Monthly Archives: January 2009

Initial Public Offerings….. or Sufferings!!

Some interesting facts on Initial Public Offerings;
IPOs at NSE, through 1999 to date

Source: National Stock Exchange of India

Now, look at the 36 scrips which got listed subsequent to the IPO. Fortunately, look through the list, there is one scrip in GREEN – up 100% on the listing price;
Price Performance of 2009 IPO Scrips
Source: National Stock Exchange of India

Time Inc.’s Ann Moore Makes the Case for Magazines–And Is Glad She’s Not in Newspapers

Time Inc.’s Ann Moore Makes the Case for Magazines–And Is Glad She’s Not in Newspapers

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Consensus building… RBI could cut CRR by 50bps on January 27, 2009

With oil prices cooling off to US$ 35 a barrel level and India’s Inflation numbers taing in the sub-6% zone it seems that the Reserve Bank of India could cut interest rates further.

News flowing in from the West are all but good. Data released by United Kingdom makes it distinctly eveident that recession is there, already. No second thought on it.
Here, the stimulus packages have been put to work. But these being macro-economic tools, have the lead-lag effect. So, there’s still time before one concludes the effectiveness of the packages.

“We expect a third fiscal stimulus package of 0.6-0.8% of GDP to be announced in the next few weeks” says Shailesh Jha of Barclays Capital – Fixed Income Research. “If financial market conditions are unstable heading into the 27 January RBI credit policy review meeting, we expect a 50bp cut in both the repo and reverse repo rates” Jha adds.

“With incremental macro data likely to remain weak, limited fiscal maneuverability and benign WPI inflation, we maintain our view that the onus of stemming the deceleration in growth will remain on monetary policy” says Rohini Malkani, India Economist, Citigroup Global Markets.

While rising CPI is a worry, Malkani expects a minimum 100-150bps cut in the repo/reverse repo rate, CRR and SLR in the near term. “Although, we could see a token cut on Jan 27,” Malkani points-out.

For the RBI GOvernor, undoing what his predecessor did, over 2 years, in less than 4 months is a task unthought of. But when the world is in a menace, its unheard and un-orthodox measures which are best to be put to use.

Key Indicators (January 23, 2009)
* Latest Inflation – 5.60% for week-ended 10-01-09
* Exchange Rate – Rs. 49.19 / US Dollar

First Global On Why Satyam Should Be Valued At Zero

Satyam Computers is an old and pleasingly romantic company, at least in our eyes. We remember having met Ramalinga Raju back in 1995 or 1996, just to get a sense of what Satyam was all about, what Ramalinga’s vision was, and to find out…well, to find out what dozens of analysts and fund managers seek to find out in pointless company meetings, which is precisely nothing.

Mid-way into the meeting, we came to one conclusion, aided in no small part by the Man himself: that Ramalinga knew precisely nothing about the Information Technology business. Yeah, that’s true. He told us that he was basically into real estate and construction and that Satyam was an opportunistic attempt to get into another sunrise industry. But it wasn’t as if he was any tech geek or something. And he appeared pretty clueless not just about the technology, but even basic business questions: like which geographies and industries (they weren’t called verticals back then)

Satyam planned to target

Honest guy, we thought. But he hasn’t got a prayer. How on earth is he gonna compete with the geeks at Infosys or even Wipro? And since that day, we have wondered how we got this IT visionary so wrong…

A Fund Manager managing a large amount of India-money out of Hongkong told us back in the late ’90s: “You know what…each time Ramalinga comes around to Hongkong to meet investors, I tell him that he’s got to come and see me first. Then when he meets me, I sit and coach him on all the questions he will be asked by investors, and all the responses he should be giving…and I always tell him…deviate from the script, and I will strangle you”. Such was the close bonding Ramalinga enjoyed with large FIIs!

The Ramalinga legend has deep roots, and we just decided to throw up a few sepia-tinted vignettes of the man.

Now on to this whole thing about governance, and what this means for your investing attitudes

Let’s face it: good governance rarely equates with good stock price performance, except in the very long term, and that means nothing useful for most of us. Just go back last 5 years and see what made you money in the markets…and the truth will be uncomfortable: if you did indeed blow out the lights, you had to have had the worst names ranked on corporate governance, in your portfolio…in fact, we are pretty sure the exact same names that tanked the day Ramalinga released his mea culpa, would have dominated most portfolios in the bull market…and thank God for that.

We have never really bought into this corporate-governance-is-great-for-investing nonsense. Our official stand is that you should buy low corporate governance companies like bull markets, and short them in bear markets. It’s as simple as that. It’s a nice thing to know that corporate governance exists somewhere out there, but none of us is engaged in the business of teaching school kids moral science. Markets and morality-in-stock-picking should never be confused with each other.

If you had Infosys, Hindustan Unilever, ITC (ok, ok, let’s not put ITC on this list) in your top holdings between 2003-2007, while you would have looked good in front of the moral mirror, your NAV would have made you look really, really haggard. That’s what buying high corporate governance companies in roaring bull markets does to your complexion…it starts looking really unhealthy.

And even Infosys back in the tech boom significantly lagged many other TMT names, who had as much to do with corporate governance as Ramalinga has to do with genuine bank fixed deposits.

But nevertheless, all of us partook in the grand feast of low governance TMT names back in the ’90s, and exited too with money in the bank. So what was wrong with that?

Trouble is: it takes a particularly jaundiced perspective of markets (we are abundantly blessed with it at FIRST GLOBAL), to be able to exit low governance plays at bull market peaks. Most investors don’t regard their low governance holdings as low governance holdings. Few, if any at all, can honestly admit that their rocking portfolio names are hardly likely to get the Good Housekeeping Seal of Approval in Corporate Governance. Most of these rubbish stocks are rationalized with the facile logic that “No…this promoter has changed now…the business model has become so much better now…they have hired PriceWaterHouse as their auditors…they have hired India’s best IPO Factories/Wall Street’s finest and most Magnificent Houses as their bankers, they have got valuations done by Ernst & Young, they are getting Private Equity from Blackstone, etc, etc”.

Why is it so difficult to say instead “Look, I think his model is all rubbish, the guy is a crook in a tuxedo…but maaan, can he tell a story, and pump up a stock price!” Now, that would be a fund manager we would doff our hats to…this is the kind of thinking that makes you a clear-headed long-term survivor-investor, as opposed to a baby who believes in fairy tales.

And tell you what…sometime, this year, markets are gonna take off in a furious bear market rally, that will quadruple stocks. Then, if you are long high governance stocks…well then, you will look and feel like s—t…we guarantee you that.

So, fill up your lungs with all the air you can draw in and shout loudly in favor of high governance companies…it makes you look good on TV…but for Christ’s sake, don’t start believing in this nonsense yourself.

So what is Ramalinga’s future?

To tell you the truth, in our view, he got terrible advice. He needn’t have written that letter.
All he should have done early last year was to have hired one of the 15 Most Corrupt Investment Banks (we have a list, if anybody’s interested) and asked them to raise $1 bln. Could Satyam have got a billion? You’ve got to be kidding.

Looking at the names that got money last 18 months…Future
Capital, DLF, Akruti, Omaxe, the many crap Infrastructure and Power names, paraded around by home-grown and US and Australia-grown IPO Factories…they would have made investors fall over themselves to subscribe to a relatively high governance company like Satyam.

And why just a billion? Take two. Make that a war chest. No end-use specified? When was that ever a problem with momentum investors and IPO factories? Even Infosys never really had any end-use specified when it did its first ADR offering.

So Satyam could have raised a billion dollars, used that cash to acquire a string of ‘tech’ companies overseas for cash, rotate the cash through these names back into Satyam by way of revenues and profits…and lo behold, the “gap” would have been filled, and the Ramalinga could have dismounted from the tiger. He was done in by poor advice. But then that’s what you get when you hire folks who themselves have done a shoddy job of creating fictitious profits in the sub-prime market.

But where does Ramalinga go from here? Out of jail very shortly. We doubt if the CID is going to get any chargesheet filed before the mandatory bail period expires. Which means 60 days or 90 days max. Then what? SEBI will swing into action, and will bar Ramalinga from accessing the Capital Markets or some such thing. Big deal. It’s not as if Ramalinga is thinking of raising capital any time soon. And then, on his falsification of accounts charge, the case will go on for 20 years or so. Optimistically speaking.

And in the meantime, it is our firm belief that Ramalinga Raju can contest the 2014 Lok Sabha elections. After all, his crime ranks way down in the food chain of crimes…he hasn’t raped or molested a kid; he hasn’t murdered anybody, hasn’t engaged in terror attacks (Sunjay Dutt and Navjot Singh Sidhu, with convictions on their heads, are future and present Members of Parliament) …heck, frankly, his “crimes” have hurt people more in the “Twp Square Mile”, ie, Fort and Nariman Point, than in Andhra Pradesh.

Back home, he is a visionary who directly or indirectly created lakhs of jobs. And was done in by an American conspiracy…American software services companies were feeling the heat, and they collaborated with American auditors to frame an Indian rival…if Ramalinga just uses this conspiracy theory, he is through (and he was forced to write the letter to save 50,000 jobs)…he will be hailed as an honest politician who came clean, and a doer who created Andhra’s prosperity…we can already see him as a future Chief Minister of AP.

So don’t worry too much about Ramalinga’s fate. If he just plays his cards right, he has got a huge career ahead of him.

SaneBull World Market Watch

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Happy 2009!!

Wish you all a very Happy 2009!!!