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Investment Guru Mark Mobius calls for an end to Short Selling…I disagree

Investment Guru,Mark Mobius, calls for an end to Short Selling…”Short Selling is Not Investing.We have to seperate Investing from Gambling……We’ve got to get back to the fundamental concept of the stock market-the supply of Capital,the raising money for Growth” says he. 

Mr Mobius,with due respect to your justified sentiments in these troubled times,I disagree.

Although I too don’t Short Sell as I believe it creates Wealth by actually Destroying Wealth…if you know what I mean !

But Short Selling has a definitive Role to Play.

Speculation is the lifeline of a thriving Secondary Market.Ofcourse it must be controlled and regulated and not allowed to become wanton or reach dangerous proportions

Short Selling serves the twin purpose of fair price discovery and share availability…it is only it’s misuse that creates the anger and angst.

For example if Infosys in India was traded at an excessive price of Rs 16000,like it did in 2000,at crazy triple digit P/E multiples why should I not be allowed to put my money where my mouth is and short Infosys…It dropped to below Rs 2000 at one stage

I’m sure you wish for Short Selling to be banned across all Asset Classes and Derivatives…..Was George Soros wrong in shorting the British Pound in 1991 to make his Billion ?…The Pound was clearly overvalued at the time as England refused to join the ECU and the Central Bank tried in vain to defend the Pound…If I recall it spend 44 Billion Pounds to do so 

Also the Secondary Market will thrive if there is continuous and adequate Liquidity and availability of Stock

By a Blanket ban on Short Selling, as you have strongly called for,Mr Mobius,you would be throwing out the Baby with the Bathwater.


Time to get greedy says Investment Guru, Warren Buffett

Living Investment Legend,Warren Buffett has just committed US $ 8 Billion to the Two Big ‘G’s”,Goldman Sachs and General Electric (GE)

Hey Mr Buffett ! I’m also a “G” !

Buffett has been a fan of General Electric for decades…Interestingly the Indo US Nuclear Deal too has just been passed and GE is expected to get orders from India for over US $ 10 Billion to begin with  for Nuclear Power Equipment !

It’s time to be Greedy says Buffett when the US Economy is “Flat on the Floor”…reminds me of  a joke…A student was asked by his teacher as to why he was doing his Mathematics on the floor….”You told us not to use Tables” replied the Student !…Buffett ,it’s these Big Fat Financial Cats that did not know their Maths and indulged in skullduggery to knock USA off the Chairs and Tables and “Flat on the Floor”…I can understand you have no real option here but to be a Patriot…you have J P Morgan’s precedent here…He bailed out  the Government and Wall Street in 1885 and 1907….Wish You Well but I fear a lot more pain ahead before USA can even Sit,let alone Stand!   

Ab Kya Kare ! ? Should You Buy,Hold or Sell ?

Washington Mutual (WaMu) ,one of USA’s biggest Banks was forcibly taken over by the regulator,FDIC yesterday and sold off for US $ 1.9 Billion to J P Morgan even while the Chairman and CEO of the Bank was on a flight in Mid Air…The quick move was to prevent a collapse as Depositors had already began a run on WaMu and withdrawn over US $ 16 billion in the last ten days

As we move towards Panic,Capitulation and Despondency in Equities with the Scenario in USA turning scarier than ever a lot of friends,family, clients,associates and even my Pay and Park Attendant are asking me “Ab Kya Hoga ?…Ab Kya Kare ?”

This is what I strongly advise…..

We are surely moving towards Distress Prices on the Bombay Stock Exchange and the National Stock Exchange…With the continuing disturbing scenario unfolding scarily in USA,there is clearly more Pain ahead in India as Dalal Street gets Wall”ed in

Critical Valuation Basis remains on Assessing the  Sustainable Growth in Earnings…Here is the Problem….Clearly we are seeing a rapid deceleration in the Earnings Growth

The Sensex’ earnings grew by nearly 17% in the first Quarter ending June 30,2008 in the current FY 09 supported by a 33% yoy growth in Earnings in Capital Goods Companies and a near 30% growth in earnings in Telecom Companies and a strong 44% growth in Earnings in ONGC. However, the Sensex (excluding the oil companies) saw an earnings growth of only 12.5% yoy during the quarter…..the lowest in the last fifteen quarters…compare this with the peak 40% growth in the December 31,2006 third quarter of FY 07  

EBIDTA Margins contracted by 1.8 % and are expected to contract yet further.Metals and Pharma were the saving graces and saw some margin expansion

The Earnings Momentum  going forward will continue to be impacted by hardening Interest rates and double digit Inflation and an economy slowdown,notwithstanding the Minister of Finance yet assuring of 8% GDP Growth this year assuming strong domestic consumption and Investments

From a closing Peak of Sensex of 20873 in January 2008,the correction has been a mighty near 40%…With Wall Street resembling Ghost Town,the Sensex Slide should continue to distress Levels of a P/E Multiple of 9 and 10 ( Last seen in 2001)…With the remaining quarters in FY 2009 expected to reflect continuing slowdown in the  earnings growth  I expect the FY 2009 Sensex EPS to be around 950 levels…This gives a macro Sensex Valuation of 9500 thereabouts on a derating P/E Multiple of 10…that’s another 25% to 30% drop from current Sensex levels of 13000 to 13500…yesterday it declined sharply by 445 points to close at 13102 read more

Rakesh Jhunjhunwala……what’s he saying Now ?

Hi Rakesh Jhunjhunwala (RJ)…just caught you on the CNBC Interview on “Wealth Creators”…you’ve now acheived a cult and icon status  with your investments in midcaps coming  good and how ! Titan,Matrix Labs,Nagarjuna Construction,Mcdowell Group,Crisil…..your gains from these are now legendary….Remarkably the billions have not been made in Core Scrips like BHEL,Reliance or Larsen…but in relatively smaller scrips

I have interacted with you a few times at social do’s and had also invited you to interact with my participants at the Equity Portfolio Structuring and Stock Analysis Workshop at the Bombay Stock Exchange Training Institute a few years ago…You had accepted graciously in a second and at very short notice…. and had thoroughly regaled everyone in your patent blunt and straightforward  style….”I’m a sadak chaap you had thundered but then gone on to demonstrate your grasp of economic issues vividly and that you were fully upto date on views and model portfolios of large domestic and overseas Institutional Financial Houses….it was amazing you were able to relate,connect and comment instantly with the interesting and comprehensive slides that I was showing on macro and micro issues…this was completely unrehearsed and had gone down well with the House Full Participants….your passion for stocks  came through instantly….you love to share your experiences and are an open book really…one just has to ask the right questions  

So it was interesting to catch you on CNBC yesterday in  the “Wealth Creator” Interview….though thought  the Interviewer,Mithali, could have probed you better

Some Sound takeaways from this interview are tabulated below….many have been a consistent mantra

  • Look for Opportunity,Competitive Ability,Scalability and Valuation when analysing a Company
  • Respect the Market…Be Responsible…know how much to stake and when to take a loss
  • Mother of all Bull Runs is yet to Come
  • Spoke to the Top managment of Titan to assess Opportunity,Competitive Ability and Scalability and then staked  Life on it by Investing Well in it
  • Has intensified Charitable Disposition,especially In Charities that will benefit Children,particularly Girls…recollects that his late Father never ever asked him how much he earned but always how much had he donated…”Daan and Dena are more important” advised his father
  • Has faith in himself and does not rely on anybody
  • Aims to live a Life so that when he is no  more those who come to his funeral say “This was a Good Man” 
  • Aims to earn maximum Income in the most Legitimate manner and donate a large percentage to Charity 
  • Openly confirms he has no Pretences and has no other Interests other than the Stock Market
  • His Investment in “Mid-day” has not worked…he is still hopeful but scalability by “Mid-day” has not been acheived and this has affected growth 
  • Clearly had a premonition of the current Financial Meltdown by October 2007
  • Was an isolated Bull in September 2001…no one listened…… and the Sensex ran up from 3000 to 21000 in six to seven years…the run to 21000 from 13000 inside a year was clearly too fast and an excess and was thus reversed

RJ,you look every bit as prosperous as your Investments…..however couldn’t help recalling how a chubby Anil Ambani had been chided by a potential Overseas Investor in the 1990s when on one of Reliance’s Road Shows he was asked bluntly as to when he himself was not fit how could he ensure Reliance would be Fit !…Anil took this to heart and is now a Fitness Freak

My wife says looking at me it would be like the Pot calling the Kettle Black if I advise you to take care ! 

Look forward to interacting with you again RJ sometime soon….maybe interview you on a popular TV channel…sure I can draw out more from the depths of your experience and knowledge for the viewing pleasure of millions to reveal the rarity of how “Wealth of Mind”and Wealth of Money” are not mutually exclusive when it comes to RJ read more

U S A…..United States of Abattoirs ! ….Strategy going forward

USA…What a slaughterhouse !…Bears & Sterns….Now Lehman,Merill Lynch,American International Group…all inside two days….with more to come !….Comical really…those who lived in Glass Houses were throwing stones at others…..Their Reports were always revising or even reversing estimates and projections and strategies advised earlier to justify every share price rise and fall !….how could you then sensibly move with them !…now you know why Warren Buffett prefers to be in Omaha……away from Wall Street! 

Till they threw their hands up this week they were all preaching Indian Equity Strategies in lengthy reports…messed up their own backyard and then moved on to mess up those around the world…sadly we let them…. succumbing to their pressures to open out our economy on a fast track for them to enter and play havoc…we were brainwashed to see the rose and not the thorns…we ignored the wilting,hoping that our markets would remain affected only to a limited extent by the US Contagion…we boasted of decoupling…and now as FIIs reverse flows of billions of dollars from our markets we in turn are wilting !  

Imagine if Freddie Mac and Fannie Mae,the USA Pillars of mortgage lending,  were allowed to collapse,instead of the Fed taking them over last week !…The 1929 Depression would have paled to what would have unleashed around the world

So what Now ?….Oh ! the Virus is deeply set in and only Disk cleansing and reformatting may salvage something…this would mean letting old Financial Powerhouses die out instead of baling them out…a sad and tough call but one which the Fed has taken now for Lehman

The reality is that the mortgage and other lending woes are yet to play out their strikes in full….any bale out…US $ 85 billion for an 80% stake was just announced by the Fed for the AIG Group…..will not create new jobs and new income and new business…will not be productively spend…it goes only to part fill the hole created by lending and investment loss…it will takes years to recoup and come back on healthy profit track…whether it is Citigroup or AIG

The business and sentiment shrinkage is visible in all developed economies…USA,UK,Germany,Japan and even China

Oil is now rapidly falling and is close to US $ 90/barrel…Inflation too is seen to be in a falling mode….and the rupee has dramatically depreciated 20% from Rs 39/US $ to Rs 47/US $ in no time read more

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