Archive for July 8th, 2016

Harshad Mehta’s long ongoing case and how Ketan Parikh’s portfolio still doubled investors’ wealth…

July 8, 2016

Two people played a huge role in Indian stock markets – Harshad Mehta and Ketan Parikh – albeit for all the wrong reasons. They became catalysts for huge changes we have seen in Indian capital markets. Indian capital market is one heck of a story which is hardly given the attention. Post 1991, this is one area which could top the list of achievements. India is pretty much a capital market story now.

Came across two recent articles on these two individuals. One on Harshad Mehta whose case continues despite him being dead 15 years ago. Another on Ketan Parikh whose portfolio of 7 stocks continue to do well (there were 10 actually but three don’t exist anymore)..

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Bovine politics, cricket balls and foreign cows!

July 8, 2016

Ban on cow slaughter and strict enforcement of the same (ban usually implies enforcement, but not in India) is leading to all kinds of problems.

The latest is cricket balls which are made from cow leather. As there is shortage of cow leather and fear of getting the same, cricket ball prices have zoomed. They are trying buffalo leather but is not as good a substitute:

As the heat mounts on illegal cattle transporters in north India, its effects are being felt not just on dining tables.

The cricket ball manufacturing industry is facing the pressure as well with a significant dip in the supply of illegal leather. It has, in turn, led to a rise in the price of cricket balls by almost 100%.

“Because of the madness here, we have to import leather from the UK. This is expensive because it involves import duty and other taxes. Ultimately, it is the consumer who is suffering. A ball being sold for Rs 400 a year ago, is now Rs 800,” the director of a Meerut-based brand told Hindustan Times.

The industry is dependent on cow leather, which is legally and illegally procured from states where cow slaughter is not banned. But the fear of harm among traders, in the wake of recent incidents and increase in the “protection money” sought by local police, has led to an increase in the price of cowhide.

Smaller units are using buffalo skin as an alternative, but manufacturers say the thick hide is not a good alternative. “Buffalo skin is not suitable for ‘alum tanning’ (the process of preparing it before ball making). The hide has issues like colour penetration and waterproofing. It is also time consuming. If one man makes 10 balls with cow leather, it will be six with buffalo hide,” Mahajan said.

Hmm….

Such decisions could force the cricket ball industry to states where it is not banned. But these are usually small units and relocation a costly affair. So demand will be hit. People will shift to say hard tennis balls wherever possible and so on.

The next article is on which cow can be treated as a mother. Only the desi ones! Jerseys not allowed:

It seems not all cows can be called ‘Mata’. Not even the Jersey and Holstein Friesian breeds which have contributed to the white revolution in Gujarat with their high yields of milk. When it comes to revering the cow for its nourishing milk, apparently only the native Indian breed qualifies.
During the Rath Yatra in Ahmedabad on Wednesday, several hoardings and banners had sprung up at some places on the Yatra route appealing to people not to rear or promote foreign breeds of milch animals.

One such hoarding put up by Bansari Gaushala in Bakrol outside the Ahmedabad Municipal Corporation (AMC) office displayed pictures of the “Indian cow” and those of “videshi Jersey cow”. The banner appealed to devotees to feed only Indian cows as a matter of ritual. “The Indian Gau Matas’ milk, urine, dung are holy. Recent scientific research has shown how cow urine has gold.Besides this, cow milk has A2 proteins which is safe for health,” the message on the banner read.

The banner referred to the “Jersey cow” as a “foreign milk giving animal” and claimed that its “milk, dung and urine are not pure.” It also alleged that foreign cow milk has A1 proteins which are harmful for health.

Vallabh Kathiria, chairman of Gauseva Ayog and Gauchar Vikas Board, pointed out that not all milch animals are cows. “The Jersey cow is one milk giving animal among 55,000 mammals,” he said. “Indian cows have a hump which is not there in European milch animals. For instance, Nilgai is not a cow nor can you call a camel or buffalo a cow. We have been conducting extensive awareness activities. The banners seen on Rath Yatra route today may have been put up by NGOs or private dairy bodies which are also helping spread awareness,” Kathiria said.

 

How behavioral economics explains voting for Brexit..

July 8, 2016

Chris Dillow, uses ideas from behavioral economics to explain why people voted for Brexit despite it harming their economic opportunities.

This Brexit vote is actually nothing new. People have voted in the past which doesn’t explain

We economists – especially those of us who are on the left – have got a problem: voters don’t agree with us.

Events a few days ago demonstrated this. But it is in fact a longstanding issue. For years, and around the world, voters have had attitudes opposed to ours. They have been more hostile to immigrants and benefit claimants and more supportive of austerity and inequality than we would like. (This isn’t just an issue for the left: voters also have anti-free market attitudes.)

Why is this? I want to suggest that it is because Marxists were right all along. It’s because capitalism generates an ideology which opposes sensible radical reform. The idea of false consciousness should be taken a lot more seriously.

I came to this view via an apparently circuitous route. In my brief and ignominious career in finance, I learned about behavioural finance. This field, inspire by Daniel Kahneman’s work on cognitive biases, is the idea that people make small but systematic errors of judgment when managing their money. But this raises a question. If people are subject to cognitive biases when they have big incentives to be right – when they are investing their own money – might the same be true in politics, where their incentives are less sharp?

Some experimental research suggests the answer is: yes.

So what explains?

I suspect three mechanisms helped here. One was wishful thinking.

Another is prospect theory. This tells us that people who feel they’ve lost want to gamble to break even. This is why they back longshots on the last race of the day or why they hold onto badly performing stocks. The thing motivated many Leavers. People who had lost out from globalization, or felt discomfited by immigration, voted Leave because they felt they had little to lose from doing so.

The third mechanism has been discovered recently by David Leiser and Zeev Kril. They show that laypeople’s thinking about economics is dominated by what they call the “good begets good” heuristic. People believe that good things have good effects.

This, I suspect, explains a lot. People think controlling the public finances, or controlling immigration, are good things, so they must have good effects. I shouldn’t need to tell you that it ain’t so. In this context, the slogan “Vote Leave, Take Control” was an act of genius. It appealed to the “good begets good heuristic as well as to the fact that people facing uncertainty and feeling distrustful of elites want more control for themselves. (Perhaps this is fuelled by yet another cognitive bias – overconfidence about the benefits of such control)

It is interesting how prospect theory helps us understand so many things around the world. Its usage is limited but is catching up…

Offering citizenship in return for investment

July 8, 2016

IMF Direct has a blog piece summing up these citizenship sale programs in different countries. As per this IMF analysis, it is a win win for small countries and investors.

(more…)

Will Bandhan Bank move to the next level?

July 8, 2016

The story of Bandhan Bank is quite something.  We must least forget it comes from West Bengal, the den of banking failures. It is already trying to manage the urban-rural divide.

It is transitioning from a Bengal based MFI to a pan India bank:

Bandhan Bank has transitioned well from a micro-finance institution to a bank after commencing banking operations in August 2015. Brokerage firm Religare has come up with some interesting insights on this unlisted Kolkata-based bank based on its annual report. 
 
Up to March 2016, it had garnered Rs121 billion of deposits. Out of these, current and savings account (CASA) deposits stand at Rs26 billion. Banks accounted for around 35% of its total deposits. Bandhan Bank has a stellar savings account (SA) deposit ratio of 20%. It has issued 77 lakh debit cards up to now. 
 
On the flip side, there is a concentration risk with respect to deposits as the top 20 depositors constituted 30% of the total deposits. Another problem for the bank is that the savings account balance per account is low. After doing some number-crunching, Religare estimates that the average balance per savings account for the bank is at a little more than Rs3,000. This low ratio impacts profitability as the operating costs of these accounts is high in comparison to the income generated.
 
Coming to the loan book, agriculture and allied loans constitute more than half of its total loans. Currently, its small and medium enterprises (SME) loans stand at Rs65 crore. These constitute merely 0.5% of the total loans. It intends to focus on SME loans with a ticket size of Rs1 lakh– Rs10 lakh and retail loans. Its retail loans stand at Rs60 crore i.e. 0.5% of the total loans. 
 
Its return on equity (RoE) stands at a around 17% on an annualised basis, while its return on assets (RoA) is at 3.8%. Currently, around 1/3rd of its total branches are situated in urban regions. Its future plans include opening of 180 new branches by March 2017. The majority of its new branches will be opened outside West Bengal. The management plans to brand the bank as a pan-India bank.
The bank is experimenting with low-cost small format branches in parts of West Bengal and Bihar in order to reduce operational costs. These branches will have minimal staff and will largely restrict themselves to deposit-taking and withdrawal of money
Keeping a tab..

Why Indian businesspersons do not speak their mind on social media?

July 8, 2016

It is interesting that a newspaper asks this question.

The simple reason why businesspersons either do not use social networks or use them discreetly is because of the misrepresentation by the media itself. Someone will say something in mere humor and the media will present it as something else. It just becomes a media event full of Chinese whispers. By the time the person realises the damage caused, nothing much can be done.

This is how things work ironically. One would imagine that social networks will allow everyone to express himself/herself freely. But it has made it more difficult in many ways. The fear of reprisals and trolling keeps people away especially those whose views would matter..


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