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.