Is India overheating?

NY Times wrote in Feb 2007

But now, after three years of near double-digit growth, signs of a potentially dangerous inflationary spiral are beginning to emerge. Prime Minister Manmohan Singh and his closest economic advisors gathered just last weekend over fears that India’s extraordinary economic expansion was starting to overheat, an issue they labeled as a “key short-term priority.”

They may have waited too long. Food prices are climbing for everything from lentils to onions, squeezing the poor. Apartment rents and prices are rising steeply, especially in large cities. Factories that make the country’s increasingly ubiquitous motorcycles are running at full tilt and have still fallen weeks behind in meeting orders from dealers.

Economist thought similar. An excerpt which also highlights my dissatisfaction with the Indian media:

A recent study from Goldman Sachs, which forecast that India could sustain 8% growth until 2020, was widely trumpeted in Indian newspapers. However, the bank's report clearly stated that this would require better education, labour market reforms and less red tape. Oddly, most newspapers failed to mention that.

In Feb 2007, the index was hovering around 14-14.25k. Today it is ranging between 18-19k.

At the present, our own Rakesh Jhunjhunwala predicts that markets will reach 50k levels in 6-7 years.

All this lead me to asking, how much water do these observations by journals of such repute hold? For some perspective, lets turn our attention to this nice summary from rediff in Jan 2005 vis-a-vis predictions from top international brokerages on the Indian markets in 2004 and 2005. Notice the cautionary tone exercised by most of these firms. Most of them were predicting the markets to go from 5k to 6-6.5k in Jan 2005. These targets were revised downwards in the middle of the year when markets plunged and confidence evaporated.

The markets closed that year at around 9k levels. Furthermore, notwithstanding the cautionary tales, it hasn't looked back since, ignoring the occasional drop of 10%, and is today at 19k levels! One naturally wonders, did these guys know any better than your grandma or that paan shop owner down the street who constantly issues unsolicited market commentary with equal confidence?

So, who does one rely on to get some advice on investing at the present time in the Indian market, in view of such erratic judgements from leading professionals?

More thoughts on this in the next post.

Apple

I am considering adding Apple (aapl) to my portfolio. Here are some of the reasons for the record.

A dear friend of mine who works in a big bay area chip company suspects that Apple is on to something big. Apple is a client of theirs and they have ordered chips which combine three different functionality in a chip which has never been done before. One of these is bluetooth so you get the picture where it is headed.

I don't see anyone getting tired of updating ipods. I probably am the owner of the oldest ipod on earth from the prehistoric era. It is a 15GB first gen brick from Apple for which I paid upwards of $350. At the time I bought it, to say that it was a head turner it would be a gross understatement. It was an eye-popping, saliva-inducing, heartbeat-skipping, reality distorting instrument just as intended by Steve Jobs. And even though it serves my music needs still, I feel a bit awkward carrying it around. Its like a gorgeous mistress that has grown old and ugly and more of an embarrassment to keep. We live in such times! The new ipods, well, they get sexier by the day not just in style but in functionality as well and are merging with cell phones, video, and what not.

Iphones - Most of the issues with the iphone is lack of 3rd party software due to proprietary format and lack of Java Runtime on the phone. Though I think that is a concern, but maybe not so for the not-techie masses. And even for techies like me the sex appeal of the phone masks this shortcoming. Proprietary formats haven't stopped the Itunes and Ipods form becoming a success for sure. And it aligns well with Apple's philosophy, do a few things, keep it simple but do them very well.

Network partners like ATnT in the US are paying hefty fees for each iphone sales to Apple and this should generate a good revenue source. Not sure if this is a better strategy then tying with all the networks and accessing larger markets with small commissions per phone, time will tell. But there might be more than meets the eye here, maybe Apple plans its own network in the future. Kind of redo the synergy between the Itunes and Ipod?

As a side note, emerging markets might have a great growth potential for the likes of Apple. The well-healed in India seem to be crazy about gadgets, especially cell phones. With rising incomes and dispensable spending power, a rising rupee, and a rapidly growing consumerist economy, the growth projections in these markets might be a tad short of reality.

Another side note, well maybe not so much a side note, there is something to say about the mushrooming satellite industry around ipods like chargers, car adapters, speakers, audio systems, etc. Even the newer luxury cars come with ipod compatible features. Even a few airlines are integrating ipods with their in-flight entertainment systems.

Apple earns more on the Macs then the Ipods with something like 40% y-o-y growth. I had always lusted after Mac Mini. But it seems to be passe now, I hear talk about Mac Nano. I do love my Macbook though and I think the growth will continue especially more so after Mac OS X Leapord comes out next week. From what I hear, Vista has taken a beating so far and old timers still prefer using XP to Vista, this might be a great opportunity for Apple to gain some turf in the OS arena. And one can run Windows on the Macs but not run OS X on PCs so there.

Is this the tipping point for Apple?

The risks

Obviously Stevie is a central point of failure. If anything were to happen to him, it might be hard to replace him.

More of the obvious, competition is immense, be it cell phones, mp3 players, etc. Apples success depends on staying ahead of the curve, exemplary marketing and brand management and a constant slew of amazing products with a little RDF thrown in.

My reality perception might have been severely distorted by Apple (read Steve Jobs) and others might recover faster from their hallucinations while I pump my hard earned money into this thing.

I haven't done much of fundamental, technical analysis of this stock but just a quick few notes.
The PEG ratio for Apple is 2.03 which is pretty high.

Macro economically, the US markets have been in a bull run for the last 4+ years. Faceobooks apps are selling for millions. All this is somewhat reminiscent for the dot com bubble and makes me queasy. I started investing at the height of the bubble in summer 2000 and bought tech companies like Cisco, Sun, AOL, Qualcomm etc! All above 100$. The idea was to buy and hold good companies for long periods and reap benefits. I had put in roughly 2000$ which became a couple hundreds after the bust and even in 2005 they amounted to around 600$.

The lesson learnt is that if the markets go for a free fall then no matter how good your holdings are, you might be looking at a loss for even long time periods. So I will buy some Apple but with a trailing stop loss of around 15%. Go Apple.

Laga Chunri Mein Daag

I went to the movie with some expectations, mainly because ok Konkana Sen, and she definitely didn't disappoint. The movie though was just average. The opening shots of Benaras was ethereal and were living up to my expectations but as the movie progressed, I was forcefully taken for an emotional roller coaster where mostly I was screaming out of misery rather than fun.

The goods

Konkana Sen, she just shines throughout the movie. A very natural and consummate actress indeed. Some of the cinematography is decent.

The bads

The sudden transformation of the girls from naive benarasi girls to hip mumbai babes was amusing, to put it mildly. Subtle character transformations is what I appreciate in movies not effortless wishy-washy stuff.

Jaya Bachchan should do herself and others a service and retire. (I digress, but same goes for Amitabh, though he has some time remaining.)

The Hip-hop song in benaras towards the end, whats up with that?

What a beautiful coincidence, Abhishek B is our cool dude's brother!

Too tired to continue this review, dont think it was worth reviewing anyways. Later.

BSE close to 19k!

The BSE is flirting with 19k levels. Just last month it had dipped to 13k levels following the subprime debacle ripples. I missed the boat then since I did not have a DMAT account at the time which in turn was due to the fact that I did not have a PAN card.

I immediately applied for a PAN card then and now am the proud owner of one. Its real nice and shiny. But I still don't have a DMAT account. I researched a bit online and came across quite a few frustrated ICICI dmat customers so have decided not to go ahead with that. (I have an ICICI savings as well as a NRE account). I have narrowed down on Reliance and Kotak, leaning a bit towards reliance though.

Might not invest right away after opening the account, since the market is perched so high. But its impossible to tell if it will have a major correction before continuing its climb to newer heights. The correction, when and if it happens, might be in value or it time. That is it might lie low at a level (say 18k) for a long while before restoring its upwards momentum, in that case it will be foolish to wait for it to fall down to say 16k before investing in it, since that will lead to missing out on another short bull run. So I will probably enter the market but with strict trailing loss orders so as not to get caught unawares during a free fall.

Apart from the market the Indian economy is rocking. While in the US, it was hard to take the media on its word, but I am now witnessing it first hand. The market may be overpriced in some experts view but over the long term there is tremendous growth potential in India. Much of the India development story has been touted aplenty already so let me note just one important phenomenon I noticed here:

The parallel economy (read: black market) in India is HUGE. My brush with the real estate market in Indore opened my eyes to the fact that most RE deals have a larger component in black then in white. People are rich here more that one would gather from available data. That black component means thousands of crores of INRs in a II tier city like Indore! The impact of that will be very significant in the years to come.

Anyway, for now, I will run to the nearest Reliance money outlet and get myself a DMAT account, nice and shiny.