Haphazard Linkages

The catalyst that turns fantasies into realities came in the form of this SEBI order for OneLife Capital Advisors (covered here ).  SEBI (Indian market watchdog) barred this company, several others and the merchant bankers to these initial public issues from accessing the securities markets. SEBI accused them of diverting IPO proceeds, performing shoddy due diligence and aiding promoters to prop up prices post-listing. Unsurprisingly, in the beginning of the end scene, OCAP IN is down 15% as of this writing. A pummelling, rightly deserved. The end would be interesting.  HaLin rued their inability to initiate Shorts on such cases, in the previous post.   The Shorts are common whipping lads when markets and companies come under fire. The chorus against Shorts is inversely related to (1) market levels/stock prices, and (2) the acceleration of the fall from grace. Shorts are blamed for disrupting markets, for acting on misplaced rumours, for cornering poor and gentee...

One of the alluring things about investing is the prospect of rare sightings of anomalies. In a torrid market, typically, the universe of value Longs tends to expand relative to bull times. The opposite - an anomalous over-pricing in certain pockets - is rarer. One such example is OneLife Capital Advisors Ltd ( Bloomberg: OCAP IN; "OCAL" or "Company"), a recently listed Indian  company engaged in providing  financial intermediary services, an  aspiring equity broking franchise and portfolio management services company.  'Aspiring' is the operative word, as OCAL was incorporated in 2007 and commenced business in September 2009. As the Company admitted, there is little to look at in their limited operating history. Nevertheless, market participants enthusiastically bought into the Company's prospective story. Overall IPO was subscribed 1.53x, with retail participation at 2.5x allotted portion and Institutional interest at 1.02x.   ...

Of the many interesting events occupying market participants' attention in India in recent times, few have been more riveting than the rapid slide of the INR, which has depreciated > 20% against the US$, since the end of July 2011.  The pace of depreciation appears to have caught policy makers and market participants by surprise. Hedge funds focused on India, who did a reasonably good job of arresting capital erosion until July, saw their returns plunging into the red, thanks largely to the INR's free fall. An economy on the fringes of diverging negatively from historical growth rates and a political climate dominated by corruption issues and policy flip-flopping aren't doing much to assuage negative sentiment either.  If one traces India's macroeconomic developments over the past few years, the INR's fall-off-the-cliff show would be seen as a delayed reaction to realities. What is surprising is the lateness of the reaction, not the event itself. ...

US$1 million =  रु.5 Crore Country: India Home currency: INR This post focuses on Karuturi Global ("the Company"), the world's largest producer of cut roses and an aspiring agriculture company with a presence across India, Kenya and Ethiopia. Before getting acquainted with the Company, it is worthwhile to get introduced, briefly, to the business of rose production.  The Business: A thorny process to a rosy end The birth of a rose involves the following: Land and Equipment : The major fixed-cost components. The quantity of roses produced is a function of yield, which tends to vary depending on a slew of factors Planting Harvesting and Picking : It takes about a year for full production, from the time of planting. Picking is a critical activity that influences rose quality and prices. Trained personnel are a critical requirement here Packing and Transport : Once the roses are picked, off they go into a bucket of bacteria-enhanced water for preserva...

An abrupt market drop causes a rally in gloom-n-doom hypotheses. More than a few that landed in my inbox recently focused on the relationship between corporate profits and GDP. The core theme was this: corporate profits as a percentage of GDP exhibit a mean-reverting characteristic. Whenever they overshoot too far from the mean, they fall back; and this isn’t good for long-term equity returns. Current levels are close to historical highs, so equity bears invoke the above to build a bear case. Historical references cite the peaks hit in 1965/66 and 2006 as strong evidence for weak subsequent equity performance. History provides some insights. The following exhibit uses after-tax corporate profits from NIPA and uses the Dow Jones Industrial Average as a barometer of equity performance. The DJIA was chosen as a longish history of prices was readily available. For comparative purposes, a similar exhibit for the S&P 500 is appended later.    Only 2 out of th...