My website

I always wanted to create a website, but could never create one for one reason or the other. I finally created a website. Since I am able to use that as a blog as well, I am not going to post any thing here henceforth.

Please visit the website and send me feedback on how to make it more useful to the students, alumni and in general anyone interested in learning Finance and Excel.

My First week New York

Today I completed my first week at New York city as part of My Fulbright assignment. Since technically my assignment at Stern starts from 1 September, I got about 5 days time to explore the city. I would like to narrate a few interesting facts.

I went to open a bank account at a famous bank. The receptionist told me "Are you sure... ok why not..."and dhen led me to another guy. That guy opened a new packet of visiting cards and told me "...ever since I joined here, I never got a chance to give this to any one..." He said bring all the documents in the next 30 minutes. I am waiting for you. I was surprised. I did a google check and found that a rating agency downgraded the bonds issued by the bank to default category a few days back. Which bank is safe any way now? But I decided to search for another bank.

My real estate agent told me that always give tips to taxi drivers, waiters, etc. I was desperately looking for an Indian restaurant in NY and finally found that there are many closer to Stern. In fact NY Dosa is there just opposite the library. I had a buffet in one of the restaurant. The bill was 10.85$. I paid $11; forgot to pay the tips. The waiter probably thought I am giving 15 cents as tips. He shouted at me "Clear the change please". I felt bad. Took the 15 cents change back and came out. In another restaurant, the waiter was more polite. He told me the bill does not include tips. In fact, I heard that many restaurants add the tips to the bill on their own. Indian waiters are better :)

The sub-way system is thoroughly confusing (in the beginning) and it will take somebody a month to understand which train goes where. But it is an excellent system and is similar to the Metro system of Singapore.

And finally, the University and the school. They use highly sophisticated IT infrastruture. The library access, email access, etc is all controlled from the same website. It is just amazing. No IIM will come anywhere close to what they use here.

Looking forward to exciting time ahead!

Charity and Economy

According to Giving USA Foundation, charitable contributions have dropped by 5.7% in inflation adjusted terms in the last year. This apparently is the sharpest decline in the last 50 years. (See Time, June 22, 2009 issue, page 9).

This shows that most people (if not all) make charitable donations, not because they believe it is good (may be that is one of the reasons, but certainly not the primary one), but because they have lots of money. The real character is known when one makes charitable contributions in times of financial difficulty, not otherwise.

Do Politicians Matter

The other day, while I was chatting with an old student of mine, he asked me whether we should factor general elections while doing valuation. Every 5 years we go to election. Why do not we factor that while projecting the free cash flows.

My immediate reaction was that since this is something we cannot predict, we should assume that free cash folows do not depend on general elections, that is they are politics-neutral. I am strongly of the opinion that it really does not matter who is there in power. If you are a businessman, you bribe whoever is in power to get your work done. If you are a normal citizen, you bribe the government officers and police for getting the work done (paying to the police when he comes for verification for passport, etc. You name it and we have it :)

So why should we care who comes to power. But should we? I just wanted to see how Indian economy was performing under different regimes here. I started from the 7th Lok Sabha election and tried to look at the performance of our stock market and the GDP growth rates during this time period. I thought there would be no difference.

I have not seen anybody doing this type of research before. So I used a methodology similar to event study here. To explain: Let's assume that the stock market has increased by about 214% when the current UPA government was in power. How much of this is due to UPA? Stock markets worldover were increasing at this time. So I also found the US market's stock performance during the same time. I attributed the difference between the Indian stock market growth rate and the US stock market growth rate during the last five years to the UPA government. Ditto for GDP growth rate.

Secondly, the non-congress governments lasted for less than five years in 3 out of 4 times they came to power. So I compared the performance on a year-wise data.

As far as the GDP growth rate (defined as the Indian GDP growth rate minus the US GDP growth rate during the same time period) is concerned, I found that the difference in performance is marginal (10.9% for Congress vis-a-vis 8.3% for Non-Congress parties). However, as far as the stock returns are concerned (defined the same way as for GDP) the difference in performance is spectacular (23.59% for Congress vis-a-vis a negative 1.2 % for the non-Congress). Either Congress is plain lucky or the stock market seems to like the policies of the party (which some way does not get reflceted that clearly in the GDP growth rate).

Yet to do a robust study of the results. These are just the preliminary results. The GDP story tells me that the free cash flows probably remain a bit high when Congress is in power. But the stock markets tell me a different story.

When a party goes to power, it is not that its policies stop having impact on the overall growth rate. If, for example, a different party comes to power now for the 15th Lok Sabha, then the policies made by UPA Government will still have impact on the GDP growth rate post April 2009. But over a long time period, that should get averaged out.

Recession Proof Businesses

Now I am used to reading news like "XYZ Corpn lays off 5000 employees; will sack another 4000". I was just wondering which industries are reasonably recession-proof and here is my incomplete list.

a) Temples. Well, I am not saying these are businesses. But as things become more uncertain, more people will visit temples. So expect more waiting time in Thirupathy, next time you go there.
b) Astrology. Precisely for the same reason, more people will go to astrologers, palmists and what not. Depending on the age, you can predict the nature of the problem. If he is not unemployed, it is about job; if he is employed, then it is about love; if he is employed and married, then it is about child; if he is old, then it is about health, and so on. I am incidentally pretty good in numerology. :)
c) Academics: As of now there seems to be no problem. But ever since the recession started, my annual income has almost come down by 40%.

Using Finance language, Temples and Astrology are zero-beta businesses. Academics seems to have a higher beta (particularly in management education).

You can add trivial examples like restaurants, entertainment, food processing, FMCG, etc to this.

What the Americans understand by Business

Last week I was in the U.S. for presenting a paper in a conference in Norfolk. While leaving the JFK airport, I had a brief encounter with a customs officer there. He asked me if I was on a Business trip.
I said no. I was on an official trip, but not a business trip.
Then he made me convince that it is a business trip. The sum and substance of what he said is this:
You are a professor and hence it is your business to do research. You are here to present some of your business findings (related to the business). So it is a business trip.

Now I understand what they mean when they say "It is none of your business" better.

My Fast Post after more than a year

For some reason, my earlier blog has been disabled. So I am now going to put all my postings here.