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When it takes a foreign newspaper to highlight an Indian issue, that’s a clear indication that things are not going well. This time around it was the WSJ that reported on the Indian retail revolution is not happening as expected. I’ll admit when I first came to India 3 years back, I thought the retail revolution was gonna be hugh. I believe my quote from back then was…

If you have any concerns whether there really is a retail revolution occuring in India, I suggest you checkout Big Bazaar.

Ouch…so what happened? I think Indian consumers will be Indian no matter where they live, be it India or America. If you take a look at the average Indian living in the US, they are not going into Gucci or Bloomingdale’s to shop they are value shoppers, looking for the best deals. Some of the retail build up has been around so called luxury brands in the Tier 1 metros, which I believe is a HUGH mistake. If you can afford to blow USD 2000 on a hand bag, why not go somewhere like HK or Dubai and shop in style and also turn it into a vacation.

However, talking about Tier 1 markets are sexy and investors love to hear about it. You start talking about cities like Shujalpur in Madhya Pradesh and people kinda scratch their heads. But it’s cities like Shujalpur where ALL the retail action should be taking place.

The best quote from the article came from Thomas Varghese of the Aditya Birla retail unit:

The Indian consumer is a damn tough customer.

Ain’t that the truth!

The past week was filled with iPhone related news in the Indian press as the launch neared.  The actual launch was a joke, the phone was stupidly priced at USD 824 for the 16GB iPhone 3G. 3G the biggest features was missing, why? Because India does not have 3G running on it’s network, and to me that’s the bigger story. For all the talk about the “mobile revolution” it’s pathetic to think India has no 3G due to political reasons. For quite some time The Department of Telecommunications (DoT) and Telecom Regulatory Authority of India (TRAI) have been playing politics and delaying the auction for the licenses which some estimate could be as high as Rs. 40,000 CR (USD 10 billion).  That’s some serious coin and much needed since the gov’t just bailed out farmers and gave all gov’t employees a pay raise. 

The other telecom news is the recurring rumor of an IPO for the state owned telephone provider BSNL.

“The company is valued at well over $100 billion. We are looking at offloading up to 10% stake, subject to government approval,” BSNL finance director S K Saxena told reporters. When asked about the development, telecom minister A Raja said: “The government is considering it (an IPO). The department of telecom (DoT) will discuss the issue and take a final decision soon”. 

Yup, another USD 10 billion to the government if everything goes as planned. Personally, I would not invest in BSNL since it’s a typical state owned entity that is fast losing customers to the wireless companies. And more importantly BSNL does not service Bombay or Delhi - the two biggest metros in India and where product innovation occurs first. But, hey if they pull it off and retire some of the government debt I’m all for it.

Quiz time: What does BSNL stand for? Bharat Sanchar Nigam Limited (translation: lame customer service and pathetic product set).

Spotting a Lamborghini LP640 in India is about as common as seeing Halley’s Comet. The LP640 is the big bull in the Lamborghini stable, in India the car goes for about Rs. 3 CR (about USD 750,000).  So imagine how I felt when I heard one of these beauties got into a major accident in Bombay sometime in May 2008.  

The funny part is that NO ONE seems to know anything about it.  This is surprising in a country where the press likes to describe in excrutiating detail the movements of anybody with money. So I find it hard to believe that an LP640 gets demolished on a public road and everyone seems to be clueless on who owns the car or what really happened. 

UPDATE: Aug 19, 2008 - The car was owned by Hitesh Bhagat, his grandfather Kalyanji brought matka gambling to Bombay in 1962 and was referred to as the “Matka King.” Matka is a form of gambling that he popularized. Hitesh’s father Suresh was killed last month in an apparent move to take over the family business, Hitesh is a suspect in the killing as is his mother…drama!

The much talked about Olive opened up it’s newest location in South Bombay - at the Mahalaxmi Race Course to be exact. Getting to Olive is something of an adventure once you enter the Race Course property, its tucked into the northeast corner and the area is not paved but the upside is it has AMPLE parking. There is no awning at the entrance so during the monsoons you’ll get soaked entering the place and get to experience that again when you leave. Lastly, since it’s located near horse stables you get a slight smell from the horses. That’s the extent of the negatives the rest is all positive.

Once you are inside Olive it really is “charming” as the menu describes itself, great execution of minimalism. The food which is mainly mediterranean/italian cuisine was excellent and the restaurant staff was polite but a bit too pushy as they wanted to clear every plate every 5 minutes. People may come for the food but they stay for the people watching. I’m guessing the outdoor bar/dining area is going to be the place to be seen for quite sometime.  The crowd had a mix of urban professionals, family money, players and posers. All in all a great addition to South Bombay.

Overall: Great food, good location (for some), ample parking, the new “it” place, average meal around Rs 2000.

Many of you have probably read “When Genius Failed: The Rise and Fall of Long Term Capital Management” (LTCM) which chronicles the collapse of LTCM in 1998. LTCM was a hedge fund that was over-leveraged and when liquidity dried up worldwide in 1998, LTCM got crushed when it couldn’t unload its positions.

From the ashes of LTCM rose a new company - GlobeOp.  4 out of the 5 founders of GlobeOp came from LTCM. GlobeOp is a middle and back-office for financial firms such as hedge funds and asset management companies.

A buddy of mine just forward me a copy of the Stanford case study on them and it’s a great peek into how the company came to be and how they got some lucky breaks. But, more then anything it shows they went through some tough times and made it to where they are today.  Had some of the same issues as any startup - sellout early and make some coin or roll the dice for a better offer and make bank - hopefully.

One of the people mentioned in the case study is Nandini Sankar, she runs the India operations for GlobeOp.  I had a chance to meet her a year back and can say she has done an amazing job of getting the India operations humming. For all the press about LTCM it’s rarely mentioned that some good actually came out of the LTCM collapse.

GlobeOp case study from Stanford

Experts on emerging markets are far and few between. One of the big guns is Mark Mobius of Templeton.  Mobius has spent over 40 years working in emerging markets and picking stocks while most others were still picking their noses in school. I had a chance to hear him speak in Oct 2007 in Bombay with 500 of his closest friends. Back in October the Sensex was on a major roller coaster ride of its own and it made his visit all the more interesting. He didn’t speak about P/E ratios, dividends, outstanding float, etc…It was more about his experiences in emerging markets and how volatile they can be. 

The best story he had was about meeting a new client who had just put money into his fund right before the 1997 Malaysian meltdown. The client was trying to reach him and asked the receptionist “where is this Mr. Dubious.”

Anyways, this week he had some comments on India that were very insightful.

What are the most exciting emerging markets?
No. 1 would be Brazil, by far. I mean, Brazil has been doing everything right. They’re really in a sweet spot because President Lula [Luiz Inácio da Silva] has made the right moves in terms of ensuring the currency is in good shape and the fiscal situation is good. And then they’re a tremendous exporter of minerals and producer and exporter of food products. The second is Russia. Commodity prices, particularly for oil and gas, have Russia flying high. As for India, we’re not rushing in because there could be more downsides.

So true…The Indian government might have survived but they haven’t done much in the area of large scale reforms.

I finally got around to upgrading my iPhone to the new 2.0 release and it is worth every penny…oh wait it was free. Since I have a hacked iPhone I wasn’t able to use iTunes and just upgrade the iPhone, I used Pwnage Tool to upgrade the software.  The software is so easy to use, it took a total of 10 minutes to crack and another 15-20 minutes to copy all my data back onto the phone.  

So what’s so great about 2.0, the biggest thing is the App Store. Which has 100’s of programs and will grow to1000’s.  The 5 apps that I’m using right now:
- Remote - control iTunes from the iPhone
- Shazam - listens to music and tells you the name of the song
- Facebook -  great interface for facebook
- WordPress - write posts to your WordPress blog
- Bloomberg - access news from the Bloomberg site

The downside is you lose all your apps from the Installer.app program and the ability to turn off EDGE. Overall the improvements in 2.0 are worth the minimal effort to upgrade to it.

Club 272 is not some new club in India, but it’s the number of MP’s that the UPA government needs to keep the existing government going. The last 48 hours have been great watching all the political stuff happening around the trust vote.  I had no idea Kamal Nath and Snoop Dogg were long lost brothers since it seems they both like to throw up gang signs.  I believe the sign being thrown up by Kamal Nath (in the pic) means - back the fu!# up and don’t touch my Cristal.

The latest incident being shown on TV is that 3 MP’s were bribed for their vote and the bag full of money was brought to the chambers of the Lok Sabha were the vote will take place later today.  All they need is a DJ and some go-go dancers for Club 272 to be complete.

The current financial meltdown may not be the best time to talk about asset allocation since most people don’t want to open their monthly statements to see how bad the carnage is.  But, at some point you have to open them up and figure out where the damage is and potentially re-allocate. So how should you allocate your assets? The one report that sheds some light on this is the annual World Wealth Report from Merrill and CapGemini.  It decribes how Merrill advices their clients and how they have allocated their billions. Page 15 of the PDF is the money page, below is the summary: (click on the image to download the full report)

33% - Equities
27% - Fixed Income
18% - Cash (preferably NOT dollars!)
11% - Real Estate
11% - Alternative Investments (such as hedge funds, commodities, pe/vc or even lame art work)

Another good resource is David Swensen, who runs the highly successful Yale endowment fund which has about USD 22.5 billion and author of Unconventional Success. He recommends using ETF’s and index funds in the following allocation:

30% - US Equities
15% - Foreign Equities
5% - Emerging Equities
20% - Real Estate
15% - Treasury Bonds
15% - TIPS

Which is right? I believe it’s up to you, but it gives you an ideas of what others are doing. Which may not always wise since some of these clients invested in hedge funds that invested heavily in toxic CDO’s. As they say your mileage may vary.

Someone emailed me yesterday and asked “why does your blog have such a negative angle on India?”  Part of me wanted to just tell the person to read the headlines and tell me what they see.  Americans always get blamed for not knowing anything about anything outside of the United States. Many Indian’s suffer the same fate, they don’t care what’s happening in the world financial markets - wrong attitude if you invest in Indian stocks you better give a damn about global macro events.

Let me run through some headlines over the last 48 hours:

- IndyMac 2nd largest bank failure in history
- Lehman down 75% for the year
- Fannie Mae and Freddic Mac down 80% for the year 
- Oil hits $147, highest recorded price EVER 
- Dow drops below 11,000 - first time since Aug 2006 

And some Indian headlines:
- Infosys down 7% after announcing flat revenues (this is India’s tech bellwether stock similar to Cisco) 
- S&P might cut India’s investment grade rating
- June air traffic down 15% (GoAir down the most at -33%)
- Industrial growth dipped to 3.84% lowest in six years (it was 10.59% last May)
- Inflation at 11.89%
- Sensex dives 456 points on Friday
- HCL Technologies suffer forex losses of $65-75 million (the dreaded yen carry trade?)