Category: Excerpts

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Excerpts

Rules of thumb

Rules of thumb aren’t perfect, of course. But that’s their advantage. By starting with a strategy you know isn’t perfect, you naturally leave yourself room for error, and are more flexible in accepting the market’s whims.

So I don’t use fancy valuation models to calculate how much stocks should return over the next 10 years. I assume 6% a year after inflation over the long haul. I figure that’s good enough.

I don’t forecast what the market will do this year. I assume the market will go down half of all days, a third of all years, and a fifth of all decades. That’s probably good enough.

I don’t predict what the economy will do this year. I assume we’ll have a recession every five to seven years. Good enough.

Don’t bother me with calculators that show me how much money I’ll have in 30 years. I don’t know what my bills will be next month. I save as much money as I reasonably can while living a lifestyle that I’m content with. I figure that’s good enough.

Spare me with your analysis of why I should own stocks from some country because of economic trends. I’m diversified, and accept part of my portfolio will always be doing worse than others. I figure that’s good enough. –from Motley Fool

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Excerpts Realty Sellside Research

Can Mumbai realty prices crash by 50%?

Saurabh Mukerjea of Ambit Capital sure thinks so.

In an interesting report, Ambit Capital lays out the bear case for real estate prices and makes this startling remark:

In a fairly-priced real estate market, the rental yield tends to be somewhere close to the cost of borrowing. Instead, Mumbai has a rental yield of close to 2% (this is gross of tax and maintenance charges) whilst the lending rate hovers around 10%.

The difference between lending rates and rental yields is one of the highest in India (see the exhibit on the next page). Even if one assumes that buyers are willing to live with only 5% rental yields (as they might have an extremely bullish view of capital gains arising from real estate in India), this would imply halving of real estate prices in Mumbai.

 

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Excerpts

FDI relief for HDFC and ICICI Insurance Companies

(Disclosure:I am market making in the shares of ICICI Pru Life)

IMG-20150710-WA0000

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Excerpts

Betting the house on the Chinese Stock Market

In China, you can now literally bet the house on the nation’s tumultuous stock market.

Under new rules announced Wednesday by the country’s securities regulator, real estate has become an acceptable form of collateral for Chinese margin traders, who borrow money from securities firms to amplify their wagers on equities. That means if share prices fall enough, individual investors who pledge their homes could be at risk of losing them to a broker.

“It does come across as relatively desperate,” said Wei Hou, an analyst at Sanford C. Bernstein & Co. in Hong Kong. “Globally, illiquid assets such as real estate are not accepted as collateral as they are very hard to liquidate.”

“This is simply not practical,” said Chen Gang, the chief investment officer at Shanghai Heqi Tongyi Asset Management Co. He joked with colleagues that brokers would have to become experts in everything from property to antiques, given the range of assets that clients could potentially pledge.

“Brokers are not stupid,” said Hao Hong, a China strategist at Bocom International Holdings Co. in Hong Kong. “I don’t think they would be willing to take this kind of collateral.”

The Shanghai Composite Index closed below the 4,000 level on Thursday for the first time since April, even after stock exchanges cut fees and the securities regulator rolled out its margin financing rule revisions more quickly than planned because of “market conditions.” Declines since June 12 have erased at least $2.4 trillion of value from Chinese shares, more than the entire market capitalization of France.

–from Bloomberg

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Excerpts

SEBI clears Catholic Syrian Bank IPO

(Disclosure: I am market making in Catholic Syrian Bank and if anyone wants to buy/sell CSB, please email me at Alpha Ideas )

Catholic Syrian Bank has received capital market regulator Sebi’s approval to raise up to Rs 400 crore through an initial public offer (IPO).

The company in March had filed its draft red herring prospectus (DRHP) with Sebi through its lead merchant banker, ICICI Securities.

Sebi issued its final observations on the draft offer documents on June 23, which is necessary for any company to launch a public offer.

“The bank will issue equity shares aggregating up to Rs 4,000 million,” the draft papers stated.

Besides, the mid-sized private lender is considering to raise up to Rs 150 crore through pre-IPO placement .

The proceeds of the issue will go towards augmenting the bank’s capital base to meet its future capital requirements.
–from ET