Saturday, May 27, 2017

Essay: Who Am I?

[Essay written for admission to a writing course]

Who am I? Yes, I am asking this question to my inner self. Instead of giving an answer, it questions me back. “Have not you been asking this same question over the ages?” I agree and I do remember those interactions.

The first instance was when I was too young. I was told by my elder sister that I am Anand. That was what my parents had named me. But why “Anand”? I had probed. And my sister had told me smilingly “When you were in mother’s womb, Appa and Amma had gone to watch a Kannada movie starring Rajkumar and Julie Lakshmi. They had liked the movie and they took a decision that if the new born is a boy, the name will be that of hero’s character in the movie. If girl, then it would be of Heroin’s”. So I came to know how I became Anand.

The next was during school going days. Then routine was simple and it repeated year after year. Get up and get ready. Reach school in time. Come back in the evening, play with neighborhood kids until it gets dark. Do the homework and sleep with books next to my pillow. My school teachers had liked my promptness and consistency in completing the assignments. They told everyone that I am a good student. And I believed in that. Even my parents never missed to tell those visiting our home that I am good at school. Now you know how I, Anand, got to be known and identified as a good student.

Then teenage came, I left home to study at college. I had become more independent. For the first time I tasted Tea at a hotel outside of home though I was a regular tea-drinker at home. I began to develop awareness of my looks and also started to notice how the world judged people by their dressing and outlook. I was not a complete rebel but yet refused getting a short hair-cut which was the norm until then. I demanded additional pocket money to buy a nice pair of shoes. Yeah, I was thinking for myself and decided what was good for me. What a phenomenal change! For others, I was a son of so and so parents and came from the place which is bigger than a village but smaller than a town. But I knew those were just external identities and I knew for sure I had a mind of my own and that was my true self.

Education was over and I started job hunting. During the interviews, the first question asked was “Tell about yourself”. I would narrate them how Anand, a good student, now is in search of a job and a steady income. They believed my story and I got a job with some disposable income. That was when the sub-conscious person in me went on a high and soon I was riding a bike, bought out of my own earnings and of course with few EMI’s to pay. Who was I then? I was a person who saw the world full of opportunities and trying to make the best out of it. Then I begin to see the inner selves of other people too, beginning with my parents. They wanted to own a house and they saw me as the vehicle to reach their desire. A part of my inner self was a part of theirs too. I was just an extension of my parent’s souls.

It was time to marry. My soul mate had chosen me for the reasons unclear to me yet. Happy times followed and the children too. I became a complete family man. Who do not like their young kids? The answer to “Who am I?” got changed again. I was observing the transformation of my soul with the changing life phases but yet simple things like career, money and indulgences in keeping the physical senses happy were ruling my soul.

I was nearing my fortieth birthday and one day I was not able to read the newspapers and magazines with the same ease I was doing before. My wife suggested to see a doctor, so I went to one. After making the checks, the doctor asked “Are you 40?” I was surprised how she knew my exact age. I got my reading glasses and I began to carry them wherever I went out apart from two cell phones in two different pockets.

It was not just my vision which was blurred but the soul too had become dim. I had realized that it does not matter who I am but what matters is why I am here and one has to know the purpose of life. My friends and colleagues shrugged it off saying it is mid-life crisis. Had they gone through the same thing I was going through? I was not convinced. I googled it which led me to spirituality. I found that Adi Shankara and Swami Vivekananda who took the spiritual path had found their answers quite early in their lives and they did not live to forty. I realized I was slow and thought of attempting to trace the routes one of them had traveled. I could form a small group of friends to reach the Himalayas. During Adi Shankara’s time, it took many months to get there from south India but for me it took just three days. After taking a dip in the holy Ganga, I went on to meet a hundred year old yogi. He was a renounced man but still a man. The concept of God became clearer to me. There is no God and God is everywhere. Hope you do not see any contradiction in it else you are not yet ready for it.

Now the question ‘Who am I’ does not bother me anymore. Bhagavad-Gita says I was here before and I would come here again. Not the time to discuss if Mahabharata had really happened but the philosophical take away is, it does not matter who I am but what matters is what I do.

Wednesday, May 17, 2017

Impact of IT job losses on Indian Economy

IT industry is going through a rough phase. Blame in on Trump or Brexit or Automation, jobs are being lost in this sector. They were high paid jobs in comparison to others sectors and these employees were earning forex. So the impact would be substantial. Let us try to estimate what would be the impact of this on Indian Economy.

1. Job losses: Estimates show that there are 48 lakh employees work in IT industry. Regarding job cuts, every report has their own numbers ranging from 2 lakhs to 10 lakhs. But most seem to agree that there will be around 5 lakh jobs being lost. Many senior management jobs which get top salary are cut along with the jobs at lower end being lost to automation. If we assume that average pay of these employees is Rs. 10 lakh per annum (since it includes highly paid management jobs), it will amount to USD $7.8B (billions) of total lost income per year. The actual impact could be less as many of these people are likely to find another job, may be with a lesser pay. But we need to make an estimate, so we will assume the worst case impact, and we get this $7.8B figure.

2. Reduced pay: Those who remain in the job face lots of heat too. Their variable pay or bonus whatever you call it, can be trimmed and IT companies will not shy out from doing this as we have learnt from the last downturn. If we assume that around 20 lakh (out of those 43 lakhs remaining on job) lose around 10% pay, it will sum up to $3.1B.

3. Secondary impact: As those losing their income reduce their spend on eating out, travel, etc. and also free up office space, reduce load on facilities and utility services etc. it will lead to reduced spend on services and it will have a negative impact on national income (GDP). I assume that would be equivalent to number of jobs being lost (5 lakhs) but at reduced pay. This would amount to $3.8B.

All this will sum up to close to $15B.

For Indian economy, which is around $2 trillion, $15B is not a huge impact. And on the economy growth rate of 7%, the negative impact is almost negligible as it is spread out over 2-3 years. But yet, this will kill the optimism in the industry and also reduces the employee morale which is intangible. And for cities like Bangalore where IT industry has significant presence, it may feel like recession.

If the estimated job losses begin to go up 3x or 4x, then it will start hurting the Indian economy. That no one is predicting now and probably we should not worry about. But for this down wave in IT, Indian economy is likely to digest and move forward.

ಮರ್ಯಾದೆಗೆ ಹೆದರುವುವರು ಮತ್ತು ಹೆದರದವರು

ಈ ಜಗತ್ತಿನಲ್ಲಿ ಎರಡು ತರಹದ ಜನರಿದ್ದಾರೆ.  ಮರ್ಯಾದೆಗೆ ಹೆದರುವುವರು ಮತ್ತು ಹೆದರದವರು. ಹೆದರುವವರದೇ ಹೆಚ್ಚಿನ ಸಂಖ್ಯೆ (ಅದರಲ್ಲೂ ಹೆಣ್ಣು ಮಕ್ಕಳು). ಅವರು ಅಕ್ಕ-ಪಕ್ಕದವರು, ಬಂಧು-ಬಳಗ, ಊರಿನ ಜನ ಹೀಗೆ ಒಟ್ಟಿನಲ್ಲಿ ಸಮಾಜ ತಮ್ಮನ್ನು ಹೇಗೆ ನೋಡಬಹುದು ಎನ್ನುವುದಕ್ಕೆ ಪ್ರಾಮುಖ್ಯತೆ ಕೊಡುತ್ತಾರೆ. ಸಮಾಜದಲ್ಲಿ ತಮ್ಮ ಗೌರವಕ್ಕೆ ಎಂದೂ ಕುಂದು ಬರಬಾರದು ಎನ್ನುವ ಪ್ರಯತ್ನದಲ್ಲೇ ಜೀವನ ಸಾಗಿಸುತ್ತಾರೆ. ತಮ್ಮ ಮನೆಯಲ್ಲಿ ಏನಾದರೂ ಸಮಸ್ಯೆ ಇದೆಯೋ, ಅದು ಹೊರಗಿನ ಸಮಾಜಕ್ಕೆ ಗೊತ್ತಾಗದಂತೆ ಕಾಳಜಿ ವಹಿಸುತ್ತಾರೆ. ತಮ್ಮ ಮಗ ಲಂಪಟನೋ, ಸಾಲಗಾರನೋ ಆಗಿದ್ದರೆ, ತಮ್ಮ ಕುಟುಂಬದ ಗೌರವಕ್ಕೆ ಹೆದರಿ ಆ ಸಾಲವನ್ನು ತಾವು ಮುಟ್ಟಿಸುವ ಮೂಲಕ ಸಮಸ್ಯೆಯ ಬಗೆಹರಿಸಲು ನೋಡುತ್ತಾರೆ. ಪತಿ ಕುಡುಕನೋ ಅಥವಾ ಮೋಜುಗಾರನೋ ಆಗಿದ್ದರೆ, ಅವನ ಪತ್ನಿ ಈ ವಿಷಯ ಹೊರಗೆ ಬಾರದಂತೆ ತಡೆಯುವ ಎಲ್ಲ ಪ್ರಯತ್ನ ಮಾಡುತ್ತಾಳೆ. ಇದು ಸಾಕಷ್ಟು ಕುಟುಂಬಗಳಲ್ಲಿ ನಡೆಯುವ ಸರ್ವೇ ಸಾಮಾನ್ಯ ಸಂಗತಿ. ಮೊದ ಮೊದಲಿಗೆ ಇಂತಹ ಸಮಸ್ಯೆಗಳು ಬಗೆ ಹರಿದಂತೆ ಕಂಡರೂ ಅವು ಕ್ರಮೇಣ ದೊಡ್ಡದಾಗುತ್ತ ಹೋಗುತ್ತವೆ.

ಅದಕ್ಕೆ ಕಾರಣ ಇನ್ನೊಂದು ವರ್ಗದ ಜನರಿದ್ದಾರಲ್ಲ, ಮರ್ಯಾದೆಗೆ ಹೆದರದವರು (ಅಥವಾ ಮರ್ಯಾದೆ ತೆಗೆಯುವುವರು). ಅವರು ಈ ಮರ್ಯಾದೆಗೆ ಹೆದರುವುವರ ಮನಸ್ಥಿತಿಯನ್ನು ಚೆನ್ನಾಗಿ ಅರಿತಿರುತ್ತಾರೆ. ಅವರಿಗೆ ಅದೇ ಬಂಡವಾಳ. ಸಾಲ ಕೊಟ್ಟವರನ್ನು ಸರಹೊತ್ತಿನಲ್ಲಿ ಮನೆಗೆ ಬರುವಂತೆ ಮಾಡುತ್ತಾರೆ. ಕುಟುಂಬದ ಗೌರವವನ್ನು ಪ್ರಶ್ನೆಗೆ ಈಡು ಮಾಡುತ್ತಾರೆ. ಅಲ್ಲಿಗೆ ಪತ್ನಿಯ ಮೈ ಮೇಲಿನ ಒಂದು ಆಭರಣ ಮಾಯವಾಗುತ್ತದೆ. ಆದರೆ ಇಂತಹ ಪರಿಸ್ಥಿತಿಗಳು ಮೇಲಿಂದ ಮೇಲೆ ಬರ ತೊಡಗುತ್ತವೆ. ಕಾಲ ಕ್ರಮೇಣ ಅವನ ಪತ್ನಿ ನಿರಾಭರಣ ಸುಂದರಿ ಆಗುತ್ತಾಳೆ ಅಥವಾ ಅವನ ತಂದೆಯ ಸ್ಥಿರಾಸ್ಥಿಗಳು ಸಾಲಗಾರರ ಪಾಲಾಗಿರುತ್ತವೆ.

ಕಳೆದುಕೊಳ್ಳಲು ಏನೂ ಇಲ್ಲವೋ ಆಗ ಆ ಪತ್ನಿಯ ಅಥವಾ ತಂದೆ-ತಾಯಿಯ ಪ್ರತಿಭಟನೆ ಶುರುವಾಗುತ್ತದೆ. 'ದುಡಿದು ತಂದರೆ ಹಿಟ್ಟು, ಇಲ್ಲದಿದ್ದರೆ ತಣ್ಣೀರು ಬಟ್ಟೆ' ಎನ್ನುವ ಉತ್ತರ ಸಲೀಸಾಗಿ ಹೊರ ಬರುತ್ತದೆ. ಮರ್ಯಾದೆಗೆ ಹೆದರದವರಿಗೆ ಬಯ್ಗುಳ ಏನೂ ಹೊಸತೇ? ಅವರು ಅಲ್ಲಿಗೆ ಜಗ್ಗುವುದಿಲ್ಲ. ಆದರೆ ಅವರ ಆಟ ಮುಗಿದಿದೆ. ಅವನ ಪತ್ನಿ (ಅಥವಾ ಪೋಷಕರು) ಈಗ ಮರ್ಯಾದೆಗೆ ಹೆದರುವುದಿಲ್ಲ. ಅವರು ಅವನನ್ನು ಮೂಲೆಗೆ ಕೂಡಿಸುತ್ತಾರೆ ಅಥವಾ ಮನೆಯಿಂದ ಹೊರ ಹಾಕುತ್ತಾರೆ. ಆಗ ಅವನು ತನ್ನ ಖರ್ಚು ತಾನು ದುಡಿಯುವ ಸಾಧ್ಯತೆಗಳೂ ಹೆಚ್ಚು.

ಆದರೆ ಇದೇ ನಿರ್ಧಾರ ಮೊದಲೇ ತೆಗೆದುಕೊಂಡಿದ್ದರೆ, ಕಳೆದುಕೊಳ್ಳುವುದು ತಪ್ಪಿಸ ಬಹುದಿತ್ತಲ್ಲವೇ? ಆಗ ಅದು ಕುಟುಂಬದ ಗೌರವದ ಪ್ರಶ್ನೆ ಆಗಿತ್ತು. ಸರಿ, ಆ ಗೌರವ ಉಳಿಯಿತೇ?  ಕಳೆದುಕೊಂಡ ಮೇಲೆ ಬುದ್ದಿ ಬಂತು ಅಂತ ಗಾದೆ ಮಾತೇ ಇದೆ ಎಂದು ಸಮಾಧಾನ ಮಾಡಿಕೊಳ್ಳಬಹುದು. ಆದರೆ ವಿಚಾರ ಮಾಡಿ ನೋಡಿ. ಮರ್ಯಾದೆ ಎನ್ನುವುದು ಊಟದ ನಡುವಿನ ಉಪ್ಪಿನಕಾಯಿ ಅಲ್ಲ. ಅದು ನಮ್ಮ ಭ್ರಮೆ. ಅದಕ್ಕೆ ಹೆದರುವುದು ನಮ್ಮ ದೌರ್ಬಲ್ಯ. ಮರ್ಯಾದೆಗೆ ಹೆದರದವರು ಅದರ ದುರ್ಬಳಕೆ ಮಾಡಿಯೇ ನಮ್ಮನ್ನು ಅವರ ಜೊತೆ ನಿಲ್ಲಿಸಿಬಿಡುತ್ತಾರೆ. ಅಕ್ಕಂದಿರೇ, ತಾಯಂದಿರೇ, ನಿಮ್ಮ ಪತಿ ಅಥವಾ ಮಗ ಮರ್ಯಾದೆಗೆ ಹೆದರದವನು ಎಂದು ಗುರುತಿಸಿದ ದಿನವೇ ಅವನನ್ನು ಎಲ್ಲಿಡಬೇಕೋ ಅಲ್ಲಿಡಿ. ಅವನ ದೌರ್ಬಲ್ಯಗಳು ಸಮಾಜಕ್ಕೆ ಗೊತ್ತಾದರೆ ಆಗಲಿ. ಅವನಿಗೆ ಹೊಸ ಸಾಲ ಸಿಕ್ಕುವುದು ತಪ್ಪುತ್ತದೆ. ಅದು ಬಿಟ್ಟು, ಸಮಾಜದಲ್ಲಿ ನಿಮ್ಮ ಪ್ರತಿಷ್ಠೆ ಏನಾದೀತು ಎಂದು ನೀವು ಭಯ ಪಟ್ಟರೆ ಅದು ನಿಜವಾಗುವ ದಿನ ಬಂದೇ ಬಿಡುತ್ತದೆ. ಅದರ ಬದಲು ಸಮಸ್ಯೆಯನ್ನು ಎದುರಿಸಿದರೆ ಅದರಿಂದ ಉಪಯೋಗವಾದೀತು. ಇಷ್ಟಕ್ಕೂ ಸಮಾಜಕ್ಕೆ ಗೊತ್ತು ಎಲ್ಲರ ಮನೆ ದೋಸೆ ತೂತೆ ಎಂದು. ಅದು ತನ್ನ ಪಾಡಿಗೆ ತಾನು ಸಾಗುತ್ತದೆ. ಎದುರಿಸಿ ಗೆದ್ದೀರೋ, ಆಗ ನೀವೇ ಆ ಸಮಾಜಕ್ಕೆ ಮಾದರಿ.

Friday, May 12, 2017

Arbitrage trades and their impact on spot market pricing

Here is the textbook definition of how Arbitrage Funds earn money: “Arbitrage fund leverages the price differential in the cash and derivatives market to generate returns. The fund simultaneously buy shares in the cash segment and sell futures in the derivatives segment of the same company as long as the futures are trading at a reasonable premium.”

This would mean they do no-risk trades. Though there would be transactions costs (may be taxes as well), this arbitrage would still generate positive return with a very high probability. This opportunity exists as long as premiums on futures remain high creating a spread between spot price and its futures.

First we need to ask why there is a premium on the futures. Because there is a hope that underlying stock would gain, buyers of Futures are willing to pay a premium. But at the expiry, hope meets reality and the spot price converges with futures price resulting the premium to become zero. This cycle repeats every month.

Beginning of the new series as the premium is high, these funds enter the trade and when there is no premium to earn (at expiry or before), these trades end with square-off in futures and selling in cash market. They would earn at least 1-2% month per trade.

It is good for Arbitrage funds. But for rest of the traders, these trades might give false impressions of what is happening. As those funds buy in the sport market, demand goes up so will be the spot price. But they are creating a short position in futures market simultaneously. When they want to square-off the derivative they hold, they sell in spot market which causes pressure and the spot price declines. So this creates a price range and within that a stock would move multiple times.

You might think all of the trades in the spot market are not arbitrage trades. Looking at the data shows that majority of the trades are indeed done by these arbitrage funds. They contribute significantly to the volume. Take example of IDFC Bank stock. The number of shares owned by Arbitrage funds in this stock is a lot higher than long term mutual funds hold and also higher than its daily or monthly average trade volume in the spot market. These funds are not long term investors but only interested in pocketing the premium and they do not care about the underlying direction of the stock. Since they would win anyway, they do not shy to create a stampede while selling or would not mind to create a hysteric demand taking the price up and increasing the arbitrage opportunities for themselves.

When they are buying, price levels see an increase beyond what it would be possible if these arbitrage funds were not present. Once their trades are set, they stop buying and the price drops as demand drops too. At this stage, arbitrage funds might decide buying again increasing the Open Interest levels or they can square-off exiting spot market too. And in the process they would damage the price to an extent of 1% to 10% depending on the depth of the market. But the fall won't be forever as they need to create hope for buyers to pay a premium which would happen with fresh buying. That is to sell futures at higher premium. This cycle repeats at least once a month and sometimes more within a month.

When a stock (traded in F&O) sees a sharp up move and then just passes time for the rest of the month, you know now who profits from it. Now that we are aware of their presence, how do we get to know their actions and how we can profit from it? I would write about that in a future blog post.

Saturday, May 6, 2017

Book Review: The Gene

As the sub-title of this book describes, it is an intimate history of development of biological science with focus on genomics which is now getting prominence for its potential benefits to mankind.

The book begins with a prologue in which author (who originates from West Bengal, now resides in US) describes about three persons in his family over two generations diagnosed for mental disorders and could not lead normal lives. It is believed that genes carried these defects or the disease causing mechanism making it a hereditary disease. The blood of parents is not lost in you. However, defects may not come to surface in every member but yet it would use them as vehicles to come to life again in the next generation.

Then the next few chapters explore the efforts of scientists like Gregor Mendel to Charles Darwin (and many other scientists) in understanding the process of evolution and natural selection. These chapters are a fascinating read as the book touches most of the literature, theories developed and experiments devised over a period of few centuries and it establishes how this stream got developed into a full-fledged science and how each scientist built on the foundation laid by their predecessors.

Then the detailed study of genes follows through. Efforts to understand why they are sequenced in a particular way and how each is influencing the characteristics, be it in plant, animals or human beings. There is explanation of how the evolution played a role and how the nature nurtures this mechanism of passing the genes to their off-springs. If and how genes can be engineered to get the desired results and similar discussions form the rest of this book, which cannot be summarized in a blog post and I believe it requires reading full 500+ pages of this book. If this subject interests you, get it on your study table soon (if not done already).

Though this is a science non-fiction, this book uses a simple language and keeps the readers interested, thanks to the literary skills of the author cum scientist Dr. Siddhartha Mukherjee. He won the Pulitzer award for his previous book on the study of cancer. This book in an extended study of his previous book and would become one of the foundations pillars in the historical study of genes.