Which capital to manage?

Let us look at the definitions of market value and the book value.

Book Value = Assets – Liabilities

The market value is the perception, the gut feeling, the herd
mentality all rolled into one. While the former is more or less
stable, the latter is seeing turbulent times like never before. The
BSE SENSEX closed at over 9100 today. Which way are we going? Is this
another bubble waiting to burst, or is it an indicator of the GDP
growth that we are so gladly boasting of?

This post is not related to the rising sentiments, but something I
learnt about how the market values and book values of companies are
diverging. An article on Businessworld informed me that while the
share price of Infosys was pegged at around Rs 2650, its book value
was a mere Rs 192. Now this implies that some 93% are represented by
the intangibles!

This might be true with a software company, where knowledge as an
asset is not valued in the conventional terms. So as the price of
knowledge rises, so does the real value. A proper valuation of a
company like Infosys would give a totally different result.

Interestingly, an analysis S&P index of the US listed corporations
reveals that intangibles (market value – book value) have risen from
20% in 1980 to some 85% in 2000. this was possibly due to increased
emphasis on a service oriented economy.

India does not have a manufacturing legacy to boast of, and is now
going head over heals to tap the PPP difference between itself and the
west. The industry is getting more and more service oriented, and
these sectors are the ones that are attracting the best brains and
best growth patterns. Now that the proportion of intangibles is rising
should come at no surprise.

The author goes on to say that while capital management is looked at
as a way to bring in profitability for the company, the intellectual
capital (the intangibles) is often ignored.

The traditional systems are not effective in measuring intellectual
capital (IC). The valuation of these is a subjective affair. The
control of IC also gets difficult, especially in an industry infested
with high attrition rates.

But IC can be measured, and an IC rating is currently a matter of a
more elaborate discussion.

Breaking News

The news channels do not have any innovation, except while
manipulating facts. There is news breaking every hour. And if it is
so, why label them as breaking? All it would do (and has done) is to
get people ignore the breaking stuff and focus on news that did not go
broke! (pun intended)

While coming to office on my last day at Rallis, I found an
interesting article which mentioned about three events that got a lot
of media attention. To start with, what do Sania Mirza and Khushboo
have in common? The answer is very simple, both of them were condemned
by the moral police for saying things that are degrading to the 20000
year old culture and tradition.

Here comes the twist? What do the above two celebrities have in common
with the big B? that's not a question asked in any KBC, I know its
difficult. So his company ABCL also got condemned by the women
activists when Miss India celebrations were held in the garden city of
Bangalore way back in 1996.

There are more such analogies, you might say. But the most interesting
thing is that the protestors (or rather allegators!!) disappeared
after the brouhaha. Interesting, isn't it?

Now the facts: Protesting against the apparent abuse of the Indian
womanhood, the body of women was to set themselves ablaze if the event
happened in India. And as expected, security personnel including para
military forces were employed to keep the city under control. Naka
bandis every where, media went into a frenzy, and there were lots of
news breakages. At the end of it, no self immolation. The women
disappeared into the thin air. The miss world event did take place, at
the cost of creores, and this was billed to none other than ABCL.
There was no verification regarding the authenticity of the women, or
the cause they worked for.

Something similar happened in the recent Khushboo and Sania
controversy. Finally, it came out that it was a case of television
rivalry and a game of bad politics.

In sania's case, News and views apart, there was a good scope for
imagination. Disregarding the facts (read statements), someone's
imagination brought out reports that had little to do with Sania's
verdict.

What does this all lead to? Is it that we Indians are so gullible that
anyone can take us for a ride? Or is it that we worship the media, and
consider every word they utter as messages from God. And why do we
have to react on such breaking news, which have little fact behind
them?

Hide and seek

The hide and seek between SEBI and the foreign investors isnt a game, post the UBS securities scam. The FII acts as a proxy for the foreign investors, and uses the participartory note route. Participatory note, or p-note as they are called, are derivative instruments that have shares as their underlying. This makes them as volatile as the stock market.

The requirement of SEBI for the FII to disclose information on the investors has not gone well with the Know Your Client requirement, which fails to give a clear description of the requirements.

Now that the markets have a much higher penetration of foreign investors, it is a storehouse of another scam. The BSE Sensex today closed at 8861, which gives another wave of caution.

The Lahiri committee has recommended phasing out the PN route altogether in 3 years. It remains to be seen if, given the present circumstances, this is carried out.

GSM operators fail in QoS tests

As per this news on the Hindu Business Line, Airtel, Hutch and BPL mobile in Mumbai have failed in the TRAI tests for QoS. it came as a shock to me, because I had rated Airtel and Hutch high on the services. Unfortunately TRAI has higher standards then mine. There are regions were there no signal, for instance no the Chembur Vashi connector, but I had been taking it as acceptable!

I have always hated MTNL's mobile service, and I frown when anyone gives me a number beginning with 9869, because I know I would not be able to reach this person, in spite of this 10 digit numeral. No wonder that it was not considered for the QoS test!!

The world is flat

You could say this guy (Thomas Friedman) is obsessed with globalization. First, the lexus and the Olive tree, and now its sequel, The world is flat. The flatness of the world comes from Narayana Murthy’s statement that we are on leveling grounds with the developed world. Ignoring the fact that the west complements the east in terms of working times, we in India have reached the standard that the west just cannot ignore.

The book starts with ‘aim at either Microsoft or IBM’. The author was asked to target one of the two IT conglomerates’ offices lying around a golf course in Bangalore. Surrounded by American firms’ offices (includes Goldman Sachs too), and consumables (Pizza Hut), it really gets into me a feeling of awe. Is this our India?

Yes, India has changed. From the developing economy to a galloping one. it gives an image of India in the pre-Columbus era. And in fact, Friedman compares himself with Columbus, only that he is just 500 years younger. Columbus wanted to discover India and found America, and thought he was in India. Our author had little trouble finding the geographical India, but found people who looked more American than Indian.

Bangalore has a good number of 20 somethings working at call centers, catering to the American clientele. Their accents have changed, and they don’t mind getting their accents raked up for the sake of some hard cash. They yearn to be out of their middle class barriers. Some of these are earning more than their fathers earned at the time of retirement!

Having read some 20 pages with descriptions of India, I am wondering if this has been written by an Indian. But this has a world appeal, and I hope to get further insights into the development of the globalized world in the 21^st century!!

Whats your style?

While reading the book ‘Made in Japan Akio Morita and Sony’ I found something interesting. Probably it might sound clichéd, but there are vast differences between the Japanese and the American styles of management.

In Japan, working for an organization is (or at least was) supposed to be your religion, your faith, your second home. Your workplace is supposed to be your extended family where all junior and senior members live like a happy family. In times of crisis, everyone works hard for the company. There need not be any compulsion or seduction for the commitment. It comes naturally. Probably that’s the reason why Japan came out from being the most devastated country post world war to one of the richest.

They believe in hierarchies, just the way one believes in levels in the family tree. The seniors are shown respect, and class differences are done away with. Rather, there are no castes or classes in Japan, as per the Sony founder. The people share the resources (these were in short supply post world war), and come together, working up to 16-18 hours per day, only to bring their country up to its former glory. He says that executives did not have a private space, and they managed collectively.

Akio Morita says that doing business in America was quite a different scenario. There was hardly anything similar. He cites two examples to state his surprise. In the first, one person would not perform in spite of repeated trainings and incentives. He had not even thought of firing him, because it was a rarity in Japan, where lifetime employment was a commonplace. The second example is at the opposite side. A consistent performer, having received lots of perks left Sony to join a competitor, because it offered a salary he could not refuse. But he (Morita terms him as the traitor!) did have the audacity to meet him later and show him around at a fair. This was a major deviation from the Japanese style of management.

So workers are affected by market conditions in America, while the keiretsus bear the brunt in Japan. The risk has to be passed somewhere!

This observation puts me into another line of thought. What are we Indians good at? Termed as ‘basically lazy’, do we Indians measure up to the Japanese principals of camaraderie or results oriented American style? Perhaps neither. We prefer following the ‘middle path’ as advocated by Buddha.

So what is our style? Post independence, we made good friends with Russia, since our leaders were more comfortable with the socialist kind of attitude. Democracy was installed, and we made a mockery of it, with a majority of the population not even functionally literate. With the rise of America as the new superpower and the Collapse of Russia, we had to support American style, pop, pizzas (I think someone told me pizza is Italian!), colas and all commodities flooding the Indian markets. Globalization is the new keyword, and every Tom and his neighbor embrace it, for that is in vogue. Our PSUs are abodes of lethargy and inefficiency, food is a constant problem, and agriculture has taken a backseat.

So what philosophy do we follow? We follow whatever it suits our taste, our culture, our caste, our upbringing, our environment. Looking at anything outside our comfort zone is dangerous. At the end of the day, we are all happy because life mein sab chalta hai!!

Five gas stations theory

I cannot stop appreciating the same book (Lexus and the Olive Tree). Today I learnt about the five gas stations theory. This is a story about five gas stations, owned by people from five different countries.

The first one is a Japanese gas station. It charges $5 a gallon and employs 4 people. These people tank up the gas, and wash your windows with a smile. They are friendly and you drive out with a smile on your face (achha lagta hai??)

The second is the American gas station. It charges $1 per gallon and has just one person. You fill the tank yourself, wash the windows yourself, fill the tyres yourself. And while you move out 4 homeless people try to steal your hubcaps.

The next station is the western European gas station. Gas costs $5 a gallon. There is one man on duty who pumps your gas, and changes your oil. But he doesn’t wash windows. He Works only thirty-five hours a week, with ninety minutes off each day for lunch, during which time the gas station is closed. He also has six weeks' vacation every summer in the south of France. Across the street, his two brothers and uncle, who have not worked in ten years because their state unemployment insurance pays more than their last job, are playing boccie ball.

Fourth is the developing-country gas station. Fifteen people work there and they are all cousins. When you drive in, no one pays any attention to you because they are all too busy talking to each other. Gas is only 35 cents a gallon because it is subsidized by the government, but only one of the six gas pumps actually works. The others are broken and they are waiting for the replacement parts to be flown in from Europe. The gas station is rather run-down because the absentee owner lives in Zurich and takes all the profits out of the country. The owner doesn't know that half his employees actually sleep in the repair shop at night and use the car wash equipment to shower. Most of the customers at the developing-country gas station either drive the latest-model Mercedes or a motor scooter nothing in between. This place is alway busy, though because so many people stop in to use the air pump to fill their bicycle tires.

Lastly there is the communist gas station. Gas there is only 50 cents a gallon -but there is none, because the four guys working there have sold it all on the black market for $5 a gallon. Just one of the four guys who is employed at the communist gas station is actually there. The other three are working at second jobs in the underground economy and come once a week to collect their paychecks.

This story (or theory, whatever you call it) portray the state of various economies that they represent. Japanese like togetherness, and follow and tend to reward equally. Prices are high (Tokyo is the most expensive city in the world), taxing those who can afford. They tend to reduce inequalities and move towards an equitable atmosphere. They guarantee lifetime employment, and then protect their markets from external attack.

The western Europeans tend to depend a lot on social security. Developing countries have high gap between the haves and the have nots. The middle class vanishes, and there are just two classes: the rich and the miserable. The Americans are market oriented, and would do everything to reduce costs, without providing anything called the social net. Performers are rewarded, turtles are fired.

Globalization has given rise to a market driven economy. Now everyone is moving towards capitalism, because socialism has failed.

The winner takes it all

Continuing my tirade on the Lexus and the olive tree, it talks about
the widening difference between the haves and the have nots.
Undoubtedly we can see its effects in India as well. The gini index
precisely measures that. But the dangerous aspect is that with the
widening gap, it will not be long before the have nots revolt, leading
to a state of anarchy. It might just be round the corner.

The book, Freakonomics talked about why gangsters continue living with
their mothers, in spite of making a moolah on every endeavor. But the
fact remains that the distribution of the booty is far from uniform or
fair. It is highly skewed towards those at the top, leaving the bottom
in a state of despair. Their earnings are lesser than the minimum
wages stipulated by the US government. So why do they stick to such a
dangerous job? You call it greed or an aspiration, but everyone hopes
to be the leader some day and enjoy all the benefits.

The 80-20 principle is also based on the same lines. 80% of the
defects come from 20% of the materials. But the way we can improve the
bottom 20%, can we do that with people?

Thomas Friedman calls the bottom junta the turtles. This group
includes those used to all the security and predictability of life and
economy. Changes are resisted. But changes are happening, and they are
happening fast. The turtles, unlike the one in the hare and the turtle
story, lose out against the hares, who are smarter than the legendry
ones.

Golden arches theory

Thomas Friedman, in his book, Lexus and the olive tree has made an interesting theory based on capitalism, and has appropriately named it as the Golden arches theory. As per his theory, no two economies sustaining Mc Donalds franchisees will not go for war against each other. As a caveat, he excludes any civil wars in his definition. The basis of this proposition lies in the world’s constant move towards globalization. Post the cold war era, countries that have embraced globalization with open arms are the ones that are prospering, the others are moving towards embracing it. Sooner or later, all countries would become McDonald economies.

Probably that means that in order to avoid combat, open McDonald franchisees.

Did Ray Croc develop the golden arches with this in mind? Did he ever imagine that his business would someday be used as economic indicators? The Big Mac PPP exchange rate between two countries is obtained by dividing the cost of a Big Mac in one country (in its currency) by the cost of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued.

Reminiscence of Arthur Dunkel

Pascal Lamy, director general of the WTO gave the following speech on reminiscing the director General of GATT, Sir Arthur Dunkel. It is in the link below

http://www.wto.org/english/news_e/sppl_e/sppl13_e.htm

Globalization

There are proponents of globalization and there are opponents. Love it or hate it, but one just cant ignore its presence and the way it has affected the world post the cold war era. Closed economies could not afford to stay that way, and the current resurgence of growth is primarily due to the open economy.

The next month’s WTO meet at Hong Kong would be decisive in many factors. The major issues would be the farm subsidies present in France and other EU countries, and the IPR issues.

Interestingly, India and the US will co-chair a 14-member special group on services negotiations, a move aimed at giving a boost to WTO.

Ideas from:

http://www.economist.com/displaystory.cfm?story_id=5115177

http://www.financialexpress.com/fe_full_story.php?content_id=104235

http://www.rediff.com/money/2005/feb/22wto.htm

Airtel – Hutch = 46000 crore!!

It sounds surprising, though. Comparative valuations of the two
companies reveals that bharti has been valued by Vodafone at Rs 67000
crore, while Hutch at just 21000 crore. Interesting is the fact that
while Bharti has a subscriber base of 14 million, hutch has a base of
11 million. The difference is due to the fact that Bharti, with its
Airtel brand is into fixed lines, is a NLD (national long distance)
service provider, ILD (International long distance) provider and a
Broadband provider as well.

The increase in FDI provision to 74% in telecom has been well tapped
by Bharti. Its current acquisition targets include Spice and Aircel.
If it gets these, the move could largely marginalize hutch and other
smaller mobile service providers.

Information souce: Economic Times, 31 Oct 2005

The Lexus and the Olive Tree

If you want to know how the fall of the Berlin wall brought an end to the cold war era and gave a fresh life to the world, if you want to know how the national borders are diminishing, there is no threshold any more and that the world is moving towards higher efficiency, read this book by Thomas Friedman.

Undoubtedly, it gives a fantastic insight of how the globalised world has progressed, taking a re-birth post the cold war era. A lot of us would be surprised to know that prior to 1920, globalization did exist, but not in the embodiment we know it today. Undoubtedly the microchip had not seen the light of the day, and people moved goods (the stock, in Adam Smith’s parlance). But today it’s information that needs an efficient transfer. The book talks about information arbitrage, not unlike the one done in the financial markets.

Just as Dayanidhi maran is moving towards ‘one India’ in making telecom policies, the world would move towards ‘one economy’ erasing boundaries my means of M&As in the process. Currently hostile takeovers would be objected by the UNO, and friendly mergers are quite surreal. But it might not be long before it happens, if we are to give up our olive trees and adopt the Lexus is return!!

Are you ready to pay tax?

In response to http://www.financialexpress.com/latest_full_story.php?content_id=107039&pn=1

Its queer to know that just about 3% of our 100 billion plus population pay taxes, and collection rate is just about 10% of GDP. But what gives the people the audacity to avoid paying taxes? Looking at it objectively, I can think of

• Inefficient tracking system
• Corrupt officials
• Slow judicial system
• Law loopholes
• Lack of faith in the politicians running the government
• Demotivating to find 97% of the population not paying tax

The government's plan to send sms's is a novel idea to exploit technology; it was quite effectively done during the july 26 rains, when messages from the police commissioner were circulated to all mobile users in Mumbai. But I don't see how an individual can hold his head high by paying taxes. With the kind of collection system in place, there is hardly anyone who cares if his neighbour and his uncle are paying taxes or not. All they know is what they hold in possession.

Our agrarian economy does not allow us to collect taxes from the farmers. Unfortunately, there are those who end up making mansions with the agricultural produce, without paying taxes. A majority of our transactions take place by cash, thereby blurring any kind of tracking system.

Gini index

In response to http://economictimes.indiatimes.com/articleshow/1272191.cms

In the world of economists, the indexes are commonplace. Comparison of
the disparity between the rich and the poor is well represented by the
Gini index. Statistically, these valuations hold greater significance
with the rise in the sample size. And it makes such indexes harder to
move. The widely publicized growth rates have little to do to the
population in the remote areas, where many are still in want of water
and food supplies. Money does have a cascading effect, and in spite of
the socialist philosophies of the creators of the constitution, we are
going towards the philosophy that has worked wonders: capitalism. Our
communist strategies have not worked, this is evident in the state if
west Bengal. A high population makes things difficult. Education is
the key to any kind of development.

BOP

FMCG giants looking at the bottom of the pyramid, the prominent term
coined by Prof CK Prahlad, tend to have an interesting problem. The
costs of selling goods at the BOP are some 5-10% more expensive than
selling in the urban areas. The masses spread across the country only
add to the transportation costs. ITC's echoupal initiative was
estimated to break even after 7 years. With all this, what can be done
in order to penetrate these markets? And is it really worth?

The answer is yes. Urban markets being already saturated with FMCG
companies with squeezing margins selling their products. They are in
the dogs stage of the BCG matrix. So growth can only come from the low
income areas.
Operational efficiency apart, in what ways can be ensure proper
growth? Concepts of echoupal are being replicated and competition is
killing margins. We need to look at opportunities to sell products at
low cost.

HSBC looking at India!

In response to http://economictimes.indiatimes.com/articleshow/msid-1257742,curpg-3.cms
Undeterred by the volatility of the capital markets, the rising indexes are indicators of a booming economy. Foreign players no longer find it unsafe to park their monies in the land of elephants and snake charmers. Only that these are embellished in gold.

India has reached a position to aid US for the Katrina relief operations. As per a report, Pakistan is looking for some aid from India for their earthquake victims. Why has India suddenly become a messiah of sorts? Or is it that India is ‘Marketing’ itself well?

HSBC has big plans for India. The economy is being opened up; more and more FDI is being allowed. Perhaps India may not remain the poor cousin of China in the years to follow.

Enron fiasco

The market is watching! Lower your debts, or the stock prices will fall under the piling loans. So what to do? Get more equity, but that would dilute our control. Sell some assets, but not many would be ready to take our stakes, because our investments have been bad. Hmm, how about some tweaking in the balance sheet? How about converting long term loans to current liabilities? But the SEC is watching. So how about going into a contract by taking additional loans to pay off our existing debt, and treat this loan as current liability. The current ratio would suffer, but so what. Current ratio doesn’t attract so much attention as the D/E ratio!! Great Idea, lets do it!!

The above is just one of the various techniques Enron Used to manipulate its financial statements. It exploited the term of prepay, erstwhile used for short term advance payments. Prepay involves an advance payment for goods/services. In 2000, Enron went into a contract with the Chase Manhattan Bank in order to sell gas to it in 2010, and also buy the same amount of gas in the same year. The catch was that the first transaction involved prepay, and the other did not. So effectively Enron received a loan of $275 million, while the same was not treated as a debt, but a operational liability. So at the end, money came in without affecting the D/E ratio!!

I haven’t read the book, but the name ‘The smartest guys in the room’ doesn’t seem inappropriate. Flagged as the greatest of corporate scandals in the history of America, Enron had a series of questionable practices. so it’s the accountants who are the most competent in managing such practices. They had developed competency in eliminating debts by selling of assets (for which they couldn’t find buyers in the markets) to the paper company Chewko.

This is perhaps the reason why CAs are so much in demand!!

But how come no corporate scandals are reported in India? The only raids we know about are from the income tax department. Doesn’t the SEBI carry out surveillance properly? You never know how many people are kept out of whistle blowing either by stuffing them with goodies or threatening.

Will the clause 49 requirement be able to stifle corporate malpractices? That remains a question to be answered.

Selling women short

Yesterday I found an interesting book on the treatment of Wal-Mart towards women, especially from the minority community. It talks about the sex-discrimination at Wal-Mart, and the way these women stick on to jobs for want of better prospects. But promotions elude them, and good positions often go to the men, who are often paid more. Interestingly one women (I don’t remember the name) had to show her monthly bills and expenses in order to justify her higher pay requests. Humiliating no doubt, it shows the state of affairs in the most developed economy, and in the company that tops the fortune 500. high sales means higher revenues for the shareholders, but lower prices leads to lower pay scales. Its indeed unfortunate to find that in an economy, which had a women’s liberation long back, still struggles with such discrimination. Racial discrimination is rampant in these parts, but such things are often uncalled for.

Probably Sam Walton didn’t start this chain with such a philosophy. The well proclaimed pride associated with being a part of the Sam’s club didn’t go well with all the members. Most of them are exploited, and are often forced to continue with the job. The recent report of not even allowing any lunch breaks has added to the existing list of court cases against Wal-Mart. The US government should take some steps to protect the women's rights.

US current account continues to worsen

In response to http://economictimes.indiatimes.com/articleshow/msid-1240066,curpg-1.cms

With manufacturing being outsourced, and now the ‘low end’ services too, US is left with R&D and the typically high end services, which in turn is a fallout of R&D. but in course of time, these high end services would lose their levels, and would move out to the other countries. So innovation is the key to survival.

Cost differential has led to outsourcing of services by companies who are seeking opportunities. This is not unlike arbitrage in the derivatives segment, though with some constraints like red tapism.

It might not be far before US ends up being a gamut of trading companies, with nothing but margins to survive. Manufacturing is already getting locked up at china, while India still struggles to follow. With the world getting eased out, and globalization finding acceptance, it might not be long when free movement of resources, including people would blur any advantage a particular economy might have. Arbitrage opportunities would be reduced, and there would be one free for all economy.

The extraordinary story of Amul

Look at this article

http://in.rediff.com/money/2005/sep/23spec.htm

A plunge of figures

Quite a familiar sight for the day, but none too appealing! The sensex crashed 292 points, and nifty found itself 91 points down. Analysts had cautioned that it was just waiting to happen. With the soaring indexes, market seemed to be headed towards some correction. But this is a correction, or a meltdown, that’s yet to be seen. The market sentiments have been euphoric, thanks to the FII intervention. But the day it stops, who will save the market? Millions of reports and new celebrities are born. This is the most interesting game, even better than cricket; because a lot of stakes are involved. Make a wrong move, and your wealth could go down the drain, or a smart move could give you riches. For now, let’s wait and watch!!

Richard Branson, Oil Tycoon?

I got tired reading about Richard Branson's baloons, his ventures and his eccentricity. But I have always been thrilled reading about this activities. This new venture of oil exploration didnt come to me as a surprise!!

This article on businessweek

Wal-Mart problems

The top ranked company in the fortune 500 isn’t having a good time with its people. Loaded with about 40 cases regarding worker violations only belittles the grandiose of the behemoth. The latest news of workers being denied lunch breaks appears quite inhuman. I remember having read a case on Wal-Mart and its teething people problems. And in spite of this, its value is ostensibly larger than the GDP of many countries.

Now Wal-Mart has shown its interest in putting up an FDI in India. The recent government directive to allow FDI in retail has opened up new avenues for the retail giant, as India is a largely growing market. Rumors say that Wal-Mart is looking at partnering with Reliance, the largest private business house.

So is it that, if the deal goes through, they would have worker problems in India as well? But their bargaining power may not stand with the high degree of unionism prevalent in India. Otherwise why did erstwhile union problem free Haryana have to witness the Hero Honda fiasco?

Wal-Mart may not find India so comfortable if it’s got to employ people. Retail stores can never be fully automated, and with the zealous population of India, it might not be long before the retail conglomerate may have to rethink its strategy.

In response to this article on businessweek

Derivative mutual funds

The SEBI has lifted the ban on mutual funds using derivatives in their
portfolio. Until now, the fund houses could use futures and options
only for the purposes for hedging. It was probably set up keeping the
larger interests in mind, wherein mutual funds are taken largely by
retail investors, who do not have a high risk appetite.

The stakes involved and the volatility of the FO segment did not allow
retail investors their share of the pie. It was largely reserved for
the larger investors, with huge market caps. To buy a nifty index
future lot, one would have to buy 200 nifties, and at the present
value of over 2500, it comes out to be over Rs 5 lakh. Even if a 5%
margin is applied, the amount to be invested is Rs 25,000. Indian
investors do not remain a part of the retail segment, when their
investments cross Rs 50,000. Furthermore, options are coupled with
huge premiums, which are beyond the affordability of the most.

In such a situation, the permission of mutual fund houses to start
funds trading in derivatives has given rise to another round of
speculation. Experts feel that this will increase the liquidity of the
market by some Rs 60,000 crore. The BSE Sensex rose from 8189 to 8283
or 1.148% yesterday, 15th of September. We can expect a lot of
interesting things happening in the next few days.

The smartest guys in the room

Fortune reporter McLean's article in early 2001 questioning Enron's high valuation was cited by many as an early harbinger of the company's downfall, but she refrains from tooting her own horn, admitting that the article "barely scratched the surface" of what was wrong at America's seventh-largest corporation. The story of its plunge into bankruptcy (co-written with magazine colleague Elkind) barely touches upon the personal flamboyances highlighted in earlier Enron books, focusing instead on the shady finances and the corporate culture that made them possible. Former CEO Jeff Skilling gets much of the blame for hiring people who constantly played by their own rules, creating a "deeply dysfunctional workplace" where "financial deception became almost inevitable," but specific accountability for the underhanded transactions is passed on to others, primarily chief financial officer Andrew Fastow, whose financial conflicts of interest are recounted in exacting detail. (Skilling seems to have cooperated extensively with the authors, though clearly not to universal advantage.) A companywide sense of entitlement, particularly at the top executive levels, comes under close scrutiny, although the extravagant habits of those like Ken Lay, while blatant, are presented without fanfare. The real detail is saved for transactions like the deals that led to the California energy crisis and a 1986 scandal, mirroring the problems faced a decade later, that left the company "less than worthless" until a last-minute rescue. The book's sober financial analysis supplements that of Mimi Swartz's Power Failure, while offering additional perspectives that flesh out the details of the Enron story.

Copyright 2003 Reed Business Information, Inc

Herd mentality

I my quest to fnid out the ways and means of the stock market, I came across an interesting article. The pink section of today's DNA told a story. Robert P Miles, the Warren Buffet investment advisor had, in a conference, asked people to bid for a business that would generate Re 1 every year for 10 years. And people started bidding. Herd mentality followed, and raised the tag to Rs 1000. this clearly shows how irrational the stock market can be. And this is how stocks tend to get overvalued.

The rational method of evaluation of the stock is the discounted cash flow method, an inevitable part of the finance basics. A cash flow of Re 1 for 10 years would bring the present value to nothing more than Rs 6.14 (taking 10% discounting rate) But the people did raise the price!!

ABN Amro dividend yield fund

ABN Amro mutual fund has launched the dividend yield fund, which would
focus on the companies having a dividend yield higher than the BSE
Sensex. The other dividend yield funds available today are:

• Birla dividend yield fund – The stocks in this fund are selected if
its dividend yield is twice that of the sensex.
• Principal yield dividend fund – Dividend yield of the stocks
invested in needs to be 1.5 times nifty.
• Tata dividend yield fund – stocks should have a dividend yield
higher than the BSE sensex.

The entry load for this fund is 2.25% for investments upto Rs 5 crore.
No exit load, and the minimum investment is Rs 5000. the last date of
the offer is 30th August.

As per the stated asset allocation, the fund will invest 65-100 per
cent of its assets in high dividend yield stocks, and up to 35 per
cent of its assets in stocks which do not have a high dividend yield.
The fund can also invest up to 35 per cent of its assets in debt and
money market instruments

Commodities

A bulk good traded on an exchange or cash market is a commodity. We have food grains, gold, silver, oil, and the being traded in the commodities markets. A basket of commodities constitutes a commodities index. This index has a different weight for each commodity and its performance is a decisive factor in a number of commodity derivatives. It seems that from now on trading would be possible in small amounts. This would attract retail investors. Already commodities mutual funds are finding their takers, it would not be long before commodities would be sold in equities, just the way the securities are sold. We can expect a dramatic increase in transactions in the commodities exchanges like NCDEX (national commodities and derivatives exchange)

First and second

In response to

http://tinyurl.com/blxnj

To be the amazon of Indian price sensitive market, firstandsecond needs to work on lowering the prices and improving its service. It's common knowledge that an online shop implies lesser cost than a brick and mortar store for the entrepreneur. So getting a better bargain on books would only be a right of the net savvy customer. Indians may not be too inclined to shop online, but a new breed of online enthusiasts would be ready to buy books, music or even groceries if available at a discount. And this tribe will only grow; now that Internet has crossed 10 years of existence in India (VSNL was launched as the first ISP on Aug 15, 1995)

There is no description or reviews of the books. Even a few sample pages could do the trick. When I search for a book on firstandsecond.com, I am presented with a plethora of options, most of which are supposedly foreign editions with skyrocketing prices. I don't see many takers for this kind of service. In spite of a far lesser collection of indiatimes, it does deliver cheap and fast. Finally, as a customer, I would not purchase a book online when I get a 20% off on the MRP at the bookstores at Fort area of Mumbai, or I would rather go for some experience shopping at Oxford or Crossword!

Amazon may have graduated from the largest online bookstore to the largest online store in the mature American market, but the huge untapped potential in India does lay in online shopping experience. But the key remains in tapping the Indian needs, the first being low prices!!

1Gbps Internet

The internet is not an area of no constraints. The main bottleneck is
the low bandwidths. But with the new broadband of 1Gbps getting real,
the day is not far when we would be hooked on the Internet (always
online), just the way we are always online on your wired or mobile
telephones.

The GPON is set to set up a new wave of changes, watching movies
online is only for the privileged few. But watching it online would be
real, people might even decide not to buy TV and have computers
instead.

The rampant piracy would rise to no limits. Currently only small
software are available online, but in future, you might even find
operating systems getting downloaded (and installed too) in a jiffy.

If you wanted to install updates, it would take seconds. That would
require an additional constraint, that of the server. So now the
services would be constricted by the capacity of the server, not the
connecting media.

Will this new technology be restricted to Internet only? Currently, we
use a 10 Mbps LAN, it would be a shame if we can download a file
faster from the Internet than from the office LAN!!

Perhaps its too early to wonder, but I am eagerly waiting for this new
technology to happen!!
In response to the hindu business line article

Mumbai Rains

I had thought that I would go at least two steps forward. But could go only one. Thanks to the impending bureaucracy and the inability to let secrets like employee salary go to someone as a trainee, I doubt if I would be able to get the declaration. But at least I have been successful in pushing the vouching policy forward. I should get some response tomorrow, otherwise some more emails would go out from my computer.

Today is a heavy rain day. Its raining, as I would say, cats, dogs, buffaloes, pigs, and elephants too! Local services are disrupted, and people are panicking. Somehow I wonder why I don't panic. And the fact is that there is no one waiting for me at home, so why struggle? Even if I have to sit in office for the night, I don't mind. There is the computer, the books, the AC, the Internet; and I can always get something to eat!!

People have rushed to go out, and this is what happens when people stop thinking rationally. Looking at things objectively may not be everyone's cup of tea. And they might have problems of their families waiting. But I dont have, so chill!! If I had spare clothes with me, I would have gone to marine lines and sat in front of the impending waves.

Satellite Radio

So now its time for a high tech radio. The erstwhile AIR got replaced with the local FM stations. This has caught well with the public, and its popularity can be seen virtually everywhere in cities like Mumbai. Whether Worldspace, with its model of paid radio subscription would find many users is a matter of thought. In a market like India, where anything that's free, goes; it may not find a big audience. Its site www.worldspaceasia.com mentions about Punjabi and the Indian effect. At Rs 1800 per annum + initial hardware charges, it can work provided it gives some value. Spending Rs 150 a month may not be difficult (even airtel and other mobile operators are letting people speak at Rs 200 a month), but what's important is the content. It has to find an initial acceptance. I can see their ads in Mumbai, but it gives no clue as to what it is all about.

The government had sanctioned new FM bands all over the country. But before the subscription of satellite radio starts, FM would find a better acceptance because of the fact that it's free and the hardware needed can be purchased even at Rs 50. So it's all about price, and the value it provides!!

Inflation

The dreaded word in the context of Indian economy: inflation. So what is inflation? The government says that it can contain inflation to 5%. What does it signify?

At the basic level, inflation is nothing but a rise in prices. And why does it have to rise? Read ahead and find out!

Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every rupee you own buys a smaller percentage of a good or service.

Some variants of inflation are:

• Deflation: When the general level of prices are falling
• Hyperinflation: Its an extreme case, when the prices rise dramatically, leading to breakdown of the country's monetary system.
• Stagflation: combination of high unemployment and inflation.

Why inflation?

Inflation or the rise in prices is due to the effects of demand and supply. The demand and supply curves intersect to determine the prices. The two conditions that tend to rise the prices are:

• Demand pull inflation: This occurs when there is more demand for a scarce product. A concept very apt for a country like India
• Cost push inflation: When companies' costs go up, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of imports.

The prices might rise, but if it is supported by a corresponding rise in wages then the buying capacity remains the same. Hence a term real wage is used to determine this.

How is inflation measured?

Measuring inflation is a difficult problem for government statisticians. To do this, a number of goods that are representative of the economy are put together into what is referred to as a "market basket." The cost of this basket is then compared over time. This results in a price index, which is the cost of the market basket today as a percentage of the cost of that identical basket in the starting year.

There are two main price indexes that measure inflation:

• Consumer price index - A measure of price changes in consumer goods and services such as food, clothing, shelter and automobiles. The CPI measures price change from the perspective of the purchaser.
• Producer price indices - A family of indexes that measure the average change over time in selling prices by domestic producers of goods and services. PPIs measure price change from the perspective of the seller.

In general, investors follow CPI more than PPIs.

Interest rates directly affect the credit market (loans) because higher interest rates make borrowing more costly. By changing interest rates, the RBI tries to achieve maximum employment, stable prices, and a good level growth. As interest rates drop, consumer spending increases and this in turn stimulates economic growth.

A control has to be maintained as a tradeoff between high inflation and deflation. The optimum level is a level of 2-3%. India, of course is higher on the scale.

Your investments would be affected by inflation in a big way. The returns you received would not be effective enough. The inflation would eat into your returns. For instance, if you earn a return of 12% and the inflation stands at 5%, you are actually making only 7%. Just think if it were the other way round; you would lose money in spite of investing!!

Gyan taken from http://www.investopedia.com/university/inflation/default.asp

P/E Ratio

Theoretically, a stock's P/E tells us how much investors are willing to pay per dollar of earnings. For this reason it's also called the "multiple" of a stock. In other words, a P/E ratio of 20 suggests that investors in the stock are willing to pay $20 for every $1 of earnings that the company generates. However, this is a far too simplistic way of viewing the P/E because it fails to take into account the company's growth prospects

A good example is Microsoft. Several years ago, when it was growing by leaps and bounds, its P/E ratio was over 100. Today, Microsoft is one of the largest companies in the world, so its revenues and earnings can't maintain the same growth as before. The result is a current P/E ratio of 43 (at the time of writing, in June 2002). This reduction in the P/E ratio is a common occurrence as high growth startups solidify their reputations and turn into blue chips.

Company growth rates - How fast has the company been growing in the past, and are these rates expected to increase or at least continue into the future? Something isn't right if a company has only grown at 5% in the past and still has a stratospheric P/E. If projected growth rates don't justify the P/E, then a stock might be overpriced. In this situation, all you have to do is calculate the P/E using projected EPS.

Industry - It is only useful to compare companies if they are in the same industry. For example, utilities typically have low multiples because they are low growth, stable industries. In contrast, the technology industry is characterized by phenomenal growth rates and constant change. Comparing a tech to a utility is useless. You should only compare high growth companies to others in the same industry, or to the industry average

Industry averages for various companies

http://www.investopedia.com/offsite.asp?URL=http://biz.yahoo.com/p/industries.html

Managers and leaders

Do the companies need managers or leaders? What are their functions?
One may say that both are needed. Quite right, but can we have two
people, one for management and one for leading? My reading of an
article in a HBR publication has given me a new revelation.

It says that manager's goals arise out of necessities, rather than
desires; and leaders are proactive in their approach. They set their
own targets, and work towards them. Managers, on the other hand, are
problem solvers. So both are needed, isn't it?

Leadership requires powers to influence the thoughts and actions of
other people. The risk of power games comes into the picture when
• There is a risk of equating power with the ability to get immediate results
• Risk of ignoring many different ways people can legitimately accumulate power
• Risk of losing self control in the desire for power

As a personality, manager emphasizes rationality, he is a problem
solver. Leadership is a kind of psychodrama in which the leader must
control himself before trying to control others.

In spite of being a 'born leader', there can be a great deal of
stagnation because of their limitations in visualizing purposes and
generating value at work.

Managers tend to adopt an impersonal attitude towards their goals.
These goals are created out of a need, and are more oriented towards
the organization, rather than the person. Leaders tend to get
passionate about their goals, and can have serious implications if
they fail to achieve those.

I don't feel like putting any more gyan, will do that sometime later.

Is IT important?

The value of IT can never be understated. One can see its ubiquity,
its presence in virtually all the business processes. There may not be
many industries not depending on IT for its day to day activities.

But has the IT dept got the value it deserves? There are many
effective organizations and leaders whose value has been completely
overlooked due to lack of problems! They have been waylaid by the
perception that "everything works fine, so you guys must not be doing
anything", swiftly followed by the "what have you done for me lately?"
yardstick. They had made the mistake of not marketing themselves to
their internal customers. Their effort for a silent and efficient
operation became the negative perception of their effort and
productivity.

When was the last time you called your local telephone service
provider and thanked them for bringing you a dial tone? When was the
last time you called your local power company to thank them for
keeping your lights on? When was the last time your department was
credited for consistently delivering more value for less money,
regardless of how the rate of consumption increases?

It is highly likely that your own customers, no matter how closely you
work with them, have become habituated to the services provided and
have no understanding of the complexity involved in their delivery.
Assumptions give rise to incorrect or undesired conclusions.

The importance of IT (to everyone) Information technology, while
arguably one of the most important infrastructure elements in a
corporate operating backbone, is also one of the most underpublicized,
undermarketed, and misunderstood components of any corporation. There
are two primary contributors to this lack of understanding. The first
is a complete misinterpretation of the maxim "The customer is always
right." The second is that marketing, in the form necessary to connect
with the customer, is just plain difficult and is viewed as an
inconsequential luxury by most IT organizations, which are already
under constant pressure to perform with declining funding and often
contradictory business directives

So what to do? How to go ahead marketing IT? does it require a plan?
Well, for any formal marketing, a plan is necessary. I'll put that
later.

Mainframes to Linux

Open Source ascendant

Futures Fundamentals

Futures Fundamentals - An Introduction

Mutual fund gyan again..

Money Market Funds

The money market consists of short-term debt instruments, mostly T-bills.

Bond/Income Funds

Income funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote funds that invest primarily in government and corporate debt.

Balanced Funds

The objective of these funds is to provide a "balanced" mixture of safety, income, and capital appreciation. The strategy of balanced funds is to invest in a combination of fixed-income and equities. A typical balanced fund might have a weighting of 60% equity and 40% fixed-income. The weighting might also be restricted to a specified maximum or minimum for each asset class.

Equity Funds

Funds that invest in stock represent the largest category of mutual funds. Generally, the investment objective of this class of funds is long-term capital growth with some income.

Costs of mutual funds

Fees can be broken down into two categories:

Ongoing yearly fees to keep you invested in the fund.(Expense ratio)

This includes the salary of the fund manager, the regular administrative cost, and the brokerage and advertising charges. Expense ratio ranges from 0.2% to as high as 2.0%.

Transaction fees paid when you buy or sell shares in a fund (loads).

These can be of two types:

• Front end loads – This is a percentage that goes from the amount you invest. If you invest Rs 10000 on the mutual fund, having a 5% front end load, you end up paying Rs 500 as the front end load, and Rs 9500 goes for investment.
• Back end loads – This is a kind of penalty in case you sell your share before a particular time. A typical is a 6% back end load that decreases to 0% in the seventh year.
• A no load fund sells its shares without a commission.

The Value of Your Fund

Net asset value (NAV), which is a fund's assets minus liabilities, is the value of a mutual fund. NAV per share is the value of one share in the mutual fund, and it is the number that is quoted in newspapers. You can basically just think of NAV per share as the price of a mutual fund. It fluctuates everyday as fund holdings and shares outstanding change.

When you buy shares, you pay the current NAV per share plus any sales front-end load. When you sell your shares, the fund will pay you NAV less any back-end load.

Investing in Mutual funds is through a demat account. This account can be acquired by any of many banks providing these services.

Source: www.investopedia.com

FM stations

The government has opened up 330 new FM frequencies for the operators
to air their content. Now the radio will not be a poor cousin of its
counterpart, the TV.

However, private radio operators still not have the permission to
broadcast news or current affairs programs. The licensing requirements
remain the same, and FDI stays put at 20%.
The A,B,C and D class of cities will have different caps on the number
of operators. Now a city like Mumbai can have 10-11 operators, which
means more options!!

Radio revenues will rise, so will the quality of service. We can
expect some better programs. For the consumers it looks good.

Egoless programming

What is egoless programming? This term was coined by Jenny Weinberg in 1971, in his book, The Psychology of Computer Programming. He talked about an environment with lots of peer reviews, as is present in the current environment. The basic idea of peer reviews sits on the fact that the probability of catching a bug rises when more people get to identify mistakes. There could be logic problems, syntax problems or algorithm problems. But to get this system to work, humans would have to go away with their egos.

However it may not always be possible. Not everyone can take a criticism so constructively. Some people just cannot digest when someone disparages their work. For the system of peer review to work, the following are ideas which must be there in everyone's head.

• To err is human – Accept any mistakes you may have made, instead of feeling bad about it.
• You are not your code – Don't take a code bug personally, it's the code whose fault is being identified, not yours
• No matter how much you know, someone would surely know more – Accept this fact and ask people before doing anything
• Don't rewrite code without consultation – Fixing code with a little consultation goes a long way than rewriting code. Don't reinvent the wheel
• Treat people who know less than you with respect – That's the only way you can gain respect.
• The only constant in this world is change – Keep learning, it might not be long before others get ahead of you.
• The true authority comes from knowledge, not position – Don't use the power of your position, you will automatically garner authority when you have good knowledge
• Critique code instead of people – Don't criticize people, don't let them take the criticism personally. Let this be a constructive game.

Taken from an article that appeared on builder.com

Knowledge Management

It is not easy to get people to stand up and say "Look what I did". There is always a sense of competitiveness, an one up manship, that takes us from the warm exteriors to the caliginous interiors. Its human to dissemble, to try to avoid sharing that will result in loss of power. But what to do to get people start sharing?

Show a personal ROI: a normal human being cannot be made to do social service if they do not see a personal benefit out of it. The best way to get ideas and proposals is to ask for it, and appreciate them. On one hand you get ideas for free or at a very low cost, and you also make them happy because they feel they have done something good, and get praised.

Convince the leaders: There are influencers in every organization. to get the custom of sharing into the mass, target these people and convince them of the benefits associated. Let them try it out, and feel that it is indeed beneficial. That will ensure a great amount of penetration.

Make it user friendly: Whatever systems are at place, make sure they are not something that the user has to do over and above the usual work. Make sharing easy. for instance, an innovative method of solving can be copied and pasted for others to see. It should not be that they have to follow complicated procedures.

Hire a knowledge coordinator: Identify a champion who can drive the cause. It will be helpful in getting the message across.

Create in person knowledge forums: Let the users interact online and share their information. This kind of knowledge forum goes a long way in maintaining tacit knowledge.

Tell stories: People should know of instances when sharing has actually been beneficial. They should have the urge to do it. KM experts agree that tacit knowledge is the most valuable type of knowledge. But getting at tacit knowledge is complex.

Ideas taken from http://www.cio.com/archive/120103/km.html

Creating a Positive Professional Image

HBS Working Knowledge: Career Effectiveness: Creating a Positive Professional Image

Adoption of Linux for email servers

The primary reasons for adopting Linux for email servers are

• Total cost of ownership
• Technical superiority, reliability and performance
• Hedge against vendor lock in

Leading email providers have a tight coupling of their proprietary
systems. The combination of MS Exchange, outlook, Active directory,
windows has given the user a lack of choice and flexibility in
choosing their options. This leaves users with a sense of being
locked-in.

Linux provides the features of reliability, robustness,
interoperability, and this is transparent to the end user.

A mature, consolidated market dominated by three products, Microsoft
Exchange, Lotus Notes/Domino and Novell Groupwise, representing an
estimated 80% - 95% market share, has left many organizations
complaining about a lack of alternatives.

Email vendors are rapidly adapting linux email and calendaring
products to the skill sets of today's administrators. Open source and
commercial products alike have begun developing GUI's that ease
administration and look much like familiar messaging products deployed
today.

Powerful, desktop-grade web mail clients that support important
productivity functions such as drag-and-drop, cut-and-paste and
drop-down menus are available today. Advanced email, calendaring and
collaborative functions are also increasingly available. This has
begun elevating web-based mail clients from an anytime, anywhere
secondary method of access to a primary means of access. At the same
time, the emergence of alternative browsers like Mozilla and Firefox
is increasing the requirement for cross-browser support. A rich
function, desktop grade web client that is browser-independent should
be a key criterion in the selection of any Linux email system.

What a demerged Reliance group means?

What a demerged Reliance group means?

How to compare mutual funds

How to compare mutual funds

Some mutual fund gyan

What is a mutual fund?
A mutual fund is a financial intermediary that allows a group of
investors to pool their money together with a predetermined investment
objective. The mutual fund will have a fund manager who is responsible
for investing the pooled money into specific securities (usually
stocks or bonds). When you invest in a mutual fund, you are buying
shares (or portions) of the mutual fund and become a shareholder of
the fund.

Mutual funds are one of the best investments ever created because they
are very cost efficient and very easy to invest in (you don't have to
figure out which stocks or bonds to buy).

By pooling money together in a mutual fund, investors can purchase
stocks or bonds with much lower trading costs than if they tried to do
it on their own. But the biggest advantage to mutual funds is
diversification.

Diversification be spreading of risk. However, I would not go into the
details of it.

Mutual funds can be debt funds, equity funds or balanced funds.

Debt funds invest exclusively in the debt market. So they have lower
risk than the equity funds, which invest in equity shares. A balanced
fund is a combination of both.

Money Market Funds
These funds are a great place to park your money. Whether you're
storing money for emergencies, saving for the short-term, or looking
for a place to store cash from the sale of an investment, money market
funds are a safe place to invest. These funds invest in short-term
debt instruments.

Growth Funds
These funds invest in stocks believed to be the fastest growing
companies in the market. Growth funds rarely provide dividend income
and are considered risky investments.

Value Funds
These funds invest in large and mid-sized companies that appear to be
overlooked or out of favor. These undervalued stocks tend to pay
dividends.

Large-Cap Funds
These funds invest in companies whose market value (# shares
outstanding X current market price) is large. There is no set limit
which can be called as a threshold. For instance, in its IPO (Franklin
Flexi Cap), Franklin Templeton defined large caps as companies with a
market capitalisation in excess of Rs 15 bn (Rs 1,500 crores). But
sundaram mutual fund defines large cap as those companies having
market cap of over Rs 18 bn.

Mid-Cap Funds
These funds invest in mid-sized companies whose market value is more
in the range of Rs 2 bn to Rs 15 bn

Small-Cap Funds
These funds invest in emerging companies whose market value, is less
than Rs 2 bn. These companies tend to use profits to grow rather than
pay dividends.

Sector Funds
Sector funds choose to invest in a particular industry or segment of
the market. Examples of sectors include automotive, technology,
baking, air transportation, biotechnology, health care and utilities.

Sector funds are considered less diversified than most mutual funds,
but they do offer diversification within a particular industry.

More to follow later..

Plagiarism or inspiration?

First it was Karishma Kapoor starrer "Karishma", and how its Zee TV's
Time bomb that has been identified to be plagiarized from those
telecast in the west.

But this time it's the twentieth century fox film corporation of
America, which found the newly launched serial 'Time Bomb' closely
resembling its tele-serial '24'. But is this copied or inspired?

The west has been a forerunner of copyright issues and the IPR. And
Indians have a legacy of getting inspired by them. There is hardly
anyone who doesn't know how Anu Malik fuses the western tunes to suit
them for the Indian audience. Our reverse engineering processes in
pharma had been giving them nightmares. However, 2005 brought in a
patent regime in the pharma sector, and prevented reverse engineering.

Why do we Indians don't recognize the value of one's worth?. You find
pirated books available at rock bottom prices. Go to any suburban
station of Mumbai, you find pirated CDs and DVDs being sold like
fruits. And the price? A measly Rs 20 for a song CD. Call it value for
money or piracy, this system works. There is rampant piracy in
software. Except for the corporate, individuals hardly install any
licensed software. We have the latest developments, but no one pays
for it.

Perhaps the factor is of high prices. You don't expect someone who has
just the capacity to spend Rs 15000 on a computer to shell out another
3500 on a windows XP. Add to that the cost of MS Office. Lower per
capita income and a desire to grow leads to such practices. But is
this ethical? I would say, its ok as long as you don't get caught, and
in India, this doesn't happen often.

Colas are passe, health drinks are in

In spite of being successful in its bubbly theme, pepsi wants a new market, targeting a niche segment. Pepsi would produce its health drink Gatorade at its Aurangabad plant. For this health drink segment, Pepsi has zeroed in on bulk water, Tropicana juices, Lipton ice tea and Gatorade to market its health platform in India.

According to Pepsi officials, Gatorade was formulated by researchers at the university of Florida in 1965 to help its football team, Gators, prevent dehydration when they played in the swamp-like heat. Pepsi claims that the drink has been formulated to replace fluids and electrolytes and provide energy to improve athletic performance. It "quenches deep body thirst", says its website www.gatorade.com.

It was launched last year and was sold along with the Tropicana distribution channel. But how many people would love to grow healthy with a drink that costs Rs 45 for a 500 ml bottle, is a matter of question. Personally, I would prefer fruit juice and Glucon D to such artificial health drinks.

Outsourcing engineering services

Outsourcing is the name of the game. Till now we used to have low end
jobs getting outsourced to cheap destinations like india, but the
NASSCOM visualizes that engineering services is the next big thing.

The current work done by the Indian vendors is about $ 500 million,
which means there is quite a lot of untapped market. The main kinds of
work handled include product design, process engineering, plant
operation and enterprise asset management.

There arent many people doing this kind of work, since it has
primarily been related to IT and ITES services. But this could change,
says the NASSCOM chairman Ramadorai. As per them, Germany, France, UK
and the US lead the outsourced engineering services industry.

Now we have something which China cant emulate, at least for the time
being. Colleges churning out engineers by lakhs can be productively
utilized for something good, and they will not have to made do with
low end jobs. This might also reduce the load on management
institutes!!

Petrol gets dearer!!

Another rise in petrol prices, kept stagnant since November 2004 has
brought the left again with their threatening to call a nationwide
strike. But that did not deter the UPA government to declare the hike.

Petrol gets Rs 2.50 dearer and diesel Rs 2. Internationally crude oil
has been touching new heights, and this volatility has taken it to $55
per barrel. Its widely accepted that we, end up paying a substantial
amount in the form of taxes. Now this increase would mean increase of
our petrol / diesel bill, taxi / auto fares, and all commodities that
travel by road to reach us. The hike in one commodity can affect us so
largely.

So what is the solution to this problem of depleting resources? If
taxes were reduced, the demand would surge to the extent that prices
would rise all the more. The only way that the problem can be solved
is to utilize other sources of energy like natural gas. It has been
quite effective in Delhi, and Mumbai is following suit. But getting
this change implemented on a pan india level needs quite a lot of
effort.

What is a book building exercise

What is a book building exercise?- The Economic Times

Made for India

"Made in India" is a ubiquitous phrase. What about "made for India"?
Nokia brought out its mobile especially suited for the Indian market,
the 1100. And this low cost basic model did work, it now holds a
market share of 25%. Interestingly, its white screen variant, costing
about Rs 250 more at Rs 3250 has just about 12% of the market. Can
there be a better example of price sensitivity?

But nokia has been exporting its models to India ever since it entered
India. India is the fifth largest market for the finnish giant with
sales of over Rs 100 billion, so its decision to invest in a factory
in India makes sense. Its investment of $50 million at the Chennai
plant demonstrates its proactivity.

Nokia is getting to be the next Xerox of the mobile world. It has
created a new category of products, the FMCDs (fast moving consumer
durables), because it could not be placed in consumer durables or
FMCGs. Currently it holds 60% of the market share.

However, nokia's India strategy has been an interesting one. Its
introduction of the low cost entry level models was well taken.
However, the higher color models were better developed and marketed by
its rivals Motorola, Samsung and LG. it delayed entering into
clamshell (flapping) models, and has only one till date.

The key feature of nokia that differentiates it from others is its
ease of use and its battery life. This makes the handsets slightly
more expensive than the comparable models of Motorola or Samsung. But
nokia was late to get into the CDMA segment, where LG and Samsung held
alliances with reliance infocomm.

Nokia is in the stars segment of the BCG matrix. Now it has stiff
competition with squeezing margins, thanks to falling prices. However,
the market will discard the weak players and reach the cash cow state,
and that is when nokia would actually earn the spoils of victory.

Provogue IPO

So provogue is finally out with its IPO. Lets look at the financials
of this company.

Debt Equity ratio is 0.77

PAT = Rs 7.2 crore
No. of equity shares = 1,61,97,608
EPS = Rs 4.47

Band price of IPO: Rs 130 to Rs 150

PE ratio is 29.08 – 33.56

Growth rate of the apparel market: 13%

PE Ratios of other companies in apparel market.
Madura Garments
Raymond

Company	Price	EPS	PE Ratio
Madura			19.70	(got from the site)
Arvind Mills	139	3.75	37.07
Raymond	351	9.82	35.74

They say that this PE ratio is too high for an expected growth rate of 13%. However, I find that Arvind Mills and Raymond have quite high PE ratios. But we need to accept that they had their IPOs quite some time back.

Should you invest in Provogue's IPO?

Should you invest in Provogue's IPO?

Thinkpad and Thinkvision

So lenovo is all set. Having acquired the PC division of IBM, lenovo's
latest strategy for India is to look for innovative products. Call it
product differentiation, or just the proverbial old wine in a new
bottle, the Chinese computer maker is serious about this market.

So what can the new products be, where IBM does not have a market? The
oldest computer manufacturer is omnipresent, be it hardware or
software. lenovo can make PCs particularly suited for some segments,
say students or novice users, with easy upgrade. With PCs having
reached many households, it has become another electronic gadget, at
least in the urban region. So why stick to the good old black or
white? Like apple, they could bring it out in vibrant colors to suit
the mood. Going ahead, they could also produce detachable cases, which
could be changed as desired.

The thinkpad caters to the niche market; they could follow the acer or
zenith model, of providing these mobile devices at a lower price.
Nothing wins in India as a low cost product. people are more willing
to try it. Now it has a new name, and lenovo could stand for low cost
high quality computers, straight from the IBM stable. This kind of
product positioning should work.

Rebranding products

The latest cosmetic surgery of some of the popular Indian brands
indicates just one thing: in today's competitive environment,
rejenuvate or die. No longer can a brand sustain itself just because
the older generations were vivid users.

The 97 year old Bank of baroda, for instance, has gone for a total
image makeover, with its sleek orange logo. Kinetic would be putting
up an image of metallic gray and silver color, and so has the FMCG
giant Dabur, giving a new look to its old banyan tree.

But why are the companies doing it? Why does Bajaj have to re-brand
itself? That's because a change in logo to a "Flying B" signifies a
change in perception (from the consumer point of view). People can
take the image makeover to be a change in strategy, to provide new and
improved products. A bajaj is no longer known as "hamara bajaj", it
inspires confidence. Otherwise how does one expect the generation X to
buy bikes from a company whose core competence lies in making
scooters, best used by unclejees?

Tata AIG and ONGC have also invested heavily in changing the brand
perception, hiring professionals for the designing process.

A globalized India, home to a number of mom and pop brands may spell
danger to them, unless they shed their archaic image and go for
glossy, sleek and hep designs. Perhaps we can expect HLL to do the
same, in course of time.

Marketing

In response to
http://www.coolavenues.com/placements/2005/maya_madhukar_1.php3

The farcical nature of B-school rankings and their impact is too
conspicuous to be unaware of. And talking about the scoring pattern of
the schools, there is an inherent confusion among aspirants regarding
what's best for them. Usually they end up looking at the salary
figures, as they are the most tangible benefits they can decipher of
extracting from a B-school.

Most of the aspirants have little or no work experience, and some of
the terminology is alien to them. They fail to appreciate the
importance of the value addition. Spending two years trying to do
something isn't unheard of, especially in India, where unemployment
levels are high. And this has lead to the shooting competition for
B-schools today.

The figures are impressive; we have something to boast about. Yes, the
world is a market place, and the most successful people are the ones
who can sell themselves the best. However substance one might have,
but it all comes down to being able to package oneself. And that's the
reason why B-schools have been advertising high figures, which may not
be too close to reality. This explains why Microsoft products are so
popular, they have less than 2500 technical people, and over 22000
marketing professionals!!

I think that instead of B-schools, we need courses in marketing in the
undergraduate levels itself. That might reduce the burden of so many
aspirants trying to make themselves eligible for the schools. The
marketing bible by Kotler has its own predicaments. All examples are
American, which one can hardly relate to, unless one has spent 10 odd
years in the Yankee lands. But we do read, and do so to put our GPAs
in place. How much of Kotler do we actually use in our real lives?
That's an open ended question. Let me get some answers from people who
have faced the industry much more than me.

3G rollout in India

In response to http://economictimes.indiatimes.com/articleshowindia/1132114.cms

Technology development does not go down well in a price sensitive
market like India. A new technology brings with itself promoters, who
are usually the visionaries and the early adopters. However, the
majority are the late adopters, who would rather stick to the good old
thing, rather than shell out money for the snazzy gadget.

Pricing, per se is high when the technology is new. When mobile phones
were introduced in India, they were very expensive (Rs 10000 + to
begin with), so was the air time. With penetration and increased use,
the rates fall. The majority always waits for the rates to fall. And
the first mover advantage always prevails. A resistance to change, the
tendency to stick to the good old thing, which is usually cheaper, is
something the mass cant get away with.

3G, and its ramifications taking the world by its charm, will not go
down well with the masses. The first reason is the uphill price, and a
lack of utility associated with it. 3G may boast of successes in Hong
Kong, but Indian market is different. GSM has got a first mover
advantage. CDMA could penetrate the market, only because of the low
prices it offered. So it all comes down to prices. The average Indian
has a tendency to stick to the basic necessities, rather than opt for
any swanky features that come along with new technology. What else
explains that over 60% of the households in India still have black and
white TV sets?

Betting on rainfall!!

So its all about risk, and making money out of it. Lottery is already
a big time business. On the suburban stations of Mumbai you find these
people making brisk cash, with fools around trying their luck. The
government has even legalized this business, and so it has gone high
tech. computers adorn these little lottery shops, and they have
automated lotteries, meant to be "fair".

Looking at a larger perspective, isn't betting the same thing? Betting
for cricket or politics is one thing; the punters can actually change
the rules of the game. But betting for weather? Or are they a form of
weather derivatives? If they are, why not legalize them? The ET report
today states that some Rs 2500 crore has already been put in, with the
mm of rainfall being the prime indicator. The government could
actually fill its coffers by taxing this new form of business.