Archive for December, 2011

Sensex: What’s next?

Thursday, December 29th, 2011 December 29th, 2011 Jitendra kumar Gupta

The anxiety to know where the markets are heading is only increasing while uncertainties abound. While there are many observations and possibilities, the most important question that comes to my mind: what’s in the price? Are Indian stock prices reflecting the worries that we are facing today with regard to what is going on or could possibly go wrong in the global economy, especially given the European crisis and the slowdown in Chinese economy? Most economists say the current global economic environment is extremely uncertain. And if the ongoing crisis manifests completely, the result could be devastating to say the least.

Here is what Marc Faber said when I asked him about his readings of the global economic crisis back in September, “We never really had a recovery in the western world. The stock markets went up because of the money printing and support in 2009. My view is that they can probably muddle through for another two-three years by piling up the fiscal deficit or printing more money. I do not know when it will happen - in 2012 or in 2018 - but the next crisis will be worse than the one in 2008.” Couple this view with that of domestic economists, who believe the homegrown economic issues are yet to play out, and the outlook isn’t bright.

Earnings downgrade cycle
So far from the peak in the month of January 2011, the Sensex has corrected by about 23 per cent. A large part of this has come from the Sensex earnings downgrades of about 10 per cent so far since January this year to currently at about Rs 1,130 per share. The second part comes from the P/E multiple de-rating, which typically happens when investors are expecting less growth and return on equity is expected to be relatively lower. At its peak in January 2011, the Sensex was trading at 16.5 times its one-year forward earnings, which has now dropped to 14 times. Effectively, the P/E de-rating has eroded another 15 per cent from the Sensex value followed by earnings downgrades.

What if in FY13 the Sensex EPS does not grow at all? Is that a possibility? Let us go back to history. Between FY98 and FY2000, for almost three years, the Sensex EPS remained flat at about Rs 280 levels. Again, very recently, beween FY08 and FY10, the Sensex EPS did not grow much. Let me tell you another interesting story. Last time, when the crisis hit in early 2009, analysts were expecting the Sensex EPS at Rs 1,240 for FY10. However, it actually tuned out to be 33 per cent lower at Rs 834 per share, which is huge and one can think of the difference that could occur between perception and reality when things go wrong. In that context, so far we have only seen 11-12 per cent downgrades in FY13 Sensex earnings.

There aren’t enough signs that we may see a situation like in 2008 and after, but there are enough headwinds in both the global and the domestic economy. The GDP growth has already been lowered and earnings are expected to suffer in the coming months partly as interest rates stay high. Even if we project a scenario of flat growth in FY13, the Sensex EPS could be around Rs 1150 per share.

Worst case
Now with flat growth in EPS what is the worst case for Sensex? If we take the reference of the 2008-09 global financial crisis, which was a classic case where both the global and domestic issues played large roles, the Sensex went down to almost 10 times its one-year forward earnings.

If we apply the same logic the Sensex value works out to nearly 11,300 points (forward Sensex EPS of Rs 1,130*10) or about 30 per cent lower from the current levels. But can the market trade at a P/E multiple of 10? Stock prices do not move only on fundamentals, but also because of sentiment and liquidity, which as we saw in 2008-09 forced markets to trade at lower valuations.

Recently there was a note published by Christopher Wood of CLSA where he said: “At this point, with the RBI hamstrung by stubbornly strong non-food core inflation, a violent sell-off down to the 11,000-12,000 levels on the Sensex, combined with a further depreciation in the rupee to the Rs 60/US$ level, now appears quite possible; most particularly in the context of any potential euroquake.”

Here the last line about the “potential euroquake” is very important, which is precisely what could impact the liquidity and the sentiment. It was not the fundamentals of the Indian economy that led to such huge sell-off in 2009, it was more to do with the sentiment due to the failure of the US banks and Lehman Brothers filing for bankruptcy in September 2008.

Here, the one cautionary statement is that this is an outcome, which is based on many assumptions. After all there is no harm in knowing the risk, whether it will materialise or not is a different issue. It isn’t as if there is no hope for long-term investors. In fact, the best time to invest in equities is when there is lot of pessimism in the market. Which is precisely what Warren Buffett says, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

They fight, therefore they are brothers

Wednesday, December 28th, 2011 December 28th, 2011 Sundaresha Subramanian

My father fights with his brother, each time they meet. At my grandfather’s funeral, at a cousin’s wedding and last week on Dadar platform, where he had gone to send off my uncle,couple of years younger to him, there are no exceptions. Occasions and locations don’t deter them. It’s neither a cold war with subtle manouveres, nor a quiet disagreement; it’s a proper quarrel, complete with yelling and gesturing. Neither of them gives up. Despite getting used to it over the years, we, the kids, get anxious and try to play peacemakers.  People who are not used to it get excited, scared or entertained depending on their stakes and tastes.

Thank god for little mercies, my family is happy with words. In a more militant, sword-wielding types, this will probably end in blood flowing and heads rolling. When the brothers are from the country’s top business family, it’s a different ball game.

Media certainly has gone overboard with the big brothers’ meeting in Chorwad, while the shares have reacted in a more nuanced manner. One set of shares, which have been battered for years now, gained; other set declined and overall market followed global cues.
There is no clear message there yet. All we have had is a few pretty pictures and a statement from the matriarch. “Woh dono mere bete hain. . . Dono hi aage badh rahe hain. Dono ke beech pyaar hai. Hum sab saath saath hain (they are both my sons. Both are progressing in their businesses. There is love between them. The family stands together),” the mother was quoted as saying in media.

After all, Mother knows best.

The operative part of that plain vanilla statement any mother would say about her kids, which everyone is reading their own secret fantasies into, is this: Dono ke beech Pyar hai. How can they fight if they love each other? So they will stop fighting. If they stop fighting, the next thing they will do is merge their companies…this is the thought process that is being floated.

When my father was describing me the latest episode at Dadar, I told him: “Enough is enough. I can’t handle this anymore. You guys either stop fighting or stop meeting.”
He laughed off my ultimatum and said, “Why do you worry? It has always been like this. When we were young, sometimes I gave him a whack. He ran to the mother complaining. Later I call him back. We play, we roll on the mud, quarrel… You don’t have a brother. You won’t understand.”

Do you have a brother? Do you understand?

This is what I think I understand:

Brothers are a peculiar species. They fight, that doesn’t mean they don’t love each other. They love each other and that doesn’t mean they won’t fight. And, no matter who you are, you can’t stop them from meeting or fighting.

That brings us to the brothers’ wives, who were snapped dancing blissfully.

They dance, But that doesn’t mean…

Vacation merry-go-round

Tuesday, December 27th, 2011 December 27th, 2011 Nivedita MookerjiNivedita Mookerji

I’m about to go on my year-end break, but not before sharing my experience in the run-up to the holiday.  The exercise began quite early, I think sometime in October, and what a journey it has been already.

Influenced by a friend, who had just returned from a Coorg holiday and had described the place and its people with such fascination, I decided Coorg would be our year-end holiday destination. My family protested, saying nothing could match Christmas in Shimla.

Since one has been to Shimla so many times and in so many seasons, it’s started feeling like a second home. Imagine carols at the Shimla mall with the church bells in the backdrop, the long walk to the Centre for Advanced Studies known for its history, architecture and scenic beauty, the ice-capped Himalayas from the windows of the majestic Peterhoff hotel (our favourite place in this hill station), and the fragrance of the pines…. Just when we were ready to make the bookings for Shimla, I got another valuable suggestion from a friend: try Kashmir, he said.

Since I have never visited the Valley, the idea sounded good. So we began our search for the cheapest flights to Srinagar and checking out the road route to Gulmarg. It would have to be a longer trip than Shimla because there was more to travel and see. Also, there was no guarantee that flights would take off from there, especially if weather turned bad. Suddenly, Kashmir wasn’t the best option in winters, even if one was told that militants were unlikely to strike when weather was treacherous!

If one must take a longer vacation, why not Andaman & Nicobar islands? The corals, the music of the tribals, the blue-green sea, the cruise—all of these were discussed at great length on the dinner table, after which I was assigned the task of finding the best deal through the online planners. Two weekends went by just comparing the hotel tariffs and flight tickets. Should it be via Kolkata or Bhubaneswar? Direct or break journey? By the time we found an answer to all these questions, it was too late for us to get hotel rooms. All full, is the answer we got from everywhere.

Okay, all is not lost, we told ourselves. Anyway, Andaman is not really the best destination during Christmas, we consoled each other with much wisdom. To catch the spirit of celebration, what can be better than the North-East or maybe Goa, we thought aloud. By this time, we had inched quite close to Christmas, and the tariffs and the ticket rates had sky-rocketed.

These were times of economic slowdown after all, and we must spend judiciously, we decided. Why go to Goa or the North-East if we could go to Bangkok or Singapore with that much or maybe a little more? Just when we were about to surf the travel sites for the best deals to Thailand and Singapore, the phone rang.

A cousin was coming from Canada with her husband and teenage children. Let’s go to Rajasthan together, she started. And don’t forget to include Taj Mahal on the itinerary.

We sprang into action as such requests are not made everyday. Hotel rooms booked, transport fixed, and the phone rang again. The cousin and her family could not fly out of Canada as the Air India flight from Toronto had developed a technical snag and the carrier had to order parts from Mumbai! An email followed soon after: Reschedule all the hotel and car bookings to Rajasthan…. 

Three days after the ordeal, the cousin is finally on a flight to New Delhi, along with her family. Keeping my fingers crossed, looks like holiday at last. Jaipur, Ajmer, Agra—3 cities in 3 days, as a friend pointed out. After crisscrossing the country and a bit outside in search of a good holiday!


Oh, For The Purr….

Sunday, December 25th, 2011 December 25th, 2011 Praveen Bose

It’s been a while since we have heard the purring of the powerful engines of the superbikes of a western bike-maker who is well-known on the racing circuit.

Some of the bike models that have made a name by burning the rubber on many a race-track were being sold like hot cakes when the showroom opened a few months ago though they were priced from Rs 8 lakh to about Rs 30 lakh. The showroom always had no less than half a dozen bike models on display and I would pay my respects to the bikes by giving salivating over them everyday before entering the gate of the building that houses my office.

Alas, perhaps some higher powers were jealous that I was was ogling at the superbikes (but not ride them though). Or, perhaps the higher powers thought I was ogling at the girls. In a couple of the months the number of bikes on display kept falling till there were none. And, one fine day, there came the padlock on the glass door.

Was it the poor sales, or was it something else? We admirers of the bikes spent quite a while trying to figure out the possible reasons for the place being shut down. But, the place not been vacated by them. On checking, I am always assured that it will come up. There’s no stock!
Looks like it has fallen victim to the global slowdown. The stocks will come, I am promised. Sundays were the days when I would come to office and see not than 3 or 4 of these superbikes being taken away by an afficionado.

Now, every Sunday when I come to office I longingly look at the glass facade of the showroom and hope that normal supplies will begin soon. But, given the sovereign debt crises in some parts of the world, I feel I may have to wait for a few more months before I will be able to hear that purring of the engines of the 1999 cc engine that gives me the same pleasure as the purring of that cat who once owned me.

Indian economy: a messy situation

Thursday, December 22nd, 2011 December 22nd, 2011 Tarun Chaturvedi

At the beginning of the financial year the mandarins who run the Indian economy were being lauded for steering the country out of the global mess with remarkable ease and very little damage. Those were the days when a growth rate of 9-10% was considered as being the most natural growth rate for India. The country started the year with a dream of becoming the Pied Piper for global growth. But now, with extremely dismal macro-economic numbers coming, the ground situation seems to be very different. Dreams seldom become reality — as always.
The high rates of inflation, the corresponding fall in the value of the Rupee, the dismal GDP growth figures and industrial production numbers just released…the list can go on and on -– a sorry state of affairs.

Everything in this economic climate may be uncertain -– but one thing remains certain – the economic slowdown has arrived and this one is going to be far worse than the one we witnessed a few years back. The slump looks relatively broad based, covering a range of industry and service sectors.

The bad news does not end here, the dismal show of the internal economy is coupled with bad news outside. Right from one end of the globe to the other, economies wait with baited breadth as the never ending saga of bad news from the rich nations continues. The extent of damage to be inflicted on India by this is still not known but it is sure there will be damage.

And to top it all, we have a government which is turning out to be one of the worst non- performers — be it from taking policy initiatives to stem the downslide or combating corruption. This is fast turning out to be the icing on the cake. And like all cakes, even here the icing first has to melt. The government has to be forced into action and only then will the other parameters be brought under control. If the government actually thinks that the economic engine will start rolling again without any policy intervention, it is most unlikely.

Managing an economy is like riding a motorcycle, when it is at a great speed, balancing is easy but the real challenge in balancing is faced when the motorbike slows down. A deft rider can balance a slow bike and speed up again. An inexperienced one can only stop if the bike slows.

We can only hope the economy is not in the hands of an inexperienced rider.

Sales pitch

Thursday, December 22nd, 2011 December 22nd, 2011 Pablo ChaterjiPablo Chaterji

I was at the launch of a new sedan a while ago, and as I waited in the assembled audience, I wondered how the launch would be handled. Would it be the same old same old, as it were? I’ve seen so many launches done according to a standard template that I can almost predict the sequence of events. An important company official will step onto the stage, with the Star Wars theme song playing in the background (although, to be fair, these days they seem to have moved on to generic techno music). The official will deliver an introductory speech, and then he will invite another official on stage. After this, there will either be yet another official delivering a speech, or they will cut to an A/V presentation (which will quite possibly be accompanied by the Star Wars theme song). Following this, some sort of song-and-dance activity will ensue, the climax of which will coincide with the car being unveiled on stage. Everyone will then go and down a few cold ones, talk shop, eat a buffer dinner and retire for the night.
I have to say that this particular launch broadly followed the above template as well, but within those parameters, it was well done. Of particular interest to me was a presentation by the company’s VP of sales and marketing, in which he laid great emphasis on the fact that their sales and service experience was going to be of 5-star standard. Showroom employees were going to get over 300 hours of training each, there would be a 24-hour service hotline and the effort was going to be to grab a hold of the prospective customer’s mind space and not let it go. In the age of instant messaging and social networking, the gentleman said, even a minor issue at the showroom was likely to be immediately broadcast over the internet by the aggrieved customer, there to be seen by hundreds or thousands of his online friends.
This part interested me because of two car-buying experiences that had been narrated to me. In the first, a friend’s father, a very senior corporate man, had booked a Japanese premium SUV, been assured of a discount of Rs 2 lakh, paid an advance of Rs 2 lakh and received an official invoice. Delivery had subsequently been terribly delayed, and he was also told that the discount would no longer apply; if he didn’t agree with this, he could cancel his booking. Furious at this unacceptable behaviour, he shot off an email to the head of the company, threatening legal action. It was only after this that he received his vehicle, and at the originally agreed upon price.
In the second instance, my parents decided to buy a hatchback made by one of the newer entrants in the Indian market. While paying the booking amount, they were assured that they would be ‘very happy with the deal’ that they would be offered. When push came to shove, they were quoted the list price and offered free floor mats and mud flaps. They really liked the car, so they decided to buy it anyway. While taking delivery (which the showroom tried to delay by a day), they were confronted by clueless sales staff, and were handed feedback forms to fill that had already been pre-ticked ‘Excellent’ across all parameters. In both cases, the people I’m referring to were extremely happy with the product itself, and went ahead with their purchases despite their harrowing experiences at the showroom. They aren’t alone, of course – we hear of similar (and worse) experiences all the time, and it’s clear that many manufacturers take customers for granted all through the buying process and afterwards as well. ‘We want to offer the customer a business class experience at economy class fares’ said another senior executive at the launch. If they can actually pull it off, it would be a refreshing change from the norm.

Home work is more fun

Monday, December 19th, 2011 December 19th, 2011 Kalpana PathakKalpana Pathak

I have never been able to understand the fixation bosses have with their teams working eight hours in office. Why should there be a swipe-in and swipe-out time? Why do you need to show your face in office all the time?

Why can’t more and more organisations allow people to work from home? And how do you know that people spend all the time in office working?

A few years ago I had met a senior journalist from the US at a training programme. An auto correspondent and a mother of three growing up children, I was surprised when she told me she never thought of quitting journalism to manage her family and home. What worked in her favour here, was that her organisation gave her the freedom to work from home.

A friend who recently changed her job tells me how her boss’ annoying habit of keeping a tab on her made her look out. “I like doing my meetings early in the morning. So I prefer leaving work early. But my boss would never consider that I have been out since morning and always want me around. More than anything else, this annoyed me,” she said.

HR consultants will tell you how employees today like multi-tasking, so they can listen to music and finish their work at the same time. They can meet their targets/deadlines in time and if not, will not mind burning the midnight oil to complete the task assigned.

The chief editor of a newspaper tells me how she understands the working style of the new generation and uses this as a retention tool. When she recruits people she tells them how working for her does not mean spending one’s life in office. “I am alright with my colleagues wanting to catch the latest film during office hours. I know people these days long for freedom. I ensure I give them that. This does not mean they take their work lightly or are irresponsible. I not only get my copies in time but also know I have honest employees,” she says.

One may argue, as many of our seniors in the industry do, that it’s important to be around in case of a news development. Fair enough. But how do you know we would not try to work from wherever we are. Its as much our job.

It may also be argued that this kind of freedom may make the team members lazy and irresponsible. Well, how do you know?

I think, today if its about money, it is also about working at a place where people are mentally at peace. Employees know they jobs and know that the same will be in line if the targets are not met and performance is not satisfactory. So may be the bosses can work with the human resource departments to re-look at their strategies and give themselves and their employees a chance– at freedom.

Who is this Youth?

Thursday, December 15th, 2011 December 15th, 2011 Namrata Acharya

I often wonder, what is this entity called “Youth”?

From whatever little I gather, I come to the conclusion that to be a Youth, one must have some qualities, likes and  dislikes.

The Youth must be hooked to Internet, at least 17 hours a day, the Youth must “work hard, party harder,” the Youth must use Blackberry for Facebook and Twitter updates, the Youth must be an anti-corruption crusader and support candlelight vigils on occasions of national calamity or terrorist attack. The Youth also loves to party, get sloshed and splurge in New Year and Christmas. And  of course, the brand-conscious youth likes wearing Khadi, occasionally though. For general information, the Youth buys an apartment at the age of 28, and a car at the age of 31, and in most often an IT professional. And obviously, the Youth likes Kolaveri Di.

Now the dislikes. The Youth will never ever — and that is an absolute NO NO — watch television soaps (wonder where the channels get their TRPs from). The Youth must dislike spending time with those pestering  relatives who come with a new marriage proposal everyday, and Youth must not excessively enjoy visiting places of religious interest.

Now that I know what it takes to be a Youth, I see, Internet also provides a list of Youth icons. Narain Karthikeyan, Rahul Gandhi, Sania Mirza, M S Dhoni, Priyanaka Chopra are Youth icons. Several years ago, even Anil Ambani, Shahrukh Khan and once even good old Orkut, managed to be Youth icons at one popular television channel.

No doubt, these people are achievers in their respective fields, but do a majority of young people in India really connect with these so-called ‘icons’?

How does the young man, somewhere in his mid-20s, selling Jhal Muri (for those who don’t know, it is one of the most popular street foods in Bengal, and someone told me the English version is dried fried rice with onion and chilly) at the bus-stand  relate with Narain Karthikeyan and or Anil Ambani? Does the teenage kid selling potato chips, who is as mature in counting money as a cashier in a big retail chain, endorse  Rahul Gandhi as his icon?

And what about those youngsters in rural areas who travel long distance for study or work and use  decade-old computers at cyber cafe, instead of Blackberry, to mark their presence in the world of internet? What about  those teenage girls and boys who get married right at the age of 18 or less, who, don’t understand the lyrics of Kolaveri Di? (Most of us don’t understand the lyrics I guess).

Google tells me that only 8.4 per cent of the population in India uses Internet. So why is it that we are so biased towards this handful of young people in  portraying an imaginary consumerism-driven  construct of Youth?

May be like, Financial Inclusion drive, we need one Youth Inclusion drive in India!

A regulator taking power nap

Thursday, December 15th, 2011 December 15th, 2011 Jyoti MukulJyoti Mukul

If there were vehicles on the road without a traffic signal or a traffic constable, would the vehicles take turns and decide to move systemically? In a vastly divided country like India, the answer could vary from people saying that Delhi roads will be chaotic though Mumbai will continue to be better, to some saying that road rage will rule. When there are no restrictions on getting vehicles on the roads, except for certain mandatory legal documentation, then why the regulations? It is because the State takes the responsibility of setting rules of the game to ensure that people do not bump into each other.

Similarly, whenever the government decides to open up certain sectors to private capital as well as private operations, it sets the rules and appoints a constable. In each of these sectors, the role of a regulator is no more than that of a traffic constable who sees to it that the rules are obeyed, penalises the violator and takes away the licence of a habitual violator. How far these regulators are effective is primarily left to the legislations carefully drafted and interpreted by a government which wants to cede only as much. If the creation of Petroleum and Natural Gas Regulatory Board (PNGRB) is taken as an example, the law gave it a character but the government did not want to give more than what bureaucrats in the ministry of petroleum and natural gas were willing to give up. So, for almost three years, the regulator was a toothless wonder with its power to give authorisation for city gas distribution and pipelines not being notified.

After the law, the next thing that decides the relevance or the effectiveness of an organisation is the persons who man it. Again, take the example of PNGRB. With Labyendu Mansingh as the chairman, the stage was set for a well-informed person to take decisions and bring in integrity to the organisation. Despite all the good intentions, things went wrong which some say was because of Mansingh’s style of functioning. Despite a notification empowering the regulator, a divided board, with two members deciding to take the chairman to court almost at the fag-end of his tenure and one member barred by a court ruling from taking part in the decisions, matters came to such a pass that the regulator remained toothless. For almost two years now, the regulator is working like a dysfunctional traffic signal. But are the vehicles crashing into each other. Perhaps no. It is because there isn’t enough traffic. Domestic gas production has fallen in the past one year and the economy is slow mode. Even if more CGD or trunk pipelines networks come up, the only thing they could carry perhaps is water and not natural gas.

With a new chairman in place, the regulatory board still isn’t functioning. “After so much heat, things take time to settle down,” says one insider. So with traffic slowing down, the constable too is taking a power nap.

India becomes richer, Indians poorer

Monday, December 12th, 2011 December 12th, 2011 Tarun Chaturvedi

According to a new report by the Organisation for Economic Cooperation and Development (OECD) inequality in earnings has doubled in India over the past two decades, making it one of the worst performers among emerging economies which include Argentina, Brazil, China, South Africa and Russia. According to the report, the top 10% of wage-earners make 12 times more than the bottom 10%, compared to six times 20 years ago — a sign that inequality of income is increasing by the year.

Unfortunately, this has happened during a period which is touted as the golden period of economic reforms in India. During this period, the country has seen unprecedented growth rates which have created an aura of INDIA GROWING. There is no doubt that India is a growing nation and on most of the macroeconomic (GDP-based) indicators, the country has done better than its peers. However this report raises serious doubt whether the large part of India (which still remains very poor) has benefitted from this growth period or not. The findings of the report clearly indicate that the growth in India has been very deep but not wide. The inclusive factor in the growth has been totally missing. Infact if one is to go by the report numbers, the growth in India has been exclusive, leaving a large part of the population untouched. These are surely not good signs for the future of the country.

Even in terms of absolute numbers, India has the highest number of poor in the world. Around 42% of its 1.21 billion people live on less than $1.25 a day.

As far as comparison with other emerging economies is concerned the report finds that Brazil, Indonesia and Argentina, on some indicators have recorded significant progress in reducing inequality over the past 20 years. By contrast, China, India, the Russian Federation and South Africa have all become less equal over time.

The situation is really grave and is a matter of great concern even more when we have a government which continuously claims as having introduced the most amount of welfare measures in the form of MNREGA and such like. It is time that the government came to grips with the situation and started taking corrective policy measures aimed at a ensuring a more egalitarian growth. As far as the aid programmes are concerned, the less said the better, but nonetheless it is known that they are beset with corruption, bad administration and leakages.