Thursday, May 28, 2015

India's current internet penetration

                                                       

India's Internet penetration in 2014 was where China was in 2008 and the U.S. was in 1996. If India's curve follows the same pattern, get ready for big things in the next five year. One thing India is lacking is the catalyst companies that will lead its internet revolution.

Wednesday, April 22, 2015

The PATEL way in BUSINESS and INVESTING

Here's a statistic that will fill your heart with pride. Did you know that a study done few years back had put the Indian origin Patels as owners of around 21,000 hotels and motels in the US? That's a staggering 42% of the US hospitality market and a combined worth of US$ 40 bn! 

However, it wasn't always like this. The so called 'Patelisation' of the US hospitality industry traces its roots to the 1970s when Patels in large numbers landed on US shores from Uganda, where a certain dictator stripped them of their enterprises and drove them out. 

When they finally landed in the US, their woes were far from over though. The US economy was undergoing its own bleak period on account of the oil crisis. The motels industry was one of its most damaged. But this is what the Patels set their sights on. Their game plan was simple. Get the banks to finance a chunk of the purchase price of motels and then move into them with their extended families. Doing this served two very important purposes. It not only eliminated the accommodation costs but the entire family could also double up as the motel staff. 

The end result was a potent mix of low cost operations and an asset base that was in place with almost negligible capital cost. Needless to say the competition found it hard to put up a sustained fight. And one by one, a lot of the motels came to be owned by the Patels, making them a dominant force in the industry. 

Perhaps oblivious to them, the Patels were using a 
time tested investment strategy. One where the focus is not on making huge gains but on trying to minimise the losses as much as possible. It was a classic case of what ace investor Mohnish Pabrai calls, 'Heads I win, Tails I don't lose much' approach to investing. 

By starting the enterprise with very little of their own capital, the Patels ensured that downside was as good as non-existent. Please note that they did not worry about the upside too much as in how much revenues they can make. Their only aim was to not lose much should things don't work out in their favour. 

If you thought the Patels were the only ones adept at this, let us tell you that as per Pabrai, even business leaders ranging from Richard Branson to L N Mittal have minted their billions using this very same approach. The approach of trying to minimise the downside so that the upside can take care of itself. 

Does this ring a bell? It does, isn't it? After all, this is the mantra that 
Warren Buffett also seems to live by. Remember his famous two rule quote for investing? Rule number 1, don't lose money and rule number 2, always remember rule number 1. 

In fact, a recent quote from a famous investor called Joel Greenblatt is pretty much along similar lines. In an interview, he offered the view that his largest positions are not the ones that he thinks he is going to make the most money from. Instead, his largest positions are the ones where he thinks he is not going to lose money in. 

Now this is something that certainly doesn't strike as natural to majority of investors out there. They are of the view that 
successful investing is all about finding stocks that literally hit it out of the park. In other words, successful investing is all about finding the next big multi bagger. 

However, as Greenblatt and the Patels and the Bransons we just highlighted show, the idea is to bet in such a way that even if one is wrong, one does not lose too much. Of course there's nothing wrong in trying to plunge headlong into trying to find that next multi bagger. 

However, if you are looking for market beating results from your investing with a lot less stress and risk taking, then your portfolio needs to consist mostly of stocks where even if you are wrong, you don't lose a great deal. 

Trust us, if history is any indication, there's very little chance you will walk away disappointed with this approach over the long term.

Friday, April 10, 2015

India projected to be third largest economy by 2030

                                                                          Source: US department of agriculture 


Get ready for a new economic order. In the world 15 years from now, the U.S. will be far less dominant, several emerging markets will catapult into prominence, and some of the largest European economies will be slipping behind.
That's according to the U.S. Department of Agriculture's latest macroeconomic projections that go out to 2030, displayed in the chart below. The U.S. will just barely remain the global leader, with $24.8 trillion in annual output. The gray bar represents the $16.8 trillion gross domestic product projected for 2015, and the green bar shows how much bigger the economy is expected to be 15 years from now. The country, worth 25 percent of the world economy in 2006 and 23 percent in 2015, will see its share decline to 20 percent.

India, ranked eighth for 2015, will climb past Brazil, the United Kingdom, France, Germany and Japan to take third place in the world ranking. The International Monetary Fund calls India "the bright spot in the global landscape." The country will have the largest workforce in the world within the next 15 years, the IMF notes, and among the youngest.

Tuesday, February 3, 2015

Generous side of Azim Permji of Wipro

Jealousy is a basic human instinct. It's not uncommon for jealousy to get stirred up by seeing roaring success in others. This is true for 90% of people of ordinary financial status. Jealousy starts rearing its head and expressing itself from early childhood when another child comes into the family. It has been seen that initially the older child shows traits of envy towards the younger, suffering from insecurity of parental love getting divided. This envy takes on another form in school and college, directing itself towards other students who are more successful. In the professional field, envy and jealousy takes on a more diplomatic form. People who are not so successful financially express their jealousy towards others who are. Their attitude towards the rich becomes extremely negative. “Rich people become richer while the poor get poorer”, “the rich make their money from the blood of the poor”, “rich people are dishonest”. These thoughts fill their minds constantly. These are popular myths, and are not necessarily close to the truth. In fact, if it was true that all rich men are dishonest, no one would have gone ahead and done business with them. To expand a business in a really big way, one needs to work with various associated companies, and thousands, and sometimes millions of customers. If one is dishonest, one would lose everyone's trust, putting abrupt brakes on the growing business. Thus, contrary to popular belief, the rich and the successful have to be more honest than anyone else, because that is the very basis of their career. Billionaires have golden hearts.
         
The following is an eye-opener that shows beyond doubt that the theory of dishonest rich people is a myth. Wipro chairman Azim Premji is one of the billionaires who are doing their utmost to shape the world. He is also described as “the billionaire with a heart”. Premji was just finishing his undergraduate engineering studies at Stanford University in 1966 at the age of 21 when he got word of his father's sudden death and was called upon to handle the family's vegetable oil business. Premji started Wipro with a simple vision - to build an organization on a foundation of values. Under his leadership, the fledgling hydrogenated cooking fat company has grown to a US$ 1.76 billion IT Services organization serving customers across the globe. Wipro is today ranked among the top 100 technology companies globally (by Business Week). Wipro's growth continues to be driven by its core values.

 Premji's net worth is estimated at US$6.7 billion, so some people call him the Indian Bill Gates. But if the anti-offshoring protestors wanted to find a bogeyman in him, they would have to look elsewhere. Premji is modest and reticent, not a belligerent business leader. This down-to-earth billionaire, whose achievement has not changed him as a person, is said to personally know and talk to every employee of Wipro.

 “The comparison to Gates doesn't end at software: Premji's charitable foundation works with that of Gates. Premji's foundation does more work for education in poor rural areas, giving US$5 million a year, while Gates' has made health a priority,” says the Financial Times. Premji firmly believes that ordinary people are capable of extraordinary things. He believes that the key to this is creating highly charged teams. In the year 2001, Premji established theAzim Premji Foundation, a non-profit organization with a vision to contribute significantly to quality universal education in order to build a just, equitable and humane society. This means every child would receive quality education. The financial resources to this foundation have been personally contributed by Premji. The current activities of the Azim Premji Foundation engage 1.8 million children under various programs.
         
The majority of financially ordinary men envy success in others and react with bitterness, however the people who are rich and financially successful and have a positive attitude do not react with envy to someone else's success. In fact, they appreciate success in others.
         
The bottom line to remember is that one should appreciate, not envy other successful people. 

Monday, September 8, 2014

Which asset class has performed the best over last one year?

                                                                      Is the time ripe to move to equities?

The last twelve months have been exceptional for the Indian stock markets. Not only have the benchmark indices scaled life highs, the broader market comprising mid and small caps has done very well for itself. As today's chart clearly shows, equities have been the place to be over the last one year. Returns from all other asset classes look quite puny compared to the returns from stocks over the last year. Even Gold seems to have lost its luster.

Does this mean that investors should jump on to the bandwagon and enter the markets now? We believe that it would be a very poor decision to abandon the principles of asset allocation and jump headlong into equities based on one year returns. Investment in equities should always be made for the long term, in companies with sound fundamentals. Also, one must always keep the valuations in mind before investing in stocks. We also believe that investors should hold about 5-10% of their assets in Gold at all times. The yellow metal is an effective portfolio diversifier and provides a good long-term hedge against inflation. 

Tuesday, August 26, 2014

Rigid labour laws have hampered India's growth

A leading daily has pointed out about India's agriculture share in GDP, which has declined from 40% in 1973-74 to 14% now. The service sector takes the large chunk in the pie now. But this paradigm shift does not seem to have helped in creating enough employment. Despite India moving away from agriculturally-oriented economy towards the service sector; agriculture still employs large chunk of population. Besides, inflexible labour laws, poor infrastructure and ample red tapism have pushed a lot of our workforce in the unorganized sector.

Clearly, the government has not made far-reaching efforts to bring about the change in this direction. The government needs to bring in massive reforms in labour lawstake measures to make the climate more conducive for capital investments by pushing through reforms and implementing them. This may seem like a considerable challenge however, it is left with no option but to take a tough stance in the longer term health and interest of the Indian economy
. It also needs to take a relook at its various policies. This in turn will push labour from the unorganized sector to organized ones. It is well acknowledged that ramp up in capital spending and infrastructure goes a long way in taking a country's growth to the next level. Thus ramp up in capital spending and infrastructure can help to address this issue. On a much macro level, to raise India's growth trajectory, a broader reform agenda is needed. Thus the government will have to