Saturday, September 29, 2007

Cash Reserve Ratio(crr)hike/cut?

What is CRR?
Indian banks are required to hold a certain proportion of their deposits as cash. In reality they don’t hold these as cash with themselves, but with Reserve Bank of India (RBI), which is as good as holding cash. This ratio (what part of the total deposits is to be held as cash) is stipulated by the RBI and is known as the CRR, the cash reserve ratio. When a bank’s deposits increase by Rs100, and if the cash reserve ratio is 10, banks will hold Rs10 with the RBI and lend Rs 90. The higher this ratio, the lower is the amount that banks can lend out. This makes the CRR an instrument in the hands of a central bank through which it can control the amount by which banks lend.
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Thursday, September 27, 2007


Saturday, September 22, 2007

>Rakesh Jhunjhunwala

It is 12.30 pm at RaRe Enterprises, Nariman Bhavan. There are five monitors showing more red than blue. The market is facing a blood bath. The Sensex is falling. In the thick of the action, Rakesh Jhunjhunwala turns from these screens, he is unruffled.

There is a massacre happening as investors lose wealth but Mr Jhunjhunwala looks at you almost bored and says "lets not discuss the markets". The biggest investor in India is chewing paan as he loses wealth on his screens. He lights a cigarette. He loosens his white shirt. He has not worn a tie for the last five years.

"I know I am losing wealth but should I let this bother me? I don't think so. I would be crazy to look at my wealth like this. I believe that India stands on strong fundamental grounds and over a period things are only positive. But please do not interpret this as Rakesh Jhunjunwalla is saying that the Sensex is going to touch 40000. Some day it may touch. But who knows when?"

For a man who purchased Tata Tea for Rs 5000 when he was only fifteen years old, Rakesh Jhunjhunwala has a total networth of ap-proximately Rs 6000 crore along with his wife Rekha Jhunjhunwala. The exact value of the portfolio is something he doesn't like to talk about.

He doesn't have any rules for his science of investing. But his ap-proach is fundamental and takes a long-term view thus he is also re-ferred as the Warren Buffet of India. Jhunjhunwala has never met Warren Buffet but admires and even follows his style of investment.

"Don't insult the great man by comparing me to him. I am young and I'm constantly learning. There is so much to learn from others." He pauses and refuses a phone call from a big corporate house in India. "But at the end of the day I want to be only Rakesh Jhunjhunwala and nobody else", he says.

Retail investors, analysts and fund managers always want to know what he is buying. Everybody wants to be a part of Rakesh's stocks. He knows that. He leans back and looks at you and tells you that he is not an advisor or a fund manager.

He and his wife came into the limelight with Crisil Limited. At the end of April 2005 he was holding 14.26% of the company, accounting for Rs 70 crore. In the same year the couple made Rs 27 crore after they sold out to the S&P open offer at Rs 775 per share. Today his in-vestment in Crisil is worth more than 200 crore and the holding accounts for 7.63% of the entire company. In all the companies that he has invested, it is this investment that has given him his famed mo-ments.

In India, bull runs have been associated with certain individuals. In the nineties it was Harshad Mehta and in early 2000 it was Ketan Parekh. But Jhunjhunwala does not like to be associated with any booms. He believes that the market is above individuals. Individuals can be associated to excesses in the markets, but not to the phase of the markets itself, he believes. It is like if the market is at a P/E multiple of 20, an individual might just make investors believe that the P/E should be 22. He thinks that individuals who believe that they are bigger than the markets do not last for a long time.

"The market is rational. An individual can never be smarter than the market", he says and his phone rings. Someone wants to sell him a credit card or personal loans. He politely refuses and drags on his cigarette.

"The market is about greed and fear. Sometimes there is too much greed and sometimes there is too much fear. It has a lot to do with the psychology of the market. You have to sometimes read the market like you read an individual", he adds.

But Mr Jhunjhunwala has not taken any courses in psychology or behaviorial finance to understand the psychology of the market. He has always believed that psychology cannot be learnt in classrooms. He has learnt his lessons in finance by practicing them and never believed in borrowed wisdom. He has liked his experience first hand. "I have experienced the markets from its core. You know I was there during the day of the bomb blasts when it happened. I have seen ups and downs so my understanding of the market is from being in there".

That is probably why international fund managers like to spend time with him to understand the Indian equity market. He meets at-least two international fund managers a week. Probably that is where he markets or tries to sell the India story to the global equity fund managers. He doesn't like it when he is referred in this context.

"How can you sell the Indian equity to the global fund manager? Is it an FMCG product like toothpaste or a shampoo? These fund managers are here because they believe in the fundamentals of the country. Not because a Rakesh Jhunjhunwala wants them to buy Indian equity". He gets slightly excited.

Incidentally, foreign investors are selling Indian equity as global markets are facing a liquidity crisis. Those who have purchased the India story are jittery. Highly leveraged funds that invest into global markets based on borrowed money are facing the heat. They have purchased assets that they are not able to value. They don't even un-derstand the nature of these assets.

As the ground beneath their feet starts to shake, Rakesh Jhunjhunwala sits firm. He was in Lonavala watching movies when the crisis was very severe. He is patient and knows that this shall also pass. The red on the screen will turn to blue. The market will once again be the winner. Mr Jhunjhunwala will remember this. His greatest fear - he might fall prey to his own philosophy. The market will remain above all individuals.

At a time when the market is going through volatility and an uncertain phase, Jhunjhunwala has no advice for the investors. "I don't advice anybody. I don't manage anybody's money. I manage my wife's money because I don't have a choice." He smiles and stubs his cigarette

Monday, September 10, 2007