DISQUS

It's Shanghai, not Sanpada. http://news.bbc.co.uk/2/hi/asia-pacific/8123559...

I live in India (and love your blog!) and the situation here is weird. First, the market goes up yesterday, and that too, 17%, even though nothing much has changed. With a deficit at 6% there's not much room for a political economy prop-up.

Credit may get better - but housing is screwed anyhow. There's a glut at the upper end of the buying spectrum (>10x annual income) and rent to buy ratios are typically 35+. I've travelled the length of the country and seen overbuilding in every city - the place where I live, just this 5 km road, has over 5000 listings for real estate that isn't quite selling, and is full of half built structures whose builders are finding it difficult to even justify retaining cranes on site.

But since we don't bother to collect data, we will remain happily ignorant of inventory and delinquency levels. Hey the politicians can fix that, no?

The right way to invest is to make money. Everything else is a hobby, a gamble or a failure. Nothing succeeds like success.

The current P/E of sensex (from the BSE site) is 11.34 - as of Nov 21. 20th was even lower - 10.72. The Sensex is highly dependent on RIL, whose P/E is now around less than 10, because of an EPS of around 125 TTM. That's also skewed because it contains the one time RPL stake sale which was around 25 Rs. in the EPS. But the Sensex does not remove one-timers.

A developing economy will get hurt even more than a developed economy in a global recession - regardless of how good local economics is. That's because money flies to safety (i.e. developed economy debt) and exports suffer tremendously from lower demand. This time it's a lot worse, i.e. we have a real estate bust and a dramatically big recession worldwide.

PEs may eventually widen because of dropping earnings, for a while. Then when the recovery happens, risk doesn't get embraced - so pe's contract before picking up. These cycles can take years, and I think India will take at least three years before recovery begins, more like five. Meanwhile I wouldn't be surprised to see a further 40% drop on the Nifty, complete lack of retail interest in the markets, and very very low volumes.

I'm not sure where you got the historical average from (the NSE data before 2004 is flawed, they used to take annual results instead of TTM, which upped the average). If you look at historical lows, I have data on the Sensex that has lows of 10 as well, and given that RPower has zero and RPL has very little earning power, the EPS has very little going for it. Average P/E is less than 15 on the Sensex, and will be similar if adjusted on the nifty (this is TTM earnings)

One thing though is that we don't have a very long history and not enough bull/bear cycles to compare. The developed world does and the average p/es there are dramatically low.

Hi Gautam - Interesting post and good to see you in action! There's another way P/E can go up, with the "E" part going down. From an EPS of nearly 236 in the last quarter (trailing 4 months) the Nifty EPS is 228 today. If the earning goes down to Rs. 200, then today's level still give us a P/E of 15...I'm not saying it will happen, but it's likely.

GIven that US S&P 500 earnings estimates for $2009 aer down from $100 earlier this year to like $50 today I think we're quite capable of going down about 10% in earnings. What do you think?

It's down some 8% today - all real estate stock have been battered. HCC is a tough buy - it has one of the highest P/Es in the space, and is very deeply affected by both the credit crisis (read: financing) and the consumer downturn. Where do you see EPS in, say, a year from now?

Way to go...I'm sure you're at it but do think about adding a price when tweeted and current price just to see context. I'm not a big user - I live in India and focus on stocks here - but good site, hope you guys include Indian stocks too someday.

When I started my first company, two folks from the "traditional" business lines were directors. They expressed a certain degree of shock when we presented them with a profit on the first year, with zero debt and only enough capital to buy four machines and a printer.

They said they always believed in the kosher-3-year law - that any business needs to be given three years to make a profit.

Of course there are excesses in the other direction too. One such "traditional" businessman invested a couple crores setting up a 80 seater call center - complete with machines, call equipment, internet lines etc. - and got this "manager" to try and get him business. Because of the traditional thinking he didn't bother about the mounting losses, or with things like utilisation rates or any metrics - believing that it would take three years. He had to let it go at less than book value (luckily the property appreciated enough for him to recover a little bit)

A lot of people get complacent when you tell them building businesses take time. an interesting thought is to ask that all people take loans to build their businesses - even if it's a personal loan and you already have the money. The idea is: the loan must only be repaid by cash flow from the business. (any intermediate payments made by you are added to the company's loan) If in X years the cash flow has not paid off the loan, you need to get the heck out.

After running a startup for seven years and not really going places, I've seen a little bit of the other side - how inertia can take a toll on business.

Vijay: Licence fees have only recently been reduced and the government/TRAI has been clear in most departments (Cable TV, mobile, ild etc.) that they will allow incumbents time to recover the licensing costs before they reduce fees.

In some cases, to limit participation or reduce rampant growth, the government has actually increased barriers to entry - look at airlines or cable tv history.

Now will they reduce entry fees further? Perhaps. It's not a license fee anymore - it's a "one time entry fee" plus 4% revenue share (or1/10th of entry fee, whichever is higher). ENIL paid about 20 cr. for bangalore. The smaller cities are lesser of course - order of 1 to 10 crores in the south. http://mib.nic.in/fm/CityWiselist.pdf

Now there still are channels open. There was a recent rebidding tender for FM (http://mib.nic.in/fm/NITVacantChannel.pdf) but the last date was July 23, 2007.

Currently the stakes are high. For a long tail the incremental cost of adding content (channels, music, DJs etc) should be low - in this case that is totally not so. (You will pay about Rs. 1400 per hour of broadcast music to the music industry, a cost that is significant compared to revenues)

If you want to go niche, the revenues must be much much higher than regular content. I don't know if you've analysed ad-rates for Radio, but in bangalore they are horrendously low for a niche set up.

What you can do - and this advice is only worth the money you paid for it - is to strike a deal with broadcasters to pod-cast or rebroadcast their content on the internet as internet radio, to listeners worldwide. Indian diaspora etc.

And there, you can do news as well, something local broadcasters are not allowed to do. You need the contacts and some money to get content; but the actual work needs very little hi-fi technology.

I've thought about this a lot - starting from Radio City in Bangalore which was the only station for years, and many a friend became a radio jockey, to today where there are around 10 stations, most of which spew Kannada, Hindi and other language music.

First, the licence fees were extremely high (plus a 15% increase per year) so there wasn't much interest among broadcasters. So the channels that came about went down the elite route - choosing English music, English speaking DJs etc. Ad rates were not too high as this was a loss leader model.

Soon that changed, and Hindi became a more attractive proposition. So it was: English/Hindi music and English speaking DJs.

Then the government went on a rampage, slashing annual fees to zero, charging a 5 crore entry fee (average, was a bidding process per city) and a 4% revenue share. Around 10 channels suddenly popped up in Bangalore.

In the process, STAR exited their Radio city ownership, and listed players entered the fray, like Mid-day, ENIL etc.

THe new channels decided that elite was not it. Therefore Kannada had to be tapped. That succeeded like crazy - cut to now, when nearly all channels have only Kannada speaking DJs (okay, smattering of English sometimes).

Only one channel - Radio Indigo - remains an English channel. Rather, a non-kannada-only channel.

I don't see the potential for a pure-English channel, unless the entry fee is also cut to zero and spectrum costs are sub-10 lakh. If you want to operate on the fringe, you could have a Telugu or Tamil channel in Bangalore, a Gujarati channel in Mumbai, a Punjabi one in Delhi etc. which might actually be more popular than the English one.

And with worldspace making all this available, plus the mass availability of Internet channels, the home or the office is no longer useful for an English (or fringe) FM channel.

What's left? The car. Now you compete with the Ipod FM transmitters, CDs and potentially worldspace car stereos.

Not worth the effort, in my opinion. This is the long tail of radio, except the fundas of the long tail do not apply - in that the cost is too high.