Winsome Diamonds: Another 7,000 Crore Default

No Comments » Written on May 21st, 2013 by
Categories: Defaults

These figures astound me. Winsome Diamonds, a jewellery exporter, has defauted on loans to buy gold and the figures run up to a mammoth 7,000 crore. Says Indian Express:

A team of bankers is visiting Dubai to find out the reasons for loan repayment default by Mumbai-based Winsome Diamonds and Jewellery after the company claimed that it could not clear dues as its Gulf customers failed to pay instalments. "A team of bankers is visiting Dubai to find out the actual position. The exposure of the banks is around Rs 7,000 crore," Oriental Bank of Commerce Chairman and Managing Director S L Bansal said.

Yesterday, Crisil downgraded the rating of the company to 'D' and placed it under watch list in view of continuous default of the company's overseas customers and consequent development of Letters of Credit (LCs).

Crisil’s note states that the company’s been crippled since March, and it has had some Letters of Credit invoked. (typically an exporter borrows from a foreign bank to pay suppliers, and that loan is guaranteed by an Indian bank as export credit – when Winsome couldn’t pay up, the guarantees were invoked and now the Indian banks are on the hook for it)

The exposure is to PNB (1,800 cr.), Canara Bank, Vijaya Bank, Union Bank of India, Central Bank of India, Bank of India and OBC.

The company used to be called Su-raj diamonds earlier. Given that they have a number of manufacturing facilities it’s likely the banks can acquire and sell these to recover some of their money. However, I expect that will take years, and banks will delay it as much as possible. The RBI is likely to let banks take the hit over a considerable amount of time – over three years or such. The scale of it, though, is astounding.

Just Dial IPO Gets 50% Takers on 1st Day

No Comments » Written on May 20th, 2013 by
Categories: IPO, JustDial

The JustDial IPO has opened and at the end of the first day, has only 50% of the shares bid till now. About 67 lakh shares (6.7 million) of the 1.75 crore shares (17.5 million) have been bid for. Bids at various price points are as follows:

imageJustDial IPO Bid Details

Interestingly, no mutual fund or domestic institution has invested (yet). Nearly all the bids have come from FIIs, and most bids of those are at Rs. 530 per share.

The demand chart has been derived from the NSE+BSE data, and the total demand at a price is shown in the second column. (If there is a bid at 475, it’s obvious that bid is valid at Rs. 470 as well, so the demand at 470 includes all bids above it)

There has been no hype at all for the IPO, which in my mind means there is some chance it will go up. I haven’t yet applied, largely for reasons involving laziness and having to print forms and sign them. Going through online brokers is okay for some but I prefer the ASBA route.

I expect that FIIs will cover the demand by Wednesday, the last day of this IPO. Most retail participation too will happen on the last day. It may be good to wait till then to decide how much to apply – a big oversubscription means there is very little scope for allotment, so there’s no point putting a large application in.

16 years of Inflation and Bond Yields

No Comments » Written on May 20th, 2013 by
Categories: Bonds, Inflation

We’ve discussed how Inflation Indexed Bonds might work in India, and like in the US, the difference in the yields between the two is likely to be the expectation of inflation. Let’s look at how the spread between the known WPI has been in the past: (this is the 10 year government bond)

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Technote: for pre-2004, I have used a base-conversion factor as WPI was reported with a different base year. I know that base splicing should have been used, but I am too lazy to base-splice at this time.

In the last 16 years, we’ve seen that:

  • Till 2002, the 10 year bond traded at a significant premium to the inflation number. At one point the difference between yields and inflation was nearly 10%! Till 2001, 10 year bonds paid you more than 10%, an indication of how relatively new our “low” interest rate regime is.
  • There was then a period of “negative” yields – where inflation was higher than the 10 year bond yield for a while.
  • Post 2005, as the RBI raised rates, 10 year bonds traded at rising yields between 6 and 8%, and inflation stayed lower than these yield.
  • The crisis in 2008 led to a huge spike in inflation (due to rising crude prices) and then a massive fall (when crude collapsed along with much of the world economy).
  • From 2010 to Oct 2011, inflation was much higher than the 10 year yield. Post that, the “spread seems to have increased, to about 2.51% now.

How does this help? Essentially in 2010 when you had negative “spread”, inflation was expected to be higher than a 10 year bond. An inflation indexed bond would have had a “negative” yield – that is, it’s price would have shot up very high at that time.

Today it looks like yield levels for a new bond should be around the 2.51% range, give or take a bit. We’ll find out what other points impacts IIBs later, but this gives us an idea of the historical moves required.

If the IIB were trading today, I think it might end up getting a coupon of 2.5% to 3%.

What would a 2003 IIB have looked like?

With the structure as proposed, and the way WPI has moved, you would have seen the following cash flows, if the current IIB structure was available 10 years ago, starting Jan 2003:

image

That means, in 10 years, the cash flow would be close to a 8.20% bond. Given that in 2003, bond yields at the 10 year level were less than 6%, this has worked out well for the hypothetical buyer. But will an IIB perform similarly going forward? Time will tell.

JustDial IPO: The Safety Net Clinches It

14 comments Written on May 18th, 2013 by
Categories: IPO, JustDial

image 

Just Dial promoters will sell shares in an Initial Public Offer from 20th to 22nd May. They will sell 1.75 crore (17.5 million) shares at a price band of 470 to 543. The IPO size is Rs. 822 cr. to Rs. 950 cr. 

Retail investors get a discount of Rs. 47 from the discovered price. This means investors putting in less than Rs. 200,000.

Let me cut through the bullshit. I’ll get to the points of importance.

The Company Gets None of The Money

IPOs are generally used to raise money for a company’s growth. (read: Of Shares, IPOs and Stocks Markets) Not this time. All the money raised in the IPO will go to pay existing shareholders, who will exit to the extent of 25% of the company’s shares.

That means the company gets no money – only exiting shareholders do.

The Red Herring Prospectus tells you that the shareholders selling at Sequoia, Tiger Global and some part the promoters themselves. You can get the details from Economic Times about how much etc., but most of them are wrong. SAIF for instance, in a complicated arrangement has paid over 68 cr. for its shares, but it’s mentioned as 9 cr. Undoubtedly they are making profits and that is good for them.

(Disclosure: I was a silly idiot when Naukri’s IPO came about a few years back about how promoters had sold their shares to a fund at a lower price. This, I realize, was my immaturity – the outrage was misplaced. One learns and improves, so past non-performance doesn’t guarantee future results!)

I won’t concentrate on things like “Sequioa 3 and Saif made 800% profit” etc. They took the risk and they deserve whatever profit they make, even if it is on part of their holding. For the record, Sequoia invested Rs. 250 cr in the company about a year back, and then bought some 50 cr. more from promoters at Rs. 488 per share. This falls within the price band, which means they would have made no real money in the year on that investment.

Also we shouldn’t worry about profits that other investors make, just that the company should do better going forward.

The company has 475 cr. of cash

With the company getting no cash from this IPO, the fear is that the company won’t be able to expand. But it has around R.s 475 cr. of cash, with 22 cr. in their current account and over Rs. 450 cr. in fixed income mutual funds. It raised Rs. 250 cr. last year that it has not really been able to use, so that’s gone straight into funds.

If they account for this right, they will make around Rs. 40 cr. in “other income”, and given it’s in funds, the taxability of these funds is low. This is huge considering their net profit is likely to be about Rs. 63 cr. in the whole year, and they’ve not recorded any intermediate gain in their books.

They seem to generate about 100 cr. from operations every year. Bad news: The cash generation hasn’t substantially increased from 2012 (95 cr.), which means we have some potential stagnation.

The US version of “Just Dial” is owned by promoters, not by Just Dial India

This is really zany. The promoters and principal shareholders own shares in a company called JD Global, which has licensed the Just Dial brand from Just Dial India, the company that’s going public. Which means all the growth outside India won’t reflect in the Indian entity, which will get just a license fee and nothing more.

Eventually I expect that they will attempt to “merge” the foreign company and pay a HUGE valuation for it, so that the promoters and principal shareholders can get either cash compensation, an equity percentage or both. Promoters routinely attempt to do this in India, and with 75% control of the Indian entity, it is unlikely the Just Dial promoters and principal shareholders can be stopped.

The P/E is High But So What?

At Rs. 470 per share, the company, which is likely to earn Rs. 9.6 per share (9m data annualized), is valued at a P/E of 49 at the lower end of the pricing band.

This may sound ridiculous. But we have seen worse. Naukri (Info Edge) continues to trade at a P/E of above 40, despite actually making lower profits in 2013 (102 cr.) versus 2012 (122 cr.) MakeMyTrip listed in the US and trades at a 117 P/E.

But a note of warning: Naukri has been flat on the markets since 2011, between 300 and 400. (And it has a significantly larger chunk of cash!) MMYT actually trades near it’s all time low, down 47% from 2010. Their EPS growth too has suffered in the last few years.

EPS and Profit Growth Slowing

It’s terribly difficult to compare current earnings with the past. They have demerged their US operations into JD Global. They sold their testing operations to JD Global. But they have restated their earnings commensurately so hopefully this comparison is accurate.

In 2013, they are likely to make a revenue of 350 cr. or so, extrapolating the nine months of the year they have produced data for. This is 36% higher than the 259 cr. in FY 2012. However, net profit by the same extrapolation is 63 cr., only 25% higher than the 51 cr. in 2012. At a P/E of more than 40, this is a tad high.

Also, this seems to be one of the lowest growing years in the past few. It makes sense as the listings business moves slowly online, where the niche players like Zomato and Magicbricks are phenomenal competition. Additionally, most small and medium businesses are setting themselves us online directly, so the listing benefits of Justdial are slowly getting overweighed by the advantage of directly interacting with customers – or better, getting an order directly (justdial has a two step process).

But they are the largest player in the business, and with cash of Rs. 450 cr. cannot be ignored. If they use the cash properly they could really change the nature of the game.

Why Not Invest: You Get A Safety Net

Retail investors that apply for less than 200,000 rupees worth shares get a safety net; the three promoter brothers of Mani, Ramani and Krishnan will guarantee the retail decided price for six months. Remember that retail gets a discount of Rs. 47 from the price decided.

After 180 days, if the volume weighted average price (VWAP) for the previous 60 days is less than the retail issue price, the promoter brothers will buy the shares from you and return your money if you want. (See my video explaining VWAP) In fact, the money they get from the IPO when they sell their shares will be placed into an escrow account for this purpose.

My conclusion

Valuation is high but the internet has seen higher. There aren’t many great companies out there – JustDial is a good and well known player. They have cash, so they might be able to disrupt the market. There is potential and all investors are keeping some stake in the company for the future, which is a good sign.

The safety net clinches it for me. If you buy, you can get at least your purchase price for six months. Within six months we will have at least two more quarter results, Q4 2013 and Q1 2014, and likely also Q2 2014. This is enough time to evaluate progress and if the price has fallen, to redeem your price. Given ASBA and the fact that the money needn’t even leave your bank account, I think I might just apply in the retail quota.

I know too many recommendations are to not buy. I haven’t invested in an IPO since forever. But this one might just be the player to change that, and I hope they do well.

Pandit buys into JM, The US is Not 1999 and More

2 comments Written on May 17th, 2013 by
Categories: Links

Vikram Pandit has bought a 3% stake in JM Financial for $10 million, and they’re applying for a banking license. The group’s financial activities will be ring-fenced by RBI regulation, but a banking license could do wonders. The stock was up 16% to 23.5 on Thursday after a 10% move on Wednesday, and volumes were 18 million shares on the NSE.

Josh Brown says the US is not 1999. While people fear “frothy” valuations, they are hardly overvalued, says Josh. P/E ratios are a comfortable 14 after 1999’s 33, and S&P 500 earnings have doubled. There are nowhere near as close to insane IPOs, there are few speculators and even fewer retail traders. Most of the market is now owned by institutions. This is not like 1999, says Josh. (And I agree. This is different. This is a liquidity led drama and will end badly, but when it ends it might still make a low that’s higher than our current point. Which is why you don’t ignore trends.)

Rahul Khullar, the TRAI boss, on being a tough boss for broadcasters. Media better get prepared for regulation. Already, showing more than 12 minutes of ads per hour is disallowed. Imagine, soon, that media sites will be restricted from displaying more than 3 ads per page and so on. Interesting times.

The Fed Might Taper QE. Or Not. Central banks have gone so far in the attempt to prop up prices by directly buying mortgages or in Japan’s case, ETFs (!) that they now have to soft-plant messages in the media to see how markets will react before they make a real announcement. Gaming sentiment is the only thing key to holding the fort. You can’t fight them, they can print money.

Inflation Indexed Bonds in India

7 comments Written on May 16th, 2013 by
Categories: Bonds, Inflation, RBI

If you buy a fixed income bond, your problem is that as inflation increases, your income remains the same and this gives you a much lower return, net of inflation. One way to solve that problem is to have bonds whose payments are linked to inflation.

RBI has allowed inflation indexed bonds (IIBs) in 2013-14, where they believe the Indian retail investor will keep their money because if Inflation should go up, income also goes up.

How do they measure inflation?

RBI will use the monthly-released WPI number. However they won’t use the most recent number – they would have used the number in Sep-Oct 2012 to finalize numbers for Feb-March 2013 and they’ll interpolate to get to the number on a certain date. (That is, for an interest payment date of March 15, they’ll do a day interpolation of the indexes of Feb and March)

The lag is to allow for adjustments due to revisions. I’ve noted recently that WPI is adjusted often and sometimes significantly (a 0.4% change is significant and it was done for Feb WPI numbers when April numbers were released).

How does it work?

If you pay Rs. 100 for a bond that tells you it will pay 7% a year, the normal expectation is to get Rs. 7 per year, because the 7% (“coupon”) is on the Rs. 100 (“principal”).

[The 7% is just for illustration. The actual coupon is likely to be much lower]

Inflation index bonds expect to change the principal but retain the coupon at the same rate. You will get 7% but on a higher or lower principal depending on how inflation goes.Effectively the amount of interest you receive moves with inflation.

Note: I had this part wrong. What follows is the correct method, thanks to Dheeraj Singh and @anandhsub.

Year 1: Let’s say inflation is 10%. That means the WPI index, which was 200 at start, is now 220. The calculation is that principal goes up by this amount and so does interest.

So, principal = issue time principal * (current WPI / WPI index at issue time).

or, principal = 100 * (220/200) = 110.

The New Principal is Rs. 110. Interest paid out = Rs. 110 * 7% (constant coupon). = Rs. 7.7.

Effectively the new principal went up. You can’t do anything with this new principal. But like the house you live in, you can feel good that its price went up.

Year 2: Let’s say inflation is 5%. So the WPI is at (220 * 105%) = 231.

Same calculations give us:

New Principal = 100 * (231/200) = Rs. 115.5

Interest paid out = 7% of 115.5 = Rs. 8.085.

Year 3: Inflation of 12% 

WPI = 258.72

New Principal = 100 * (258.72/200) = Rs. 129.36

Interest paid out = 7% of that = Rs. 9.06

And so on. Here’s a rough table comparing it with a regular bond of 7%:

image

 

If the bond now matures (note: maturity is 10 years for these bonds, but just saying) Rs. 197.78 will be paid to you as the principal. This becomes a capital gain. However, should the bond principal fall below Rs. 100 because the WPI index hugely deflates at maturity, you will get Rs. 100.

The bonds are issued by the government of India, in Indian rupees. They are as safe as bonds get.

Note: This is how I think it will work. The actual procedure has not been detailed out yet. Please expect this section to change.

Ref: See how the US Inflation Protected Securities, or TIPS work.

How do I buy and sell?

This part isn’t very clear again. The RBI conducts auctions for regular government securities. In these auctions you can buy bonds of Rs. 10,000 face value, at a price. The coupon rate is mentioned – in the first auction, the coupon rate will be determined from all the bids, and the final rate will be the rate for subsequent issuances.

To buy, you’ll have to have a demat account at least, to transfer those securities to. I believe that to bid in the auction you may need a CSGL account as well, but opinions on this are divided based on whether you are an individual or a corporate.

Even if you got a CSGL account up, you will find it difficult to sell unless you transfer your holding to a demat account. This process can take days.

To sell, you have to hope that these IIBs list either on the NSE debt segment or elsewhere. A corporate with a CSGL account could sell on the RBI’s NDS platform, but only by going through a dealer; and here, most trades are in multiples of Rs. 5 crores. (there is an “odd lot” market for smaller numbers but those generally get worse prices)

Bonds will be auctioned on the last Tuesday of every month, and the first one will be on Jun 4, 2013. Each auction will be sized at 1,000 to 2,000 crore, for a total of 12,000 to 15,000 cr. (120 to 150 bn rupees) in 2013-14. This is just 2% of the gross government borrowing in the whole year.

Bond tenures are 10 years right now. They might introduce a longer one at another time.

Can foreign investors buy? I think they might be able to, but there’s tax implications, and then FIIs will have to buy through their debt limits. More details at a later date, I suppose.

What price do the bonds come at?

What price would you pay for this bond? The actual yield of this bond should not be considerably higher than a regular bond of the same tenure – typically, the rate of return = Average Inflation + coupon rate. That means a 7% coupon IIB will, at 8% average inflation will give you 15% rate of return. (7% + 8% inflation). This will make sense only if the regular 10 year bond is trading at around 15%. 

image

When such bonds trade they will trade on yields that, when added with expected inflation, will give you market level returns for similar  tenure government bonds. This might just be a fantastic deal for a retail investor – an expectation of 5% inflation will give you a product that yields 12%, if you get to invest at Rs. 100.

If inflation is expected to be 5% then I expect that the bond will trade at yields of around 2.5% now, since the current 10 year bond is at 7.15%.

Pricing is fiendishly tough since there is no easy way to predict inflation. The WPI itself is flawed, and is likely to be changed using a different base year soon, so many index calculations will change. 

Right now we don’t know the coupon rate (5%? 7%?) of such a security since that will also be determined by weighted bid method in the first auction. Effectively the coupon of this security is the “real” interest rate – the amount greater than inflation – that you earn. In India we have always been working with negative real rates – that is, we are happy to have lower yields on our investments than the inflation we face. To that extent, a coupon rate of even 1% should be very desirable.

Also see: Inflation Indexed Bonds, a paper by the RBI.

My View

I don’t currently know an easy online method to invest. Most likely investing will require serious paperwork. If any of you know how easy it is to get to bid in the auctions, please let me know.

Interest received is taxable so you will get actual interest that is less than inflation. Instead, if you want to hold for a long term, you should buy a mutual fund that owns such securities. On that note, I believe Mutual Fund companies should create MFs that exclusively buy and hold such bonds. The interest that MFs receive is not taxable. The gains that you make are taxable only on exit, and if you leave after a year, you can further “index” your returns to inflation as well, giving you a double benefit.

Linking to the WPI is a little zany. India will be the only country that uses a wholesale price index instead of a consumer price index (CPI) for inflation indexed bonds – other countries like the US, UK, Sweden and Hong Kong use consumer prices. After all that’s what you want to protect against – retail inflation.

In April 2013, the WPI shows just 4.89% inflation, while the CPI shows 9.39%. The gap is so wide that there is no chance any retail investor will want to buy indexed bonds based on the WPI.

CPI also contains elements the WPI does not, such as housing costs, services and others. In addition, the CPI revisions have been minor, and therefore is a more reliable number.

At this point we don’t know if interest is paid once a year, or twice that is the case with other government bonds. There might be a trading case based on whether you think inflation will go up on down, though in most other government bonds rising inflation is bad for the price (they think yields will go up, and yields are inversely proportional to price); in IIBs, the price should go up or remain the same since the principal will be adjusted to reflect the change.

Certain things that will make the bonds attractive:

  • The coupon rate should be more than 1%
  • They use the CPI
  • They list the bonds on the NSE/BSE for easy buying/selling.
  • They auction the bonds on the NSE directly – the whole CSGL/demat system is very complicated and unnecessary. I know RBI thinks its awesome, but it’s only great if you’re a dealer or a bank – for the rest of us human beings it is littered with barriers.
  • They allow the bonds to be used as collateral for multiple purposes. For instance, margins when you take futures positions, or collateral for a loan or bank guarantee.

Let’s see how it works out on June 4.

Market Melt-Up Takes Nifty to Reaching Distance of New High

6 comments Written on May 15th, 2013 by
Categories: Nifty

Market investors will rejoice today as the Nifty went up 2.5% to reach 6140, in reaching distance of the all time high of 6312.

image

(Click for larger picture)

Note that both the 50 and 200 day moving averages are pointing upwards again, and in very short time we have climbed 12% to reach these numbers again. Where do we go from here?

The Bullish View

We are not at new highs, despite the large upmove we have had so far. Japan is, and the US is. A new high is what describes euphoria.

The P/E ratio isn’t insane. We are still at 18 levels (on standalone, trailing 12 month earnings), and the consolidated numbers will give us even higher earnings. This is pretty much where the Index has been for the last 10 years or so. Remember, at the last two times we were at these highs, the index P/E was way above 22.

EPS Growth is at 15%, which is close to the highest EPS growth numbers since 2011. If EPS growth is returning, paying a higher P/E for our market makes sense – and the P/E isn’t unnaturally high.

image

Liquidity remains strong worldwide. With the US printing $85 billion a month and Japan doing $75 billion a month, we have a lot of money being created outside. If even a sprinkling of that money comes to India, our markets will go up. Our market volumes are still not so huge that we are speaking of euphoria – just about $2bn a day in the whole stock market.

Where are the IPOs? At nearly all market tops, there are these massive IPOs that come along. Promoters are continuing to avoid listing, and they will come at some point – that’s when it might be time to be wary, not now.

The general sentiment continues to be bearish. Do you see overjoyed looks on faces as the Nifty charges towards a high? Not really. The average retail investor is absent, and most market commentators don’t like this rally. It has climbed a wall of worry, despite all the bad data out there.

Inflation’s easing, and interest rates are falling. Falling interest rates are supposed to do a lot – make loans cheaper, stimulate growth etc. They may do nothing of the sort, but the “feeling” is that they will, and that’s what seems to matter.

The Bearish View

India is slowing down. In the last two market highs in 2008 and 2010, India’s economy was growing at 8%+. Today, the growth story has been curtailed with the last quarter seeing just 4.5% growth, the lowest in nearly a decade.

We face high retail inflation. With CPI inflation at 9.39%, the “real” interest rates are deeply negative, and it’s unlikely people will want to invest when much of their discretionary spends are getting eaten up by the service components of inflation (housing, salaries, travel etc).

Car sales are down, home sale transactions are down. As discretionary spends reduce, you find money moving towards the essentials. This does not augur well for many industries, and remember that nearly 2/3rd of our GDP is private consumption.

The Current Account Deficit continues to be high, as Gold purchases have increased so much they have accounted for a record trade deficit in April. Services exports could make up for it, but the western world’s growth remains weak, and they are slowly erecting barriers to prevent the taking away of jobs by Indian outsourcers. While we finance the deficit there through foreign inflows, any sort of liquidity crunch in the west, or even a tapering out, will cut our financial tap and hit us both at the layer of USD-INR and inflation.

The rally isn’t secular. Most mid and small caps remain beaten down while some market leaders are at highs. Reliance isn’t making new highs. L&T, despite a strong move in the last few days, is way below where it used to be. BHEL, too. The banks are going through the roof, as are paint and tyre manufacturers. (This could be taken to mean there is a larger upside to come, of course)

My View

The trend is up. Shut up about all the bearish noise and ride the tide. This rally has so much power behind it that it can’t even face a 2% down turn – and neither can markets in the west. It will end badly, as all bull rallies do, but if it made a 50% gain from here, and then fell 20%, you will still be higher than where you are today. If there is a reason this market is going higher, it is because it is going higher.

I continue to be long in my portfolio in certain stocks that have been making all time highs – Berger Paints, Supreme Industries, Finolex Industries and so on – entries abound in other stocks that have just about started to move. I may not like financial stocks, but it is tough to ignore that HDFC and HDFC Bank have made new all-time highs. The strength in strong stocks is likely to drive the market up; you have to watch the setup attract the regular junta who will then invest.

There is no reason to be underweight stocks. However, even in an up market, there could be scope for shorting certain stocks or sectors at intermediate points, but I will do so only with a strict stop loss.

Where you should be careful is: Gold. It’s moving back down and might start to crack if momentum goes against it. The rupee isn’t showing signs of great strength either, and neither are most commodities (Iron ore has been going deeply negative). While FMCG has given great gains, it may just be time to say goodbye, as inflation eats into their profits as well. Auto stocks are likely to be a better buy next year.

Overall, I would keep a trader’s mindset for this rally; stay on it, because it will make you money, and get off when the music looks like it wants to stop. It doesn’t matter if you miss the last 10%.

There’s a Big Cash Economy in …. China.

5 comments Written on May 14th, 2013 by
Categories: Uncategorized

China: In Cash We Trust (WSJ): We think of India as using a lot of cash, but in reality, China’s just as big, or bigger:

Lugging nearly $130,000 in cash into a dealership might sound bizarre, but it’s not exactly uncommon in China, where hotel bills, jewelry purchases and even the lecture fees for visiting scholars are routinely settled with thick wads of renminbi, China’s currency.

This is a country, after all, where home buyers make down payments with trunks filled with cash. And big-city law firms have been known to hire armored cars to deliver the cash needed to pay monthly salaries.

This of course might not be possible in India, where buying a car needs a cheque or draft, or you have to give your PAN number (which reveals who you are).

China has a limited note printing policy, it seems:

Doing business in China takes a lot of cash because Chinese authorities refuse to print any bill larger than the 100-renminbi note. That’s equivalent to $16. Since 1988, the 100-renminbi note, graced by Mao Zedong’s visage, has been the largest note in circulation, even though the economy has grown fiftyfold.

India doesn’t have anything larger than the 1,000 rupee note either, and that is worth about $18.

Recently some political parties have decried the use of the Indian Rs. 500 and Rs. 1000 notes, saying they fuel corruption. In China, where they don’t use large bills, people use more bills instead

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