Monday, June 30, 2008

GMR : a Global Giant is born.

Infrastructure, Energy, Airports, Roads, Bridges, SEZs , Corporate jets, Cricket Teams .. it was a heady cocktail offering from the virginal Indian countryside was.. and that excited the excitable Fund "managers" and PE YoYos in that lovely, strange way.. the possibilities looked endless..and imaginations ran wild.

GM Rao the promoter of GMR group came from behind and upped the wunderBrothers of Indian business the Ambanis at their own game..Govt connected business strategy where "environment " management viz. Govt management is the simple and winning strategy.
Some say it was his flourishing mustache (that both the Ambanis admittedly, can never dream of growing) that quickly opened many a door for GMRao and soon as he dyed it a blacker than black shade he was the cats whiskers in Infra plays.

While lesser corporates and honesty hobbled MNCs battle it out to win over customers and marketshares.. our local business "promoters" know the big game is the political game and the fools that represent the people's choice (and of course the people's interest) are the fools to win over for a cut of the great Indian booty (before the textile wrapped FinanceMinisters /PrimeMinisters /NonMinisters hand it out all out to farmers in the hinterland).

And the results are evident.. while the P&G, HindLevers,Batas, ABBs etc. of the world battled it out gamely and honestly to sell some product and grow at a non-Indian (i.e. non exponential) rate ..our boys in blue just pole vaulted into the upper end of the global rich based on castle building expertise in non terrestrial contexts.. which to their glee sold like hotcakes amongst the global alpha hunting community of smallish "managers'' with largish visions of their abilities and worth who enhanced their self image in direct proportions to the value they dished out in their latest stake acquiring.
Things got so bad the promoters had to necessarily expand his vision and potential for his business to 1500x of whatever he had fondly decided last night to meet the excitement of the fund across his table today. "..yes, he agreed the potential was there.. if funds like you came aboard , definitely the world would soon be our oyster.." ..the show was on the road!!

So was the fate of the GMR group.. their propulsion into the corporate jetting, mustachioed promoteroscenti was in no small measure due to the Funding frenzy of the Funds that would make India into a economic behemoth..though disturbingly, Luddic Research has identified them as a bit early in the emerging of India. Consequently these fine Funds who had visions of being heralded as the far sighted cowboys who came into India, saw the coy opportunities, sowed a few(quite a few they imagined) wild oats and went back victorious to knighted lives in the cigar and brandy circles back home.. sigh, those were heady days.. and no "play" was too far fetched to let loose your fertile imagination.. landBanking,deCoupling, valueUnlocking, growthStorying, infraPlaying.. the future was owned.

It was only a matter of time G.Mallikarjun Rao expanded his vision from jute making to larger extrapolation friendly plays. Such was his ability to leap into the play du jour , that he managed to sell stakes in his company at Rs. 240 per share to 49 (forty nine) leading institutional investors ranging from Citigroup( we all know how sharp these guys are) to old fogies like Soros .. and quickly announced planned investments of Rs.60,000 cr( abt $15 B) in Power and other lucrative sectors in the finest tradition of the noveau Indian Promoter chutzpah.

Well strangely these fineYoung alpha maleish investors have had to face up to the ignominy of seeing the share price dip to Rs. 82 (as we write) and despite every single analyst and fund Manager looking to average down, talk up and holdItforLongTerm, the shares of this golden Goose continue getting cooked.
The bovine participants of the Indian stock markets have refused to see light and participate in this fantastic Infrastructure play that is destined for untold greatness.( In fact the incumbent Govt. is looking seriously into the widespread rumors that bovine participants of the non-bull variety have infiltrated the markets and playing mischief with the oneVisionBulls' sentiments (who are important for this country's future global aspirations) and asked SEBI to rustle up some somnolent, Govt discard employees to look sharp and strictly ban any cattle without balls from the markets.. bulls are still to be allowed.

Evidence of the bullish prospects surfaced again today as the GMR Infra went out and bought a Dutch Power company and announced that owing to the recalcitrant behaviour of the semi literate investors in India it would look at overseas and western markets to fulfill its expansion dreams.. It's management and business acumen obviously puts it firmly onto a fast track to glory and riches and we have been advising all our clients at Luddic to buy every dip(since Rs.239).
The reasons are easy to see-

"The group has already set up an office in London as a preliminary step and has plans to start regional offices across the globe as it buys power plants in the US, builds an airport in Istanbul, and mines coal in South Africa. The group, owned by the 55-year-old Grandhi Mallikarjuna Rao, plans to earn nearly 40% of its income from international business.
The company plans to invest $10 billion (Rs42,880 crore) in the next five years to acquire overseas assets, Bloomberg reported last week. "
And it was only a little while back they had announced they were actively studying Nuclear Energy as the next foray (going by their expertise in Energy sector).

OK Infrastructure, Energy, Airports, Roads, Bridges, SEZs , Corporate jets, Cricket Teams.. and now Nuclear Energy..

..I got 3 words for G.Mallikarjun Rao .. Save Your Hair first.

Friday, June 20, 2008

Indian Corporates face waning Libido

As Luddic Research has long identified, the Indian bull story was unique in that it was essentially fueled by a bedroom revolution rather than the conventional boardroom revolutions that have marked lesser efforts in the developed world.

From the origins in the financial centers of the country where brokers, bankers, FIIs, Domestic funds, PE funds, Hedge funds (essentially any funds etc. which were populated with smallish, shape/looks challenged individuals, having mostly suffered bullying in their growing years and virtually no success with women till *after* getting employed and even after.. minimal).. well these financial players suddenly discovered an activity that seem to enhance their self image and sense of manhood wherein they could see some of that alpha that males of their category needed to prefix .

Quickly their proclivity for announcing higher valuations, bigger portfolio/private investments (for smaller stakes) , growth projections, target prices etc. etc. spread to the industrial and corporate sectors where innocent semi literate "promoters" started seeing themselves as the second coming and soon swapped their long favored traditionally tailored, striped underwear with Jockey shorts (much to the amusement of their portly traditional wives).. but the point is, they drank the "projected" kool-aid and we all know when the rustics partake a drink they can quaff long and steady without stopping for breath.

And that is what essentially happened in the spread of the new everyStreetPavedwithGold gospel.. from the long suffering financial types' need for a moment in the Sun to the RealEstate Builders and other such sharpies recently taken to making windmills ( literally and in the stock markets ..till the blades cracked) they all took note of the ever green, young strapping looks (mostly because of jet black hair) MV Kamath(ICICI) and Mukesh Ambani(Reliance) and quickly concluded the fountain of youth springs from growth plans 3 times a day and even more grandiose growth plans next morning.. and the Indian Growth Story was on.

Most Indian business promoters knew they had an innate talent and ability to get into practically any business and quickly announce a few tens of billions of planned investments in the next mornings press. Their abilities and talents which by now spanned Telecom to Energy to Real estate to Retail to Infrastructure to Brokerages to Movies to Fund management to Private equity .. basically if they had heard of a business.. they were up to it.
Our Research shows that the mere occurance of so many talented Business Stalwarts( with the ability to straddle and excel at multiple unrelated industries) and all of them coincidentally born in the same country in the same century is a 1 in 100,000,0000,00000 chance (for the modelers - about a 37 sigma event give or take).

In fact in entire mankind's history we have only GE (GenElectric) which has even come close the emulating this kind of multi industry spanning talent that seem to be commonplace in the Indian Business houses..and passes effortlessly to their equally multi-talented progeny.

We are indeed living in the Golden era of Indian Business and it is a no brainer these wunderkids will soon be able to overcome these blips and continue with their stratospheric growth plans as planned and the current negativism in the markets will die out on the realisation this is just a little, temporary, short term pause in the overall growth trajectory being ably orchestrated by the dream team of our bedsheet wrapped Finance minister, guided by our economist Prime minister, who is in turn guided by our Italian Non minister..this trio is good at winning economics awards, elections and farmers.

But coming back to the temporary predicament of business "promoters" who have not been able to raise fresh equity, fresh debt, business prospects, confidence, in fact haven't been able to raise anything the past few weeks and prospects are only looking glummer going by the survey of male oriented grooming /manicure retailers, hair dye manufacturers and men's salons.

The younger Ambani of the amazing wunderBrothers, concerned with the collapsing equity market for his offerings ( has a boatload to sell yet, if he has to cover even 5 % of his "announced" plans, given that exactly zero of his companies makes any money at all), no much happiness, as in past, from bankers to be allowed to participate in his dreams, awkward questions about the fate of Rs.100,000 crore ($25 B) of happy "investors" money put to play in the stock markets by his sharp, far sighted team at the Reliance Mutual fund in the boom boom months.. all these developments would a lesser man, put on the back foot.. but that's the lesser man..
A-nil fired back with a mega Billion deal to hock off his loss making( for entire forseeable future) RCom to the South African ingenues, renaming Reliance Energy to Reliance Infra to participate in every other industrial ( and domestic/household too if has "growth" potential) activity undertaken in this country.. and called up Spielberg to fund his studios's sagging fortunes and build a global name for himself this lifetime.

The other heroic business "promoter" Luddic Research has pinpointed as one of the future leaders (alongwith Kishore Biyani of Pantaloon /Future group) ..Pradip Jain of Parsvnath Builders ..who despite the having announced Rs.60,000 crore investment plans in the best Indian promoter tradition a couple of months back (when his shares were "guided" into Rs.400 range..sadly Rs.150 range now) .. and having most of his capital raising and other abovementioned raising abilities severely hampered by the crass behaviour of the stock market cretins .. is clear in his faith :

I don’t foresee any softening in demand. I don’t foresee any kind of pressure in end user demand.

Related to prices, prices are bound to go up. There is no way that price can go down. Media keeps talking about softening in prices, I do not agree.

..see why Luddic Research hero worships this man.. this is after a 60% + drop in his share price and projects spread far and wide into the country side which need customers and more importantly funding.The future of this country is in good, steady, confidence inspiring and clear thinking individuals 'hands.

But.. we would also here like to put a public interest request for the good of the Indian "corporate" sector, the economy and most importantly the Promoters and fund Managers who have been caught in this nobodySawItComing downturn that is fueled by temporary inflation blips (no doubt will be remedied by immediate price controls on every commodity and maybe free food rations for the rural Indians for a few months into elections by our astute Fin minister.) who will then quickly be allowed to reduce interest rates as all "experts" had been forseeing such a rate decrease even 2 months back and we will all be happy and gung ho again..this time we will really show them what "decoupled" means.
In the meantime our appeal is to not poke too much fun at the TV "market experts", Portfolio managers and other serious faces who have been entertaining us for the past few months with their well meaning "research" and "support" levels and also please lose no opportunity to put in a " nobody could have seen it coming" into all your conversations with such soldiers .. maybe, just maybe they will internalize this truth and be able to offer some fresh "buy" candidates at this market bottom currently formed..maybe also bolster some flagging libido.

We need these local experts even more as there are signs even the PE funds are wising up to the situation at hand and (after some tough love from investors) will no longer pump cash into Realty and Infrastructure "plays" we had come to love and trust.

As we had advised our clients at Luddic earlier , we are now sure this is the bottom again and of course as we all "experts" know Long Term India is a fantastic opportunity.. we only need to weather the short term corrections and volatility.. no sweat.

..and soon,the Indian bedrooms will swing to the music of testosterone charged promoters and investors yet again..building a bigger, better, growth trajectory.

p.s. A grand, Govt. sponsored, week long, mega Yagna (vedic religious ritual) is being performed in some South Indian state as we write this to ensure the Gods are appeased and kept updated on our efforts.. the Govt is taking no chances this time around, esp with election s around the corner.)

p.p.s. A late report suggests that some muscular officers of the Finance Minister's office have visited the office which released the errant inflation report yesterday for some stern talking to and quick refresher of the patriotic oath these officers need to consider before spooking the entire country and putting at risk the hard work put in by countless "Promoters" over last 2-3 years.( as also personal reelection plans)

Monday, June 9, 2008

Lehman,CitiGroup and Prashant Bhatia

It seem like only yesterday we were marveling at the analytical skills of the fine folks at Citigroup who time and again show us what it takes to be a global financial powerhouse.

It was only yesterday our chest was swelled with pride on the financial exploits of one Prashant Bhatia who has found fame and glory ( as also some good cash) in holding forth on the future prospects of the US financial sector based on some nifty spreadsheets, that he and his astrologer out together, whenever the unwashed masses need to be educated on arcane matters such as high finance and valuing such players.. in lay man's terms basically timing the toggle between "buy" and "hold" or sometimes "outperform" vs "neutral" (but the fine sense of timing is what separates these men from boys).

Prashant and his pals at Citigroup have honed their skills well enough to be couple of curves ahead of the market ( different curves altogether, as against just being ahead on the same curve). Of course their fine insights and have been responsible for creating immense wealth for all lucky recipients of same ( and who follow same unquestionably) well as earning their firm formidable reputations as employers of talented "analysts".

We at Luddic Research have been hunting high and low for getting our hands on some comparable talent to analyze the local brokerage stocks behaviour here, but you have to admit Prashant is a talent hard to find (in fact we think his analytic skills are so blindingly obvious .. if such ever existed in the third world markets they would have long been put on their rightful pedestals and worshiped in local temples). Well, we did have the audacity to approach him (and his astrologer as a team) to offer him a position (and twenty temples ) to tempt him with a move to Mumbai but he felt his career span would be longer and less violent in the US where most all "analysts" and "strategists" seem to be in same boat,in sync, all the time and nobody is the wiser.
(Third world countries are not so developed or forgiving in that sense..and careers and limbs are quite expendable in these overpopulated markets).

Mostly, what has us foxed is, why the markets do not look past their short term noise and emotions to what these fine "analysts" are saying .. hell they spend all their waking hours "covering" and "following" and "analyzing" and "projecting" these companies.. only to be undone in the opening hours of the skittish herd.

Go Prashant!! ..don't let these losers drag you down.

This is all noise, all noise ...
Lehman has a little hiccup.
Fitch downgrades Lehman.
Moody's downgrades Lehman.

..but it does get a bit dicey when fellow "analysts" are jumping ship.. eh??

Monday, June 2, 2008

Indian Real Estate & Global morons

There is no denying the Real Estate "industry" is feeling bouts of anxiety at the moment..and most confess their nights are devoid of soothing sleep( leave alone libidinous heroics which came to mark the recent bull market fueled sexual self image.. again Real estate is mostly a male game).
The fawning "investors" who bought their stories, the bankers who fought to finance the mega mall in the boondocks, the PE funds (in fact, the only believers left now..but more on that later) who saw astounding opportunity in realty sector, the financial media who astutely understood why the stocks were going up and what was getting "unlocked" or could be "land banked", the Govt who ensured interest rates and loans were available to all and his milkman to speculate (ok.. invest) in real estate.. all these worthies seem to be now developing cold feet just when the Real Estate promoters are in Real need.

Day after day, the Industry "promoters" with millions of sq.meters under development or construction and little cash in their tills(or their horizons) explain, project, and plainly pontificate the "temporary" nature of the slowdown in "deals" but prices barely having moved downwards as a sign of doNotSeeSignificantCorrectionInPrices theory validation.

Now, we at Luddic Research know better than to pit our wit against such fine gentlemen(again, all male) who have shown exemplary leadership in setting new standards for most third world benchmarks of foresight, financial projections, corruption, bribery, political funds'(politicans') investment, strong armory and last but not least of bringing tons of unaccounted money to "constructive" use.
So when these exponents project unlimited pots of gold at the end of Indian realty rainbow, we ( never fight the market ) just happily hold on to our stocks in the certainty ( at least in the mornings) that this is the bottom today and surely cannot go any lower ( only last night the analysts on CNBC were saying value has emerged in most bigger and reputed Real Estate companies and valuations are realistic, blah,blah.. and they know what they are talking about) ..surely soon we will be back to our original purchase price!!
Consequently, Luddic Research has also been strongly advising all clients to hold on to their property investments (even if no buyers today or in our analysts' horizons) and not reduce asking prices even though there will be no deals.. you don't want to send a wrong message here. We are of course aware of the pressure some of these fine "investors" are feeling from their lenders, bankers and families but as history is witness prices never come down in India and there is too much know it in your gut.. listen to your gut..remember your middle name is (now) "long term".

We have to admit despite that our sunny outlook (and the recently hired hypnosis expert) and positive sounding prognostications administered in religious sessions and sermons (through TV acclaimed God men and astrologers) that we are holding across the country for our investors.. we have been largely unsuccessful in getting new suckers into the wonderful ponzi scheme that the Indian Real Estate was shaping into lately.. but we are proud to have held up the prices and stem any wayward "distress" type sales amongst our flock. They chant every morning(at our sessions) ".. I am LongTerm..I am LongTerm..I am LongTerm..I am help me Lord."

No discussion on Indian Real Estate is complete without the mention of the foreign hand..this time the sharp and naturally gifted foreign investment houses and hedge funds who swarmed the globe for "stories" and "plays" and identified this sector as the next boom sector where the demand supply projections, a variety of growth stories and entrepreneurial libido with minimal ethical and legal inhibitions promised to change the rules of the game or even the game itself.
It was a no brainer for the youngish crowd of over achieving and over reaching opportunity spotters from the US(primarily) and the EU,Asian wannabes, to start throwing cash and valuations (of course based on sound projections, though have to confess a little scary rosy) at these roperties, builders , construction companies and Land banked corporates that the entire Real Estate sector sat up, rubbed their eyes disbelievingly and changed their world vision (and self image) for ever .. to the extent of mostly abandoning even the time honored custom of the afternoon siesta the Industry has enjoyed for generations.. there are too many PE types wanting to discuss a deal with them..even in that afternoon slot.. though lately the meetings are not as enjoyable as the PE boys are trying to broach (cautiously ..they know the "staff" outside looks a little muscular for good reason) uncomfortable topics like revaluing downwards and how to exit options .. but mostly these fine boys are the last believers .. at least on the face of things.

As some wizened old hand, who doesn't like emerging markets much, said.. ".. only the locals make money in the these markets..foreigners make it and then give it all back .. never can take out the profits.." but then like we all know this time is different in India.

Me.. I just take the opposite positions to Luddic Research' clients .. someone has to provide the liquidity (and this explanation is fine with SEBI..we love third world regulators).. and I'm too shallow for Long Term thinking.