Monday, December 7, 2009

What Is India’s Biggest Bubble?

After our last post on Dubai, a lot of fellow Happionaires have been asking the reasons I believe a Crash is yet to come and I can understand how a few might be getting impatient. I have explained it completely in Happionaire's Cash The Crash and in our previous posts. I have also declared my position on Gold long back. In the coming days as I get time, I will try to explain more here.

Recently a friend of mine had invested with me at the peak of the stock market crash. He booked profits of over 200% in less than a year and asked me if he could invest part of it in India’s biggest bubble. I started laughing and told him – he might as well gamble his money away at a casino.

I am an eternal optimist when it comes to India’s growth and the power of the Indian mind. Our stock markets have rewarded anyone who has believed in the power of knowledge and invested with conviction. However India has one of the largest bubbles that will one day burst. When it bursts it will make a lot of people very happy, unless of course you are already heavily invested in the bubble and have taken huge debts to further fuel the bubble. Luckily since childhood I was taught that most of the times Debt is Death.

I’m sure most of you would have already guessed what bubble I am talking about. Anyone living in India, would be able to see the bubble growing bigger and bigger each day around them. You would have sensed how prices have constantly gone up in the past few years – sometimes quadrupling within no time – without any real fundamentals.

The bubble has been fuelled by cheap money from banks, junk IPOs and a lot of PE (Parallel Economy) money or what is also called as ‘Black Money’. Because of all this the common man is unable to afford one of the basic necessities of life. This was the same thing that happened in places like America, Dubai and even Japan almost two decades ago. The reasons might be different, but the money all chased a single asset class that caused Empires to collapse.

India is soon going to face the same situation and we can see the bubble bursting by as much as 70% in some parts of the country. There are a series of IPOs lined up; all meant to make sure the bubble doesn’t burst anytime soon. Many Mutual Funds might divert the money of innocent investors to fuel this bubble and sometimes large financial institutions also do the same. As a retail investor, I would immediately pull out my money from such Mutual Funds which don’t really respect my money. I would ensure that everybody around me is educated about the biggest bubble India has ever seen – so at least they don’t get trapped and carried away.

When companies come out with IPOs only to repay debt, you know there is something fundamentally wrong. Almost all the IPOs that came out in the past two years in this sector have caused investors to lose immense wealth – sometimes as much as 90%.

Stock markets always react much quicker than things happening in the real world. As intelligent investors, it is our moral duty and dharma to follow what is happening around us and take logical actions based on that.

If someone asks you Rs. 1 crore for a small car which costs only Rs. 5 lakhs to manufacture, will you pay it? That is how gigantic India’s biggest bubble really is. Things that cost only Rs. 5-10 lakhs to make are sold for Rs.1 - Rs. 2 crores. Common people get trapped into taking EMIs and end up suffering for life. Luckily now the masses have realized and have stopped making such mistakes.

Once the IPOs fail – we will see this pack of cards collapsing. I don’t need to tell you what India’s biggest bubble is, because sub-consciously I’m sure you already know what I am talking about. Without me even mentioning it, your mind already gave you the answer. We all have universal intelligence within us, and when that starts working no force can stop it. Believe in it, and don’t get carried away by what people around you say.

Keep smiling and make the most of now!

Yogesh Chabria


21 comments:

Anonymous said...

Dear Yogesh
Everyone knows what bubble you are talking about because no one can afford to buy in it these days(in real terms, not stocks)

This bubble is plainly due to Parallel Economy where the builder-politician nexus keeps it running ad infinitum.I think the PE(parallel eco) folks have so much money that they simply can remain invested in this for a long long time till all the innocent retail folks like me are forced to buy it! If a CM of poorest state in India can amass 1billion dollar worth(rs.4000Crore), i really dont know how honest people like me can break this bubble.

We cannot buy because we simply cannot afford to buy but if the nexus keeps the prices going for another 5 years, we will be forced to fall.I really believe the PE guys have so much that they can even wait for 500 years!

Anonymous said...

Hi Yogesh,
I am one of those guys getting impatient. It seems to be holding 17k levels. I see that in one of your blogs you suggested not to look at the sensex level. But look for value buys no matter where the sensex is. I have identified a lot of good buys. (looking at balance sheet, results etc.) However i feel, if market corrects, these too will be hit.
What are your thoughts.? Should we go ahead if we find value stocks?

Bridge said...

Dear Yogeshbhai,

I agree with you on the bubble. It is a real bubble and the destiny of the bubble is to burst. However, as in the first comment, Anonymous pointed out about the PE, there is one more reason that the bubble will still become bigger. I believe that till the time US is at arround 0% of interest rate, the money will flow here.

I have lots of friends in US, some of them are currently without any job. But still they are investing in this bubble. Primarily there are two resons.
1. They think that the way they have seen the grwoth in the price, they will reap the benefits of their investments soon. - They want to make money out of it.

When I look at Mumbai, Pune, Ahmedabad, Banglore - where I lived and know people, I know that how much money is coming from overseas to fuel the bubble.

2. They think that if they dont buy it now, probably they will never be able to afford it in future. If they want to come back and stay here, they will not have enough money (even if they are earning dollars) to do so.

So, I know that one day the bubble will burst, but that ONE DAY will come may be after years. Effectively the bubble will still grow bigger and bigger for quite sometime before it will burst.

Please give your thoughts. I would love if you counter my beliefs.

Anonymous said...

Dear Bridge
I dont think money is coming from USA.
I am in Bangalore and I feel that the flats are not at all selling but yet the buyers are holding on to their prices!

This is where I suspect PE at work.There is so much of corruption that few big people buy a lot of things under benami transactions.

Most of my friends in IT, where both the husband and wife are working could afford only flats far away from the city and even those cost them about 40laks.

The prices simply dont seem to come down.For people like me, who dream of buying atleast 1 house in our life,we keep on waiting.

Hopefully, using Yogesh's advice, i gather enough money in the future to buy atleast 1 home!

Amar said...

Hi Yogesh,

I am sure u must be getting lots of blessing from lot of us. Thanks for making us aware of coming bubbles and ur gold prediction let many of us make good profits, i wish my country could have politicians like you who take care of crowds in a beneficial way for everyone. Thanks for sharing your knowledge.

just want to ask if any of new book is about to come any time soon. we are waiting eagerly for upcoming book if any because you are our knowledge bank.

Thanks & Regards
Amar

Naresh Pisharody said...

Dear Yogesh,
I am too convinced that this is a big bubble. There are certain areas is Bangalore where builders have dropped prices in the last 18 months but have still not found takers. I think people have started to realize and the game is going to be soon over.
Regards,
Naresh

Anonymous said...

Dear Yogesh,

I came across this blog today. I thoroughly enjoyed everything and found myself agreeing with most of what you have written. Kudos for your impressive insight

I agree that US economy will be crushed, there will be 20% unemployment in 2 years.

I agree that US dollar and all other currencies except Rupee will fall like a stone.

I agree that India will one of the few economies which will still do well in the next decade, all else will fall.

I have problems with your gold prediction. Buying Rupee gold (Gold fund) cannot give good returns if the dollar falls against the rupee. Gold will appreciate in Dollars but will stay the same or depreciate in Rupee terms.

I firmsly believe that currency markets are total speculation and nobody can win except by luck. Stay away is my motto.

Rupee Gold is a dollar proxy and I stay away from it, even if I have seen fantastic gains go by my nose without partaking of it. It does not bother me.

I also disagree with your real estate prediction. I do not think prices will fall. They will stay the same for 3-4 years and then jump to astronomical figures.

Fall in prices happens when a saturated economy like US has a bubble in RE. The number of houses there is more than the population.

In India, there is an inexhaustible supply of population looking for a house. Those who own a house will always find demand and will hold prices. They will not sell and so why would the price fall?

If builders dont find buyers, they will wait for 1 year. That is all.

exactly what they did in Sept 08, when RE crashed. They waited. By Sept 09 they have sold all of their inventory and increased prices 10-20% as well, and launched many new projects to boot.

If you have a need to buy a house, better do it now. RE in history of India, UK and USA has never fallen significantly. It plateaus and climbs, never falls.

What will happen is that inflation will wipe out the value of all currencies including Rupee, although Rupee will fall the least. After some time, when everything else is seeming inexpensive, 1 crore for a flat will also seem like nothing.

It has always happened in Congress govts (80s, 90s, recently as well) and will always continue. Congress and builder mafia are one and the same. This is how they launder their money.

My two cents worth.

Venkat ND

Anonymous said...

Government not doing anything to stop this real estate BUBBLE.. infact all politician have their black money in real estate so they are not controlling it.. even media is quiet...huge loan will kill everybody peace....

Sunil said...

Hello All,

I think since past few Posts Yogeshji has been consistently warning us about the crash thats coming, but still some of us are bit sceptical about it, now instead of bugging him every now an then any further why not just use the theory of "WAIT AND WATCH" an time will tell whats the truth.

Those who dont want to belive him can continue buying in Staggered manner and those who do can hold on to some cash, but as far as Real Estate goes even I belive that there has always been a nexus between Real Estate guys and Politicians so I am really not sure that the Real estate market can crash any further ... lets hope that this time also Yogeshjis prediction come true, cause there are lot of people out there who can afford homes

PS: Yogeshji I heard that you have started working on your next book ... GR8 news.

Anonymous said...

Warren Buffett is supposed to have said that stock market is a place where the patient people get money out of impatient people.

So, i think , instead of getting impatient , we should try moving into cash slowly and also acquire stocks which offer good price in a staggered manner.i think a balanced approach is better instead of completing moving to cash or completely investing everything into markets now.

Regarding real estate, i think the builder politician nexus is so powerful that these people will not bring down prices at all as it is simply fuelled by black money.they might not increase the prices for years but they rarely bring it down

Satish Patel said...

Lots of information on Gold is available on this website

http://www.golddrivers.com/wig.aspx

http://www.golddrivers.com/blog/

Samant said...

hi,
Can someone enlighten how will Indian economy and rupee remain stable while the US,UK, UAE etc get worse ? Are we not a export driven economy ?... today most of us can afford cars, homes (even though on home loan ELIGIBILITIES) and luxuries (termed as necessities) based on the sectors we work in (Software and allied industry, Export oriented industries) etc.. I fail to understand how India can shine irrespective of our source of income (West) ?

Thanks
Samant

The Happionaire™ Blog said...

It is always interesting to read the comments of fellow Happionaires here and it makes me smile to know that almost everyone understood what bubble is being spoken about. A lot of people have been asking - When will this happen?

Things happen when we least expect them to. Today Builders might be able to hold prices - but individual sellers are unable to sell and at some point will reduce prices. Once they reduce prices, most people will prefer buying from them and that will force the big guys to reduce prices. PE money can chase other things too besides real estate.

Most of the money today is not from outside but from India itself. Stock Markets too might see a final burst in trend upwards - before correcting. Before any major crash, there is always an upwards burst. A rise in IPOs always is a sign that promoters are willing to sell, because valuations are very rich.

Gold continues to be a buy for me and so do value based assets.

Keep smiling and have a great weekend!

Yogesh Chabria
Happionaire

Ravi P said...

Hi All Happionaires,

I am in middle of reading Cash the crash. It's an amazing book and the work done is really commendable. Finally after delays in order i got the book on Saturday morning. I've been reading and reading. I liked the way things are explained, specially that Indian Hotels investment is an amazing example. You know, i did some homework and created a template in excel. I'll enter price, number of shares, assets, reserves, debts, income, net profit in that template and it'll give me values in terms of like "Price you will pay to buy", Profit %. The main benefit is i get rid of extra numbers provided on all sites which are no relevant to me. Advanced Ratios, Quick Ratios i don't need to read as they make things complex. I get to see what i should actually been looking at.

I think symptoms of crash can be easily seen if you keep your eyes wide open:

- Too many IPOs are coming. Owners are looking for rich valuations and take the benefit.
- Please read the article below. The Federal Govt has increased their balance sheets with loads of spending. It would be taxpayers money that will be used. We all know taxpayers money usage in garble spending is always a worst case. Last time crash also gave rise to Fed spending taxpayers money for bailout. All signs are here we need to read.
- Gold is a great investment.
http://www.moneycontrol.com/news/fii-view/goldgreat-investment-over-next-decade-jim-rogers_430500.html

I think everyone will get a great value deal once the sensex crashes.

PS: My wife is angry with two people, Yogesh Chabria (sorry man) and Chetan Bhagat. She said she'll write email to both of you to not publish interesting books as they keep me busy at weekends also..hahahaha.... Can't help. That is the only time i get to read anything. And i can not resist knowledge specially.

Anonymous said...

Dear Yogesh
Can you please elaborate on other things that PE money can chase? as far as i know, only real estate gives large returns for black money.

kukreja said...

Great to read your comments here Chabriaji. As a humble follower, I shall share the little knowledge I have also. PE money can chase Gold easily or go out of India and come back as FII money and go into stock markets.

kiran_stock said...

Hi Yogesh,

I started reading your blog recently, but i have been reading your articles in moneycontrol. I have made some investment about 10% of my portfolio into gold after reading waht u have written. But rest of my investment were made pretty recently and have not given me any considerable returns. Do you suggest that people like me should look exiting the market and preserve the capital?
I am a small investor who believe in power of compounding. I believe in investing small and giving it a lot of time to grow.

Please suggest what should investors like me do int he current scenario.

Omprakash said...

Dear Yogesh,

I subscribed sometimes in June but today, for the first time I read your blog till last word and Mr. Ravi's comment!

I have now decided henceforth I will never miss any of your blogs because there is lot of meaningful & wealth of information for becoming Happionaire.

AND may I request Mr. Ravi for that excel sheet as I have recently started investing in the market and would like to understand investing.

With thanks,

Omprakash
(NRI from Dubai)

Rahul Fotedar said...

Thanks Yogesh,

I am not a big investor but have thought of entering the market many times with some lucky gusses & regret not taking the plunge in the past, since I saw the bets growing 1000 times over a couple of years.

I do believe in your theory of the real estate bubble. I believe it is already taking shape for the finale, since I feel stuck in the middle with my hard earned bucks stuck with my dream property in Bangalore. Regret not having subscribed to your wisdom in the past.

Ravi...would be great if you could share the excel you talked of in your comment.

Once again Thanks

Regards
Rahul

Ravi P said...

Dear Rahul, Mr Om and other Happionaires

First of all, I am extremely sorry for the delayed response as I had been busy with few things. I have uploaded the excel taking Indian Hotel as example. The yellow columns in excel need to be populated for every share you're going to analyze. The file can be downloaded at:

http://www.easy-share.com/1908803751/Template.xlsx

I would ask each one of you to consider this as something that I am using for my personal analysis only. Even if you don't like it or found it quite simple that any kid can prepare then please delete it. It depends on mind-set that simple things are often quite powerful.

Ok, now apart from excel I am going to share a story about one of my personal experience.

On Monday, I came to office a bit late because there was traffic Jam. It is quite often here that you see Jams in Delhi NCR especially on Mondays. Our office is in Noida and the parking space is limited. But luckily i got one space that is few steps away from our office gate. I parked my car and started moving towards office gate. As i reached close to our office gate, I found a premium parking space right at the front gate where guard will always take care of my car. So I went back drove my parked car and by the time i reached the front gate, someone else came and parked the car. I thought its not my day, let's go back and park few steps away where I originally parked first. As i reversed my car, someone else came from back and parked in that space too.

Had I parked few steps away and hadn't moved my car, I would had been working at that moment rather than cribbing.

I got another space though but I learned alot from this. I figured that I had been doing same things with my equity investments from past 3 to 4 years. I bought at peaks then market crashes and as soon as it recovers my cost I sell it and again bought any over-sold or so called hot shares. Had I been patient and waited for my investment to grow, I would had been much more wealthier. Its not like I have sold in losses or I haven't gained anything, I am still in PLUS, but it is still not substantial as it should be because of such decisions. I am still keeping some shares that are from the time when i started investments in equity and i think they'll grow in coming years.

Please take this as an example and never do such mistakes. Even if market crashes have a long term view in your mind and things will come your way. You can assume I did this thing for 70% of my portfolio but am glad that i learned from my mistakes. Let me know if this helps. I am pretty sure there are so many small investors doing the same thing.

We have a great future coming ahead and I know we all are going to be much more wealthier.

Say Cheese!!

Sandesh Kamble said...

Hi Happionaires,
There is an article in today's ET regarding real estate bubble.
It can be found on the below site.
http://economictimes.indiatimes.com/markets/real-estate/news-/Real-estate-not-long-term-bet/articleshow/5418316.cms