closer look

A husband and wife were waiting in the consultation room when the doctor entered. “And what seems to be the problem, Mrs. Smith?”
“My husband worries constantly about money.”
The doctor absentmindedly replied, “Ah, I think we can relieve him of that!”

At a cocktail party, the curvaceous blonde was the center of attention. Standing in the middle of the room, she was surrounded by almost every man there. Finally, one woman turned to her husband and said, “I just don’t see what they see in her.”
“I don’t either,” replied her husband as he started across the room.
“I’ll take a closer look!”


Delimitation Bill

Finally the much awaited delimitation bill has been presented in the Parliament.

Since I thought most people are unaware of what it means for the country esp. its urban population, I thought I will explain it. Although India is a democracy where everybody is claimed to be equal. But reality it is not exactly true.

1) The Lok Sabha seat cannot span across state boundaries. Hence smaller states/union territories like:
Andaman and Nicobar Islands
Dadra and Nagar Haveli
Daman and Diu

Have an advantage of higher representation per citizen. However this bill cannot solve this problem.

2) The real problem we are targeting is that:
The present constituency map for Lok Sabha Seat or a seat in the State legislative assembly was drawn in accordance to the 1971 Census. Over the past 37 years the demography of the country has changed considerably. Several new cities/urban centers have spawned up over the last 3 decades and population of the existing cities (like Bangalore) has boomed to many folds. Hence what was once a open field with little or no habitation is now a crowded apartment complex with over a thousand households. In contrast, thanks to movement of labor to the cities, the village population has been more or less stagnant increasing slightly in areas where new irrigation methods or crops were introduced, and reducing in rain fed areas.

Unfortunately Election Commission could not keep pace with this changing population density and this has yielded some disastrous consequences for the urban citizens. Although cities account for over 70% of the GDP, 80% of all taxes collected and 40% of the country’s population, politicians which continued to ignore the cities continue to get reelected and there is nothing we could have done about it.
With this delimitation, we could hope for a more equitable representation and hence would compel the politicians to respect our urban population.

However one important aspect of the demilitation which  involves giving equitable representation  to the states whose population density has increased over the past 3 decades, has been  left to be outside the scope of the bill.


Burnpur Cement

No of shares: 20.8 million
Issue Date: 28th Nov – 3rd Dec
Price Band 12/-

This is a classic issue which tells us exactly what are the tell tale signs of a bad IPO.
1) The factory has been operational since 1991, and still its growth and performance has been below average. No wonder a share of face value 10/- is going for ipo at 12/- Last year was the first time the company made a profit >1cr.
2) The objective of the IPO is to raise about Rs 26.2 crore to part finance the proposed Rs 500 crore greenfield one million tonne integrated cement plant in Jharkhand. Can someone tell me from where is the rest 474 crore coming?
3) Promoters are offloading 49% stake in the company. They might as well sell it the entire company off, after all Cement industry is on boom and Ambuja Cement (sensex stock) and L & T cement (another blue chip) actually did that recently.

4) The company boasts that it has made a profit of 1.14 Crore (on a proposed market capitalization of 53cr resulting in an EPS of < Rs 1.) but you have to read its balance sheet to realize that this profit was partly because of a trading profit of over 4 crore. (Now this confuses me, should i categorize this company as a trading firm or as a manufacturing firm?)

5) One should not forget that the profitability of the company is partly due to the scarcity of cement and high prices.. so consistency is not guaranteed, infact that company has a track record of making losses and has a meager revenue of 26 Crore.

6) The company has over 90 crore in debt (a sum equal to almost 4 years of revenue)…. i wonder if even the banks can give them one extra penny.

7) The company says the IPO is to enable its backward integration into clinker… but tell me why would you make 100s of cr of fresh investment in a raw material plant to save 1-2 pennies on your annual revenue of 20cr. This defies all logic and commercial prudence!

In short this issue is the fastest way to penury. BTW the reason for this post is that MoneyControl and several other yellow journalists have assigned 3 star rating to this issue and even ICICI has recommended people to apply.


mutual fund fleecing

Recently ICICI announced the launch of ICICI Prudential Real Estate Securities Fund. Its advertisement came with the picture of how the landscape of bangalore has transformed over the years, so naturally I became interested. However, the moment I started reading its offer documents, I realized that this fund has no intentions in owning and developing a property. All it will do is take your money and invest in a debt scheme/bonds.

Similarly, a couple of months ago a lot of global funds were launched which claimed to invest in international securities. I was keenly interested in them, because it would help me in hedging my risks, and reduce my portfolio’s dependence on the performance of BSE Sensex. However, yesterday, when I visited their website to check their portfolio, all I found that they were either sitting with huge stockpiles of cash or 90% of their portfolio consisted of either Indian stocks or ADRs of Indian stocks…. which totally contradicts their advertisements, or investment rationale.

Today there was an article in moneycontrol how all the index funds (irrespective of the fund house) have underperformed the index… Surprised!!!! well this is what happens when index funds does not invest in stocks which forms the index.

The point is that that please do not fall for the jazzy advertisements and facade…. go check the history of the fund and its current portfolio before giving them their money.


Can u get rid of this bug in the code below?

/* add.c
* a simple C program

#include <stdio.h>
#define LAST 10

int main()
int i, sum = 0;

for ( i = 1; i <= LAST; i++ )
sum += i;
} /*-for-*/
printf(“sum = %d\n”, sum);
return 0;

Forwarded by Savitha


Pet trainer

A family adopted a stray cat but, to their distress, the cat used their new sofa as a scratching post.
“Don’t worry,” the husband reassured then, “I’ll have him trained in no time.”
For several days, the husband patiently taught that cat a lesson by quickly depositing him outdoors whenever the cat scratched the sofa. The cat learned quickly.
For the next twelve years, whenever he wanted to go outside, he would add another scratch to the sofa!


Sawaariya: Review

Sawaariya is one long song with some breaks for dialog. And by dialog I mean girly giggling by the chic and some punch-me-in-the-face expressions accompanied by pig-like grunting by the hero. One wonders if all the actors are the props and the set is the real star in this movie. I came really close to concluding that the bridge-over-the-fake-river is the central star of the movie, because everyone of the other actors looks like they were made of rock. And the rocks had moss growing over them. And the rocks were painted blue

To say Saawariya is a crappy movie would not be correct. Horrendously Ridiculous comes close, but it doesn’t really capture the essence of the absurdity that this movie is. After watching this movie I felt like tying up Sanjay Leela Bansali alone in a room, forcing him to watch a cockroach chase a spider round-and-round a water fountain for 3 hours. That too in blue light. Because seriously, that’s what this entire movie is. It’s two grossly untalented kids, who probably got kicked out of college for lack of attendance and ended up on this set to spend the rest of the day. And for the love of God, I can’t figure out why the whole movie is in blue! Maybe the director was trying to get every frame half-black half-blue so that the WinZip compression would work better to save some electrons, what with all the global warming and all. That’s the best explanation I could come up with, because nothing else can explain the lack of daylight (or plain light, for that matter) in this movie.

– Forwarded by Payel


Promoter’s Warrants Issue

In India it is very common for the promoters to sell substantial stake in the company when the price is right. Then immediately after that do a preferential allotment to themselves or kins and relatives.

Often this preferential allotment is made in form of warrants. Promoters, who subscribe to such warrants, are required to pay upfront only a small portion of the warrant issue size and pay the balance amount in 18 months. Promoters, in most cases, exercise the option of converting these warrants into shares only if the share price of the company is higher than the pre-fixed price of the equity warrant.

By law each and every investor is an equal partner in any company. So why were the common investors not allowed to subscribe to this issue?
The management of all Indian companies are always rewarded generously for their efforts. They are given huge salaries, bonus, perks and even stock options (ESOS) I am OK with that, but these warrants are embezzlements. They dilute the holdings of the common investors at a throw away price and wipe out all the profits which we had expected. What hurts me the most is that most people are oblivious to this malpractice.

One of the biggest problem faced by Indian stock market is that even though by law, the investors are an equal partner, in the promoter’s minds, it still belongs to him.


Thinking small: Entrepreneurship in India

Here is an extract of an interview with Amar Bhidé of Columbia Business School.

How do high-growth Indian firms compare to their counterparts in the United States?

I interviewed the few high-growth firms that I could find in Bangalore. These were high-growth firms by Indian standards, but not by U.S. standards. Interestingly, firms in both the United States and India start with roughly the same amount of capital: $10,000 in the United States and about $8,300 in India. So compared to local incomes, it seemed to take a lot more money to start a business in India than in the United States. Moreover, the U.S. firms grew in five or six years to revenues that were 378 times their initial capital, whereas the Indian firms grew to only about 20 times their initial capital.

And there are other noteworthy differences. In India, there’s virtually no ability to use external equity; there’s a much greater use of debt. In the United States, young firms try to have as few assets as they can and to subcontract as much as they can. In India, it’s the opposite: tiny firms integrate forwards and backwards as quickly as they can. Similarly, these firms are trying to become mini-conglomerates before they’ve reached any scale.

Indian entrepreneurs have much higher working capital requirements. A U.S. entrepreneur can at least hope to collect on receivables in about 30 days. In India, they extend receivables to 90 days or longer. In the United States, virtually every entrepreneur I studied used rented offices. In India, almost the first thing they do is to acquire the property they are housing their businesses in. Someone might have 80 percent of his capital tied up in real estate and only 20 percent in his business.

This combination of things provides a first-level explanation as to why there are so few firms that grow and why their growth rates are low. There seem to be several things in the environment that have caused this pattern. High on the list is the tax system. India relies much more heavily on indirect taxes than does the United States. These indirect taxes can add up to 32 percent to your cost of goods sold. But small businesses are exempt. So you’re better off running 10 businesses, each under $10 million, rather than having one big business. There’s a similar story with labor. Once you get above about 20 people, you can have non-wage costs that add up to 50 percent of a worker’s salary.

Another factor is the unreliability of supplies from both government suppliers and private suppliers. Because you can’t count on the electricity supply, you have to have your own generator. Naturally, this ties up capital. Similarly, if you tried to run a virtual business, there would be critical links in the chain that simply would not deliver. Why people invest in land instead of in their business is puzzling. Maybe it’s because the businesses themselves are not that profitable. The physical infrastructure is horrible. That means that instead of having one national market of a billion people, you have many little local markets because it’s so hard to move stuff from point A to point B. So all these things contribute to creating a disincentive to grow large.

The full detailed interview can be obtained at Columbia University website.


Red Purse

Is there some place where I can buy this purse: