Equity traders and investors have never had it better than the period between 2003 - 07. The benchmark indices of the Indian equity markets, Sensex and Nifty, gave an annual return of over 40%. It was almost unimaginable to invest in fixed income options and mentioning that you invest in these products was taboo.
Cut to 2008 and I can assure you investors in fixed income securities will be smiling smugly. And equity traders will say they did not 'listen' to sign of excesses, thus they blew up. Soon the stories of sold homes, cars and gold to repay leveraged positions will trickle it. The media will have a field day running these stories (I admit equating Dalal street to Mahalaxmi racecourse is fun).
Some introspection will reveal how much of the past success was luck. Obviously its hard to accept its luck and not skill and its even harder to segregate the impact of each element. But honestly i can say some degree of certainty this cycle will repeat again. The simple reason for this is the human tendency to get complacent when the going is good. Danger evokes caution, fear curbs the natural risk taking ability.
While i write this hoping equities will bounce back, i accept 2008-09 will be the years of fixed income securities. So let them enjoy this time and do not grudge their success, respect it, because it is built on caution, planning and patience.
Monday, September 29, 2008
Monday, September 22, 2008
Stumbling Giants
Probably not the best time to be a finance student hoping to get a job. Two of the big five I-banks gone and few other companies hovering close to bankruptcy surely makes me shiver. But hey, wise people say the Indian economy is resilient (I have to believe that, need a job soon).
My job prospects aside, let’s look at the larger picture now. People hopefully will not be crazy in the future and be cautious of new derivative products (ah who am I kidding, wait till the next bubble). Insurance companies will do what they are supposed to do, sell insurance and not dabble in complex derivative products. Banks will be cautious and watch whom they lend to. Governments will play an active role in clearing the mess. The global economy is probably in a recession it is just a matter of accepting it, but things will get better. All this is possible in Utopia, but the lessons here are hard hitting.
As I reflect on these points preparing myself for interviews in the future, the perfect line hits me. I will say to the recruiters, ‘Sir, I am a finance student, can I sell soaps at your company’.
My job prospects aside, let’s look at the larger picture now. People hopefully will not be crazy in the future and be cautious of new derivative products (ah who am I kidding, wait till the next bubble). Insurance companies will do what they are supposed to do, sell insurance and not dabble in complex derivative products. Banks will be cautious and watch whom they lend to. Governments will play an active role in clearing the mess. The global economy is probably in a recession it is just a matter of accepting it, but things will get better. All this is possible in Utopia, but the lessons here are hard hitting.
As I reflect on these points preparing myself for interviews in the future, the perfect line hits me. I will say to the recruiters, ‘Sir, I am a finance student, can I sell soaps at your company’.
Friday, September 12, 2008
Transfer Madness
September 1st was the transfer deadline for the English Premier League. The last few hours witnessed a mad scramble. Robinho signed for Manchester city, yes you read it correctly, city.. Well Man city was bought over in a dramatic takeover. Berbatov joined United at the last moment. i can only imagine the excitement that would have descended over England. If you are reading this article and not sensing the madness in the whole transfer system you are not passionate about football. But thats not the objective of this article.
I write this wondering when we in India can enjoy this madness. Cricket is the only game which evokes raw passion in the country. We all support the cricket team, but there is no rivalry amongst us. The IPL is a step in that direction. Soon the country is being divided into its favourite teams. The first edition of IPL provided a glimpse of what can be expected. So now when we are discussing 'our' teams with friends, and that team is not India.
Now imagine in the next edition of IPL, the Bangalore team attempts to 'buy' Sachin. This is blashpemous, it is unimaginable. People will take to the streets in protest. If you can feel the pulse of what i am talking about then you will be in a position to relate this with football in England. Every year there is drama, excitement and entertainment.
I look forward to this madness hitting our country. It will herald a new era of public involvement and stir passions like never before.
I write this wondering when we in India can enjoy this madness. Cricket is the only game which evokes raw passion in the country. We all support the cricket team, but there is no rivalry amongst us. The IPL is a step in that direction. Soon the country is being divided into its favourite teams. The first edition of IPL provided a glimpse of what can be expected. So now when we are discussing 'our' teams with friends, and that team is not India.
Now imagine in the next edition of IPL, the Bangalore team attempts to 'buy' Sachin. This is blashpemous, it is unimaginable. People will take to the streets in protest. If you can feel the pulse of what i am talking about then you will be in a position to relate this with football in England. Every year there is drama, excitement and entertainment.
I look forward to this madness hitting our country. It will herald a new era of public involvement and stir passions like never before.
Friday, September 5, 2008
States of Gas
Gas is appreciated mainly by two sets of professional. First scientists in a chemistry lab and second by MBA students. The reason for affection is entirely different. During the course of this post I will compare and contrast the various forms of gas available in nature and in b-schools. For those unaware gas in b-school parlance signifies the meaningless ‘gyan’ rambled by occupants.
Nitrogen (N2)
It is the most abundant form of gas available in nature. Like in nature it occupies 78% of b-school environment as well. Harmless on the surface but can develop into a deadly concoction when mixed with other elements.
Oxygen (O2)
This is the basis of life. These individuals provide the substance in the course. Again rather unfortunately only 21% of are in this state. It is due to the existence of this form of gas that a b-school is a tolerable place.
Ammonia (NH3)
This one stinks. And it really is one that you should run away from. The strange thing though is that when you mix ammonia with the some other ingredients it can produce excellent results.
Nitrous Oxide (N2O)
This one makes me laugh, I mean literally. Not for no reason is it called laughing gas. These characters on campus make life easier.
It is amazing how things connect, who would have thoughts lessons in chemistry play out in management.
Monday, September 1, 2008
Why we don’t Short Sell
We Indians are a strange lot. World over we are famous for our culture, food, big grand weddings and our emotions. It is strange how famous we are the world over for wearing our heart on our sleeve. There is nothing wrong or right about this characteristic but understanding the limitations it creates is very important.
Short selling is a derivative contract which involves selling a stock without actually holding it with the anticipation that the price will go down. The investor thus makes profit which is equal to difference in the selling price and buying price. People short stocks when they are pessimistic about the future. Now here lies the dilemma for Indians. Most Indians are optimistic and do not wish badly for others, especially for personal gains. So even if there are strong signs of a stock moving down most would let the opportunity pass. On the other hand, if there was an opportunity to go long (exact opposite of shorting) people would be more willing. This may be due to a feeling of guilt that you have driven down the price.
It is strange how emotions cloud our judgments. The philosophy of taking decisions based on data, leaving emotions aside is a skill we need to develop. Money gets people a bit emotional, but discipline is the key to making consistent profits.
Short selling is a derivative contract which involves selling a stock without actually holding it with the anticipation that the price will go down. The investor thus makes profit which is equal to difference in the selling price and buying price. People short stocks when they are pessimistic about the future. Now here lies the dilemma for Indians. Most Indians are optimistic and do not wish badly for others, especially for personal gains. So even if there are strong signs of a stock moving down most would let the opportunity pass. On the other hand, if there was an opportunity to go long (exact opposite of shorting) people would be more willing. This may be due to a feeling of guilt that you have driven down the price.
It is strange how emotions cloud our judgments. The philosophy of taking decisions based on data, leaving emotions aside is a skill we need to develop. Money gets people a bit emotional, but discipline is the key to making consistent profits.
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