- » Indian banks have the highest NPAs
- » What has been the success rate of IPOs?
- » ...and more!
The year's biggest financial event took place on April 30 - the Berkshire Hathaway Annual General Meeting (AGM). For the first time ever, the event was webcast live. So aside from those who actually travelled to Omaha to hear Warren Buffett and Charlie Munger speak, value investors across the globe could 'attend' the AGM from the comfort of their homes.
The meeting was also notable because Mr Buffett went to some length to criticise Wall Street in general and hedge funds in particular.
His major gripe was that hedge funds and all these Wall Street guys charge exorbitant fees for their services yet provide subpar returns to investors. Indeed, according to Buffett, hedge funds and other money managers too often charge fees on a '2-and-20' basis. That is, they take 2% as management fee and 20% of the profits. Buffett called this compensation scheme 'unbelievable'.
Despite the high fees, the returns are not great, and investors would be better off investing in the S&P 500 index fund. In other words, these Wall Street guys, according to Buffett, know not much about investing:
- There's been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities. There are a few people out there that are going to have an outstanding investment record. But very few of them. And the people you pay to help identify them don't know how to identify them. They do know how to sell you.
Of course, financial sector crookedness is not unique to the US. It exists everywhere. And is very much prevalent in India too.
We could give umpteen examples of spurious financial schemes taking investors for a ride. It's well known that brokerages recommend investors churn their portfolios because that's how they earn fees. In short, your interest does not matter.
Indian watchdog, SEBI, meanwhile, has been trying to protect the investor and bring more transparency to Indian stock markets.
One of their directives required mutual funds to disclose their fund managers' salaries on their websites (in cases where they exceed Rs 0.6 million). But as reported by Livemint, not all mutual funds are following the order.
Clearly, the Indian financial sector remains murky.
Where do we at Equitymaster fit in? We celebrated our 20th anniversary on April 22. Twenty years ago, our detractors were sceptical that an honest company in a crooked financial world could become a big and profitable institution. Of course, we didn't let that deter us. Instead, we focused on what we do best: providing honest and credible research to our valued subscribers without ever compromising our integrity and trustworthiness.
Ajit Dayal, founder of Equitymaster, laid four key pillars that have been at the core of everything we do. One of them is relevant to out topic today:
- Regulators cannot protect you from your own greed. The financial industry is inherently crooked: It works for its own enhancement of wealth, not for yours.
Investors won't agree with all of our views. But that's okay because our highest aim is to empower investors with credible, honest, and unbiased opinions.
Whether we are recommending safe blue chips, high-growth stocks, or quality small caps, we will never hesitate to put forth the truth and the facts that investors deserve to know.
Do you think fund managers deserve the compensation they get for the funds they manage? Let us know your comments or share your views in the Equitymaster Club.
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Yesterday, we wrote about the rising disconnect between asset quality and GDP growth. While there is still lot of scepticism on GDP figures, deteriorating asset quality is something we all are aware of and agree on.
Here is yet another indicator of how bad the NPA crisis is for the Indian economy.
Poor credit appraisal, over leveraging, the practice of giving fresh loans to pay off old ones, and leaving the mess for the successor to clear up are some of the practices that are prevalent in the public banking system. And these inefficiencies have made Indian banks most vulnerable compared to other Asian countries. As shown in the chart, the Indian banking sector's NPAs are the highest among its Asian peers.
High NPAs in Indian Banking system - A potent risk for the Economy
Note: Data for China is taken for 2QCY15, for Korea 2QCY14 and for Australia 3QCY15
Regulatory mechanisms that have worked well in other countries, have their limits in the Indian context. Undoubtedly, the models of other countries are not easy to replicate in view of different geographic, social and economic characteristics in the country. India's policy framework is a combination of socialistic and capitalistic features with a high bias towards public sector investment. Having said that, the NPA crisis cannot be ignored and it's high time that policymakers deal with the rot in India's banking sector.
No economy can be strong unless it enjoys the support of a strong and healthy banking system. Unless the root causes of NPAs or bad debt are forcefully dealt with, the banking sector and Indian economy will get progressively vulnerable.
IPOs are on the mind of Indian investors.
As a slew of IPOs have come up, some have made huge gains since their listing. Some big ones like Shree Pushkar Chemicals and Fertilizers, VRL Logistics, Dr Lal Pathlabs, Manpasand Beverages, and Syngene international have made robust gains since their listing.
An article in the Hindu Business Line reads, "Had you invested in a healthcare or a consumer product company IPO in the financial gone by, chances are that you would be quite pleased with your decision."
But before you jump to a conclusion, let us drive home some interesting data points. Richa Agrawal, editor of Hidden Treasure service made an interesting finding. And here is what she recently wrote in her latest issue of Research Digest (Subscription required)
Of the 66 IPOs we've covered (and that still trade) since CY08 to CY15, forty are trading below the closing price on the day of listing. That's a 61% failure rate. Actually, it's higher as the positive returns on some of the IPOs lag the Sensex's returns for the same period.
The reason we cite this statistic is because the IPO season is in full bloom of late. But as a long term investor, one should not get swayed away by the buoyancy surrounding IPOs.
As highlighted earlier, let us remind you of this brilliant quote by Warren Buffett in the latest Berkshire Hathaway AGM:
There is far more money made by people in Wall Street through salesmanship abilities rather than investment talent.
And Indian IPO markets are no different.
The demand for properties in India has seen a downward trend since some time. We have often highlighted the challenges that realty sector in India faces. But here is something interesting by Vivek Kaul, editor of the Vivek Kaul Diary. According to his latest findings, India has only 20 lakh landlords receiving income from house property. This is certainly a surprising number given that a major portion of black money in India exists in the real estate sector.
After opening on a flat note, Indian indices have continued to hover around the dotted line. Major sectoral indices are trading on a negative note with stocks from the metal, telecom and auto sectors leading the losses. At the time of writing, the BSE Sensex was trading lower by 14 points (0.04%) and the NSE Nifty was trading down by 7 points (0.1%). The BSE Mid Cap index is trading down by 0.4%, while theBSE Small Cap is trading down by 0.2%.
04:56 Today's investing mantra
"The difference between successful people and really successful people is that really successful people say no to almost everything." - Warren Buffett
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