Friday, 17 January 2020

Cost of Equity for Indian Companies by Sector Jan 2020 (based on Prof. Damodaran's data set)

This is a descriptive article based on the data set provided Prof. Damodaran on this website http://pages.stern.nyu.edu/~adamodar/. The objective is to provide a reference point for cost of equity for Indian companies specially for retail investors. It is already known that cost of equity (using CAPM model) becomes a critical input to evaluate risk from an equity investor stand point of view in corporate finance and valuation. Given below is the link to the spreadsheet containing the cost of equity for Indian companies by sector.
 
https://drive.google.com/open?id=1pSH_ElsNh_psnwHn3N9wwbiwsbPjCXwn

The rest of this article is devoted to describing some of the trends in cost of equity for Indian companies.

For the market as a whole there is not much of a difference in terms of cost of equity between 2019 and 2020. The overall cost of equity for the market as a whole as of Jan 2020 is 10.16%  as against 10.21% of 2019.

















Advertising, electronics, oil/gas and dining industry are among the industries with highest cost of equity as shown in the image below.


Broadcasting, beverages and real estate services are among the industries with lowest cost of equity.


In terms of percent increase in the cost of equity advertising, software (internet) and retail (building supply) industries are at the top. The percentages indicated in the figure below represent the percent change when compared to 2019.


Beverages, trucking and retail are among the industries that have shown a decline in the cost of equity when compared to 2019.


Investors are advised to use their discretion in making their investment decisions.

Tuesday, 24 December 2019

The Case for One Child Policy in India

It is high time for all governments - state and center, to consider implementing one child policy. Patriotism does not mean hoisting flags and singing national anthem - all citizens need to show their commitment by participating in nation building.

The idea here is to not blame any one section or political party or anyone else. As a nation, we have inherited a number of problems - population explosion is at the center - and it requires a collective and sustained effort to solve these problems.

1. Quality of living: When there is a large population and scramble for resources the quality of living goes for a toss. In terms of UN Human Development Index, we are faring very bad and the signs of improvement are limited. Unless, we address population explosion it is next to impossible to provide a good quality of life for all citizens.

2. Mismatch between jobs creation and requirements: While the number of graduates aspiring for jobs is increasing every year the number of jobs created is no where near the requirement - that is both public and private sector combined. India cannot be a South East Asian miracle economy based on manufacturing export driven growth. (that time is already gone!) Instead, we need to aim at 25 to 30% of GDP contribution from manufacturing. Investment in research and technology needs to give birth to newer industries and sectors.

3. Onus on automation and cost cutting: Private sector operates for profit and the onus in the coming decades is going to be on automation and cost cutting across sectors (manufacturing and services). All businesses go through cycles and once they get used to working on lean structures, there is no need to increase the size of their human capital. Therefore, even if private capital expenditure increases the number of jobs created may not meet the requirements of the huge population.

4. Insufficient and incomplete subsidies: All governments boast of providing subsidies and cash transfers to the depleted sections but someone needs to check for sufficiency. Is your rupees 3000 odd cash transfer sufficient for a family to sustain for a month ? What is the standard of living of these people working on low or negligible incomes ? How much income is required for a family to lead a life of reasonable quality and standards ?

5. World's population may flatten out but not India's: Even if the world population stabilizes, at this rate India is going to be the most populous country in the world in one or two decades.

6. Encourage adoptions: One third world's malnourished children are in India - so why not have a strong adoption law and encourage adoptions.

We need some tough and unpopular measures if we have to fulfil our dream of being an advanced economy.

Wednesday, 18 December 2019

One Child Policy for India: Address Population Explosion

When we are hotly contesting citizenship, immigration, infiltration etc why not address the elephant in the room? Today clearly we have a situation where resources (or mobilisation of resources) are falling short of meeting the needs of an over growing and out of control population. If we cannot provide good life to our future generations then we do not have any right to bring them into this world. So at the risk of irking people's sentiments why don't we implement one child policy ? At least for two or three decades, till the time we completely eliminate poverty and provide good life to existing population. Those who want a second child can go for adoption wherever possible.
In terms of human development index and quality of living, we have a long way to go. It is possible to provide good quality of living only when population is under control.

Wednesday, 27 November 2019

The other name for empowerment is informed decision making

In the age of consumerism, people have a right to choose from different products and services that are available to them. People can compare and contrast between different options that are available to them and make informed decisions.When all other sectors are positively responding to technology, why should not electoral politics move to the next level ?

The big idea, here is to identify and disseminate economic indicators at all administrative and geographical jurisdictions. Sophistry is for the weak and wicked. It is important to not bombard people with numbers and indices. So why not devise or identify easy to understand economic metrics (5 to 10 of them at the most) and make them available to people even in all vernacular languages.

As smart phone and internet penetration keep improving people get access to data and information. Using existing (independent !!) institutions, resources and without significant additional cost burden, it is possible to set up such a system where people can make informed electoral decisions. At the moment, in all parts of the world including the advanced economies, electoral politics are subject to all kinds of vagaries which we may not be proud of.

Also, as standards of living improve, people may no longer be direct beneficiaries of public schemes or at least one would expect so. In such a case, how do you judge the performance of your public representatives ?

When will people be empowered ? Not when some one belonging to their race, caste, creed, language etc gets elected to their public office. Not when they choose based on liquor or food or money they receive prior to voting day. The real empowerment is when people can make informed voting decisions based on unbiased numbers.

Wednesday, 20 November 2019

Eradicate Identity Politics and Symbolism

Identity politics and symbolism have long been part of politics everywhere in the world. Good economics cannot be bad politics. Except for subsidies on basic items like food, water, housing etc, economic considerations should guide political decision making. But unfortunately, the current situation is the exactly opposite of this. Poll strategies across parties involve fielding public representatives not based on their ability or commitment but based on their community or religion or net worth. By now everyone must understand that if you have a President or a Prime Minister or for that matter any public representative belonging to some backward class, the plight of all the people of backward classes in that country does not improve. In all classes, castes, creeds, religions etc there is a layer at the top beyond which growth and development may not reach. Any form of discrimination by governments positive or negative depending on an individual's caste, religion, creed, language etc is not acceptable in a civil society. These features are limited to an individual's person life and decisions. It may sound too idealistic but over a period of time we must, as a society move towards a system where any discrimination by governments is based only on economic status.There is so much of technology available at our disposal and we can use it to good effect.

There is a need for change and it is high time to eradicate identity politics and symbolism. As education levels increase and information becomes more widely available, people must be able to differentiate between political and economic issues. 

Saturday, 16 November 2019

Characteristics of an Evolving Democracy

When large sections of people are devoid of growth and development over long periods of time, their dissatisfaction results in change of guard at the highest levels of governance. Different political leaders reach out to people on different grounds including religion, region, language,race, caste etc. Some of these leaders are born out of the miseries of the people. Others are demagogues who take advantage of people's frustration. The reason for people's dissatisfaction is more economic in nature rather than any thing else - it may take a different form but the underlying cause is mostly economic in nature.

Over a period of time, it is important to develop and disseminate economic indicators at all administrative levels. One for the government itself, to understand whether they are on the right track and for people at large, to be able to assess the performance of their public representatives.  Every now and then we come across charismatic leaders who can garner people's support irrespective of economic issues. And make no mistakes charismatic leaders are required to establish stable governments. But, it is always important to remember that institutions are more important than individuals. Over a period of time, we need to have a system in place where we can distinguish between good performance and window dressing.

There will be people who are direct beneficiaries of government schemes and there will be others who may not be directly benefited by government schemes. (excluding common subsidies, roads and buildings, policing, military, water and electricity supply etc) Specially, working and middle class people may not have time and energies to evaluate the performance of their governments. It is important to have in place independent and unbiased institutions which make economic performance indicators available to the people at large. These indicators should be easy to use and understand for even less educated people. Don't just make them available but advertise - let people know about these indicators. Suppose if these economic indicators are made available on a web portal, then these web addresses should be displayed at all prominent places in the national and vernacular languages. In some cases, advertising could be the differentiating factor. As per a news article by The Economic Times (https://economictimes.indiatimes.com/tech/internet/internet-users-in-india-to-reach-627-million-in-2019-report/articleshow/68288868.cms?from=mdr), by the end of December 2018, there were around 56 crores internet users and overall internet penetration was at 40% in India. So making economic indicators available on a web portal and advertising about them could be one of the better ways of reaching out to people. As literacy levels grow and internet penetration, increases digital platforms are going to play a critical role in large democracies.

It is extremely important to respect people's sentiments and emotions but at the same time rationality can't take a back seat. A mature democracy would be one where political decision making is based on economic realities - whether it is at the highest policy making levels or at the bottom where voting decisions are made and policies transform into action.

Any growth vision or agenda without proper checks and balances may not yield the desired results. 

Wednesday, 13 November 2019

Streamlining Higher and Professional Education in India

It is important to assure that good quality higher education is available to all students irrespective of their economic background. In the current scenario, only the top layer of students get admissions into top notch colleges and all other students are forced to join lower rung institutions. As a result, we are left with degree holders who may not be fully ready to join the corporate world. To be fair to students, they have to go through some very high pressure coaching and entrance examinations. One has to remember that students have to perform in a limited time frame.

All educational institutions offering higher education need to maintain the requisite 'infrastructure' and have to be monitored by the concerned educational authorities. Among all other areas, education is the most critical and its impact on the economy in the longer run is probably the differentiating factor.

It is fine if some students do not find admissions, they can try next year or pursue some other vocation. But to graduate from bad institutions (it is homicidal to run such institutions) like half  baked potatoes is just not acceptable. So all those educational institutions that do not have the infrastructure or those that do not meet qualitative and quantitative standards have to be closed before the beginning of another academic year. Where there are issues related to specific branches of study, specializations need to be withdrawn and this requires continuous monitoring.

All the established institutions, have to incur capital and maintenance expenditures as a percent of revenues to avoid degradation and show them as part of their income tax returns. Students have to be provided with state of the art training, laboratories, teaching and guidance.

Also, it is not necessary that academic success reflects in professional success and vice versa. It is also necessary to include vocations which may not be main stream in the current higher education curriculum.

The problem with education sector is that one may not be able to see the impact in the short run. India has an educated middle class population which is aspirational and the foundations for the future have to be based on best in class education and skill development.

No one has the right to play with future of any country.