energy and investors will be tapped for funds.

Smart moves, Mr.Murkumbi !

Why trying to buy low,sell high doesn’t work

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This advice seems to contradict the data. After all, there is a positive relationship between equity valuations–whether measured against earnings or dividends–and future returns. The higher the dividend yield in one year the stronger the expected returns over the following five years.

 

After all, more than a century of data show this to be true. Sure, the statistical significance could be stronger, but the general tendency is clear.

 

And if you had bought U.S. equities when price-to-dividend ratios were below 14, you’d have generated annual total returns of more than 10% a year during the following ten years, three times higher than had you bought when the price-to-dividend ratio was above 35.

 

This seems a pretty good investment rule–buy when cheap; sell when dear.

Except it’s not.

 

The problem with this data analysis, argues Professor Dimson, is that it is done with hindsight. Using the full century and more of data, we know how things turned out during the whole of that period. We know what was cheap and what was dear.

 

The LBS researchers ran the same analysis, buy low sell high, over the whole of the past century, but using only data prior to the point in time they were looking at (a rolling analysis). In effect, they were looking at history as if at each point they were in the same position as contemporaneous investors, with only knowledge of past data and not what was to come.

 

In that case, timing the markets based on mean reversion in all cases causes investors to underperform those who merely stay in equities. Trying to time the market by selling high and buying low leads to worse returns than methods like dollar cost averaging or just buy and hold.

-from WSJ

A cautionary tale

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The old Wall Street adage is “Buy on Rumors, Sell on News”

Many people have lost money following this adage.

Take for example, Ramsarup Industries.In June 2010, a rumor spread that it is a takeover candidate for Arcelor Mittal.The stock shot up to around Rs.80.85.

There was no basis for that rumor.As truth came out and the dust settled, the stock drifted downwards and is now selling at Rs.4.5 !!