How we did assignments at IIML :-)

Chat with Sai Harish on 24th March 2009

Being posted unedited with his consent...

8:35 PM me: anna, how to find WACC

6 minutes

8:42 PM Sai: narendra..

  edaina sare..

17 minutes

9:00 PM me: edaina sare ante?

  arrive at a figure somehow?

32 minutes

9:33 PM me: there?

16 minutes

9:49 PM Sai: edaina sare ante

9:50 PM e doubt aina contact narendra

 me: he is not online...

  i figured out something

  listen

  what r u doing in the CAPM analysis?

9:51 PM Sai: I will try to find out Beta for India cements

  and compare it with betas of those competing companies

 me: but beta values are available na

  how will u find?

 Sai: where?

 me: capitaline

 Sai: capitaline lo Beta undaa

 me: yes

 Sai: Jayant said, it has to be calculated

9:52 PM me: it is there...

 Sai: by fittin regression line over the last 24 months

  oh cool..

  capitaline lo india cements ledu kada

 me: don't know... i saw it for ACC

9:53 PM Sai: is it..

 me: may be u can find out using regression or whatever and then compare with values from capitaline

 Sai: ok

 me: 0.6575

  that's for ACC

 Sai: I will also consult jayant..

  :)

  full fast kada

 me: hehe

9:54 PM but WACC includes CAPM thing

  i am doing WACC...

  ok do one thing, i will use the beta that comes from your analysis

  is that fine?

 Sai: okay

9:55 PM till then... if you are using excel

  put some dummy values

 me: yes

 Sai: and proceed..

  or else your time will be lost

 me: i am using some values for corporate tax rate and risk-free rate

9:56 PM Sai: okay..

  is that not available in income tax website?

  risk free rate ante govt. bonds coupon value ee kada

 me: wow, good idea

  will see

  what's the URL?

 Sai: :(

5 minutes

10:02 PM me: :)

  will see

 Sai: okay

30 minutes

10:33 PM Sai: Shree cements is out of our list

  right

  ?

 me: no confirmation from narendra

  let's consider it out, we have too many companies

10:34 PM am using data from capitaline, as far as possible

 Sai: okay

14 minutes

10:48 PM Sai: where is beta given in capitaline

  under which section?

10:49 PM me: Share Price

  there is a link called beta Analysis

 Sai: yes got it

  thank you

 me: can i assume this is unlevered?

  welcome

10:50 PM and lever it first and then apply barra equation and do the adjustment?

10:51 PM Sai: bouncer!

  NSE ke chestunnam kada

  manam

 me: NSE?

10:52 PM never thought that... ACC beta value is given for BSE

 Sai: I mean Beta and stuff related to NSE nifty

  there is option to select NSE

  I will take thosee and send them across

  all betas..

10:54 PM me: ok fine...

8 minutes

11:02 PM me: Ambuja Cements India Ltd
Ambuja Cements Ltd

  there are two

  i am taking the latter

11:03 PM Sai: okay

 me: okati cheppu raa

 Sai: gujarat ambuja kaada

 me: expected market return elaa telustundi?

 Sai: !!

  so many bouncers in a single day!!

  manaki FM lo intha undaa

11:04 PM me: gujrat ambuja, i guess is the same... Ambuja Cements is the official name right now... let's use this only

 Sai: okay

 me: yess man, this WACC when i first saw i got totally blank... it seems too simple to be correct...

11:05 PM plus am not taking into account whether there r preferred shareholders... already too much haziness due to cost of equity, cost of debt, equity beta, debt beta bla bla bla... so assuming all equity as one...

  is that ok?

11:06 PM Sai: cheseyyi..

  where from did you get cost of debt?

11:07 PM me: there is another way... find a beta-asset, which is a weighted average of debt beta and equity beta

  this beta-assed can be directly used like in the SML equation to find WACC...

  in this approach debt-beta has to be assumed

11:08 PM bhaskar said i can assume it 0.3

  0.2, sorry

 Sai: oho

6 minutes

11:15 PM me: bhaskar disconnected :))

  ate his head a lot

 Sai: :D

  ha ha haa!!!!

 me: another discovery

  7.5%

  that is the avg market premium in india

11:16 PM Sai: oh cooooll..

  source of data?

 me: bhaskar

 Sai: ante how to mention in the report?

 me: so the CAPM eqn becomes Rf + beta * 7.5%

 Sai: good..

  chala thanks

  inka rechipotaa

 me: :)))

  wow, mere sher

  naa puli

  :P

11:17 PM Sai: do you maintain notes in Mat Man?

  inka better.. puli raja analedu

11:18 PM me: no yaar, i wrote 1-2 classes, then got fed up

11:19 PM how come debashis asking the same question?

  no. of quity shares

 Sai: everybody in class is planning to bank on your notes

 me: the data was there somewhere

 Sai: ee time lo heart breaking news cheppav kada

 me: :))

  the guy is giving slides na

11:20 PM Sai: ya...

 me: i wrote 3 lectures

  something

11:21 PM copied slides ;-)

 Sai: :)

 me: am trying to find where number of shares r given

  it was there somewhere

  go to shareholding pattern

  under equity

  that has all the numbers

11:22 PM Sai: oh okay...

  will it be of use to me?

  :D :D

 me: now don't copy to debashis

  like u copied his message to me

  :))

  and he copied it to me too

  same wordings

 Sai: coincidence!!

 me: i sent him the reply

  wow

11:23 PM Sai: debashis is not in my list

 me: amazing

  !

13 minutes

11:36 PM Sai: sent you an email

11:37 PM check if that report is of any use for your analysis

 me: hey, i can't open docx

  can u resend as doc?

 Sai: okay

11:39 PM re sent

10 minutes

11:49 PM me: thanks

  am using beta assuming it is levered

  when we have the values from your part, we will put the levered values into ine

  mine

11:50 PM Sai: okay

  is the value from capitaline levered Beta

  ?

 me: i feel so

 Sai: I will find unlevered Beta..

11:51 PM from it then..

 me: it shud show the actual correlation right

 Sai: yes

  any idea of corporate tax?

 me: bhaskar said 38.5%

 Sai: oh..

11 minutes

12:03 AM me: yaar am not getting this treasury rate anywhere

12:04 AM http://www.saraswatbank.com/view_section.jsp?lang=0&id=0,63,64

  this saraswat bank link says it is 9.23 %

  high value

  am taking it as 9%

  low value is 8.67%

12:05 AM Sai: http://www.dailymarkets.com/stocks/2008/11/19/india-stock-market-equity-risk-premium/

  this guy says

   I have used a 7.5% risk free rate going

12:06 AM me: oh

  so i will also use the same

12:07 AM Sai: kpmg tax rate survey 2008

  http://www.kpmg.com/SiteCollectionDocuments/Corporate-and-Indirect-Tax-Rate-Survey-2008v2.pdf

12:08 AM India (2008 rate = 33.99%/

 me: ohhh

  what about our CA

 Sai: emo

  was looking around for sources..

  that can be mentioned in references..

  came across this

12:09 AM me: ok

  using 33.99 then

 Sai: okay

 me: preserve the link

 Sai: sure

12:11 AM me: beta values i have to use capitaline ones only na?

12:13 AM Sai: yaa..

  i am using them ..

12:14 AM me: sent my excel

  take a look once, i will write some crap on it

 Sai: cool!

12:19 AM I was about to do an exactly similar analysis

  You globe about WACC

  I will globe about asset betas

  and CAPM model

  Thanks for the sheet..!!!

  naa work taggindi

12:20 AM one small doubt

  did Vinay kumar tell that debt Beta is zero in the class?

  as it is not risky

  ?

12:21 AM me: i don't remember

 Sai: okay

  debt beta = 0.2 ki any logic?

 me: brealy mayers mein it has been taken 0.1 and 0.2 in 2 places

 Sai: oho

 me: so this is realistic value

 Sai: coll

  okay

12:22 AM keep up the good work!!

12:23 AM me: hahaa, sure...

8 minutes

12:31 AM Sai: arey

  how did you find out asset beta

12:32 AM in what way is asset beta different from unlevered beta?

12:36 AM http://www.iese.edu/research/pdfs/DI-0488-E.pdf

12:37 AM u there?

6 minutes

12:43 AM me: yes

 Sai: ee pdf lo...

12:44 AM oka diff formula

12:45 AM undi

  I am getting some thing else..

 me: asset beta is different... if u use asset beta wala formula, then u don't need to use the weighted avg of returns wala fomula

12:46 AM Sai: what is asset beta formula

 me: weighted avg of debt and equity beta

 Sai: oho..

  anthenaa..

 me: check the doc i sent

12:47 AM Sai: I was under the assumption that asset beta = unlevered beta

12:48 AM me: no no

  unlevered is different

12:50 AM Sai: 7 page..

  he gave the same formula

12:51 AM me: the doc u sent spinned my head

  i closed it

  :))

 Sai: 7 page in your doc

 me: hmm, it looks fine to me...

12:52 AM Sai: where is your Beta unlevered

  formula in the same doc

12:53 AM me: did not find that

  i assumed beta given is the levered beta

 Sai: okay

  unlevered nuvvu calculate cheyyaledaa

12:54 AM me: cheyle

 Sai: okay

 me: what shud i do?

  go ahead with it?

 Sai: yes yes..

12:55 AM me: :)

12:58 AM Sai: I got some thing else with that formula

12:59 AM me: hmm

 Sai: Asset β
0.55244898
0.619724771
0.413505747
0.771509434

1:00 AM sorry

  man needi correct

  pukka

  now I am eating your brain

 me: how?

  :))

 Sai: :D

32 minutes

1:32 AM me: now what to comment

1:34 AM Sai: globe it

  based on text book theory

1:35 AM I don't think we need to make a huge report

 me: ok, will make it 2 pages... aur nahi ho raha

 Sai: bas

Americans violating "human rights" in Afghanistan!

I don't understand how peeing on a corpse is a human rights violation while killing a person is not. I am sure that the right to live is a far more primary human right than the right not to be peed on when you are dead. So if the Americans can take away innocent lives, what's so more wrong with peeing on dead people, that Hillary Clinton had to immediately get apologetic?

In fact, the whole episode now seems like a comedy of errors. Firstly, it's ridiculous to pee on a dead body, and then also have someone make a video of you doing that. Forget the dead person - who is not even alive to realize he has some right that's violated, what's wrong with those alive and laughing with their Johnsons out? Have they got no shame? Perhaps they lose it in the Army, with all the ragging they undergo in trainings. Or, let's join the party and put a hackneyed blame on the American Culture!

Secondly, the rest of the world got an excuse to point fingers on the Americans, blaming them of human rights violations. Human rights of dead people? I strongly believe that war is the most stupid thing humans do. Still, if it seems justified to you, I think you cannot talk about human rights violation of people directly involved in a war, coz although a war may have a larger end, the means is always killing enemy soldiers. In fact, as I thought about it now, I find it extremely absurd that we humans maintain large batallions of people exclusively meant for killing and getting killed in a war, such that their killing and they killing such people on enemy's side is totally acceptable to both parties, yet any one of them even causing the slightest scratch on any person other than these bakras will be said to have caused a human rights violation.

Anyway, the world and its ways are terribly screwed. Go ahead and watch this video... the Lady is very cute. She really looks very concerned and worried. But does a very good job of giving the complete picture.

God save America.

Keep it Simple Silly!

These days, Traffic Police seems like the most over-staffed organization in Pune. At each signal I see 4-5 policemen basking in the sun, waiting for someone to break signal, or to spot bikes not from Maharashtra. I play chor-police with them every day, trying to protect my AP bike from their ruthless eyes and I am fed up. I wish we had simple, standard and sensible rules and procedure for allowing vehicles bought in one State to be driven in another. The current process is too complicated, lengthy and unnecessary. I don't want to get into the details of it as I am too sleepy to describe it here right now.

My point is only this - make rules simple, so that people can comply. Not so complicated, illogical, ridiculous and impractical that the police – who have to ensure that rules are followed, and people – who have to follow the rules, both find workarounds and together work out arrangements that are totally outside rule-books, yet perfectly convenient and mutually agreeable, and basically harmless. It’s like both police and public wag their tongues at the rule-makers, who still don’t get it, or probably don’t care, coz they themselves have many such convenient arrangements, at much bigger scales.

god - a terrible mystery

Saw an interview of Imran Khan on Times Now today. It was nice to see such positive views about Terrorism, Indo-Pak relations and Pakistan in general. I am not very well-versed with Pakistani politics and politicians, but Imran Khan today had a style that exuded tremendous confidence. Unlike most politicians in India, he was direct, logical and clear in all his responses. And from what I hear in news about the crowds he is pulling to his rallies in Pakistan, he may very well be the next Prime Minister of Pakistan.

I have always been an untiring advocate of friendly relations between India and Pakistan. I believe Pakistanis are no different from us, and partition was a terrible thing that happened. I recently read in the book Freedom at Midnight, that if the British had known that Jinnah was suffering from Tuberculosis at the time of our Independence and that he wasn't going to survive for long, they would rather have postponed handing over the reins to us, and avoided the bloody split.

A recent quote posted by a friend on facebook said - "A religious war is like children fighting over who has the strongest imaginary friend." Although it perfectly captures the ridiculousness of people fighting over religion, add to it the fact that religion is hereditary and the imaginary friend is the silly imagination of one powerful person - possibly a psycho lunatic, and you find that humans don't look capable of reason and rationale any more. One may argue that the concept of god (with a deliberate small 'g') has to be a choice of belief, and no logic can be applied to it. But I find this a very shallow and incomplete argument. One, it is practically not being chosen in the real sense. And two, for what one does not and arguably cannot know, one can consciously understand that inability, and then take a stand in that light, accepting ignorance, if one were to behave sensibly. And three, with everyone having accepted ignorance, there can't be mutual fight over respective assumptions. But the way we work, is that we have mistaken the assumptions for facts and we don't have the element of ignorance built into the belief systems at all. The result - we are obsessed with our own concepts of god without any basis and find it impossible to see other such concepts thriving, although all of them are imagined for convenience by different parties.

I am gradually inclined to forming a view that humans are made this way, and there is not much of a hope for change. Although it seems like mindsets are changing and a section of people are becoming less and less god-minded, there are sections which are moving to other extremes too. And we keep having religious massacres every now and then. Which tells me that god screws up this world in ways other than natural. But then, why separate man from nature?

I hope we can bring some sense into this whole concept of god and then have the concept of religion dealt with separately. They get mixed inevitably coz we always wanted the fear of god to keep us in the right track and not harm other humans, i.e., to guide our actions and keep them right from social standpoint. When humans across the world, with different beliefs, were not connected much, this system worked reasonably well. But now, with peoples coming in contact more easily and in ways unimaginable before, we no more have closed societies where every person adopts the same concept of god and religion. Although mingling is happening, this globalized world is also more prone to clashes, religious assertiveness and religious power struggles. And these are already happening.

I don't see a possibility of change in the near future. The only way this can be solved is if we discover everything, including god, and end the whole mystery. But we know so little of all there is, and we are such a small part of all that is, and are not even sure that what we come to know is what is and is not what is shown to us by someone who actually is, and whether that which actually is, wants us to know what is, and therefore whether we are even capable of knowing what is. It's a terrible mystery, which will never be solved. So, we'll go on fighting over it until our extinction.

Competing Indian Cultures...

India is a land of rich cultural diversity, with some culture always having a higher appeal than the rest in each cultural element, and therefore dominating in that area. It's most visible in popular music, cuisine and clothing of the times. Over the last couple of decades, Punjabi forms have clearly dominated, at least in these three areas; Punjabi has emerged as a clear winner. The western culture has only been able to scratch our surface. I guess it's a healthy process of cultural diffusion and development of a more culturally rich India. Although India has for a millennium been a land of diverse cultures, it never saw movement, mixing and marriage of people of the kind we see now.

Nature Screws

We humans are physically so unequal, that things like the Olympics or World Cups, where all kinds of humans compete with each other in any single game, do not seem to make much sense. Europeans and Americans are so tall and strong, that in most sports, Asians cannot compete with them at all, i.e., have very few who are capable of competing. No wonder that in games like basket ball, football, swimming and athletics, we hardly have any presence. Yet we never respectfully recognize our natural weakness and stop blaming other things for our failure. The same applies to contests of appearance, where some sections of the world are disadvantaged. And in arranged marriage, where bald men and black women have tough time.

Of course with time every section of people would focus on its respective area of comparative advantage, and not bother about the area it's not so capable of. But what really sucks at a micro level (not at macro, coz macro is a zone of emotional neutrality), is not being able to compete in every area one wants to, just coz nature has screwed him/her in some quality and plentily gifted it to people in another gang.

I am convinced that this problem cannot be solved by positive discrimination. Then how can it be solved? Is it really a problem?

More on Corruption...

While expressing his views on my recent post on corruption, my friend Pranav brought up the topic of 'inequality' and many interesting issues related to it. The following were the main points he made:

1. The root cause of corruption is economic inequality - Countries like Sweden which have lower levels of economic inequality seem to be more prosperous and less corrupt. However, I was not totally clear on the directions of causality, if any, between inequality, corruption and prosperity here. One can have views, but I think we need a more detailed study to come to a conclusion. Apparently, it seems economic equality among the masses can be managed to a good extent by smart policy; and at the same time, if economic prosperity of the country as a whole is managed through aggressive economic activity (the tendency for which might lie in social attitudes), the propensity for corrupt actions can be minimized to a great extent.
2. Economic inequality comes naturally and is unavoidable, yet manageable to a certain extent - This point was made independent of the last set of points, and was substantiated by an excellent thought experiment by some great guy, whose name Pranav mentioned by I don't remember now. The thought experiment was to have a world with a group of people, equal in the way humans are (with our unique and different personalities and abilities), and then give them all an equal amount of money (or I would say some equivalent of money in such a world at a kick-start stage). The result of that experiment, according to the thinker of the thought experiment, is that with time, the world will work in such a way that the equality of the distribution of wealth will vanish and eventually a small minority shall hold most of the wealth. Pranav fit in the 80-20 principle there, but I think we see a far higher concentration of wealth in very few hands in the real world. As I see it, wealth is an indicator of a sum of all abilities a person has, through which a person stakes his/her claim for a share of the resources of this world. This is literally a fight for what is there. And since we humans are not at all equal, it is not possible to achieve economic equality either. That is, as long as we stake a claim on the resources of the planet. If we all give it up, and become saints, then perhaps we'll be equal. As long as there is competition, there can't be economic equality. But lack of competition is probably not good for human progress. And so is equality.
3. Tendency towards wrongdoing is directly related to nature and deep rootedness of social value systems - If the social values we imbibe as we grow up are so strongly against doing things that are conventionally wrong, that they can induce a deep sense of guilt even upon slightest slip in behavior, the chance of an average citizen indulging in such activity is highly remote and unlikely. Pranav elaborated this point with three kinds of wrong actions as per the norms of any society in this world - taking bribes, cheating on spouse and murder. I agree with Pranav, and we can clearly see, that this is the intent with which most of our social and religious institutions, stories (mainly mythological), relationships, etc., are designed and developed. And we, as common people, adhere to most of all that just coz we want a safe and comfortable life, and no threats on us because of anybody else, and in return we assure the same to others from our side. But at the same time, on second thoughts, I feel that this adherence is because of a deep-rooted fear - of death, painful life, etc. If somehow this vulnerability goes away for a person, or something can shield him/her from all human threats to life, will he give a damn about the value systems of society? Not to a very great extent, I feel. And that's why they say 'Power Corrupts'.