Summary of article on “Other People’s Money (OPM)”

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Generally, a company is funded by either debt or equity. However, both debt and equity come with an cost. We need to pay an interest on debt and need to generate extra returns to pay to the equity shareholders. However, there is a source of fund called the OPM (Other People’s Money) which is available free of cost to a company.

The concept of OPM can be explained with the following examples:

Say, an apartment is rented out and the tenant pays a security deposit of Rs 1 lakh, when he vacates another tenant moves in and pays a security deposit which is then used to pay the first tenant. This goes on and on and thus, the security deposit paid by the first tenant is yours as long as you keep renting your apartment. This is known as Other People’s Money.

In the business context, your customers and suppliers are those other people.

Case of Eicher Motors

Eicher Motors manufactures Royal Enfield brand of motor bikes and Eicher brand of trucks and buses. They have over 90% of market share in the mid-weight motor bike segment. From 2011 to 2019, the sale of motor bikes increased from 74000 units to 8 lakh units. In the same period, two wheeler sales increased from 1.2 crores to 2.1 crores per year. There are long waiting lines for its bikes and consumers pay Eicher in advance.

Eicher pays its suppliers 95 days after the purchase on an average. It’s like keeping the suppliers money interest free for 95 days.

Eicher gets to keep both the customers and the supplier’s money. This leads to a negative working capital.

The OPM generated between 2011 and 2019 was enough to fund almost a quarter of the additional property, plant and equipment that Eicher spent in that time. If Eicher had borrowed this much amount than the interest cost would have been high which concludes that OPM helps to save interest expenses too.

Case of Info-Edge  

Info-edge operates popular websites like,, and has investments in several other companies, most in Zomato. Info-edge acts as a bridge between recruiters and job seekers, who pay the company in advance for its services. Info-edge gets paid more 120 days in advance for its services

However, it doesn’t need any land or machinery to grow. Thus, it has an OPM i.e. 3 times its investments in PPE.

OPM is important to shareholders because:

  • OPM is free of cost and thus helps the company avoid interest expenses leading to greater profits.
  • Presence of OPM in itself signifies the company specialty. However, that specialty must not be short lived.

Summary of “Should the RBI print money to revive the economy?”

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Due to Covid 19, government imposed lockdown in whole country due to which almost all businesses were shut down. Due to this government’s income in the form of GST declined. Foreign trade was also impacted due to which government’s income in the form of customs and other duties also declined. State government’s source of income – sales tax/ VAT on petrol and diesel – took a hit as consumption of fuel declined. Also there were no real estate transactions which means no stamp duty and as alcohol shops were also closed no taxes were collected from their too.

In such crisis times, every person share their views on how to revive economy and all have one answer – RBI will print money from thin air and will give it to government for spending. But there’s a catch here. What looks easy doesn’t mean it is easy.

There are few points which need to be taken care of. They are –

  • The money which the government is printing and distributing is just fiat money i.e. it is not backed by any commodity. Just because government says that it is money people believe and accept this as money. One more reason people accept this fiat money is that they know others will accept it (Example – ‘A’ use this money because he knows that ‘B’ will accept it and ‘B’ accept it because he know ‘C’ will accept it).  Government too create demand of fiat money by accepting taxes in home currency. The problem also lies in taxes. In India, if government reduce tax evasion then this will ensure in more demand of rupee.
  • Another point is that if government will infuse money into economy to create demand then it will lead to inflation. Because more money will be chasing the same quantum of goods. But according to survey done by RBI on capacity utilization it was found that one-third capacity is lying unused. So manufacturing companies can increase production without affecting prices (inflation).
  • Now here comes an interesting point. RBI prints money and buy government bonds. Government spends this money through which it reaches many people. These people spend this money further in buying goods/services. Through this the money reaches to corporates and they deposit it in bank accounts. Then the banks park the excess money with RBI at lower rate (if bank buy government bonds they earn 6% interest but parking with RBI in reverse repo window yields 3.75% return, according to latest rate). This also leads to lower tax collection from banks as they earn less.
  • Creating money and infusing it into economy can also lead to depreciation of economy. Foreign investors will take an exit which will lead to more demand for other currency and selling pressure on rupee will lead to a rise in exchange rates. Also, currencies of countries like United States, United Kingdom etc. have global demand. So they can print money without damaging exchange rates.

Hence there are challenges in taking this step. But at the end it’s the call of government to take decision on it.

Summary of article on “Understanding your Circle of Competence”

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Knowing your circle of competence enables you to avoid problems, identify opportunities for improvement, and learn from others.

Warren Buffett uses the concept of the circle of competence as a way to focus investors on the areas they knew the best.

Circle of Competence

Every person develops knowledge on certain areas through experience or study. Some areas are understood by most of us, whereas some of them require a lot more specialty to evaluate.

For example, understanding the economics of a restaurant involves renting or buying space, spending money to outfit the place and hiring employees.

However, understanding the working of, a microchip company or a biotic drug company cannot be developed by most of the people.

While investing, as Buffet says, we don’t necessarily need to understand specialized areas to invest. It is important to define what we know and to stick to those areas. Our circle of competence can be widened slowly overtime.

Charlie Munger took this concept outside of business. He said that, you have to figure out what your own aptitudes are. You cannot play games where other people have the aptitude and you don’t. This is because it is most likely that you will lose. You have to play your own circle of competence.

However, the goals must be attainable and the area within which you think you lie must be realistic. For example, being the best tennis player in the world is an unrealistic thing to start off. However, being the best plumber of a given area is a more achievable task. The key to improving your odds of success in life is by setting the correct and honest perimeter to operate within and to expand it slowly.

Summary of Article on “Asset-Liability Management”

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In this article, the concept of ALM is explained.

What is ALM?

Simple, ALM is the management of assets and liabilities. For banks, assets are the loan given to customers and liabilities are the deposit made by the customers or money raised by debt instruments like NCD’s or bonds etc.

What is a mismatch?

When banks have excess of either deposits or liabilities in a single time frame, it is mismatch. Example – A bank has deposits for 5 years but it gives loan for 20 years.  After 5 years when depositors will demand money then bank would not be in a position to pay it back and thus it will default.

Banks have to group all their assets and liabilities (according to time frame) and need to show it in balance sheet.

Some techniques used by banks for management of assets and liabilities –

  1. Gap Analysis – Interest rate risk on RSA (Risk Sensitive Assets) and RSL (Risk Sensitive Liabilities) are assessed using this method. RSA and RSL are floating rate loans or deposits or any instrument with premature mature and withdrawal option.
  2. Duration Analysis – Duration analysis is done to asses risk of interest rate fluctuation. Higher the maturity of instruments, higher is the chance of change in interest rate.
  3. Scenario Analysis – In this method, various scenarios are created to check how ALM can be affected in future. Scenarios can be like rise in interest rate, decline in interest rates etc.

Thus ALM is an important concept when it comes to risk management. Investors gain confidence if ALM is good. It can be checked in annual reports of banks/ NBFC’s.

Summary of article “Nifty 50 is a Different India”

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In this article, it is shown that how some sector or top companies dominate indices like NIFTY 50. That’s why NIFTY 50 cannot be considered as the indicator of Indian economy.

Top 7 companies together make 52.1% of NIFTY 50.

Two companies together make 30% (reliance Industries – 11.54% and HDFC and HDFC Bank – 18.63%).

BSE’s (Bombay Stock Exchange) market capitalization is Rs. 1,23,83,500 crore. Out of this, top 30 companies together make 51.5% and there are more than 2000 companies on BSE.

Main problem is that financials are dominating index whereas sectors like metals, construction, cement etc. which are biggest driver of growth and jobs in economy doesn’t have much weightage.

So Nifty should not be considered as an indicator of Indian economy because it can convey a different story.

Summary of article “COVID and Cascading Collapses”

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The first chart in the article provides the data regarding the US print advertising revenue separately for newspapers and magazines. It reveals how the revenue was just going up till the crisis of 2008/09 after which the budgets never returned and have been continuously falling.

Globally too, the production of newspapers started decreasing from 2009 and has halved since the peak.

The Will- E- Coyote effect:

When I-phone entered the market, there was an existential threat to the market players like RIM, Palm, Microsoft and Nokia. Blackberry unit sales kept on rising till four years after the launch of I-Phone. It rose to 6 times.

The Blackberry collapse was more complicated because of the fact that it happened in two phases, the first being the downturn in high end consumer business which was hit by I phone. The middle and low-end business was hit by Android.

Phased collapse in the camera business:

 The point and shoot cameras replaced the interchangeable lens cameras in the 1970s. By 1999, digital became good enough to make point and shoot cameras but by 2010, smartphone cameras led to the collapse of all the other types of cameras.

Potential threat in the retail business:

Retail is one business which, after the penetration of internet, is left behind as a bundle of fixed assets which are now being unbundled with the entry barriers turning meaningless.

The internet has made those fixed costs unsustainable with consumer behavior pattern adding to the misery.

Ecommerce as a percentage of retail has been going up.

The workforce engaged in the retail sector as a percentage of total labor force is nearly 10% who will be affected.

The US has probably over stored i.e. there is far more retail space per capita than other markets.


TV ads haven’t found a substitute in internet as yet. However, the subscriptions have been down thereby reducing the viewing. However, the budgets are constant thereby increasing CPMs.

To conclude, the US advertising spending has been decreasing as a whole and as a percentage of GDP in the print media.

Summary of article “What have we learned here”

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In this article, few things are shared which we learnt during this pandemic

First thing is about business which have low margins. As lockdown was imposed and businesses were shut down, many businesses which were operating on thin margins faced bankruptcy.

Second point which is discussed here is about lowest-paid workers which consists of food delivery, truck drivers, farmers, grocery store clerks etc. these people got less respect but are most important during this pandemic situation.

Size of business collapse and magnitude of stimulus are important stories. As the economy is facing huge unemployment government is supporting it by providing stimulus.

A calamity is a good time for investment strategy to prove itself. Words like ‘recession proof’ will now not be used as people have seen that this kind of pandemic doesn’t leave anyone i.e. the affect is seen on everyone.

If someone does forecasting and people have stake in it then they want certainty too.

Whatever happens to economy people will take it by saying that it was obvious. If GDP falls then people will say it was obvious because there was high unemployment. If a vaccine is discovered then people will say it was obvious we can’t live with this whole life. One or the other day the vaccine was to be discovered.

Leverage is danger. The cost of leverage is not only interest but also your ability to have good cash flows in future when debt matures or interest payment is due.

When people suffer from something unexpected, their views changes i.e. they adopt views which they used to refuse earlier.

Things can go beyond imagination and adaption can be bigger than considered. Take lockdown for example. Two months ago it was hard to digest that businesses needs to be closed.

The most important learning is no one can predict future. Things can change in the way you never imagined.

Summary of Neelkanth Mishra’s Article

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In this article Neelkanth Mishra, co-head of APAC strategy and India Strategist for Credit Suisse, is talking about impact of Covid 19 on income of people, companies and government.

He starts with talking about the situation of Covid 19 in India. He says that Covid 19 will remain with us for a long time until a vaccine is not discovered. This means that many small workers will be impacted due to no income.

He explains impact on demand by giving two examples, first of electricity generation that how the generation was allowed in first lockdown but as the demand fell, generation and distribution companies suffered. Second example he gives is of fuel retailing. As the demand for fuel fell it not only impacted fuel retailing companies but also refineries.

He then talks about various researches done in past few days which show impact of income loss. It showed that Rs. 8.5 trillion will be the loss but he states that impact of other lockdowns and the long fight with Covid 19 is not fully reflected so we should assume the loss to be around Rs. 10 trillion.

Who should bear the losses?

Income in an economy is split between individuals, corporations and government. On corporations, he says that fixed costs like rent, salaries, interest etc. will not be deferred so their share in losses would be higher. Government too would loss more than normal because of loss of taxes, spending on healthcare, providing food for poor people etc.

For individuals he said that their point was beyond debate. The loss would be more if corporations fail to make money because these firms pay taxes, create employment, and consume too. As the business will suffer, unemployment will increase which will lead to further loss for government (as these workforce pay taxes too), also firms will stop consumption. There will be risk on financial sector also because if there will be income loss then NPA’s will increase.

Instead of government coming when all these losses have occurred, it will be good if government takes action now.

Summary of Podcast on Debt Funds by Deepak Shenoy

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This podcast is on debt mutual funds where Deepak Shenoy is sharing how debt mutual funds work, where they invest further, and how to evaluate them.

He starts with discussing the size of debt mutual funds in India. He tells that more than 50% of mutual funds are debt and in terms of money almost Rs. 13 lacs crore is in debt fund (more than 50% of Rs. 25 lacs crore). Out of these 13 lacs crore, Rs. 6 lacs crore are in liquid funds (debt funds for a day to a week). On FD market, he shares that FD is almost 6 times of debt market in India. Among overall money supply in India almost 50% is in FD’s (around Rs. 73 lacs crore out of Rs. 150 lacs crore).

On being asked about why people go to debt mutual funds he said that there are no FD’s for very short term such as 7-days, 10-days or 15-days. If people require money they will have to break FD and it doesn’t yield interest so people prefer debt mutual funds. Also FD’s give you only interest whereas debt mutual funds earn interest and they reinvest this and you get benefit of compounding (tax benefits are also there). So overall you get tax benefit, liquidity benefit (you can sell before maturity), compounding benefit too in debt mutual funds.

On different category of debt funds, Deepak Shenoy shares that there are a variety of debt funds on the basis of duration (such as overnight funds for very short time, liquid funds for 3 months or less, ultra short term funds for 3-6 months, short term for less than a year and so on), on the basis of credit risk etc. Investor should invest in debt mutual funds according to his comfort like if he want to invest money for 3 months he should not invest in debt funds of longer tenure even though he can sell it before maturity.

He further shares about growth and dividend option where in dividend investor receives payments frequently at certain intervals but in growth all money is reinvested. He also tells about direct and regular plans where in regular plan there is a middleman who earns commission no selling any product (product here is mutual fund scheme) and in direct option investors directly purchases it from AMC’s website. Direct option is more beneficial because there is no commission in between.

On being asked about what kind of instruments these mutual funds park money in, he starts with the example of the bank giving loan to a company. In this the whole risks lies with bank even if company defaults in payment depositors will get their money. But in case of mutual funds parking their money with corporate risk lies with investors as if corporate defaults then investors will lose money and not mutual funds. Debt funds invest according to their category like short term funds invest in short term instruments, overnight funds invest in overnight instruments, GILT funds invest in government securities etc.

He further discuss about Additional Tier 1 bonds. In this bond, issuer pays higher interest because if issuer is facing hard times it will not pay interest or principal (and that’s the same thing written in contract). Mutual funds also own AT1 bonds but the risk completely lies with investors.

When asked about how the money is deployed when an investor invests money in mutual funds, Deepak Shenoy gives two examples – one of normal times and one of crisis times.

In normal times, investor invests money and redemption is very low. So the inflow for the AMC (investor’s money and interest paid on bonds or matured bonds) is adjusted with outflow (if any investor wants to redeem) and remaining net cash is invested.

In crisis times, the redemptions are more so whatever money new investor puts in is mainly used for redemption. In such times mutual funds are not net buyers but are net sellers because they sell their investments in order to pay to the investors who are redeeming.

On NAV, he shares that shares don’t have a problem because at whichever price it is trading people can buy it. But in debt instruments there is a liquidity problem. So the question arises how to determine their NAV’s?

Mutual fund uses some matrix to determine NAV and the matrix is somewhat like this – if fund’s total value is Rs.1000 and there are 10 units then NAV is Rs.100 (1000/10). So in good times NAV is good but in crisis time when everyone is rushing to sell the NAV’s see a drop.

 There’s a big gap between the actual liquidity of the things that these debt mutual funds invest in and the liquidity that’s promised (implicitly or explicitly) to a customer. These gap in the liquidity can be exampled by with the help of an example.

For example, there is an ultra short term fund whose maturity is around 3 to 6 months wherein the instruments range from 2 to 8 months whose average fits the category requirements.

In case of a bad market, the investor needs to wait till the maturity to get the amount back.

However, there are cases where the investor may need to wait even till 5 years to get back his money because the formula described to calculate the time period isn’t efficient enough. For example, the fun invests in floating rate bonds pegged to a benchmark. Now, lets suppose the interest is reset every 6 months which qualifies the investment to come under the required duration according to the formula.

During Redemptions, there are a lot of bonds that can’t be sold which means their weights keep on increasing in your portfolio simply because of SEBI rules. SEBI should allow funds to take such bonds and put them in a separate portfolio where the returns will come only when the bonds mature.

These means that the actual liquidity that has been promise is not the same as what the investment allows.

Credit Risk funds say that you can redeem every day and invest in long term instruments.

One bit is where you have got debt which is not good debt in the first place. Promoter own companies borrow money in the promoter. The purpose of raising the money is justified and shares kept as collateral. Also, there are no intermediate interest payments. And thus, when the date of maturity arises, the promoter raises another loan to repay it. In this way, the promoter rules over these loans till the time when no one wants to by that bonds.

One thing that you should look the mutual funds are not the FD lenders to the company.

The FD money goes into loans to companies which aren’t liquid either. So it is questionable whether FD’s are actually safer or it is just un justice. However FD’s are just safer becauseabout 20% of the amount in FD is to be parked in government securities which have negligible risk and enormous liquidity.

RBI acts as a lender of the last resort to the banks and saves them by extending loans against deposits.

Also, there is a government guarantee of Rs. 5 lakhs per depositor.

 RBI does not want to help the mutual funds directly. It wants the banking institutions to be the buyers for the mutual funds. RBI has provided 50000 crores to banks who have in turn agreed to buy those funds who have invested in less risky instruments and not the junk paper.The banks have been directed to buy both from the market as well as from the companies directly.

The impact of mutual funds turning into sellers can be the reason for a huge crisis. In India, the mutual funds have disagreed to roll over the debt of the companies as they are acting as sellers in the market. There are companies who will require loans for working capital requirements. They have adapted themselves to rolling over loans and fulfilling their requirements.

The companies cannot go to banks as their lending rates are pegged to the MCLR. Thus, the banks say that if the mutual funds were lending you at 6.5%, they will charge 8% from them, which is huge enough to destroy their margins and losses may erupt.

Thus, a high rate of interest charged by banks and non-availability of funds from mutual funds will result in many companies going under due to interest obligations and liquidity concerns. RBI needs to intervene to not let the liquidity dry up.

Summary of article on How the Fed Saved Boeing Without Paying a Dime

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Less than 2 months ago, Boeing Company asked the government for a $60 billion bailout for itself and its suppliers. However it was less likely to get government support owing to the heavy expenditures on stock buyback and the 737 max disaster. The Trump Administration urge the Federal Reserve t take steps to boost the credit market thus helping the company in a huge manner.

The Fed used its resources to purchase corporate bonds to improve liquidity. Ultimately it allowed the company to raise $25 billion from private investors and withdraw its request for a government rescue.

Boeings decision highlights the extend the Feds policies rebuilt confidence in credit market even before spending a single dollar on its corporate debt program. Because of this, the companies have been able to finance themselves privately.

Two Options

Boeing considered two main avenues to raise the billions of dollars of cash they would need to weather the crushing loss due to the corona virus pandemic. The company would turn to the capital markets to start building a cash stockpile, and then either tap financing from the Fed or obtain a loan from the treasury department.

The turning point came when $2 trillion of stimulus was put into place. This calm down the market by enabling the Fed to inject more liquidity into the economy. Governments around the globe have committed about $100 billion to keep airlines afloat thus ensuring that they would be buying for Boeing airplanes after the outbreak abates.

Boeing entered the credit market hoping to raise between $10 – $15 billion by selling bonds with maturities stretching as far out as 40 years. The demand for the offering reach till $70 billion and the size of the deal was final size at $25 billion. The company included a provision that the interest rate paid will increase if the credit ratings are lower to junk.

Constant Contact

Treasury Secretary Steven Mhuchin and his staff has been in constant contact with Boeing officials to find a way through the crisis. Boeing is concerned about shoring up critical suppliers who are under severe financial distress. The bond market signaled its confidence in the long term prospectus of the industry. Although Boeing has a $50 billion war chest, it has to take measures by cutting jobs. Boeing hasn’t closed its door to seek federal aid in the future.