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While countries like Hong Kong are lowering taxes and attracting MORE business the locals in Bombay feel the opposite works. In yet another attempt to drive people out of the city the Bombay Muncipal Authority (BMC) is debating whether to tax rental rates at 41.5%.  The way they are planning to tax people is the following:

Rs 100,000 - Residential rent
Rs 41,500 - The additional amount someone has to cough up and pay as the BMC Tax
Rs 33,000 -  Income tax paid by the lessor on the Rs 100,000

The gross rent would be Rs 141,500 and after taxes the net amount to the landlord would be Rs 67,000, a staggering 53% tax rate.  You can be the judge on how many people will actually end up paying this amount.

In HK you actually get something in return, but in Bombay that ain’t the case, below are some of the services offered by the BMC:

• Building and maintenance of streets and flyovers - Been to Bombay? Then you know there is more turbulence on the roads then the airspace
• Public municipal schools - scary, NO ONE I know sends their kids to these schools
• Water purification and supply - EVERY house has their own water purifier
• Hospitals - if by hospital you mean a place to get urgent care, then don’t visit a BMC hospital
• Street lighting - drive from Bandra to Mahim at midnight on the main road
• Maintenance of parks and open spaces - What parks are they talking about?
• Sewage treatment and disposal - right into the ocean
• Garbage disposal and street cleanliness - HAHA

Anyways, you get the point. 

I keep referring to the BMC but in reality the name was changed several years back to MCGM (Municipal Corporation of Greater Mumbai) but 99% of the population still refer to it as the BMC.  Either way the acronyms have their own meaning:

BMC - Badly Maintained City
MCGM - Maharashtrians Can’t Govern Mumbai

And where does the head honcho of this organization stay - Carmichael Road (aka M.L. Dahanukar Marg).

People use the newspaper as a source of information but if you were looking to buy property in Bombay the papers were of no use. Below are two recent front page headlines:

Friday, May 2nd (Times of India) - Flat prices frozen till Diwali
Saturday, May 3rd (DNA) - Property prices head south, fall of 15-20%

The Times of India article indicates that an informal agreement was in place between the local builders to keep rates at current levels.  The undertone of the article is “buy now, why wait till October because the rates will be the same” if people really believe that they have no clue what is happening in the global property market.  Rates will fall in Bombay, the question is how much and how quickly.

Pujit Agarwal of Orbit Corporation the company behind the Arya building shown was quoted 24 hours later in the DNA newspaper. He said rates have fallen 15-20% in certain parts of Bombay such as Lower Parel and Santa Cruz and as much as 30% in places beyond Kandivli and Borivli. 

Amazing how quickly things turn in the Indian property market…or more appropriately how useless the local newspapers are for anything.

I wrote about Mukesh Ambani’s monster home called Antilla back in June 2007.  At that time I mentioned the house was “estimated at USD 1 billion dollars - that figure is definitely way off.” I was right, in the latest Forbes magazine there is talk the house (if you can call it that) will be closer to USD 2 Billion (Rs. 8,000 CR) not the paltry billion dollars.

The renderings in the Forbes article of Antilla are pretty cool looking, based on some pictures I took over the past week the structure is ONLY 50% complete as compared to the renderings. 

Click for pictures of the current status of Antilla as it’s being constructed. 

This ain’t no amateur style food fight but on a global scale.  Rice, wheat and corn are at near record highs.  Oil this week touched USD 120 a barrel and is currently around USD 112.  Riot’s have broken out in some parts of the world for food, i’m a bit surprised nothing like that has happened here in India.  With 80% of the Indian population earning less then USD 1 dollar a day, food ends up costing more as a percentage of daily spend as prices rise for those 80%.

In 2008, 24% of all corn harvested in the United States will be used for biofuel.  And that number will hit 32% by 2009.  People are starving and to take something that could keep people alive and instead turn it into fuel for Ferrari’s and Ford’s seems a bit short sighted.

The above thumbnail (when clicked) shows the oil production for the past 40 years and you can see not much has really changed in light of increased population, cars, data centers, industrial complexes, etc…stuff that needs oil.

Apparently, oil companies are REALLY bad at predicting demand and producing enough supply.  Funny how Toyota, Sony and other manufactures can predict customer demand and scale their operations to meet targets. I guess something to do with lack of competition.

Tough week for Obama when you have friends like Reverend Wright slamming the people you want to be your friends - the voting public.  The controversy is overdone and has given Hillary another life-line to save her sinking campaign. The argument is “oh my god look at Obama’s friends” but look at Hillary she’s married to a guy that has slept with more trash then the Teamsters pickup. 

Controversy aside I think Reverend Wright should release a comedy album because I still can’t stop laughing at him making fun of white people who have no rhythm. Check it out on YouTube…funny as hell y’all.

I just raced through the latest book from Satyajit Das titled “Traders, Guns and Money” and you would think it was a year in review on the global financial markets…WRONG.  The book was penned in 2006 and describes his last 25 years in the derivatives market which happens to be what is ailing most investment funds and banks.  Many of the financial products that were used in the past have made their reappearance, repacked and rebranded.  Structured products, foreign currency convertible bonds (FCCB’s) and yen carry trades are just the tip of the iceberg.  In India all 3 have been in vogue lately and peddled by the banks.  It’s very easy to compare a product giving 8% vs 6% when all other factors are the same but with structured products it’s not so easy to decipher what the fu#$% is going on. 

India’s version of the sub-prime mess is the yen carry trade.  Many locals banks pitched the idea to corporate treasuries as a way to get funds cheaply and grow their business.  Instead many took the loans at 1-2% and speculated in the local equity markets which were giving over 45% returns in 2006 and 2007. Now that the markets have tanked and the yen has gone to hell, most companies are sitting on hugh losses. Most won’t report these losses as yen carry trades but some other financial engineering exercise.  Which leads to the whole issue of credibility, can you really trust what a company pimps in their annual and quarterly numbers.  

The last 50 pages of the book starts to drag as he gets into detailed calculations. However, the book is a great read and provides insight into a sector of the financial markets that most people have no clue exists or how it functions.  If you plan on getting into these complex derivatives transactions…read this book first.

We are just days away from the launch of the Indian Premier League (IPL) on April 18th.  There was a ton of hype around the end of January when the 8 teams were sold to the highest bidders,  the owners were a mix of industrials and Bollywood - surprising I know.  Over USD 720 million was put on the table to buy the teams and players.

The IPL is the brain child of Lalit Modi a VP at the Board of Control of Cricket in India (BCCI). BCCI is said to have made over USD 1 billion on the television rights for the IPL over many years. Some of the numbers being thrown around are a bit suspect, but I love the fact they are trying to create an entertainment option that could rival the likes of the NFL, NBA or Major League Baseball. 

My only concern is they are already watering down the brand with 59 matches in 6 weeks, a minimum of one match a day starting April 18th.   

Will it work? That’s the billion dollar question everyone is waiting to see. I just hope it’s successful so they use the money to build world class stadiums and really enhance the overall fan experience.

At last the Securities & Exchange Board of India (SEBI) has agreed to allow Direct Market Access (DMA) which will facilitate wire speed Straight Through Processing (STP) on the exchanges. If the previous sentence is as difficult to understand as Kevin Federline’s role in life then you may want to pass on this blog entry.

Let me try and demystify the above (as far as Kevin Federline…no clue):

India will allow computers to make buy/sell decisions and issue those orders directly to the exchanges via a broker.

Previously a broker was required to hit the enter key once the order was received from a client. The announcement although technical in nature will change the landscape of the Indian markets. Similar to the announcement back in the early 90’s that Foreign Institutional Investor’s (FII’s) would be allowed trading access to India.

Pros:
- lower impact costs for FII’s
- less chance of errors
- wire speed transactions
- allow computer driven trading algorithms
- potentially greater volumes

Cons:
- local brokers will no longer see “order flow” from clients. Granted the orders have to hit the brokers infrastructure but the ability to act on that information is much more difficult.
- arbitrage shops who will have to settle for a smaller spread or move to a computer driven model

On a personal level this is very exciting for me as it combines two of my passions: technology and the capital markets.

Trivia: The very first FII to register with SEBI was Pictet, a private Swiss bank, in June 1993.

Although at the moment the financial markets seem okay, there is still an undertone of pessimism. When thinking of the current mess in the markets, one of my favorite quotes that comes to mind is from the movie Boiler Room…
“And best of all kids, I am liquid.” - Jim Young (Ben Affleck)

Unfortunately, that’s not the case for many people. Many hedge funds have collapsed due to margins calls from being over-leveraged and unable to trade their suddenly illiquid investments such as MBS (mortgage backed securities).

Now there is word that many people participating in auction-rate securities are getting hammered. These investments were sold as “cash equivalents” meaning no chance of losing your principal. Of course, now they are losing money due to the lack of participants in these auctions and hence making these investments you guessed it - illiquid.

Trivia: Boiler Room was released Feb 2000 a month before the Nasdaq hit its highest closing ever at 5,048.62 on March 10, 2000. In retrospect the movie was more of a documentary on what was happening during the dot.com bubble.

Bombay historically has a supply/demand imbalance around residential property which has led to sky high prices for sub par housing. But lately there has been a lot of construction and hopefully should lead to better pricing…I hope. Click on the image to the left for the full gallery of pics.

One of the areas that I’ve noticed some construction is on Altamount/Carmichael Road. There are a total of 4 large buildings coming up.

Starting from the Kemps Corner entry to Altamount Road, I’ll take you through some of the newest residences coming along the way.

Govind Niwas - Right behind Just Men. The builders are Govind and Sunil Shah.

Chattan Tower - Built by K. Raheja, I’ve seen it called One Altamount and Chattan Bungalow as well, but I believe the final name is Chattan Tower. Rumor has Sameer Gehlaut, of Indiabulls, buying one of the flats at Rs. 1 lakh/sq. feet (USD 2500/sq. ft).

Residence Antilla - Better known as the colossal home of Mukesh Ambani. What more can be said, the building is just massive.

Ispat Tower - Technically the building is on Pedder Road but has access from Altamount Road. The owners are Pramod and Vinod Mittal of Ispat Industries. They are brothers with Laxmi Mittal.

There is another building being constructed next to Kumar Mangalam Birla’s house, not sure if it will be a 20+ story building or another billionaire bungalow.

Lastly, when walking on Altamount Road you’ll see the 60 story Imperial Tower being built by Shapoorji Palonji and Dilip Thakker. It’s not on Altamount Road or anywhere near it, but it often gets top billing when talking about sky high property prices. I personally believe a lot of it is hype, the entry is from Tardeo and at the moment is atrocious.