Beware your Friendly Business TV Channel. - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
Beware your Friendly Business TV Channel. A  A  A
PRINTER FRIENDLY | ARCHIVES
27 MAY 2014

The Narendra Modi government has still to prove whether it will be friendly to the businessmen who funded its election campaign - or whether it will be friendly to the 300 million people who voted for a new, improved version of India.

But your Friendly Business TV Channel has already made it clear that it is friendly to the brokers and experts.

Over the past few weeks, as the Modi wave has engulfed the stock market and driven it to new highs, your Friendly Business TV Channel has carried the following messages:

  1. There is a new India story;
  2. Indian stocks are rising to new highs;
  3. Individual investors are not in the market - and they must buy equity. It is not too late, the party has just begun. Buy now!
The problem with the message is that a lot of it is based on excessive hope and expectations.
Yes, that hope may materialize - but what if it does not?
Is there any probability that the expectations are way above the possible reality?
Is anyone even discussing that?

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Look out for the charlatans and hypocrites!
And - while there may be debate on the message and the merits of the message - there can be little debate on the messengers: Most of the messengers are part of a warped and crooked financial system which is out to steal your wallet.
These financial experts have done it in the past and SEBI did not shut them down.
Like the eternal cockroach, they have survived - and they will steal from you again.

The anchors are not doing their job of asking the relevant, hard questions to their chief guests.

For example: the one statistic that every guest taunts at the fact that:
"The retail Indian investor is under-owned in equity".
We agree: the retail investor does not own enough equity.
But the anchor should ask:

"Excuse me, but is your firm responsible for the fact that Indian investors have stepped away from equity as an asset class?

Were you the lead manager of the Morgan Stanley India Fund in 1994?

And, by the way, were you also a lead manager in the more recent Reliance Power IPO in January 2008 - please can you explain the rationale for that valuation?

And, while I am listing out the 'errors of judgment' made by your firm, please can you give us a sense of whether your firm was involved in launching or distributing the various 'sector" funds and "India is a Tiger" funds which decimated investors in 2006, 2007, and 2008?

Any of you have insurance companies which sell ULIPs? How did that do for the agents - and how did that do for the investors whose money was used (without their knowledge) to pay the agents for roping them in?

Did your real estate funds give that spectacular performance that was so implicitly promised?

And can you describe how your PMS products were run - is it true that your employees were given goals to "convert capital to revenue in 12 months" which is a way of saying that make the client trade so much that his corpus gets converted into broking commissions - and damn the residual value of the corpus?

And while we are at it and since you all seem so super smart and honest - do you have any view on the recent irrational and idiotic rule from SEBI that wishes to, effectively, reduce the number of fund houses that can launch mutual funds? Does your CFA degree have a charter of being honest to your clients? Can you tell me, honestly, that this is a great move for your clients and for investors in general? Or are you a part of this financial mafia that believes the customer must be raped by a select few?

I hope you will pardon my frank questions - and I hope you will not feel insulted that someone should ask how come you are so rich when your clients are, typically, poorer from your advice?"


Buyer beware...but buy you should!
But, my dear reader - don't hold your breath for such important questions.
Your Friendly Business TV Channel anchor plays along with the web of lies that emanate from the well-heeled guests.

Today's guest is tomorrow's advertiser: when the next bull market starts and the IPO machine pumps and dumps you the next DLF, Suzlon, and Reliance Power, those advertising revenues will be chased.
A roaring bull market is good for all - but not for you, oh, sunken investor.

Because you, my dear retail investors, are the insects the financial firms wish to capture and squeeze your wallet for its contents.

We know that the market is surging.
But has your anchor told you what else is rising - besides their ratings?
Have the guests on their shows told you what else is galloping - besides their bonuses?

Note how, as the stock markets were reaching new highs on the expectations of a Modi win, the research analysts at all these financial firms revised their earnings upwards to conveniently match the surge in prices (Table 1).

Table 1: What's rigged: The IPL or Earnings Estimates?
Reporting Period Earnings Estimate for Dec 2014 Earnings Estimate for Dec 2015 S&P Sensex Index Level Est. PER for CY 2014 Est. PER for CY 2015
14-Jan 1,345.70 1,576.30 20,513.90 15.2 13
14-Feb 1,344.40 1,574.70 21,120.10 15.7 13.4
14-Mar 1,571.20 1,817.90 22,386.30 14.2 12.3
14-Apr 1,581.40 1,817.20 22,417.80 14.2 12.3
Change 17.50% 15.30% 9.30% -7.00% -5.20%
Source: Bloomberg

Note how, as the market begins to surge from February, 2014, the research analysts at the financial firms (run by the people you see honored on your Friendly Business TV Channel) decided to "up" their earnings estimates to match the mood of the market. As a result of these adjustments to earnings, stock prices now look "cheap". After the 17.5% increase in the estimated earnings for the year ended December 2014 and the 15.3% increase in the estimated earnings for the year ended December 2015, the P/E ratio of the market at 14x this year's earnings and 12x next year's earnings looks "reasonable".

Don't get me wrong: there is nothing wrong with having surging expectations and there is nothing wrong with waving the flag and telling investors to buy shares.
But does the financial service industry have a right to make the retail investor feel stupid for being "under-invested" in equity. It is criminal to pretend that the "under-ownership" of Indian equity shares is due to the dumbness of the Indian retail investor.
The fact is that the same people who now appear on TV lied to you and misled you.
They were not punished. They were rewarded.
You were taken to the cleaners.

Your Favourite Business TV Channels are doing a pretty lousy job of protecting you from the financial mafia.
The regulator, meanwhile, has no concept of how to regulate the industry: their committees are populated with the same people you see on TV.

Buyer Beware: you are dealing with a bunch of intellectually dishonest fraudsters.

But, yes, do look at buying into the Indian stock markets after much study, much research, and much thought.
And after you have switched off your TV for one week to let the falsehood you hear drain away, so that it no longer clouds your rational judgment.
Then - and only then - make your decisions.
You have been cheated and lied to - and, yes, you must own equity shares or equity mutual funds in your portfolio: but you need to step back in very cautiously.


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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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8 Responses to "Beware your Friendly Business TV Channel."

Debmalya

Jun 8, 2014

Sebi should allow only those stocks to be recommended by the analyst in which he has a personal holding of say minimum 1000 shares

Like (2)

ravisk

Jun 7, 2014

Notwithstanding the carefully worded cuationary / disclaimer statements, I feel it is unethical for TV channels to air free unsolicited advices on what stock and when to buy or sell. Excepting a couple of programs (where analysts compete with each other in their stock calls and the winner is declared at the end of the day based on whose stock calls generated maximum gain), so many analyst recommendations not held to account, i.e., how correct or wrong their advices turned out to be is not measured and published at all. Worse still, only their gainful recommendations are declared loudly and stridently until your ears ring. SEBI must atleast impose a rule that every recommendation broadcast on the channel must be apprised for its results and that should be published. That will atleast ensure the viewers get to identify the analysts with the best strike-rate.

Like (1)

bhupendra

Jun 6, 2014

yes totally agreed with the facts!

Many of so called analysts come to sell their interest of shares or companies which they have already bought at lower levels, and making the small investors foool.

Like (1)

Gopinath Turlapati

Jun 4, 2014

So very well written which should be an eye opener to all retail small investors. Equity master is doing yeoman service to the small investor community. My only wish was that this article should have come during Feb/March itself. Anyway not too late. Many thanks for your advice which will be considered in all seriousness it deserves. Please keep up your unbiased service. Thanks.

Like (1)

raj

May 31, 2014

A. D salute....kya mast explain kara hai.

SEBI shud stop channels from airing their 20:20 IPL picks.

They have made it a game, a gamble...

Like (1)

deena savla

May 30, 2014

to know truth

Like (1)

Ravi

May 30, 2014

Excellent article. Investing in stocks is so simple & straight forward. I don't know why people make it so complicated on business channels. First, decide whether you like analyzing P&L's & balance sheets. If yes, do some research & identify good stocks to buy at a reasonable valuation & then wait for the market to sell you at the price you want. If no, simply keep buying an index fund through a monthly SIP. You will earn much more than a bank FD in the long run!

Like (2)

virender kumar

May 27, 2014

Excellent! In fact, the business channels seem to be competing with each other to make a sucker of the investor. Some pink papers are also doing it.

Like (2)
  
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