Budget 2009

Sensex may have crashed 600 points after the announcement of the budget, but I still found the budget very responsible although it has fair share of negative policy decisions too .

Positives

1. Government high degree of spending on rural and poor India clearly signals the accountability to the people of the country. They are fulfilling the promises made in the general elections.

2. Infrastructure spending will give boost to the manufacturing industry which is facing trouble due to recession. It will also have increased multiplier effect and will boost the overall economy.

3. Increasing MAT to improve the tax revenues from the company which are avoiding tax due to tax incentives given to them. If we see companies like TCS, INFY, they have established themselves well and don’t really need any tax breaks further. Ideally there should be a limit set on net profits and the time company crosses the limit, it should be taxed as a normal company.

4. Boost to agriculture sector in the form of 7% loan will improve the rural economy further, it will improve the purchasing power of almost 650 million Indians.

Negatives

1. No announcement of disinvestment in both loss and profit making companies is really shocking news. When the country is sitting on huge fiscal deficit and borrowing nearly 34% of the money used for spending, disinvestment could have been a trump card solution which is missed.

2. Imposition of Fringe Benefit Tax was a smart move by the earlier government, by abolishing it tax revenues will be reduced as companies will start paying its employees in the form of benefits and perks to reduce their tax load. This may also increase the fiscal deficit even further.

3. Reducing duties on Plasma TV, Mobile Phones and imported Car - This may be one of the decisions for the galleries, but it really doesn’t help the rising fiscal deficit of the country.

I think the major issue of this budget is clearly the lack of fiscal management by the finance ministry, increased borrowing by the government will cause following effects: -

1. Sovereign Ratings: - Increase fiscal deficit to more than 6%, it may also affect our sovereign ratings and increase the cost of borrowing by the government and the institutions.

2. Crowding out Effect: - Government is borrowing almost 34% of the expenditure from the markets. It will reduce the options for the private sector to get easy funding as it will be competing against the government to secure funds.

3. High Interest Burden: - Around 19% of the budgetary expenditure goes in just paying the interest on the loans taken by the government. High interest burden and increased borrowings is a negative sign for the growth targets of the country.

Slums.. Are we missing the larger Picture?

Slumdog Millionaire might not have done anything great for the slum dwellers but it has surely made few people very rich and famous, one is them is producer and director Mr Danny Boyle other includes actress of the movie ‘ Latika Fame‘ and last but not the least the slum cast of the movie who are finally having a good time after many ups and downs during and after the release of the movie .

What came as surprise to me is the lack of interest shown by people in attacking the real problem of poverty in slums. Actors like Salman etc are posing happily with the children from the slum who worked in the Oskar winning movie but they are simply ignoring the real issue of the condition of millions of kids who are still deprived of the basic necessities of the life.

Sending the Slumdog kids to school is really a great gesture shown by Danny Boyle but it could have really helped if they can simply build a school for slums in the locality or appeal to the general people to show some empathy to the major cause of slum development.

I think people are missing the larger picture of putting efforts in improving the conditions of slums as a whole and assuming that improving the life of few kids in slum will solve all the problems.

There is also a lack of initiative from the government machinery. We have ministries for urban development and rural development but we don’t have any focus on the slum Development or rather rehabilitation where 60% of the urban population lives. If India has to improve its condition and reputation outside , slum development has to be taken as a first priority .All the issues of poverty , malnourishment , crime and illiteracy are actually originating from the slums and as the population density in slums is very high , it will take significantly lessor effort and funds to improve the condition.

Preventing two wheeler road accidents ..

Freedom without concrete laws and regulations can lead to increased risk in every walk of life; people call it ‘Flexibility Premium’. A prime example of it may be the way Lehman Brothers saw its downfall due to freedom given to its managers to invest anywhere in any kind of security . The freedom and flexibility situation may looks very good initially to all of us but it mostly ends in self destructive mode.

A similar kind of risk can be associated with the driving of two wheelers in India, hardly any adequate regulations to safeguard the common man from falling in the trap of taking excessive risk while driving. When people are dying every day due to road accidents in thousands there is an urgent need of a new driving policy to reduce the rising number of road accident young casualties.

If we compare the US regulation regarding two wheelers, they are very strict. There is a requirement of wearing safety accessories like Helmets, elbow guard, gloves etc while driving a bike in the US and the people are charged heavy fines for violating these rules and even crossing speed levels .In India we have dismal conditions of the roads but even than few people never seems discouraged about showing their talent of crazy stunts and over speeding bike which endanger both theirs and life of others on the road.

Lot of effort is required to improve the conditions of road too in improving the condition of roads tom reduce the level of accidents .With abundance of two wheelers in the country which is one the most popular means of family transport, government may even think of having a special lanes for the two wheelers . It will even make roads easily accessible for non two wheeler drivers.

Are Bulls Back?

Outcome of general elections have changed the face of Indian Equity Markets. People who are staying away from the market are suddenly all excited about the easy money from stock markets.

 Is it really the revival of great Indian bull market which is ignoring all bad news and simply concentrating on the development agenda of the newly form UPA government without the fear of LEFT parties  or its just yet another short lived  trend. I personally feel that there are less chances of it being a sustainable upside trend for long, reason being: -

 

1.      1.  The earnings figure of the companies are still on the declining trend, nearly 33% of the top 1000 listed Indian companies by market capitalization have shown losses in the last Quarter. Majority of the companies are seeing a decline in the EPS growth.

 

2.       2. GDP increase of 5.8% might look very comforting but if look at the breakup of the GDP growth rates only the infrastructure sector has shown good growth with rest of the sectors still far from the last year’s level.

 

 

3.       3. Global recession seems far from over with heavy weights like General Motors filling for Bankruptcies and US markets still struggling for confidence.

 

4.       4. We are facing the challenge of large fiscal deficit and there is a high expectation for the populist budget this year which might stretch it even further. High Fiscal deficit combined with soaring current account deficit can even make a case of downgrade of India’s sovereign ratings which will increase the cost of funding for both the government and the companies of India.

 

5.       5. Low credit off take from banking sector clearly reflects the declining trend in the capital expenditures of the companies.  It can reduce the extent of growth rates and job opportunities both in manufacturing and services sector.

 

6.       6. Delayed Monsoon can negatively affect the agriculture and the rural economy making it tough for recession neutral industries like Food and FMCG.

 

7.       7. Declining exports and increasing crude prices can even the increase the current account deficit of India and with less capital account inflows due to grim external conditions the balance of payment condition of India can denigrate although we are sitting in huge Forex reserves.

 

I can clearly see a classic case of retail investor’s excitement about entering the market when it’s too hot to handle. It’s very tough to predict the direction of the markets but the macro economic factors doesn’t really reflect any signs of sustainability of this rally for long time and I think it will be in interest of the small time investors to go a bit slow on their buying frenzy in a quest to become a millionaire in a month.  

Strategic Time Out

Sometimes I really wonder how marketing guru's change the face of the game in such a amazing fashion .. Look at the new feature of the IPL - Strategic Time out . A move which adds another 10 minutes to the game , how it has changed the entire game . Now the media has extra time to put in more advertisements and earn extra revenue . It also provides  time to teams to realign the strategy in the middle of the game and makes it really interesting . So many games in IPL have been influenced by this time out.

The best part of it is the flexibility it provides to the viewer who can also use this time to do some work , sitting and watching the entire 2 hour game can be tough for few of us .

 In all a win win situation and no one is complaining . 

Filthy Rich

What will you do when you have tons of money, Mr Raju is reported to have 1000 designers suit just for himself, which can make even the likes of Amitabh Bachhan feel jealous, but the big question is - Why do people like Raju spend millions on designer suits and accessories when it will take him atleast 3 years to repeat the usage of the earlier used one. Some of the reasons might be:-

1         Exhausted with other options of burning money

2         Marginal utility of saving money gets reduced drastically

3         Safety from detection of excess Black money

4          Have to fill up the expensive and fancy Wardrobes

5         To attract attention of fairer sex

6         Improving the demand and state of economy

7         Use it as a sign of immaculate taste

Want to know the real reason, get Rich.

Corporate Governance ..

Satyam scandal has unnerved lot of market participants about the chances of corrupt practices being undergoing in lot of other companies, people who use to believe in fundamental analysis of the securities are now suspicious of the real intrinsic value of their stock holdings. Clearly discounted cash flow analysis , relative valuation or even DDM cannot account for the risk of marked up employees or fudged balanced sheets. In such a scenario what method of valuation can actually discount for the risk of abysmal corporate governance is a real issue for modern day finance practitioners and there is a need to add this qualitative measure in quantifying the intrinsic value of any stock. This risk can be called risk of asymmetric information .One of the way of quantifying such risks is increasing the discount rate for company with less transparency or lesser number of independent directors. The high discount rate will reduce the value of the stock but quantifying the value of this premium is a very difficult process.

SEBI is coming out with a new formula to add another check in the auditing process by introducing peer review. In a peer review internal auditors from some randomly selected company will check the books of some other company and vice verse.  There may be lot of operational intricacies in actually adopting this process but it can act like a good deterrent for the company to take up innovative accounting practices . What is interesting is that the industry is not supporting this new check. Let’s hope we have it implemented and it can identify most of the Satyam’s in the process.  

iTS ALL OVER tODAY ..

2 years of MBA can be really long time for most of the people who come in search of greener pastures its a tedious and laborious period of life . Today we are having the convocation , perhaps one last time to meet all the friends and Junta of college at the same place . The feeling is mixed , some times I think that all the grilling due to the unending list of assignments and case studies will no more be there but also fear of much tougher time in real cruel world which is waiting for me . Traveling in Mumbai locals and coming lat every day after work was perhaps not the life I was looking to get from an MBA . But this is what most of us gets..

Life in a MBA college is very different from the engineering college , here you will have far lesser time to actually spend with friends and will be more focused towards your materialistic goals and monetary desires . You will learn lot of new things and unlearn lot of things from the past and yet think that are you loosing your innocence . Is looking each and every thing by analyzing the risk and reward a right way of looking at things . I think perhaps next few months will clarify the real use of this education ..

I dont know what is waiting for me but I am sure that I will be able to handle it .

Fake IPL Player ..

Today is our convocation day , a little over stretched and we have a break for around 2 hours for lunch before the real show starts. I decided to hit my college computer center for one last time to just check my mail , than I came across a Blog , my oh my , what a Blog ..

The name of the blog is Fake IPL Player , the blogger claims to be one of the member of KKR , Shahrukh Khan's team and he is writing all the intimate details about the proceedings of the game , how different players reacts and do things off the field in a very typical style .

He doesn't name any of the player or celebrity but gives them funny names and gives lots of intelligent hints so that you can guess the names. Shilpa Shetty has been named as Big Sister , Mr Mallya has been named as Batli wala , Mandira Bedi as Sandy baddy babe . The stories are really interesting and you wont stop laughing once you start reading it ..

You can visit this blog on this URL .. Enjoy !

http://fakeiplplayer.blogspot.com/

Saving Tax Payers Money …

Today I was really amazed after reading a news item “Recession Squeezes Jails “on a popular website. It says that USA houses almost 2.4 million people in its prisons. It’s an astonishingly high figure, close to 1% of the population of USA is behind bars. If we have similar statistics in India it will be like more than ten million people inside the jails.  But American prisons are lot better than what we have in India as they have better facilities for recreation inside the prison.

I also found out that American government spends close to $30,000 per person in prison in one year. That’s around ten times of the per capital income in India. So America is spending nearly $ 80 Billion of money out of the tax payers pocket in maintaining the prisons.  

If USA sends all its prisoners to developing countries where they are provided with same quality of life and recreation, it can easily be done by spending one third of what is being spent in USA today and the remaining money which will be as high as $ 50 billion can be used in other development work.

So how does this new idea of outsourcing sounds ?

Risk of Globalization !

In my Last 2 years of MBA, I’ve heard people from all kinds of industry and profession, one consistent view put forward by all of them – Globalization is the best thing which can happen to the world. We gain from trade, the dependency on other economies even reduces dangers of War and destruction, the economies should open up and trade more freely than ever.

Even in economics ‘ The Theory of Comparative advantage ‘ by Mr David Ricardo states that a nation should  produce what it is good at and import rest from other countries of the world . Most of the economics taught in business school is pro globalization and as long as it was working nobody was even questioning it.

Aren’t we compromising on the process of diversification by excessive globalization? When all the economies go burst simultaneously the compounded effect becomes a much bigger demon than we can handle. Sub Prime crisis with the origination is USA is now hitting even the poorest of the poor country which is connected to the globalized world. The confidence of the industry had denigrated to such a level now that even when a particular company is doing well they are not taking risk of entering into fresh projects.

Look at the way over rural economy is doing, the consumption pattern is intact as these people don’t know much about recession or subprime crisis .For them the world is still the same and they still face the same credit crunch and pay higher interest rates as they used to do in boom times. It is this rural economy which is slightly diversified and not directly connected with the globalized world which is driving the demand in India and may bring it out of trouble.

Globalization can be really good if we can devise a mechanism which can restrict the amount of damage to the significant lesser part of the globe.

Celebrity Blogging ..

As more and more people are adopting technology even our celebrities are using internet in a big way to reach their fans and audience. The latest offering is blogging. Yes, after much publicized blog of Amitabh on big adda.com for which he was paid a handsome amount, new celebs like John Abrahim , Amir Khan , Kiran Bedi, Shekhar Kapoor and even Mr Lalu Ji etc have also started blogging . Certainly a cost effective way of reaching the target audience. Whether these blogs are true voices of these celebs remains questionable.

Celebrity blogging also showed me another level of hero worship which I found hard to digest, people write thousands of comments on each blog and some of them are pleas and request to meet and sign autographs or to visit their blog to make their day. Why ! 

Some of the blogs have created quite a controversy in the recent times, most prominent of them being Amir’s blog which called Shahrukh a dog licking his feets and Mr Bachhan calling the movie ‘Slumdog Millionaire’ as poor depiction of India, interestingly there is no publicity like bad publicity and such controversies have only improved the popularity of these blogs. Few blogs are quite interesting too; the blog which I like the most is Shekar Kapoor’s blog. It is full of interesting anecdotes which seems to be his honest expressions. Even Amir’s recent campaign about spreading awareness about the importance of exercising the voting right is quite exemplary.

You can visit this URL to find links to some of the Indian celebrity’s blogs  

http://thejeshgn.com/wiki/indian-celebrity-blogs/

Instant Feedback..

Throwing a shoe at a politician has now been discovered as a new and effective way to express the dissatisfaction with the state of affairs. It’s like a instant feedback, no question asked.

The best part of this feedback is the kind of visibility it creates, the incident with President Bush made people order 1000’s of pair of same shoes from the Iraqi shoemaker. Websites developed different e-games on the same theme, Wow instant Hit.

Is this the true democracy or the freedom of expression, I don’t know  that but yes it is full of action and media is simply loving it.  

 Does Mr Chibambaram deserve it? , he has been a brilliant finance minister for India and just recently appointed as the home minister. I don’t think He deserved it, but who says life is Fair!

Election Time ..

This year’s general elections in India are not as exciting an affair as it used to be in the past. The real limelight has been taken up by other news like sub-prime crisis and its affect on world economy, terrorism in Pakistan, President Obama and M S Dhoni for their novel styles and achievements, IPL Blues and even Inflation numbers etc .  

The other important feature of this election is the lack of Real Issues.  I cannot differentiate much between the different national parties on the basis of their manifestos. They are all promising to alleviate poverty and built a strong nation, nobody knows how they will do it .I really don’t understand why we don’t have public debates where leaders from different parties put their views on different issues and provide us a way to differentiate between them. TV debates can be a cost effective solution as the penetration of television in India is quite good and people can sit in comfort of their homes to participate in the dance of democracy.

This year election has witnessed internet being used as a mode of communication by different political parties. BJP and congress is trying to woe the educated and the youth of the country by putting their advertisements and links in the popular sites which Indians mostly browse. Lets see how many of these internet displays gets converted into votes.  

Is the Subprime Crisis Over!

Yesterday my friend told me that he has heard that “Subprime crisis is over “ and it is this news which is making the Sensex go up. I was really puzzled hearing it and started laughing after that.

 We all know that subprime crisis is far from over , but who will declare it once it is over , what is the methodology and procedure to actually verify if someone says its over .These  financial crisis are so huge and affect so many economies , even to find the real impact of them is so tough . During Asian Financial crisis of 1997, it took many years and many declarations by prominent leaders of financial community to make the markets believe that the crisis is over.

I hope my friend is right and we see a better managed financial world past subprime very soon.

Dream Car finally a reality ..

When everything starts going all wrong for a particular dream of yours, than its nothing but a celestial conspiracy , to check your capability , to check whether you are determined to  make that dream of yours into reality  .The final outcome will be nothing but pure brilliance which will give you tears of Joy and happiness.  I have seen this happening time and again with people; nothing comes easy in this world. Follow your dreams, for as you dream you shall become.

Today when Tatas has finally launched their Dream Car, I really feel elated about this new beginning. This ain’t an ordinary car or another reverse engineering wonder but it’s something which has changed the whole dynamics of the auto industry in India.  People are saying that it’s the biggest product from India so far, Lets hope it’s only the beginning and we are going to see whole new era of innovation and creativity not just in making better products but marketing and selling them in different parts of the world.

IPL Blues…

Indian Premier League (IPL) launched just a year back was a big hit in the Indian subcontinent and the best part of it was the win-win situation, everyone was getting benefitted out of it. The players which could not make it up to the Indian team were getting great remuneration and high visibility which was at par with the international players, government was getting tax revenues and a chance to showcase India, TV channels were making loads of money through advertisements , the sports infrastructure of the country was benefiting out of the events and people were just loving it as it was their daily dose of affordable entertainment, better than the regular soaps which they have to watch. The 20-20 format was very entertaining and the time format of 2 hour game made it all exciting for even the people who don’t like to watch cricket all day.

The attack on Srilankan Team in Pakistan has caused more damage to IPL than any other event in the world. It is a classic case of a Black Swan as termed by Mr Nassim Talib in his book ‘The Black Swan’. As per Mr Talib Black Swans were debated not to be in existence and it was only before scientist found the rare breed in Australia that people realized the existence of Black Swan,  it’s a low probability event with high damage potential and nobody usually think of it in normal circumstances. A Mumbai attack through local boats or a 9/11 through passenger aircraft is a classic Black Swan which nobody thought will occur. The insurance companies never included this probability in calculation of their premiums and suffered badly from it.

Mr Lalit Modi is trying all out to make the event possible but who will take guarantees of guarding the lives of players when our own Home minister has refused to provide security to the teams during election season. Even if someone takes guarantee, the International Player might still reject the offer due to fear of attacks. Time is not far when people will start paying for their own security to outside intelligence Agencies. It does sounds like a good business proposition ‘Private Intelligence Agencies ‘?

Can India and Pakistan Coexist?

If we see the geographical location of India, it is surrounded by so many unstable nations. Srilanka is fighting LTTE , Nepal is struggling with maoist , Afganistan is still occupied by Taliban , Military is trying to overtake Bangladesh and worst of all a nuclear power in the form of Pakistan is struggling with democracy and homegrown terrorism. The condition is not very fruitful for a friendly nation like India who is trying to improve the condition of its economy by attracting foreign investment.

The only stable country can be seen in the form of China which does not share a history of good relations with India. We are still having issues over borders and they don’t recognize some part of Indian territory. What will be the future of India with so many issues surrounding it from all sides?

The world now is slowly realizing the importance of peace and the downside of terrorism as everyone is suffering from it. The bigger question becomes, Can India and Pakistan coexist with such tensions building up in the face of instability and terrorism as rest other problems are not as huge as relation between two of the nuclear economies of the region. What would have happened if the team attacked by terrorist in Pakistan was Indian? It could have led to yet another war.

With Pakistan suffering hugely from the terrorism and in the aftermath of attacks on the Srilankan team even the people of Pakistan have realized how home grown terrorism can harm any country. In the future they might vote for a more India friendly government who wants to actually improve their economy rather than sponsoring terrorism in India. The anti Indian venom which is being taught through modified history books in Pakistan has to change in order to ring the two countries closer which share the common culture and history.

If we see the countries in Europe, they are living peacefully , even after waging so many wars against each other in which millions of people lost their lives. Gradually things start moving and every one realized that war and hatred cannot bring prosperity to any nation. Now Europe is one of the most prosperous region in theworld and they are even sharing the same currency.

I am very hopeful that in future Pakistan will curb the terrorism as they would require it to survive in the interlinked economies of the world . It will require a lot of change in the way they think about their future. I hope they change.

Crowd Behavior, Social Networking and financial Decisions ..

Majority of our decisions are based on how others are doing it. Crowd behavior gets mostly influenced by the social network one maintains. Most of the people invest in stocks as his neighbor is investing and making money in it. Most of the people invest their hard earned money in risky trades without any knowledge of market, As Shankar Sharma of ‘First Global’ gives the analogy of a revolver with only one bullet in it, and the investor is asked that he will earn a million if he tries it on himself, few people might get richer in such games but end of the day more people shoot themselves rather than earning the money. The probability of becoming a millionaire is getting reduced by every trial and the rule of the games also keeps changing. Nobody knows if there is only one bullet in the gun.

Social networking is giving way to a regular crowd behavior pattern which is very prominent in many ways: -

1. Increased Information Levels: - Social networking keeps people informed about others and leads to an increasingly informed society. Such level of information might not be very useful for all.
2. Comparisons in Society: - Increased information about friends and peers leads way to comparison of decisions, similarity in life style and even peer pressure at times.
3. Peer Pressure: - (From my earlier Blog) When we talk about the art of decision making and psychology behind it, we believe that peer pressure has the most significant influence behind our decision making. We may live our own life but the rules of the life are mostly defined by the people with whom we work or study. The reason is simple, we spend a significantly high portion of our time with them and hence their personalities and reactions affect our decision making process. The more important the decision, the more is the peer pressure. Infact even the decision of selecting a job or going for higher studies is sometimes influenced by the peer pressure. People constantly fear that they will be judged by other people on the basis of their decision.
4. Financial Decision Making: -Financial success of peers and friends whom a person can easily associate in his network motivates other people to take similar risk or even at times more risk than a person can actually afford. Social networking thus makes you believe that you can also achieve the similar level of success in financial decision making.
5. Incentives and Recognition: - Social networking also prompts a person to take increased risks as the society can make a hero out of him if he succeeds in his plans and financial decision making. The improved recognition in the society acts as a big incentive in making financial choices for a person.

Right Path ..

In the recent visit to Seattle I learned a lot about the basic philosophy of Social Entrepreneurship; It’s a way doing well by doing good. The level of concern about raising the standard of living of the people of developing world was truly amazing. I actually found people with extreme consciousness, who don’t choose to shop in Walmart as it might be exploiting human labour or choose body shop as it is environmental friendly. It clearly showed the importance of Corporate Social Responsibility in the future for building brands and selling products. People might say it is a marketing gimmick , but this gimmick will become a necessity for most of the companies to survive.

Our trip started with a visit to Path, a Seattle based NGO working with technological innovation in order to improve the health of the under privileged. They showed us their various projects most of them have been developed by in house research. 

Few of the products I liked were

1.         Safe disposal system for syringes so that they cannot be reused and the spread of diseases like AIDS can be prevented

2.        Fortified rice where every 100 kernel of the rice is fortified with extra vitamins and minerals to provide extra nutrition to the under nourished people.

3.       Small kits for the safe delivery of babies in rural areas where medical help is not easily available.

4.        Sticker which can be pasted on Polio vaccine which indicates if the vaccine is suitable for use.

Path forms partnerships with the local partner in developing world to transfer technologies and monitors the whole process very keenly. The local partnership helps Path in providing culturally relevant solutions to the people. I was really impressed by the kind of work this organization is doing which actually has great impact on the lives of millions.

GSEC provided us a platform where like minded people discussed their ideas to improve the conditions of our society . It may be a very small beginning where most of the ideas are still on paper but it was definitely very encouraging and motivating for all the people attending the summit.