House hunting in Mumbai

I have been trying to buy a house in Mumbai sub urbs since June and has not been able to find the right one. Unfortunately, apart from one house, we did not find anything livable.

The one we liked, the owner asked for 30% in cash. I am a salaried individual and i can no way pay in cash, especially when most of the money is going to come from a loan.

I sometime wonder how people in Mumbai pay vulgar price for a shitty houses.

One house i saw was a duplex and had all walls broken, including the front . The broker was trying to sell me the concept of rebuilding the way I want to. There were about 10 flats in the building with 8 being empty.

One house I saw was a 2BHK with 3rd being optional. The builder did not build the 3rd bed room, but kept provisions for the 3rd bed room. In this way, he had to pay lesser tax but wanted to charge the market rate to me if I wanted to buy.

The best had yet to come. I saw one under construction building, hoping to be ready by Mar 2010. When I went to see the flat, I was told that builder is in distress and I could buy any flat. However, when i went to see the buuilding 2nd time with my wife and liked one, broker told me that everything is sold. I could buy a flat at 40% higher rate than what was originally told 2 days back.

It is crazy and I dont know people like me, who come from outside, would ever be able to buy a livable house, which costs same as that in Singapore, however, in a shitty location with very poor construction.

Why equity markets are not falling??

Equity markets are not falling at all. The move has been one way up since Mar 09. I remember one of my cousins calling me on 9th March asking whether he should buy Index futures and I told him not to do so. He lost a fortune because of this. In hindsight, he was bang on target as the market had started rising from 9th Mar 09.

I, in my fund manager wisdom, thought that 2500 might not be the bottom for Nifty. But I, because of my limited experience, ignored one very powerful thing. The power of various goverments and central banks and when both decide that asset prices should not fall and should go up, no body in the world can do anything. Money is available, is cheap and credit is not happening. So where is that money going? Buying assets and increasing their prices. Practically, the flow and availability of money could make every price possible for an asset and could make everything bad economic data look good (imagine historic unemployment in the US, increasing every month and stock market being equally strong).

Last bubble also started on the same line - cheap and easy money prompting consumers to leverage.

Will we see the same what we saw in 2008? I dont know and the chances are that we will not see another Lehman. Governments have learnt the cost of systemic risk.

So will the markets and asset prices continue to become expensive. Answer is yes till Federal Reserve tightens its belts.

Whent this could reverse? High inflation? Rising interest rate environment? or something else? I have really no idea. But whenever it happens, there is a high chance that it would be bad.

Equity valuations in India

On last 12 month numbers, Nifty valuation is as follows:
P/E = 21.59, E/P = 4.63%
P/B = 3.77
Div yield = 1.06%

10 yr G Sec yield = 7.38%

The earning gap between 10 yr and index is 2.75%. This means in a secured asset, 10 yr G Sec paper, the investor could get 2.75% more than equities. Clearly, the risk reward is not in favor of equities. So, equities could fall by 15 - 25% and investors may need to reduce allocation to equities.

The fall of chinese market

Chinese Stock market has lost 25% from the top and 50% from the bottom. Shanghai Index had gone from approx 1700 to approx 3400 in the recent rally. In the last few days, it has fallen to 2700. Is it the start of imminent retracement of the great bull run? It could well be true as very few people know what happens in China. In the past, when the Chinese economy was growing year on year, there was doubt about its growth and sustainability, however, it still grew and people were proved wrong. This time people have been expecting China along with other parts of Asia to take the world out of woods. Will they be proven wrong again?

The current rally has primarily been based on liquidity and availability of cheap money. Going forward if the liquidity tightens and interest rates rise, all the good feeling could reverse quickly and we could be back in 2008.

To make it a possibility, let me tell you what I heard a yesterday. Any decent size Indian real estate company has held back salaries of employees for more than 6 months as the companies dont have the money to pay. Most of such company stocks have gone 3-4 times from the bottom and QIP has happened like no tomorrow... I dont know what market is valuing the companies for..

what is the way forward

I met 2 of my private equity friends. They mentioned their investee companies are growing and profits are increasing sequentially. Fear of sudden slow down are gone, companies have dramatically cut expenses and are building on the base set out in 2008.

Assuming what my friends said is true, it does not seem that equity market is going to fall soon unless there is a sudden surprise. further, if the way things are, we might touch a new high soon, may be as early as before mid of next year.

Will call you back...

Will call you back... I tell so many people and many people tell me on daily basis..

In the increasingly connected world, where everybody carries a mobile, this is an obvious answer if one is busy or dont want to be disturbed or dont want to speak to the other person.

In each of the three possibilities, the meanings of 'will call you back' is very different.

In the first case, the person is genuinely busy and cant take the call. So, ideally he would call back whenever he has the time.

In the second case, the person is busy with something, could take the call but does not want to. e.g. he is with family, he is sleeping etc.. In this case, he may call back and probability is 50%..

In the third case, when the person does not want to talk, he could speak but does not want to.. may be he does not like the person, or he thinks it is a waste of time to speak with him or something else.. In this case, he would not call back most of the time..

what does it mean for the person who had called... he can interpret the behaviour only with experience... and this experience is taxing unless the person did not have expectations of getting a call back..

India dream

I decided not to go abroad after my graduation. Getting a job outside India in 1997 was clearly very difficult and pursuing an MS, after getting bored B Tech was too much to ask for. I slept most of time in my engineering days and did not even studied a single course . When I say this to people, people think I am making fool of them. They dont expect an IIT graduate to say this.

Many of my peers did the same. Instead of going abroad, they joined Indian companies. Many went to Indian software companies but a few managed going to consulting companies. But lure of working abroad and higher salaries was too much to resist for many of them. So, most of them eventually, after spending sometime in India, went to USA, worked there for a few years and then MBA at Ivy League.

I had decided not to go. I still dont know why i did that but probably staying in a foreign country scared me. I continued to struggle. I got bored at KPMG after 3 years and then made an attempt to start a technology business. Business did not even start and I lost everything I had. I thought it was an incredible experience but probably too much to ask for. I had lost hair and aged a few years. Like others, I thought it is time to quit and start again.

I applied for MBA at Ivy League schools assuming that my enterpreneurial experience would get me anywhere despite low GMAT score, but I did not even get shortlisted for interview. Later on, I came to know that my essays were disaster. Further, for the sake of diversity, all these schools have unpublished quota on how much they would take from a developing country like India.

IIM did not fit my way as I thought I was too old for the class, may not get admission or even if i get, I may be last in the class after 2 years. I could not compete with a fresh IIT graduate with high IQ. I was an average Indian. So, I decided to go to ISB.

It was not easy there either. I scored in 3rd qurtile in most of the courses and some I just managed passing. In the placement season, I applied to almost every company but no body took me. Mckinsey thought I was too arogant while Novartis thought I was not a woman with CA. Some i rejected as I did not know what I was looking for. But I had to get a paying job as I had a loan to pay and no savings. After much struggle, got a few jobs from campus in 2003. Here again, I decided to join a company which would be primarily a local business. I still think that was probably the biggest mistake of my life. But any way, the saving grace was that I was young and could flip job later as opportunity cost of changing a job was not high.

However, the pressure of peers from IIT days continued. As compared to some of them who graduated from Wharton / Chicago / Columbia, had fat salaries and reasonable savings. I was at $15,000 annual salary with $2000 annual bonus. But India dream was high. I thought if India does well, I would catch up.

2003 - 07 was dream run for India. I also grew with it. India shinning story was getting attention and some of my peers, working in the USA, started thinking of coming back. However, they were looking for a $ equivalent salary. I thought an Indian business may not pay that salary for a 7-8 year experience individual, but I was wrong. An Indian businessman / CEO was willing to pay 3 -4 times to a foreign returned professional when compared to an Indian equivalent experience. I thought if I had done the same, i would have also got the same.

However, many of them initally found very difficult to adjust. Indian working style is very different. Long working hours, peers are thankless, weekend working, getting a call at 11pm in the night.... Many of them wondered, like me, is it worth it??

But India shinning continued... and is still on... Sensex is up almost 100% from the bottom..

Often I get a mail asking - Should I come back?