So, things have been pretty topsy-turvy these past few days. I had been having chest pains for the past couple of months and I always was putting off going to a specialist to get that checked out. I did go the last week and that’s when I discovered a block(blockages,to be precise) in my arteries.

I know, I haven’t been a role model for fitness and taking good care of myself, but reality hits you like a ton of bricks. The fact that I am 35 and a father makes the reality all the more scary for me.

I have to change, change for every dream that remains unfulfilled to this day. Things will look up for me, this I promise myself.

Cost of Capital

Before I start off writing about what I intend to, let me issue a caveat. This isn’t about Capitalism and its implications on the society or a technical treatise on the economic/financial theory of Cost of Capital. Having told you this, I continue.

Let’s be honest, why is capital coming to India? With our headline economic indicators showing a continuous downward trend( at-least for last 3 quarters), why are we still seeing big money flow into India, albeit hot money flowing into the stock market?

I have been speaking to a lot of businessmen and businesswomen and I get this sense that it is not a good time to put money in India, or to clarify long term money in India. By long term, I mean capital investment in form of FDI or capex by existing companies. But every other week I hear a lot about how markets are scaling new heights! So, what gives?

Reading a few articles and trying to make sense of it, I realised that more than the sentiments driving this bull run, it’s plain economics. We have seen a surge in FPI investments in India post May 2019. Well this is simply because we have been generating returns far in excess with what is the cost of capital for these investors. Let’s say I am a European institutional investor. I am able to borrow at close to 0-0.5% and I bring this money to India to invest in stock market to generate some returns. Even adjusting for risk, I would still be making a better return than I could have made back in Europe. So, why wouldn’t I bring money into India for short term?

And this is where Indian businesses are stopping dead in their tracks. They are able to get money only at 10% and above. To generate any significant returns on capex (post tax), their IRR should be above 17 %. The debt by banks comes at either this high cost, or doesn’t come at all. Fearing any NPAs and subsequent investigations by central agencies, Public sector bankers have stopped taking calls on lending to MSMEs. Private Sector bankers are, on the other hand, very selective about the exposure they are willing to take. This means source of funds drying up for a small businessman. Not every company is a Reliance which can borrow from the market at costs lower than the government risk free rate.

With some of my clients, I have been discussing the same. I have always felt that 450 billions in FX reserves is basically India subsidising businesses in USA or Europe. As a start, let’s keep 10% of these reserves as collateral and borrow money at next to 0 cost from Europe. Put this money in infrastructure and industry, and within a year or two, there would be a significant uptick in overall economic activity. However, politicians believe that this is bad optics and their idea of nationalism would be at odds with this step. This is where we falter again. Conflating nationalism and economics has never worked for any body.

With all these automation technologies coming in, our so called demographic dividend can turn into demographic disaster if we are saddled with huge unemployment numbers, as there might be less and less job creation by the large corporates. MSMEs are the biggest employment generators and they should be encouraged to do so by allowing them to access cheap credit.

Banks on the other hand, both private and public have been offering cheap credit for personal loans and home loans and other consumption loans. No doubt,it’s a profitable deal and the number of such loans has kept on increasing but in the end, it’s the same universe that almost every bank is lending to. How much more leverage can a salaried individual or a small time self employed person sustain? At one point of time, in the near future, this cycle is going to stop.

Not trying to sound like a doomsayer, but hey, we need to look into the future ahead and not drive by looking at the rear view mirror. What has worked in the past, will not work anymore.

What makes you tick?

At work or at play, there is always a sense of money value of time. Could I be doing something which would have been a better way of spending my time? After all, time is the most costliest of all resources. Time, once gone, never returns.

So I keep on thinking what would be a way of maximizing the return on my time. At work, this would be what makes me tick and differentiates me. I have been in sales for about a decade now and I find that talking to clients about their business makes me tick. I would want to tailor my conversation according to each client, rather than regurgitating the same spiel for every one of them. i would rather spend time talking to them rather than pushing my products down their throat.

The only thing you need to focus on, at work or at any other place, is how are you spending your time? Is it being spent doing something that you like? If the answer is no, change it.

Margin(al) Utility

I was reading this blog post by Scott Galloway and was literally blown away by the simplicity of the argument. It also got me thinking, why is this not clear to most of the businesses? Margins are your bread and butter. You can buy market dominance and growth keeping your margins low, or you can, as the post suggests, have high margins and consequently low scalability and growth. India with its focus on the services sector tried to move to the high margin quadrant and we are now realising that the growth has considerably slowed down in that. IT bellwethers have seen continuous margin erosion and low scalability into the product business.  

Indian businesses have been in a unique position all this while. While in the pre-liberalisation era, you had no/low competition or cartelisation. Business houses flourished. After 1991, with the increased competition, things looked a bit different initially. Obsolete and uncompetitive business houses vanished. You don’t hear much of the Mafatlals, the Khataus and so on. MNCs brought with them both great processes and great technology.

Recently, I believe the Indian businesses are going back the same path. Policies are being changed at the behest of Indian business houses, ex post facto. A business house can’t compete with the deep pockets of a MNC, Hey Presto, the minister declares that they will look into the deep discounting model of the MNC. That’s crony capitalism, if you ask me. Our businesses and our consumers are smart enough to understand what’s good for them. Let them compete fairly and let the consumers reap the benefit out of it.

Not that all businesses are like this. There are certain companies which realised that there are certain sectors with huge margins for the early incumbent and they did that. Let me share an example. Toiletries in the 5-star hotels in India were imported at one point of time. While this meant precious foreign exchange leaving India’s shores, it also meant that a company can take advantage of the non-existent competition in this field. Enter Kimirica Hunter International. This company is now the largest supplier to almost all 5-star hotel chains in India and has started exporting them too. You can read more about them here. They are currently in the high margin, high growth quadrant.

The low margin high growth quadrant in India is big enough and our consumption figures, even if slowing currently, are going to grow in the next couple of years. We would have a pie that’s increasing in size and smart players would find ways to increase their share without crying mommy to the government. The only sector I am a little worried about is telecom. With ARPUs falling for almost all remaining players (4 now out of 16 in 2012-13) and consumer addition figures reaching a plateau, the sector would find it difficult to return back to its heydays of yore, unless the GoI decides to change the spectrum sales policy for 5G. I am keeping my fingers crossed.

To sum it up, a business with its eyes firmly on the margin metric will be the survivor in the long run. If you focus much on growth, make sure you are able to keep the wheels turning ala AWS for Amazon.

Great Expectations

I just finished off the web series “The Boys”. Man, the pace of the first few episodes and the premise had me hooked. Not that the season finale was a let-down, but the shock at the end of it all still rankles me after all this time.

Why am I writing about it? I somehow found myself a little rankled when I thought of how India has been kind of like this! We had great expectations from the liberalisation era, only to relapse into a bit of socialism in the mid-2010s. What the market and most of corporate India cheered around 6 years has still not been able to bring second generation of liberalisation reforms, despite 2 back to back strong mandates not seen in 3 decades. I agree that this is no crisis moment, but hey, do we always need a crisis to respond with big bang reforms.

We have had coalition and minority governments delivering reforms in the economic space and we have a muddled economic policy guiding our response to international economic pressures. Ponder on the fact that Bangladesh imports yarn and fabric from India, yet beats India in textile exports. This is partly due to the BD government subsidising a bit of the production cost but is also due to the fact that exports from BD are cheaper due to a devalued currency.

That brings me to my actual point. Nationalism has been the sole guiding factor for our economic policies for the past 6 years. This sells good for the elections but isn’t that great for the economy. The interest rate differential between USD and INR point to at least a 4% devaluation every year in INR levels just to remain at the same competitive levels for exports to grow. The RBI artificially tries to maintain the levels so as the imports don’t get too costly and then once every 5 years or so, they let it devalue at once to let off built up steam (check out USDINR levels in 2008, 2013 and 2018). Now it feels good to know that India has close to 400 billions of USD reserves (treasury bonds, actual currency, account balances) but hey, we are actually subsidising the US consumer when we buy those treasury bonds. Imagine, India indirectly aiding the US economy.

Let’s take nationalism out of our economic thinking. I am not saying that we take a drastic step. Just devaluing our currency by around 8 to 10 % would bring back the competitive levels for our exports. Let’s focus on engineering goods, value added exports and specialty chemicals and not on gems and jewelry, where it is mostly circular routing of money. Let’s use our currency reserves for the actual benefit of Indians and not as a boasting point. Let’s unleash the animal spirits we are so capable of. We would again be the fastest growing economy of the world very soon.

Who wants to know?

I have recently been talking to a lot of businessmen (part of my job being a banker). While most of them are bit reserved about adding new capacities, almost all are unanimous in saying that there is a slowdown in the market. I partly agree with them but then I ask them a question which I think makes them introspect a little bit! Almost every businessman (again anecdotal evidence and not researched evidence) had, in the good old days, invested heavily in real estate. The common thinking had always been, real estate will always go up, isn’t it?

With the IL&FS fiasco and DHFL debacle, the real estate market doesn’t have enough liquidity to sustain itself in the short term. Coupled with a drop in demand due to unfavourable trade conditions, businessmen are finding it hard to service both business debt and/or property EMI (Most of the property purchased is in the name of directors/partners, and not in the name of the company). Now what this seems like is a slowdown, but what it is, is a miscalculation of risk.

Risk management is the cornerstone of any sustainable business. It’s very easy to be swayed when the going is good, but very difficult to change course when the tide turns. I have telling all my clients, especially exporters to keep hedging their receivables. But hey, if the rupee has touched 72 levels, why wouldn’t it touch 74 or 75 levels, is what I am asked. For that I try to reason that, it is better to be sure of what my receivables situation looks like now, rather than punting on the market and then not even being able to realise my pricing for the order. But Greed, for the lack of a better word, is always the fact of life.

So, to sum it up, who wants to know, if this is a slowdown or a recession? Depends on who are you talking to. If you are talking to a prudent businessman, it’s a slowdown and would probably be over once the trade war is resolved. If you are talking to anyone else, it’s a recession which is going to continue way into the next FY.

All I can say is, I am watching from the side-lines. It’s going to be tough but I am quite sure that we would be able to emerge out of this situation relatively better off, if we embrace risk management in the right spirit.

P.S – I wrote most of this post before the GDP figures came in at 5% growth QoQ. So, this would seem a little jarring to anyone. I would still stand by my point that this is a good time to focus on the basics and work on risk management as a good business practice.


Our life is defined by the choices. As somebody has rightly said and I paraphrase, there are no wrong choices, only experiences. What could be a bad choice in hindsight might be the only option available at that point of time.

So, I have completed about 6 months in Bombay. This is my second inning in this city. Being in this city has been my choice. Not that it was the only option available to me but the fact that it was Bombay made me feel that the choice I am making is correct. Most of my friends felt that I am giving up the easy life of Ahmedabad and returning to Bombay would be bad for me. Hey, I am happy. I have met some great people here and have reconnected with most of my old friends in the city.

There are other things that I have decided to change after spending this half year in the city. Bombay has always provided enough opportunity and avenues for personal growth; however, my weekends were previously spent in boozing and other activities. So that’s my half year resolution of sorts. Of the 25 odd weekends left, I plan to utilise more than half of them to actually add value to me and my family. I plan to keep updating this blog more on the personal and professional journey and that would be the underlying theme of this blog. For my weird ideas, my Tumblr blog would be the ideal ground.

Here’s to new beginnings.