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01 October 2010

Perils of Being an MBA - 2.

The biggest problem of being an MBA is that you become too cynical when it comes to advertisements and business news.

Today morning my wife saw this news item in the papers.

"Hindustan Motors to unveil new models of Cars".

The article quoted the CEO as saying that in the next 15-20 months, HM is planning to manufacture three new models of Cars under the 'Ambassador' brand. They are also planning to set up a component manufacturing unit which will Cater to the requirements of other car manufacturers.

"Isn't it great?" my wife exclaimed, "We used to have an Ambassador car when we were growing up. I still miss the rigid, upright unfolding seats in which you have to sit with your hips and back at 90 degree angles and the leg space was so short that you come out of the car with legs bend. Sitting in that car for a long time gave new meanings to the phrase 'Streching the limbs' ".

"And remember 'Contessa'?" I decided to add to the discussion, "that long and flat car that looked like a Chapatti or something. And remember the excitement that was followed after the release of Contessa? Man, people were crowding to buy that car. Man, that car looks so outdated in design and fuel efficiency, when compared to the current set of cars available".

"We should buy an Ambassador when it is released? It says it will be released in about 15 months."

Now my MBA Brain decided to kick in. Hindustan Motors shares are languishing at their bottom. The company has probably a few diehard Bengalis as share holders (and some stupid guys who purchased the share out of pure greed. And finally, the company has some land at Kolkatta and some outdated and obsolete machinery. And with these the company is planning to manufacture cars. And they are hoping that the cars will sell....

Probably some VIP has some shares of HM and he wants to sell it off now, with the market at 20000 and all. This is the time when gullible investors will eat any news and buy the shares which could drive the prices up so that these VIP guys can sell off at some profit (?). All these feel good stories are a way of talking the share price up.

How can HM manufacture cars? They are probably better off constructing a Mall or an apartment complex in the land available.

PS: If HM announces the construction of a Mall, I will buy the HM Share.

Perils of being an MBA - 1

The biggest problem of being an MBA is that you become too cynical when it comes to advertisements and business news.
Take for instance the latest ad of IDBI Bank. There is a cute ad of an elephant and a kid playing together and the tag line informs us that IDBI Bank has removed the account opening fees for Current Accounts and Savings account since the organization values relationship and customer should not pay to build relationship with the bank.
"Isn't it a great gesture?" asks my wife "No fees for opening a Savings account. Can't we open an account?"
"And the ad is very cute" she follows up as an afterthought.
This is where my MBA Brain kicks in.
Big Deal ! I think. A very good way of using emotional ad to lure customers to put in their money. A bank removing account opening fees for CASA (Current Account Savings Account) can only mean that it is finding it difficult to get new customers. That it is advertising now means that probably their loan portfolio is expanding and they do not have enough low cost funds to fund the loan. Normally the low cost funds for a bank are provided by CASA. IDBI Banks ad for CASA can only mean two things. One, their loan portfolio is increasing and two they are funding the same by high cost funds like FDs and stuff. This can only mean that their spread
(NIM - Net Interest Margin) is narrowing and this will sooner or later reflect in the Stock Price.
So (I continue thinking), it is better to sell of the share of IDBI Bank now. It has had a nice little run up and let me make the profit and get out of this share..
In the meantime, my wife has gone to the web and had already downloaded the account opening forms...