Guest post from T.R.Ramaswami
It is intriguing that terrorists are being identified by too many adjectives – “British Muslims of Pakistani origin”. Now should a terrorist be identified by his nationality or religion? And if it is nationality, should it be the present one or the past or even that of his parents, assuming that he held no other citizenship? Why does the media mix nationality with religion – because it suits the western media and even sections of the Indian media to do so. Why not just say that the terrorists were Muslims – regardless of nationality- or that they are British – regardless of his religion or past nationality? That would be really interesting, provided the media has the courage.
In fact if we carry this analogy a little further – are not all Pakistanis and hence the terrorists who come from there of Indian origin?
Remember the often repeated cliché that terrorists have no religion? Then why should the Government have a cease fire agreement during Ramzan, as reported in the media? Let us tell the Hizbul Mujahideen and other groups that there will be no cease-fire as Muslims themselves have said that terrorists have no religion. Hence Ramzan should not matter to them. If we accede to their request then we are hypocrites. Perhaps there may be more attacks on places of worship of other religions but wouldn’t that tell us who the terrorists are? Will the Government show some spunk at least now?
– T.R.Ramaswami



Guest post from T.R.Ramaswami
Who has behaved most irresponsibly during the recent Mumbai carnage? Apart from the netas it is the media, particularly the visual media. In fact it is they who appear to be on the side of the terrorists by downplaying our anger and not airing the real views. Only those who say things in a sugary way are aired. What’s the use of lighting candles. Let the media, particularly one puny TV anchor, shove these candles up their rear and that of the netas hiding behind walls and Z-security and they will know how it hurts.
The media is so insensitive. First many foreign journalists are shocked that the media is able to show live everything that is happening on the scene of battle with all point of ingress and egress fully visible. I am sure that the terrorists had an accomplice watching the TV or even next to the cameras conveying what is happening outside. That’s why when a fire engine moved in, they threw a grenade. Next watch how they harass the people who come out after undergoing hours of harrowing terror just to get their sound bytes. I would like to place a bomb between their legs, again particularly under the same puny anchor, and then shove a camera in her face and ask – Aap ko kya mehsoos ho rahai? Kitne aadmi the!!???
My comments on yesterday’s post did support free media, but I would agree with your frustration on this one. The quality of Media is really poor and with coverage like this they are indeed compromising the law enforcement activities.



Guest post from T.R.Ramaswami
I write with reference to media reports on the debate on the new censorship laws proposed in the light of the coverage of the recent 26/11 events. As John Keegan, noted military historian puts it, every crisis is governed by competing velocities – the velocity of events, the velocity of response and the velocity of assessment and decision making. The pace of the last, a function of the human mind, has remained the same over the centuries. But technology has enabled the reporting of events at a faster pace, and this in turn feeds the pace of the crisis. This was amply evident during the recent 26/11 events where almost real time TV may have forced the pace of events and statements and decisions to satisfy the questions raised by the media through the visuals and commentary available to the population at large. One example – the media announced that the NSG were on their way and even that they had arrived and with numbers! That took the element of surprise away.
While the velocity/capacity of the human mind to receive, collate and respond has remained static, other velocities have increased tremendously and the imbalance is sought to be corrected by reducing/filtering the flow and quantum of information and making it available only to a select group on a need to know basis, till the crisis is over. In the current context it would also probably mean reducing external pressures by denying information to the common public through the visual media, which has its own rumour and advise tendering effects. Further, today even allies of the terrorists who are in communication with those creating the crisis, have access to the media.
It would be interesting to have an impact analysis on the events of 26/11 caused by continuous availability of information through the visual media and ensure necessary corrective steps. Those more interested in the events/concepts related above should read 13 Days (on the Bay of Pigs Crisis) by Robert F Kennedy and The Mask of Command by John Keegan.
Ankur’s view
Ramaswami has raised some valid points on why there should be a certain amount of discretion exercised by the media (press/organized media and social media/twitter/facebook) for the effectiveness of law enforcement.
However I am of the opinion that information is a powerful unifier and a pacifier. The biggest issues during the acts of terrorism is controlling the mob, the fear that it develops and restore the trust the common people have in the ability of the government to enforce law and order. Without reliable information dispersing handling these issues might be a challenge. I have not read the books mentioned here, but I know for sure that armies have always invested heavily in spreading propaganda because they know that during war, it is very effective in mellowing the resistance, uniting in the supporters and giving courage to those in the line of fire… a nation under threat of terrorism is no different.



Guest post from T.R.Ramaswami
Let me start by saying that you will never defeat terrorism. Nation states appear to be unable to win this war. In fact it has been acknowledged by military strategists and experts that the 19th. century definition and structure of war given by probably the greatest of military strategists/thinkers – Karl von Clausewitz – has broken down. The definition that war is an extension of politics by other means and essentially waged by nation states appears to have developed several cracks in it. The definition underwent some major changes during the Cold War nuclear era – namely that a military establishment is for averting or deterring wars rather than engage in them. In fact many countries have done away with regular standing armies and even outsourced their defence to a large extent – namely Japan and Canada.
What the world is now witnessing is a more insidious form of war – borderless events with geographical limitations at that point in time, but with global impact, waged by organisations that are not nation-states and with no territorial identity. A terrorist outfit has no area, capital, strategic assets.
Hence the terrorists cannot be engaged or even annihilated in the conventional manner. It is almost like fighting maya.
The reason is that there is no theory that marries the fundamental thought principles of war to the on the ground structure of war now being waged. You are only reacting. Hence all the world’s state owned regular armed forces would continue to fail put down the guerillas, insurgents and terrorists till a viable theory is formulated so that the state is first clear in its mind as to what it wants to do before it moves on the ground. Today the anti-terrorism war resembles the Marxist theory of searching for a non-existent black cat in a dark room. Only when the roots of terrorism are identified will we have a coherent strategy. Till then eternal vigilance is the only antidote. Sadly, in India, even when we have intelligence, we do not act. A month of vigilance, even on a wrong lead, is worth more than a day of terror.


Bonds Part III: Cumulative Vs periodic interest payment

This is a 3 part of the series of post on bonds. I have designed this post as a water fall model:
1. The most common bonds in most portfolios are the infrastructure bonds and other bonds bought as part of 80 C, 80 CCF etc. These bonds usually give lower than market rate returns and have a stringent lock in period etc. If you intend to buy such bonds then ALWAYS GO FOR THE ONE WITH COUPON RATE. This way only your capital would be locked and interest (which is about 8-9% of your capital) would be returned back to you annually for reinvestment (probably in another tax planning instrument for next year) This way one can recycle the capital to ensure maximum tax benefit with least amount of capital being locked away.
2. Default risk: Simply put most companies irrespective of how harsh the times are somehow manage to pay the interest rate. However when the time comes to pay back the principal, the company faces issues. This is primarily because companies tend to prefer to roll their debt. i.e. issue fresh bonds (from retail or via banks/FI) and if their standing in the industry falls, this could become difficult. Looking at the recently open issue (10.75% interest over 15 years) 10,000/- has a maturity amount of 46,255/- So if I were you, I would prefer to get an annual coupon rate, reinvest it in another bond and diversify so that even in case of default I am able to capture back 36,255/- of the 46,255/- maturity value. However if you are subscribing to public sector bonds/bonds with explicit/implicit sovereign guarantee then move to point 3.
3. Interest rate trend: If you believe that interest rate are going to go up in the future then go for shorter duration bonds and in that one with most frequent interest payment (monthly/quarterly/semi-annually). More frequent the coupon payment, lesser would be Macaulay Duration and hence lesser sensitivity of your portfolio to interest rate hikes.
4. Trading: As mentioned in the previous point. If you don’t intent to hold the bond till maturity and sell it once the interest rate falls then probably you would make more money by going for the cumulative bonds.
5. Liquidity requirements: Pension holders prefer monthly income bonds which allow them to cover a part of their monthly expenses by bond income. On the other hand if you are young and intend to save money in bond so that you could buy property/car etc. then go for cumulative bonds that way your savings would be inflation proof (at least partly)
6. Your job/financial security: You won’t find this in any book, but for guys like me who are expected to bring food to the table but don’t have a secure government job, I prefer periodic interest payment. My logic is that these interest payments would ease my liquidity crunch which could arise due to sudden loss of job/income source. This way I don’t have to dip into my investments (which like selling gold ornaments could be very depressing) and if I don’t need the interest money, I could always reinvest and increase the diversification in my portfolio.
7. On the other hand if you are the secondly breadwinner (usually the wife) or have a secure govt. job, then all things equal I would go for cumulative bonds. Again based on your personal preference even a mix and match would not be something I would proscribe.
I hope you found this useful. Please feel free to add to this post or highlight the fault in my logic.


Bonds Explained: Part II: Bonds vs. Debt Funds

This is in continuation with the Bond vs FD post. Please refer to it for some technical jargons.
Contrary to popular perception, one can actually lose money in a guild fund. When the interest rate goes up, the bond becomes less valuable. (as bonds offering higher interest rate are available in the market) For more details please refer to Macaulay Duration ( Also fund managers are required by law to disclose their portfolio and they usually don’t churn their portfolio frequently enough. So if I were you, instead of investing in a guild fund, I would invest directly into the individuals bonds and save on the Fund Management fee, exit fees etc.
Why my financial planner never told me about them. Simple look at who is paying them…. Usually it is the firm selling the financial products. So if you invest in a 15 year bond then he/she can be assured that you won’t touch that money for the next 15 years. So there goes all the commission that could be made when you switched from one fund to another every 6 months.
PS: There is a slight difference in tax implication in various instruments, but since I don’t have an official degree in Tax, I would advise to consult your tax planner.


Bonds Explained: Part 1: FD Vs Bonds

SBI and Sriram motor finance bond issue was oversubscribed many times on the opening day itself would make one wonder why people go for the bond issues. After all Fixed Deposit has many advantages
1. Sovereign guarantee: RBI offers banks a lot of protection enabling them to raise capital from public and RBI itself at a very discounted rate (sometimes at a cost lower than then that of government borrowing) and in return RBI forces a lot of lending norms to ensure a healthy balance sheet and growth in the nation.
What it means: There is an explicit insurance that all customers who have deposited money with the RBI approved bank would get back at least a minimum assured amount. Also what has been seen is that generous bailout packages and doles are given to sick banks enabling them to not default.
1. Flexibility: You can walk into a bank (or order online/phone) anytime and open up a Fixed deposit of whatever tenure that suits you. Also after paying a nominal penalty, one can also close the deposit and withdraw the money back
2. Best interest rate: If the interest rate are up, no problems. You can close the fixed deposit and reopen it at the prevailing rate.
Benefit to senior citizens: I have never understood the financial logic of offering higher interest rate to senior citizens, but they do exist. Bonds make no such distinction.
Compared to that Bonds offer:
1. Higher interest rates: Remember the Risk Return Graph (CAPM )
2. Higher risk: The bonds of a firm are worth something only as long as the issuer is capable of paying you back (or as in case of Essar… willing to honor its debt). So watch out for shady firms with weak balance sheet issuing debt. However a lot of public sector firms and blue chips regularly issue bonds so there is no scarcity of good issues, but care needs to be made while selecting.
3. Longer duration: 10-15 year bonds are not uncommon, while rarely people go for fixed deposit with maturity of more than 3 years. Hence good quality bonds make an excellent retirement portfolio addition.
4. Less Liquidity: Companies don’t raise capital (from public) everyday and looking at the previous few issues it is a seller’s market. The company decides the interest rate, the terms and conditions (esp. the call schedule) and also when they want to issue the bonds. Also except on the explicit put/call dates it is very hard to get the money back from the company. Also most bonds are very thinly traded.
5. Demat: Now days most bonds are issued in demat format. This helps in liquidity a lot. Even if the bonds are not being traded, you can transfer it to one of your friends or relatives for cash/other consideration. I have done this OTC transaction for both bonds certificates in physical as well as demat format and trust me demat is so convenient (provided you have a buyer)
6. Convertible option/Debentures: A lot of company sweetens the deal by offering a convertible option. Shares for a predetermined price. So if the stock market rises, people can convert their bonds into shares at a discounted price. Else they can always get their money back.
Bonds allow you to capture the wealth created due to interest rate fluctuations. Interest rates are quite high these days and RBI has ruled against possible rate hikes in the future. (not very trust worthy as policies can change in the next quarter) Now say 2 years down the line you have a FD which gives you a solid 10% return and the prevailing FD rate is only 6%. Of course it is very frustrating because the bank will not compensate you for this extra interest rate that you are foregoing. Also FD are not transferable (you can take a loan but sometimes it does not make logical sense), however bonds trade on the basis of YTM (yield to maturity) and allow the holder to exit at a profit hence capturing the benefit of fall in interest rate. (beware you could lose also because of it)
Please look out for a post on Bonds vs Debt Mutual funds.


Property Prices

I am sure you guys must have read at least 1000 articles on property prices right now. So consider this article as a musing/ or notes to myself.
Being 28 years old with a stable job and a family’s future to secure, I am under tremendous peer pressure to invest in real estate. However I have second thoughts in investing 40L (about $100,000/- USD) for a small 1000 square feet big apartment or 1,200 square feet plot.
If I look at the affordability metrics, then I believe anybody earning 6L p.a. should be able to afford a 2 BHK house by paying no more than 40% of basic (or about 30% of his post tax take-home). So that is about 150,000/- INR per annum or 12,500/- per month. The rental for a decent 2bhk is around that value (this includes maintenance), but the opportunity cost on the house value is not of this level. Because by this calculation a 2BHK should not cost more than 15,00,000/- which is about 40% of the current valuation.
The primary reason for this mismatch is inflation/property appreciation. Rental in India is about 3% of the property value (i.e. a 10,00,000/- property would be rented out for 30,000/- p.a. or 2,500/- per month) and the owner expects that the rent and property value should increase for 7% per year (for an apartment).
But these days I have beginning to doubt this very hypothesis.
Firstly being a firm believer in the affordability pricing theory of assets, I would say that an antique, an autographed book, or even a stamp is worth what an collector can afford to pay. Land has become so expensive that no longer it is possible for someone to buy it unless they are ready to commit 60-70% of their income in housing. That includes lost interest on your own money; bank EMIs, maintenance of the property etc. So unless the salaries continue to grow at 15-20% per year for eternity, I don’t see housing expenses going down to 30-40% of take home, which to me is the worldwide average (and also the comfort zone for most individuals).
Secondly, I have beginning to doubt the very notion that an apartment is an asset. A land might be an asset which appreciates over time, but I know for sure the concrete structure crumbles over time. Periodically one has to pay to keep it from crumbling down and yet it will not last forever. Any civil engineer will corroborate, but no-one designs the structure to last for more than 60 years. With the quality of construction that our contractors do in order to meet their schedules and cut coroners, I would be surprised if they lasted for more than 40 years. After 20 years the apartment is labeled as old-fashioned, not too much attractive etc. and its value goes down. So after 20-40 years what is left is part ownership in a tiny piece of land. Surely that is not what you would intend to leave for your kids as your legacy and their inheritance.
Thirdly, the notion that the land prices will increase and the city will keep on expanding indefinitely forever is not what I am comfortable with. Pick any city and you would see the most coveted areas shifting over time. Old areas become too crowded for the rich and affluent people to live in. New malls/commercial centers/offices cause a shift in people’s commuting habits. Metro/ring roads/flyover encourage people to locate near them etc. Hence if I buy a prime property today, it might not be so much valued after 10-20 years. Buying land in the outskirts and hoping it to appreciate become the city would move in its direction is akin to speculation. My parents bought a house in Greater Greater Greater Greater Noida… So even though he calls it in Delhi, it took me 3 hours from the Railway Station (Connaught Place) to reach the spot. I if soon builders would be quoting land in Jaipur by saying just 6 hours away from Delhi… would be recognized as part of Delhi in another 5 years.
Remember whenever you buy a house look at the average occupant. If he/she cannot afford to pay the interest on the property price, then probably the property is overvalued.
It might be return of the saying “Fool make houses for the smart to rent into” but then I have not seen the future and I might be wrong. Comments/directions/guidance are more than welcome.


Delhi Belly: Creative profanity at its best.

I don’t think I can look at a carton of Orange Juice and feel the same again. Nor I think next time I see a Santro car and not think of Delhi Belly.
The story is same boring story about a diamond trail with lots of abuses and intolerable toilet humor, with the main characters miraculously live to see the day.
However what makes the movie so interesting is it dialogue delivery, sequence of events and spontaneous humor.
It’s definitely not a movie to watch with mature and sensitive audience. But I guess it’s like Japanese food. You either love it or you hate it there… there is no middle path. However kudos to Bollywood for finally making a guy’s movie that does revolve around getting laid or dirty talk which degrades women.
Verdict: Must watch for those who find all this appealing… for the rest it would be the longest 90 minutes of their life (even if they did not have to pay for the tickets/popcorn/parking etc.)


Duct Tape Driving

So, I joined a start-up in Ahmadabad some time back. We are trying to do something for the rural sector…and no, it is not going to be another N.G.O. Anyhow, marketing basics taught me that if I am to make you interested in what I have to offer, I have to know what you want, directly or otherwise. So to get our marketing inputs, we keep making trips to the countryside, where our customers are.
During our last trip, we had done a particularly torturous route of 50 km on village road, before hitting the wonderful highway. So within moments, we were doing around 150 kph and still cursing the car to go faster and make up for the last stretch. Then IT happened. The front tire blew up, and took the fender panel out with it. In a breathtaking manoeuvre, we managed to stop the car without any accident. After a few oh shits and thank gods, we got to the damage assessment. We had the following situation at hand –
1 car with a blown tire, no right fender or indicator and hanging electrical wires.
1 fender without a car with broken unknown scraps instead of an inner panel.
4 ‘mechanical engineers‘ with a wtf look on their faces.
1 spare tyre, a jack, some duct tape, tools and bolts we didn’t know about.
We got to work. Well, they got to work and I watched. After they replaced the tyre, they started looking at me. No matter how much I hemmed and hawwed, they made me work on the fender with them. After a considerable amount of time, we ended up taking pics or smoking because the damn thing wouldn’t hold. And then, the genius hit me. India runs on jugaad. So can this car. I took the duct tape and taped the wires and the fender. True, I used up a big tape completely but the fender was in place, a true ta-da moment.
Well it ends on a happy note. We reached a mechanic soon who ripped us for the repair works but we had a satisfying dinner. We made it back without any further incidents and my conceited ego got inflated by another 100 PSI. I realized my superpower of jugaad and decided that this super hero could have his great powers without any responsibility.