We will go out of business but never do this! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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We will go out of business but never do this! 

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In this issue:
» Bad times for the 'king of good times'
» PSU stocks down 20% from their 2014 peak levels
» This move is set to increase competition for Indian banks
» What is the value of a brand?
» ...and more!


00:00
 
Have you been getting calls or messages from random companies asking if you trade in shares and enticing you to jump on to grab the big money making opportunity out there?

They could be stock brokers... They could be outfits selling stock tips promising quick gains... Intriguingly, such calls may have gotten more and more frequent as the Indian share markets go about scaling new highs.

And here's more... Just yesterday we came across an article in a widely-followed stock market portal that recommended stocks based on astrological advice. For instance, it said that cement and auto sectors will be getting astrological support, whatever that really means.

Our curiosity egged us on to dig a bit deeper and we found out a plethora of websites offering stock tips based on astrology. These websites make big claims about their success and charge a bomb for their recommendations.

You may be wondering why we are talking about these things...

We believe it is our responsibility to inform investors that they exercise discernment while deciding whose services they take. The optimism levels in the Indian markets are increasing. Investors are queuing up to buy shares with the expectation of big profits. There is a correspondingly fast rise in the number of outfits offering financial services. And some of them may not be genuine. They could be opportunists trying to make a quick buck out of investors' enthusiasm to invest in stocks.

Eventually, when the bull rally runs out of steam, liquidity dries up and investor sentiments become negative, many such financial services providers will disappear overnight. We have seen that happen in the past. And there is no reason to believe this will not happen again. As a result, investors are left deserted with huge losses on their investments.

We are strongly against any kind of mis-selling of financial services. In our view, financial services providers, especially advisories, have a huge responsibility on their shoulders. Investors lay their trust and hard-earned money on their advice. They have a big impact on people's lives. Hence, they should live by well-guided principles and integrity to uphold the interests of their clients.

We at Equitymaster have been in the financial services field for nearly two decades. It has been our earnest endeavour to provide investors independent and unbiased views on investing. We continue to live our vision no matter which way the markets go.

Would you make your investments based on astrological guidance? Let us know your comments or share your views in the Equitymaster Club.

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01:25
 
At Equitymaster, we believe in recommending stocks only of those companies with sound fundamentals. Our rigorous stock selection process ensures that companies with poor business models, untrustworthy managements and those with too much leverage are weeded out. Thus, we never recommended a stock like Kingfisher Airlines (KFA). Here was a company that not only had very poor fundamentals but was also run by a management whose integrity left a lot to be desired.

Thus, the situation that its owner, Vijay Mallya, finds himself in does not surprise us. KFA owes about Rs 70 bn to 17 banks and it has now been labeled as a 'willful defaulter' by United Bank of India (UBI). With the Supreme Court upholding this decision, the future of the man dubbed as 'the king of good times' looks bleak. His rise and fall holds good lessons for businessmen as well as investors. Huge leverage and unrelated business diversification have brought about the downfall of the man once thought to be 'the Richard Branson of India'. As far as investors in KFA are concerned, they would have been lucky if they got out of the stock early.

02:05  Chart of the day
 
Indian stock markets are scaling new tops every day. However, it seems that the PSU pack has lost steam in this late leg of the rally. PSU stocks part of the BSE-PSU index are down by about 20% from their peak levels in 2014. As can be seen in today's chart, Dena Bank has been the biggest loser followed by IDBI Bank. Interestingly, all top five PSU losers have been banks. Such a massive correction has sent the government worrying that its divestment target could take a hit. It may help to note that the government is planning to raise Rs 430 bn over the next 6-7 months via divestments. Obviously, a declining share price would mean the proceeds received from the divestment would be lower. And if the government intends to maintain its target then it shall have to liquidate more of its holdings. In other words, it will have to dilute more. Thus, it would be interesting to see if the government postpones its share sale plans amidst a fall in PSU stock prices or dilutes more to meet the targets.

Is the rally over for PSU stocks?


02:50
 
Amidst the asset quality and poor credit off-take woes, here comes another trouble for Indian banks. In one set of news, foreign banks will now be allowed to lend in Indian rupees. The central bank has allowed non-resident foreign banks to offer debt to local companies in Indian rupees. This is expected to happen through swap arrangement with Indian banks. However, this will call for fresh competition for Indian lenders from the foreign counterparts. Primarily because foreign banks are not bound by the reserve requirements of cash reserve ratio (CRR) and Statutory Liquidity Requirement (SLR). This would make it easier for them to lend at cheaper rates. Moreover, the fact that foreign banks can set up representative offices in India for lending purposes also is a big encouragement for them to set up base in India. While the Indian banking sector dynamics are undergoing a sea change, underlying challenges persists for the domestic players.

03:25
 
The Economist is carrying an interesting article about brand value and the reasons for its existence. And both these issues are a debater's dream come true. For there can be no one answer to them. Arguments keep raging about how much brands are worth and why. Try tossing a question about a brand's true value to three different specialists and all of them would come to a different answer. Equally divided are the opinions on why brands succeed and their everlasting appeal. The article even goes on to cite a gentleman who has argued that brand equity is simply not as valuable as it used to be.

Well, we certainly are no brand specialists. But what we can say with some degree of conviction is that a brand is a two way street. Consumers make brands what they are by developing perceptions and expectations for those brands. And then companies in turn try to match those expectations by giving consistent brand experiences. Therefore, as long as mankind will keep demanding goods and services, brand equity is unlikely to diminish. What can certainly happen is old brands fading away and new ones emerging. Amidst this, of course, there will be a few whose values will keep enhancing for decades to come. And it is the identification of these brands that could be a ticket to enormous wealth for an investor.

04:25
 
The Indian stock markets continued to languish in the red in the post noon trading session. At the time of writing, the BSE-Sensex was trading down by 134 points (0.5%). All the sectoral indices, barring pharma, were trading in the red. Realty and metal stocks were the major losers today. Most of the Asian stock markets were trading in the red with Indonesia and Japan being the major losers. However, the Chinese market is trading firm. European markets have opened the day on a weak note.

04:45  Today's investing mantra
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ". - Warren Buffett

Publisher's Note: Dear Reader, over the last three days, the Equitymaster website has not been fully functional. Even as we now start returning to normal, we are taking all precautions so that the issue does not recur. I would like to thank you profusely for your patience during this testing period for us! Many thanks. Rahul
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5 Responses to "We will go out of business but never do this!"

Shankar Jog

Sep 6, 2014

Astrology is blind-faith. There is no science behind it. Astrologers are sooth-saying person only. They cannot predict their own futures, how they can predict stock movements? They cannot. Prediction of stock movement is a guess work, though, experienced traders guess by experience in the past and may be correct many times. However, they are not absolutely sure. Therefore, it is said that 5% only win and others loose. However, everybody thinks/wishes that he is from 5%, and carries on and on with hope. Afterall World is sustained on hopes.

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DrHA!

Sep 5, 2014

Recently, the frequency of calls on mobiles have increased seeking whether interested in shares and commodities. These calls are from far off places like Rajkot,Indore etc. i am living in Bangalore. Sometimes, i feel that the mobiles had blocking facility. There seems that there is a understanding that the mobile numbers are shared by agencies in different places.What is the solution to this menace?

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P Sanyal

Sep 5, 2014

Absolutely agree to what you have stated.

Like 

RK JHA

Sep 4, 2014

Every person has love for money ,rightfully or wrongfully.I have also been getting calls from sources I do not know and in due course of time I have started disregarding such calls which I do not know.Equity master has also tried to promise good gains and it is best left to individuals to decide whether one can afford the cost and subsequent benefit arising out of it.Investor needs to be careful in this regard after all it HIS money and decision.
RK JHA.

Like 

nck

Sep 4, 2014

More relevant than whether one would invest using astrological guidance or not is the stance that you seem to convey in this article. Clearly you are not a fan. But your belief in the validity of what you do does not give you the right to state even as an opinion (without full knowledge) whether what someone else is doing is right or wrong.

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