Saturday, May 26, 2012

Rant: Read the Annual Reports for God's sake!

I find it unbelievable to a point of dejection how many people only look at the statements (balance sheet, P&L and cash flow) and discard the rest of Annual Report. I sincerely wish these people read the Annual report in detail (that leaves just a few) with concentration, eyes peeled (Hah! that leaves no one except for John Hempton). I am not demanding a Philip Fisher-type depth, just a bare reading will suffice!

Remember that 
  1. The Annual report is a detailed communication that company makes with you. No meeting can cover these many issues in that depth.
  2. Most often, there is lot left unsaid in the report. But what is said is no less important. Please read it at least. I can forgive you if you don't understand what is written, but not reading is not an excuse.
  3. Many times we don't get picture of how divisions are performing, which products are losing money etc. But use what is given construct a picture of that what you cannot see. Remember Annual report  has legal weight. 
  4. Further, quite a few companies are open about information sharing if you just care to read.

To me, the analyst who does not have capacity to read is no analyst. The investor who does not want to read is far more dangerous and bunch of investors who don't read are simply today's market participants.


Tuesday, May 15, 2012

Investors are at the gates - When will India open them?


One of the big problems driving Indian inflation is lack of investments. The investors are here; the question is where is the government. 

How to get investments?
First rule of investments is that higher uncertainty should be compensated by higher return potential of investment. If the return available from the Indian market is given then government can increase investment by reducing uncertainty. 

Indian government is doing exactly opposite.
In general government is failing on many levels and the Indian courts are able to stem the erosion in some areas but in critical policy areas the constitutional arm of government, the RBI, is not empowered to do much. And it has done all it can. Sadly RBI cannot undo what 8 years of inaction has borne to bear. 

Policy nuisance 
The current UPA government came after 5 years of NDA rule. The NDA government had good alignment of strategic direction and policy follow-up. In the first term,  the UPA government was befuddled with coalition issues thereby creating policy ambivalence. However the developmental inertia of previous NDA terms proved beneficial in hiding the policy ambivalence. However the second term is characterized by lack of strategic direction in policy. The policy, rather strangely, is moving in the opposite direction in general. The haphazard manner of conducting policy has confused investors, both domestic and foreign. If the government just stops this policy nuisance we can hope to hobble along a reasonably correct path.

Knowing Congress - future is bleak
The most reasonable forecast is bleak. The only possibility is that a looming crisis may kick the government into action. Just like Churchill's America, at the very last, India will do the right thing. So here is waiting for the crisis, hoping for the dark clouds to see some silver lining... 

Tuesday, May 01, 2012

Follow up to S&P rating negative outlook

After the post some people wanted to know if my forecast has changed. Quite the contrary, I think S&P rating outlook downgrade may signal the upcoming improvement in equity performance.

So I think: 

  1. A revival of sorts may happen by July this year, peaking around December.
  2. Analysts will start upgrading around October by which time I expect the move would be reasonably underway.
  3. I think a good strategy should be to invest in any weakness.