Is the Govt of India like Goldman Sachs?

Consider the following actions of the Govt of India:

Govt of India auctions a block on ONGC on 1st March, 2012.Two weeks later, the same Govt announces an increase in cess on oil production from Rs.2500 per tonne to Rs.4500 per tonne.As per RS Sharma,former CMD, ONGC,  “The cess hike will have a bearing on ONGC’s revenues to the extent of Rs 5,000 crore per annum”

The timing of the govt. for the ONGC sale was good, not so for the investors who bought it.

This is similar to the actions of Goldman Sachs.Goldman Sachs sold structured products to investors knowing that they would blow up and in some cases, it actively bet against the same products.

Such sharp deals by Goldman Sachs,Lehman Brothers and their like led Warren Buffet to label them as a “carny”

A carny is  a carnival barker hawking rigged games to tempt cash out of unsuspecting bystanders.

The Govt of India by acting as a “carny” has done itself no favors especially when it has huge disinvestment plans lined up (30000 Crores for this fiscal)

Contrast this sort of behavior with that of the Tatas.

Ratan Tata took TCS public in late 2004.Many times he was asked why did he wait so long, considering that during the late-1990s software boom TCS’s revenues were growing at nearly 60% a year, twice the current rate?

Here is his classic reply (which would have made JRD proud):

“There was a moment six years ago when we considered floating this IPO. But one concern was that the stock markets in India then were not valuing IT stocks realistically. Had we gone public at that time, Tatas being in an enviable position in terms of the money they collected, we would have left many of our shareholders dissatisfied. This was because the IT industry went through a slump [subsequent to 1990s]. We would like this share to be one that investors are happy with, where they see growth, they see enhancement of their shareholder value.”


The Govt of India should act less like Goldman Sachs and more like the Tatas.


Weekend Reads

Great reads for the weekend:

India’s economy: Losing its magic (Economist)

A devastating critique of the government-The usual idiots (Mint)

What goes up must come down (GMO)

Warren Buffett’s 50 Billion $ decision (InvestingNotebook)

Student Loans for kindergarten?( Forbes)

IIT Coaching in Kota – Feel sorry for today’s kids (Caravan)

Raging (Hazing) in Ivy League colleges-a true shocker (Rolling Stone)

Found this strangely funny-Male model thrashed and swindled by women (Mumbai Mirror)


The Chill of Politics

In a previous article, we had discussed the impact of politics on rail stocks.

Politics plays a key role in deciding the fates of companies and sectors.As such, it can lead to plenty of warning signals for seasoned investors.

Take for instance, Jayalalithaa’s massive win in 2011 Tamil Nadu Assembly elections.

Since then (14th May, 2011) to now, shares of Sun TV (considered close to DMK) have tanked by a third.

A Raja was arrested on 2nd Feb, 2011.Since then, perceived losers such as RCom (-30%), GTL Infra (-75%) etc had to suffer devastating losses in their market capitalizations.

In 2012, assembly elections in Gujarat are scheduled towards the end of the year.Narendra Modi is widely expected to win but if he doesn’t you can be sure some corporate entities will be affected.


Forget Gold.Buy Whiskey

Gold, art, coins etc fall into a category called collectibles.The value of these collectibles doesn’t depend on any cash flow but on what price the next buyer is willing to pay.

Now whiskey too is joining the ranks of collectibles.

According to an article in FT Adviser,

If you’d bought the current best performing 250 bottles of whisky in 2008 (at auction in the UK) they would have cost £42,508. In todays’ market they would be worth £94,884, an increase of 123.21 per cent.

If you’d done the same with the top 100 bottles, the increase is 162.96 per cent and the top 10 would have gained by 297.62 per cent, according to the Whisky Hignland index.

As with all investments, the risk of getting it wrong can be catastrophic, and whisky is no exception. The bottom 10 performing bottles of whisky represent a 73.47 per cent loss in value since 2008.


Now try convincing your wife to trade in her gold for whisky !!



Hot Links: March 30, 2012

Your morning financial links expertly curated:

Foreigners find India a risky business (WSJ)

HPCL’s Bhatinda refinery becomes fully operational (BusinessLine)

Suzlon Energy: The net tightens (Mint)

SEBI Watch:Insider Trading of Shri J.E. Talaulicar (SEBI)

Havard more selective than Yale (Bloomberg)

Bashing up Warren Buffett (Daily Reckoning)

What Dan Loeb learned as an investor (Market Folly)

Wtf: Urine soaked eggs sell like hot cakes in China (Mumbai Mirror)