The local real estate markets in India.

Here is the scale I use:
1: Investment is Highly justified at the current price(implying that there is no bubble and hence may not see any major correction)
2: Investment is justified (Implies that the growth story of the city looks good)
3: Investment is very risky( implies that there may be a major correction in the next 2-4 years)

Delhi(1.5): Has many be industries around. It is not just IT dependent economy. Hence the prices of homes and rents may see some correction but not a major one.

Mumbai(1): Highly diversified industrial city. IT industries are well located in Mumbai as well as Pune. The real estate prices have not gone over the roof. They are very stable. Extremely good Rent/Cost ratio for real estate investment.

Chennai(2) : Real estate prices are touching the sky. Madras has well diversified industries. In the past 2 years it has received all the major IT investments. Real growth can be seen soon in this city. Real estate investment at current level prices in the Mahindra City belt and Mahabalipuram belt may be justified.

Bangalore(2) : The concentration of IT companies is the highest in this city and hence this city has the highest job opportunities. The real estate prices are already sky high and may stay so because of the unparalleled opportunities. If the government can improve the infrastructure in the next 3-5 years, things will be great in this city. Prices may not go up more than 20%. This city has more or less reached its peak.

Pune(2): Again a well diversified industrial city. Soon, Mumbai and Pune may be viewed as twin cities who complement each other. Pune has great climate, proximity to high number of educational institutions and the advantages of being closer to Mumbai. While most of the states in India have only 1 city dedicate towards IT development. Maharashtra spreading the IT investment between Mumbai and Pune for its own advantage. A trend that Karnataka is following with the development of IT parks in Mysore, besides Bangalore. real estate prices are high. If Maharashtra remains a laggard as it has been compared to Hyderabad, Chennai and Bangalore, in the IT investments, then Pune's growth may stagnate.

Hyderabad(3): This city has a very scary picture. It is completely IT dependent city but not as many IT companies so as to make it the number 1 destination for all IT folks, because the kind of IT jobs in Hyderabad are not as god as they are in Bangalore, Noida and Chennai. Not as diversified as other India cities mentioned above. The real estate prices are as High as Mumbai, Delhi and Chennai. But the rents are the lowest. Which point towards a bubble. In the past 2 years, the government of Andhra Pradesh has done nothing but just declared that companies will come and invest in Hyderabad. Till today none of that has happened. The biggest failure has been the Fab City. No new big projects have come up. They only project that the current government is doing is to develop the International airport, which was already proposed by the previous chief minister,Chandrababu Naidu.

India's real estate market.

The Indian real estate market is currently booming. How long will this last?

Every where there are billboards that display IPO of real estate companies. TV media business channels display real estate IPO ads and also IPO ads of companies which add no real value to human life and lifestyle. This is a clear indication that people are in a stock market frenzy and companies that want to dupe people are making the best by capitalizing through IPO.

By investing in such IPO's real estate is becoming costlier for a common man. The real estate companies are taking money from the common man and using it to acquire lands at very high prices(governments are auctioning lands and such IPO companies bid for such lands at exorbitant prices). Eventually they will sell this to common man or to NRIs. In simple words, the real estate companies are using public money to develop real estate at high prices which eventually leads to unaffordable housing prices.

The dollar flow into India through FIIs and NRIs is causing a lot liquidity in the market, which may cause inflation. RBIs hike in the CRR rate is a clear indication that it is concerned about inflation and wants to put a check on it. While, the US interest rates may decline from mid 2007 onwards, the story may not be same in India. If inflation is still unchecked in India and the US Dollar keeps weakening, it may increase the FII's flow into India and trigger more inflation, forcing RBI to hike the lending interest rates. Eventually this will control the liquidity in the market and may cause the property market to stabilize.

Also, one of the factors that may put a stall on the housing prices is the affordibility. As a rule of thumb, an individual feels comfortable to afford a home that is 4-6 times the multiple of his/her salary. The average income of upper class in India( both wife and husband earning, software engineers) is approximately Rs.12-20 lac. That means they can afford homes worth 48-120 lac. No, wonder the home prices in India are getting to those prices. Note of caution, these kind of homes are affordable to Software professionals because the salaries have not touched these high figures in other job sectors.

In the next few years, salaries will definitely stabilized in India, unless India starts getting more high end jobs, besides the current back office work. In such a case the current price are definitely justified. But, how long can a week dollar be beneficial to India's export is what may dictate the meteoric growth that India has achieved in the past 10 years.

Better Karma

How many times have you felt a desire to make a difference in someone's life, especially children who are living in oblivion about the progress of the world while you are abreast with more information than you could use. It pinches our hearts when we see such children wandering near the temples and hotels in India, who are struggling to put some grains in their stomach, while our children are happily moving their thumbs on an Ipod or a PS2, humming to some songs or playing some games.

Every year thousands of Indians make a trip to their motherland. Most of the time it's a pleasure trip and catching up with relatives. Imagine the difference you can make in a child's life or your neighboring school or community by contributing just 4 hrs of your vacation time and that too without having to miss out on catching up with your friends and relatives.

I hope that some voluntary organizations can put some effort and create a pattern of tasks that others can replicate. Tasks that are 4/8 hours long which can have a positive and constructive impact on their community, or school, or nearby slum and involves couple of individual per session. People from USA, UK and Australia who go to India, Bangladesh, Srilanka could sign up for such tasks. They can be given some preparation material which can assist them as to how they are going to contribute their 4/8 hours.

It may not be easy to break the tasks because disparate people may want to contribute and it would be difficult to align their tasks so as to creates a contiguous outcome or impression on the children or community that is being assisted/helped. While it may be easy to go and just give a casual talk to children, assimilating these 4 hrs talks/contributions given by different people into a 2 or 3 credit hour course may be difficult and needs some planning/coordination. This is where organizations like the Googles' and Infosys' of the world who have a philanthropic heart can step in and contribute some resources to create such a framework.

In India and Bangladesh, children from poorer section of the society, whose parents are, in most of the cases, uneducated, go to schools where the students to teacher ratio is 80:1. Assisting such children in doing their homework seems like a simple task yet comes with its own challenges. One day someone may go there and teach a particular method to solve a math problem and the next day someone else may teach a different method to solve the same problem, thus creating more confusion for the children.

One of the important factors that I have noted is, if a person is on vacation in India he/she may be less inclined to make such voluntary contributions. But if such voluntary activities are clubbed along with our friends or relatives, it makes a huge difference and people are motivated to contributing their vacation time becasue they will not miss out on there relatives. We should create small tasks that people can take up when they make a trip to India. A task small enough so as to not steal a lot of their precious vacation time but big enough to make an impact in some child's life or their community. Making a difference, One Trip at a Time.

Emerging Markets!! Should we stay Invested?

At the start of the year 2006 I had suggested that investment in Emerging markets and Gold would be the way to go. So where do we stand today. Well, I reiterate my suggestions. The fundamentals in India and China are good. Wealth is being created in Pacific Basin countries. These countries would snatch more jobs from US and UK. Long term, its a growth story for these countries. The valuations are good and the current price correction has just added the icing to the cake. Point of concern, there is too much volatility in the markets. It is un comforting to see the BRIC markets fluctuate 2-6% in single sessions and unnerving to know that these huge fluctuations have become chronic. Seems like the markets haven't yet matured. For the Indian markets, I would like to see the SENSEX touch 8500 during the second half of this year and I wouldn't be surprised to see 8000 also. But don't bet on the bottom to get into the market. Anything below 9000 should be a good entry point.

US Fed is taking measures to combat inflation, by increasing the interest rates. Signaling to the investors that Dollar will be stronger and more attractive than other currencies/Gold/other investment havens. This would definitely cause the investment money from countries that have Current Account Surplus to push more money into US. I am not sure what would the Fed do with all the money that it may attract and how it would pay the higher interest rates to those who invest in US Treasury bonds. Because banks will not be able to push this money on to consumer at such high, inflation fighting, interest rates. The cost of money will be too high as Bernanke bumps up interest rates and that would take its toll on the growth of the economy.I wouldn't be surprised to see the money going back into the emerging markets because GROWTH is happening there.

Housing markets have already started their downward journey and further correction in store due to the increasing interest rates in US. Just wait till 2007/2008 when the 5/1 ARM loans of many consumers will mature. The interest rates will be too high to sustain the mortgage payments and thus there will be an up tick in mortgage payments defaulters.

Overall, this is an excellent time to get into Emerging markets. So the mantra is, "Stay Put in Emerging Markets". The new globalized flat world is prone to Contagion more than ever and a new paradigm is needed in the investment portfolio, which is to hold on to gold(5-20 % of the portfolio).

BUY
MFunds: MMKBX, TEDMX, Some Gold.
Stocks: YHOO, TRID

Reservation issue in India

While the SC/ST and OBC reservation issues in India are as cyclical as the elections are, it is definitely a very serious issue facing the youth of India.
But everytime these issues come up we have some or the other different and very funny perspective of looking at it.

I came across this comment on the web and couldn't resist laughing. As quoted by Karan_medeco on NDTV Hot Debates.

"I think we should have job reservations in all the fields(FOR PM POST AND HRD MINISTRY) . I completely support the PM and all the politicians for promoting this. Let's start the reservation with our cricket team. We should have 10 percent reservation for muslims. 30 percent for OBC, SC/ST like that. Cricket rules should be modified accordingly. The boundary circle should be reduced for an SC/ST player. The four hit by an OBC player should be considered as a six and a six hit by a OBC player should be counted as 8 runs. An OBC player scoring 60 runs should be declared as a century. We should influence ICC and make rules so that the pace bowlers like Shoaib Akhtar should not bowl fast balls to our OBC player. Bowlers should bowl maximum speed of 80 kilometer per hour to an OBC player. Any delivery above this speed should be made illegal. Also we should have reservation in Olympics. In the 100 meters race, an OBC player should be given a gold medal if he runs 80 meters. There can be reservation in Government jobs also. Let's recruit SC/ST and OBC pilots for aircrafts which are carrying the ministers and politicians (that can really help the country.. ) Ensure that only SC/ST and OBC doctors do the operations for the ministers and other politicians. (Another best way of saving the country..)"

Thinking on the same lines, probably we should also have this extended to politics. Any politician who is from SC/ST/OBC category should be declared as a winner if he/she gathers just 49.5% of the votes gathered by an open category candidate. Let's see how the Congress Party of India likes this idea.

Apart from the many alternatives and solutions, I think we should try to give these reservation benifits only upto 2 generations of a family. Today, the situation is such that the OBC/SC/ST have taken it for granted that they will get all the benifits for all the generations and hence are very complacent and don't develop the values for success such as discipline, penchant to learn and leap ahead, making a better life through hardwork and merit. I wouldn't blame them for it as it is a very common human nature to become uncompetitive when everything is provided for. Government needs to consider this before making any decisions on reservations which evetually become eternal.

Never will it happen that an OBC/SC/ST will beat an open category candidate in merit, because for people in the open category they have to slog and work hard. "Only the Paranoid Survive" syndrome kicks in and keeps them at the helm of everything.

Dangerous illusions, destructive indulgences

Recently, someone had sent me a mail with the following dictionary explaination of the word "timid

timid
tim·id(tim.id)
adj. tim·id·er, tim·id·est

1. Lacking self-confidence; shy.

2. Fearful and hesitant: problems that call for bold, not timid, responses.
3. A person from India, of Indian Origin; Intellectual Indian.

"intellectuals issuing lofty statements calling for calm and advising restraint to the lambs even as the wolves are on the rampage", the plight of timid India is very well mentioned in this article, "Dangerous illusions, destructive indulgences"-by T R Jawahar.

Google, Yahoo and Swiss Bank.

Personal Data storage has become quite a dilemma for the Internet users and the Internet application service providers like Yahoo, Google and others. On the one end users want to get all the customization and personalization of services that add value to the time they spend on the Internet, but on the other end users don't want the Internet companies to share their data with anyone else and "Play Evil" nor do the user want the Internet companies to analyze the individuals personal data and manipulate his/her internet experience.

I see this situation similar to the dilemma which people must have gone through when Banks were first coming up. Just imagine how hard it would have been for people 100 years ago to take their money out of their safe vault and put it in the banks. It definitely needed a paradigm shift in the confidence that one can entrust on the banks. After all, the banks can just run away with the money and leave you broke. Such fears don't exist today and the banking system is so mature that people would laugh at you if you stash your cash at home. Nevertheless, the services that the banks provide is based on your personal data with them and I am sure the banks share it with many other organizations. And if need be even the government can get a handle to this data. So what's wrong when Google or Yahoo uses your personal data to provide better services to you. Isn't it an accepted model as in the banking sector?

Today, an individuals personal data is as dear to him/her as cash. People want to entrust only those companies that can guarantee that an individuals personal data will be as safe as is the money in Swiss Bank. Google and Yahoo should work towards this goal of gaining the confidence of the users as has been done by the Swiss Bank in the banking industry.

Succumbing to the pressures of governments and divulging the information would just break the confidence of the users and also the values by which these companies stand for in a democratic world.

Black money has always been a plague on any economy. It is very difficult to track it. In this new technology world, the US government is keen on tracking people who have black profiles(fake profiles) which they use for illegal activities. In this context, it does makes sense for companies to provide some information and help the government. But will the government stop asking for more information, where will it draw the line? Give a camel an inch and he will take an ell, is apt to say about governments. Hence, the stance of Google to not to divulge an information and go against the government makes perfect sense. It has moved a step closer to becoming the Swiss personal Data Bank of the Internet. Let's see whether Yahoo will be another Swiss Bank of the Internet?

How the housing market differs in US, UK and Australia

US' vulnerability of housing market to interest rate changes is to be yet seen. The new financial innovations in mortgage (ARM loans) have just increased the sensitivity of the housing market to the interest rate. Thus, the templates of UK and Australia are all the more applicable to the US housing market. I differ, though, with the authors of," Housing, Mortgages and Consumption - Comparing Australia, the UK and the US" - Morgan Stanley, article over this point. Nevertheless the findings are interesting to know.

INVESTMENTS IN 2006

Nutshell : Move into Emerging Markets, Developing Markets, Pacific Funds and Gold.
Long Term :
1. India
+Democracy
+English Speaking Population
+Infrastructure projects yet to happen at a bigger scale.

2. China
+Cheap labor
-Communism(Financial books are cooked up)
+Communism, hence more predictable behavior

It is obvious that currently wealth is being created in Asia and hence the purchasing power is bound to go up in those places, eventually triggering more profits for companies capturing those markets. US is not a great place to invest as compared to India and China. Recently one of my friend had visited India and was nonplussed by the growth rate that most Mutual Funds were achieving. While it is a good idea to invest in the local country mutual funds(MF),I would suggest not to invest in these MF directly, but invest in some American Funds that invest in these countries. I say so because it is very easy for US Funds invested in those counties to pull their money out and move to some other country than a local country fund, in case things go wrong. The 1997-98 South Asian Contagion has shown how local funds lack the agility to make a move as compared to the FII.

Energy might have good return in 2006. Energy stocks are already high and this year may be the peak of it, which means one should be prepared with the exit strategy, but still hold on to it. Be vigilant on this sector !!

Investments in Health care and Defence might do well in 2006 and ahead.

GOLD!!! would be a good idea to diversify into. This is applicable only to people who have most of their investment in US Mutual Funds. The current financial health of USA, especially the Trade Deficit and Current Account Deficit are indicating that US$ might depreciate( basically all other currencies will appreciate) and hence it may not be a safe haven for investment. But if US$ goes down then a US MF investment that makes 15-20% will shed 5-8% in terms of the US
The slow run up of some other currencies against the US$ has started. Gold has been the worst investment in the last 25 years( except the past 3 years). In the current globalized world, it is condescending to say that countries would like to hold their reserves primarily in US$. Countries are trying to diversify their forex holds away from US$ since many expect the US$ to depreciate. With the loss of superiority of US$, I guess it makes sense to hold some gold, which is a good hedge against the stocks and also against the risk of US housing bubble meltdown and its eventual global economic recessions. China plans to bump up its gold reserves to approx. 2600 tons from the current levels of approx.600 tons. In the past 15 years Japan has seen how the worst financial environment in its country can erode all its wealth, which has taught its people that Gold is the best value holder for all the money that they make during the hay days. With that change in attitude and the dark financial days behind them, Japanese citizens have found a new love for gold and hence the import of it is going up in Japan(Resembling the Indian culture). So get into Gold!! It's bound to go up further.

Alan Greenspan hiked the interest rate by 25 basis points and is out. Expect another interest rate hike, for sure, in the next 6 months and may be another one by the end of this year. All this boils down to one thing, "Don't get into real estate or related funds".

Another sector that might do well is the Neuclear Enery Reactors -companies that make or are in the supply chain of Neuclear Enery. Keep a watch on the companies that make Nuclear reactors, they will do well in the coming 5 years. It might be a good time to identify these companies and get them into your portfolio.

Happy investing : MMKBX, FLATX, FDVLX, FPBFX, TEDMX, FLPSX, FSDAX, YHOO, DNA and get some Gold!! (GLD, IAU, GoldMoney.com)s purchasing power due to the depreciation of the US$.