Archive for April, 2007

But there's a perfectly valid reason, according to me. Depreciation.

Indian law allows assets bought between April and September the FULL depreciation for the year (financial year April - March) and those bought from October to March only half of it. Even individuals who are professionals or file taxes for business income can claim depreciation.

What does this mean? For companies and individuals with business income: If you buy an "asset", you must depreciate the cost over years, unlike expenses which are wholly deductible in the year. Meaning, if you buy a car for 10 lakhs, you have to account for the expenses say 300,000 in the first year, about 200,000 in the next and so on. The IT department releases depreciation percentages of various types of assets every year. If you lease a car, the cost of leasing is directly deductible as expenses - if you spend Rs. 30,000 a month on the lease, Rs. 360,000 is allowed as an expense.

And before you head out to buy or sell your cars, note that this is not allowed for people without business income, i.e. not for salaried employees.

So in the context of vehicle purchasers, they get full depreciation (say 30%) for a vehicle bought in April, but only half of it (15%) for vehicles in March.

March sales are always going to be lower for Tata because its largest sales are commercial vehicles, and among passenger sales too, cabs are significant (they even have a special vehicle branded for taxis - called the Indicab). Depreciation effect is perhaps the worst in March and October, reflecting accordingly in Tata Motors sales. Also Ashok Leyland, another commercial auto manufacturer, has 3% lower sales (YoY) in March.

And the quote of 33% decline in exports is a misprint.

Exports in the month, however, declined 33 per cent at 6,299 units as against 6,508 units in the same month of previous year, it said.

That, according to my rudimentary math, is a 3.2% decline. Nothing that's major, really.

Note: Auto sales may be lower this next quarter because of increased interest rates. The effect of that was not in March, though.

I got this link from this post by Ramit Sethi. In India the equivalent of the media insanity about predictions is perhaps embedded in this moneycontrol.com page - where analysts pour in their views about "Sensex is going to be rangebound" and "Mkts ready to retest all time highs".

Unfortunately, as Ramit said, none of these predictions have any accountability. In fact, they are wrong a tremendous amount of the time. I don't have statistics for India - but I know that every analyst I see on CNBC seems to take reverse positions every other day, about where things are going.

And it's not just silly. The prediction business has a manipulative twist. One analyst, E. Matthew , has even been indicted by SEBI for recommending a stock and then personally taking the opposite side. Simply put, he said "Buy" and then sold his own stock. And vice versa.

Some journals even try to put together a list of stocks that they've recommended - but they only list their winning picks - and almost never list their losers. What you have to do is manually track them - and that's not easy to do, so they get away with it.

If you're buying or selling based on recommendations from such analysts or journals, you may want to look in a mirror right now. If you don't see the word "sucker" written on your forehead, you might want to switch off that TV channel and keep the magazines in the entertainment section instead. And when you make your investments, make decisions based on your own assessment, not anyone else's - especially not that of the media.

Now why is the rupee appreciating? That's RBI covering inflation - the idea being that earlier, the RBI used to sell rupees and buy dollars. This brought more rupees into circulation, which fuelled inflation. Now if it doesn't sell the rupee, inflation isn't further fuelled. (doesn't mean it'll reduce, it just won't increase) This simply means demand for the rupee is greater than supply, so the rupee will increase in value.

So how long will this continue? Your guess is as good as mine. Inflation is not ridiculously high - it's just 6.5% for heaven's sake, and we've had 7-8% in 2004-05. From 5% in June 2004, we went to 7.94% in August 2004 and then back down to 5% in Jan 2005. (If you're looking for weekly inflation reports, they are here)

Now think back - around the August 2004 time frame, the Sensex was around 4000. In hindsight, would you have bought stocks? Like a TV ad says, "yeh bhi koi poochne ki baat hai?" - with the sensex at 12500 today the question is moot. But at that time, there was a gloom and doom feeling on all media just like today. Inflation is a just a tool being bandied around; don't be a sucker this time.

Unfortunately, the government is using rising inflation as a stick - to control industries they should not control. Like the ridiculous policy on cement, which can't be explained better than by Kaushik. First a higher tax on cement, then a deal to freeze prices for a year and finally removing duty on imported cement. And when questioned about why, Kamal Nath, our minister for doing-whatever-it-takes-to-screw-industry, splutters and hangs up the phone - see the video:

We won't let you earn profits, but we won't cover your losses either, it seems. They banned futures trading in wheat in Feb 2007, not realising this doesn't do diddly squat for the prices. This is just a method to control inflation, they say, but in reality, this is not unrealistic inflation, and nothing can control inflation when it's not out of control in the first place.

6.5% is not backbreaking considering that even conservative estimates expect a growth of 9% this year. Even the World Bank thinks so.