Why our graduates are unemployable

 One of the debates currently going on is the unemployment that is going on and on the other hand industrialists claiming a lack of trained graduates needed for a number of jobs.

Primarily, what has happened is the number of private engineering colleges for profit opened in the last few years and a majority of them offering IT courses. Students and Parents flocked to these courses with the ultimate aim of working in US/Europe for a good pay and possibly good life.

The Private engineering colleges, in order to make profit, took students with poor aptitude for the courses or intelligence for those courses to hand out a degree at the end of the course.

With too much supply and poor quality of students, unemployment has increased. The quality students got absorbed in  good companies in India and abroad, while those with just a paper certificate are left out doing BPO jobs or as delivery boys for Zomato or Swiggy or others.

Second issue is the lack of quality education that caters to the business needs of the country. Basic teaching of how office works - the filing, conduct of the meeting, the communication skills etc are not taught. Mere technical skills alone are not important in today's world. The ability to adapt to meet customer requirements are the keys to the current business world and not parroting bookish knowledge. In today's world knowledge is key and as much information is gathered before meeting a customer helps in strengthening your view point and countering the customer if required.

Another issue is that the students ( being children of current generation with ease of living and coming from one or two children family) opt for jobs like IT/Finance/Admin which will give them an AC office and free time to do SM/games on their mobile. Very few of the students opt for Civil/Mechanical/Electrical fields which will get them to work at site. Even if the get the degree in their field, their next option is to do an MBA to get back to office and 9-5 jobs.

 Regarding Medical field, the NEET exam is supposed to filter candidates with interest in medicine and the tough effort that has to be put in. However, many oppose the NEET and this dilutes the intake. We can understand some States opposition to NEET as it stops poor candidates from taking high paying coaching classes, but a solution can be found by discussing and allowing top 10 candidates in State Board to have direct access to medicines and by pass the NEET. This will ensure Quality of Doctors coming out.

The biggest issue is not NEET per se. It is the high fees that is charged in private Medical colleges ( costs 50 lakhs to 1 cr for a 5 year course) that detracts smart, but poor candidates from going for Medicine. The recent example of NEET having a zero percentage cutoff ( I imagine go write your name on the answer paper and you are selected) for PG courses is  precisely this. It costs appx 2.5 crs to do a two year PG course. Who will opt then for Medicine except the Richie Rich. This then gets reflected in poor service and high cost for medical treatment to recover the investment.

It is time, private college fees are capped and uniform exams conducted with exception of the exams for the top 10 or 15 candidates in the Board (state or cbse) reserved for them.

 

Investment and Food

 Investment and Eating/Food are majorly related. Like if you gulp your food when you are hungry and end up with an upset stomach, so too investment  made irrationally and fast could end up with a loss.

Thus what and how you eat is a lesson for what and how you invest. If you read and eat healthy, you remain in the pink of your health and if you invest wisely after reading a lot, you also ensure that the stocks you invest in remains healthy.

Another allegory is that if you take time to cook food and you are a good cook, the dish comes out well else it is burnt or too oily, salty, spicy etc. Similarly, if you invest doing financial analysis, technical analysis and various other methods of investing, you are likely to be a winner.

For those who do not know how to cook or cannot spend sufficient time, there is the ready made mixes available in the stores and similarly those who do not how to invest, there is the ready made mix in the form of Mutual Funds. Regularly invest and you could end up having a substantial healthy corpus end of 20-30 years.

Many of the chefs you see the videos of, use the mantra of keeping cooking simple to get the best dish. So too is investment recipe- keep it simple and your investment is done.

Some of the food that comes out well requires a lot of time- eg Thertipal (or the milk sweet). Recipe is simple - Milk + Sugar. But it is kept in a slow flame for a couple of hours to get the dish made. Investment in the form of regular SIPs could get you a substantial corpus end of 20-30 years.

Further, just like cooking some dish may come out very well, while some dish may be a total failure, investment also will have this- some may turn out duds and some may turn out to be a chicken that lays the golden egg.

Like cooking, if you have money and can afford to waste a recipe by experimenting, so too in investment if you have extra money you can take a risk of investing in a tweaked or different manner. Some by studying technical analysis (not fundamental analysis) do what is called sectoral rotation. This is like when you cook, you do not want Daal Chawal every day. You keep changing the dish daily. In investment, though not daily, you study the market and see if the flavor (momentum) is in Banking sector or Pharma or IT sector, you jump into the band wagon and make your money. 

Another aspect of the flavor of the season is  certain restaurants become popular for a short period of time and then fade away to be replaced by another. Alternatively, we have Burger king, Pizza hut, Mcdonalds which are a steady standard fare and been long. Investments in large stocks are like these steady standard fare with alpha (meaning getting a return higher than standard) coming from investment that is the flavor (momentum) of the month. Eg, in Chennai, there is a restaurant called Kaidhi (Jailed -loosely translated). The ambience is like you are in a jail and eating it. You may visit a couple of times, but will not go regularly there, but since everyone is talking about it, it will be full for a couple of seasons and then just fall of the cliff. Patti veedu (grandmother house) is another one. Thus investment in Sectoral is like these- in flavor for a few months and then just fall off. Either you should be shrewd and tracking your investment or let the Mutual fund do it for you in a flexi cap or multi asset fund.

Another aspect of this comparison between food and investing is you regularly flush your system with a laxative, asset allocation or revisiting your investments once a year is the laxative. You remove the duds and stock up on the good investment.

Having said all these, one should know that investment like food and its reaction is dependent on various factors and one cannot be accurate 100% of the time. Some may suit your taste buds, some may give you allergy, some may give you upset stomach. Like that, you take risks with investment. Even big big investors take risks to generate alpha and it may end up as a flop, but since they have so much of investment, it is taken care of others.

Dr. Velumani of Thryrocare firm said in one interview that he got 4500 crores when he went for IPO of his company and he put 1500 crores in a private equity and now its value is 150 crores. And private equity is supposed to be filled with brainy financial analysts and MBAs doing a lot of research, but still they failed. The reason is it is impossible to predict the behavioral nature of human being. A company doing 20% CAGR for last 10 years may suddenly fail, because of some change in technology eg. Companies that used to hire videos to homes suddenly found themselves out of business due to cable companies. Similarly, cable companies are now getting out of business because of streaming. Who knows what is in store in future.

This brings us to the point of Diversification. Eating same oily Samosas day in and day out, just because you like it can lead to health issues. So too investing only in one type of stock can give you a loss or pain. For Simple investors investment should be a bit diversified like some in FD, some in Gold, Some in Debt and some in equity. Equity is the most risky, but will get you a better alpha.

As I had talked about sectoral investment and some do a sectoral churning investment, for an ordinary investor sectoral churning may not be the right thing but sectoral investment as a method of diversification is a good technique.Examples of various type of sectors are listed below:

a) Banks

b) Pharma

c) IT

d) Auto

e) FMCG

f) Power

g) Medical hospitals

h)Chemical

i) Real Estate

Some follow the principle of taking top 2-3 companies in each sector and investing regularly in them to catch the ups and downs of sectoral rotation and at the same time ensure Safe and steady investments. As per various studies it is found that you could get 10-15% in Safe and steady investments and with risk taking can get you 25-30%. But this is the average and should be treated carefully. You may fall at either end of a normal curve if luck is not in your favor.

 

Dictatorship or Democracy

One of the biggest arguments going around in India is - Should we have a democratic freedom or a bit of dictatorship. In terms of discipline many will argue we should have a little bit of dictatorship. During Emergency time, there was

1) no ragging - a Jadhavpur university type incident that happened a few days back would not have happened. 

2) Autos, particularly in chennai, will come by meter and not ask extras on top of meter

3) Near the chole bhature/pani puri stall, everyone will put the dhonna (leaf cup) in the bin and not outside.

4) Trains/Buses will ply on time

and list goes on.

The only problem faced was by the political opponents and as SM was not there at that time, there was not much of hue and cry as we face today with a little bit of dictatorial style (through media and SM curbs) and with no emergency rule.

With a bit of autocratic style we have been able to accomplish a lot of stuff in terms of infrastructure (world class airports and highways), economy brought to 5th largest, stock market booming with foreign funds coming in, inflation to an extent controlled unlike in other countries, certain decisions be it art 370 or 277 taken which democratically elected govt with true democracy would have never taken in our or future life time. The biggest gain is technology through UPI and implementation of Aadhar and PAN linkages. Yes, no doubt criminals do attempt to bypass these and sometimes succeed, but lower than earlier times of rations getting diverted elsewhere in bulk.

The criminal activities can also be reduced, but unfortunately our courts and justice system takes so long that a criminal continues to be scot free, while a law abiding citizen is threatened by these criminals and has to run from pillar to post for justice. One sometimes wonders if our motto of - Let 1000 criminals be free, but 1 innocent not be punished to Let 1000 innocent be punished, but not 1 criminal be set free.

Modi has set a steep target for anyone to follow. If opposition comes and our economy goes down to 8 or 10, it will be too big a price to pay for democracy. In the name of democracy, certain sections are allowed space while not allowing for others will cause a further divisions in this country. This is a risk one has to consider. This election is going to be a watershed one and not an easy one. It is going to be a messy election

 

Terminonolgies in Finance

 It is important to keep up to date with financial Terminologies to avoid being caught off guard in any conversation. A few here and will be added

 

EBT - Earnings before Tax (same as PBT)

EBITDA - Earning before Interest, Tax, Depreciation and Amortization

BAAP - Relating to investment - Buy At Any Price

GARP - Relating to investment - Growth At Reasonable Price

PAT- Profit after Tax

COGS- Cost of Goods Sold

Operating Margin (as a %age) - (Revenue- COGS)/Revenue

EPS - Earnings per Share

P/E Ratio - Price to Earning ratio (Market Price per share/Earnings per share)

PEG Ratio- Price to Earning Growth Ratio - (P/E)/Growth in EPS. Thus if P/E is 15 and Growth in EPS is expected to be 10% then PEG Ratio is 15/10 =1.5

FCF- Free Cash Flow

 NOPAT- Net Operating Profit After Tax- Same as Profit after Tax, excluding other incomes and expenses not relating to operations.

PPE- Property Plant and Equipment

Other financial terms:

ROU- Rental payments converted to assets and liabilities

Lease liabilities- Part of above

XBRL-eXtensible Business Reporting Language. global, machine readable, std reporting. Mostly for listed companies reporting

IFRS- International Financial Reporting System - way financials are audited and presented.

REIT- Real Estate investment Trust- pooling of assets and paying you dividends out of rental asset or gain on sale of RE.