Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
Shall Small Investors Sell Thier Stocks Due to Changes in Tax & Accounting Policies?-VRK100-29032010

Shall Small Investors Sell Thier Stocks Due to Changes in Tax & Accounting Policies?-VRK100-29032010

Ratings: (0)|Views: 30 |Likes:
RAMA KRISHNA VADLAMUDI, BOMBAY has written a personal letter to a friend wondering whether small investors in India shall sell their stocks due to tectonic changes that are taking place in India wef April 1, 2011 with the introduction of IFRS, Direct Taxes Code and Goods and Services Tax. He wonders whether small investors have got the capacity to understand financial statement risks, markets risks, policy risks and others.
RAMA KRISHNA VADLAMUDI, BOMBAY has written a personal letter to a friend wondering whether small investors in India shall sell their stocks due to tectonic changes that are taking place in India wef April 1, 2011 with the introduction of IFRS, Direct Taxes Code and Goods and Services Tax. He wonders whether small investors have got the capacity to understand financial statement risks, markets risks, policy risks and others.

More info:

Published by: RamaKrishna Vadlamudi on Mar 29, 2010
Copyright:Attribution Non-commercial No-derivs

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

05/18/2010

pdf

text

original

 
 
Page 1 of 6 
Dear Friend,Many first-time investors often ask me one simple question: Isn’t stock marketinvestment gambling? Even though it’s not a difficult question to answer, Iparticularly find it very intriguing why the so-called small investors or small-timegamblers fail to see the big picture – that there are a variety of players in themarket right from speculators, brokers, serious investors, private equity, mutualfunds, hedge funds, housewives, jobbers and so on. The objectives of theseheterogeneous group of people are diverse – some hold stocks only for a fewseconds; some only intra-day; some for short-term to long-term; there are severalwho keep strategic stakes, like, insurance companies; and then lastly the promoters.Even, the time horizons vary widely. Volatility and wild price swings are an integralpart of the stock market.We require all types of arbitrageurs, speculators and investors in the market forprice discovery and liquidity so that investors can easily enter and exit the stocksdepending on their convenience, risk appetite and time horizon. Knowing well thesediversities at the market place will keep our money safe and sound provided we canabsorb all the shenanigans and vicissitudes in the market.Even though I’ve seen – very closely – not less than four bear markets and anotherthree to four bull markets, I often wonder why stock market cannot be dubbed as agambler’s den. Because, everyday we’re bombarded constantly with a lot of noiseabout stocks, volatile prices, economy and world markets. Prima facie, this kind ofnoise convinces people that stock market indeed is a paradise for gamblers. Ofcourse, I’ve weathered all these storms with lot of patience. My experience provesthat long-term investment pays off well – even though for a brief period of 2008 Iwas wondering whether long-term investment was indeed dead.All through the bear markets, I’ve come out with good profits. We lose tonnes ofmoney in a month or so notionally, but every time I recovered my money with a lagof eight to 12 months between 2002 and 2010. During 2008, my stock portfoliosuffered 50 per cent erosion. Even though the Sensex was at 17,600 after 27months, I’ve recouped all my losses and my present unrealized gains are much morethan what I was holding at the height of January 2008.As I have mentioned in my article titled IFRS-A GUIDEBOOK, the complexities instock market investments have gone up substantially in the last three to four yearsdue to a variety of reasons, like – increased globalization, surging financialstatement risks, higher volatility in financial markets worldwide, advent of newaccounting standards, role of sovereign wealth funds and hedge funds, massiveliquidity chasing high-return markets globally, risk of sovereign defaults, volatile
 
 
Page 2 of 6 
commodity prices, money from pension, insurance and mutual funds and largeinstitutions holding massive financial assets.
The following issues have heightened the complexities for serious investors:
 
Changing Business models due to tectonic shifts in technology and businessdynamics (Tata Tea was a commodity company – now it is an FMCG companywith strong brands acquiring brands like, Tetley)
 
Foreign exchange losses (even small companies, like, Himatsingka Seidesuffered heavy forex losses – I was one of the unfortunate sufferers in thestock) due to complex derivatives sold by greedy bankers to speculativemanagers
 
Goodwill impairment due to erosion in investments globally (particularly DRL,Suzlon, etc)
 
Losses from selling FCCBs with exorbitant conversion prices (the likes ofAurobindo Pharma, Subex, Bilcare, etc)
 
Global financial meltdown (remember the fate of K.Raghavendra Rao, theoriginal promoter of Orchid Chemicals & Pharma, whose stock was severelyhammered after the collapse of Bear Stearns in early 2008?)
 
Government playing into the hands of powerful corporate lobbies – Eg,Dilution of accounting standards (The effective date of AS-11 pertaining toforex losses/gains was postponed at the last second from March 31, 2009 toMarch 31, 2011)
 
Failure of the Government to contain the amount of interest payments andfailure to bring any expenditure reforms: The talk of Government containingfiscal deficit to 5.5 per cent in 2010-11 is mere hogwash. Please considerthis fact: The oil subsidy burden for 2009-10 is around Rs 40,000 crore.And our erudite FM has not allocated a single paise for oil subsidy for 2010-11 in the Budget 2010-11. Moreover, the entire investor community,especially FIIs, believes that these fiscal deficit targets are achievable.Does it mean that GOI will increase oil prices if crude oil goes beyond USD90/barrel? There is little chance of such pass through of oil prices. EvenS&P thinks these fiscal/revenue deficit targets are achievable and theyhave upgraded India’s rating recently. Everybody knows GOI has made a bigmess as far as public finances are concerned. But, the stock market islooking askance at the figures and giving the benefit of doubt to the FM.Why?
 
Government’s failure to open up several sectors to competition – like, retail,defence and nuclear energy
 
Heavy increase in Government borrowing in the last three years despiterecord tax collections, especially, direct taxes
 
 
Page 3 of 6 
 
A large part of government borrowing is going towards interest paymentsonly!
 
The rebellion from the downtrodden and neglected people in the ‘redcorridor’ is alarming even though the Government has started OperationGreen Hunt
 
No labour reforms or exit policy – in a country with a population of 1.1 billion
 
No serious expenditure reforms though some steps have been taken – oilprice rise and freeing non-urea prices
 
Lack of proper concern for environment, wildlife and natural habitats –Nobody really knows how many tigers roam freely in our forests!
 
No substantial progress in infrastructure development, except, roads
 
A large population still suffers from malnutrition, lack of sanitation and ruralroads, poor housing, etc
 
Even good corporate houses, like, the Tatas, acquiring companies, like Corusand JLR at the height of the business cycles. One can give a benefit ofdoubt to Tata Steel acquiring Corus; but, Tata Motors bailing out JLR is ablunder. Yes, they bailed out the promoters of JLR by acquiring it ignoringthe financial meltdown.I don’t want to sound pessimistic or cynical by raising these issues. I agree thatIndia offers great opportunities for investment. The domestic consumptioncontinues to be strong even though agriculture suffered during the last Kharifseason. Our IT companies are still doing well. We can derive benefits from largeshare of youngsters in the population. RBI and the Government are not panickingeven though the rupee has appreciated strongly and breached 45 today. So far,they have refrained from imposing any tax, on the likes of Tobin Tax, as is beingadvocated by experts, like, YV Reddy on the massive capital flows coming in theform of portfolio investment into India.One particularly heartening thing in India is: Entrepreneurship is not seen in acynical way now. The spirit of entrepreneurship has gone up massively after theeconomic reforms of 1991. Even, Nehru used to be skeptical of industrialists inthose days and stymied the likes of Tatas and Birlas. Have you observed thephenomenal success of Vikrm Akula, who started microfinance as some sort ofcharity in the late 1990s? He turned his SKS Microfinance into an NBFC in 2005and now it is a fully commercial and professional firm and private equity guys areafter him to lend money. His company has been lending to “people at the bottom ofpyramid” at rates of 28-30 per cent, which are considered usurious by severalsocialistic minded people in India. And the loan recovery rate is 99.5 per cent! EvenHDFC can’t boast of such a good recovery rate. No wonder SKS Microfinance ispressurized by global investors to come out with an IPO.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->