Governance at mutual funds
Commentary
R Balakrishnan

Governance at mutual funds: What you should know about the inside workings

While one doesn’t know enough yet to comment on the veracity of these allegations, this does shine the spotlight on the issue of governance at mutual funds. There’s a lot of song and dance on whether listed public companies are managed in the interests of their shareholders. But what about mutual funds? 
MFs are essentially custodians of public money, where both profits and losses are entirely passed on to unitholders. I give money to a fund manager to deliver a certain return from an asset class. But I am paying a fixed fee to him which he gets whether he does better or worse than the market. This pass-through nature of mutual funds means that the unitholder is most affected when the fund is mis-governed or mis-managed.

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M&A
General
R Balakrishnan

What they don’t tell you about M&A

In an M&A, company A buys out company B, triggering positive and happy noises in the market. Share prices of both companies jump in joy on the announcement. The news then gets digested and analysed.  Shareholders of both companies realise after a bit, that they should have sold out in the first few days after the announcement, rather than swallow stories of ‘synergies’, ‘cost savings’, ‘market leadership’, ‘inorganic growth’ and other jargon that are usually peddled to sell mergers, in company releases and analyst reports. 

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share buyback arbitrage, share buyback
Stocks
R Balakrishnan

The share buyback game isn’t worth it

The share buyback offer of TCS which closed last week, attracted a record number of applications from investors who wanted their shares to be bought by the company and extinguished. TCS had offered to buy back shares worth Rs.18,000 crores at a price of Rs.4500 per share.  

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LIC IPO - the elephant makes an entry
Stocks
R Balakrishnan

LIC IPO – the elephant makes an entry

On the LIC IPO, a lot is at stake. Rules have been bent, timelines collapsed and all the corners cut to meet deadlines and valuation numbers. The secondary market price is extremely critical for the government as it will decide the annual dilution of five percent that is likely to happen, to reduce the government ownership to seventy five percent over five years. So, for those who are worried about the price now, there is hope.

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Interest rates, move out of equities
Categories
R Balakrishnan

Interest rates: Should you move out of equities?

Long-standing warnings by market gurus about the imminent popping of the stock market bubble seemed to come good, with interest rates for US treasuries spiking up sharply and triggering a fairly sharp correction in stock prices across the world. But why should stocks fall if interest rates rise and will such a rate hike impact India?

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The regulatory minefield on digital lending
General
R Balakrishnan

The regulatory minefield on digital lending

…RBI, facing fire from all sides, should set up a working group that has put up a white paper on the issues that face ‘digital lending’. I recall reading some months ago that there were 1100+ lending apps and that nearly 600 were illegal.

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credit rating
General
R Balakrishnan

What they don’t tell you about credit ratings

I was privileged to be part of the beginnings of the credit rating industry in India. From being an unwanted pest in its early days, the industry is now the favourite whipping boy for regulators and investors, who have blindfolded themselves with wrong notions about the role of credit rating agencies.

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Financial Freedom
General
R Balakrishnan

How anyone can attain financial freedom

Financial Freedom is a term that means different things to different people. But to simplify, can we call it the stage in one’s life when money is no longer a source of worry? This again means different things to different persons. A very rich man may be financially sated. An ascetic may also be in the same situation. So let me stop splitting hairs. Let us use this term with reference to people who are not born with a golden spoon (enough wealth for a few generations) and have to work for a living and make their way up the money tree. I suspect most of us will fall in this category.

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Banking and finance stocks, Understanding valuations of Banking & Finance Stocks
General
R Balakrishnan

Understanding valuations of banking and finance stocks

As an investor, your approach to analysing and choosing banking and finance stocks needs to be distinct too. In the first part of this article, I had dwelt on the CAMEL approach to deep-diving into a bank’s business.

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evaluate banking and finance stocks
Investment basics
R Balakrishnan

How to evaluate banking and finance stocks

There are certain characteristics which make evaluating banking and finance stocks different from others which produce goods and services. Money cannot be lent to someone unless there is an inflow by way of capital or debt. Since it is not practical to lend only from capital, borrowing (or leverage) is the sustaining food for this business. Naturally in using this leverage, there are good and bad apples.

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cash flow, pvr, cashflow of pvr
Stocks
R Balakrishnan

Re-creating the cash flow

Analysis beyond the P&L and the Balance Sheet is a must if we have to take a long term view of any company. I am not referring to fundamental or technical factors, but to more number work based on the published accounts. I am referring to the cash flow. My approach is different from what most textbooks would prescribe. Statutorily the accounts do carry something called the ‘funds flow’. That is not what I mean when I talk about ‘cash flow’. In the past, during a few of my presentations, I have taken up some analytical work on companies like Sintex, ABG Heavy Industries where a reconstruction of the cash flow showed that the story was vastly different from what the EPS and the PE numbers were telling. A solid cash flow analysis can tell us what the health of the business is and based on what current and likely future trends are, what would be the outcome.

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