Ready Rekoner: South Korea vs North Korea

The recent exchange of fire might be just a skirmish between the Korean twins, but what if it turns into a full fledged battle? Any idea on which Indian companies will be most affected and how?

Well here is the list of Indian companies and their tie ups with the companies in Korea. So keep a watch on your investments.

Happy Diwali and a Happy New Year

“Prosperity is a way of living and thinking, and not just money or things. Poverty is a way of living and thinking, and not just lack of money or things.”   

                                                                                                                                                                              Eric Butterworth

Wish you all a very happy Diwali and a prosperous new year. We begin this blog on the auspicious eve of Diwali with the idea to share our thoughts on investments and trading and further our own learning experience. It is a great pleasure to welcome all our readers and well wishers.

The genesis of this first post is in the recent discussion I was having with one of my friend who was planning to invest in the recent offerings in the bonds by some big players. We have seen some crazy levels of inflation from 16 % in January this year to the latest figure of 9.82%. Is this here to stay, and if yes then how do we go about in the process of investing? This is the basic theme of this first post.

The attached excel has the basic formula of valuing the firm and with all things constant if we increase the cost of capital (with increasing inflation) we see quite a dramatic effect on the valuation. It also gives us cues on what kind of companies to look for and in what to invest.  I believe inflation is here to stay and no matter what RBI or the finance ministry does it is not going to have much impact to kill the monster. So the next logical question is how we use this knowledge to boost our returns and protect our savings.

First and foremost when investing in companies see if they have pricing power. Without this ability these companies will not be able to pass on the rising costs to their customers and will result in lower margins. Look for brand image, credibility and competitors. Though M&M theory says that the capital structure does not have any effect on the valuation of the firm, this lesson comes with a lot of conditions. And it is in these conditions that we look for value. Companies with long term debts at low interest rates which fit into our first condition are bound to see the value of their getting diluted and make a good bet.

           Some other themes to look out for in the coming year:

1.       A lot of Indian companies are moving to Africa for natural resources and for new markets. It is worth having a look here.

2.       Disinvestment is going to be one big play in India for some more years and will throw some interesting opportunities.

3.       Distressed securities are always a hot area but all the more so with the current economic environment. Hitesh and I have been discussing this for some time now and would be glad to hear from any of our readers if they are working on this idea.

         And as Mr Rakesh Jhunjhunwala aptly said, have faith in India and invest for the long term. Happy diwali and may we all make a lot of money this year

         

                    Happy Diwali and Happy Investing

                    Mihir & Hitesh