Really don’t want to sound a financial commentator but though would take the liberty of sharing a couple of thoughts on the occurrences in the financial markets and its potential ramifications!
The dream run that gold has been having the last 12 months as a “safe haven” investment has suddenly run into rough terrain and has lost over 7% in the last one month and nearly 13% from its peak a couple of months back.
Couple of aspects have to be considered in the context. In an uncanny coincidence in terms of timing, George Soros, the famous hedge fund manager, had made an observation of the gold being the ultimate bubble. George Soros is the person who, in 1992, is credited to have “broken the back” of the Bank of England and the British Pound. It is no wonder that market took him a little too seriously and gold started dropping steeply even within a couple of days of his statement.
The other aspect is the prospect of the significant unwinding of the “Carry Trade” based on US Dollar. Soros was stated to have said - “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.” The strengthening of the US Dollar or more appropriately the weakening of the Euro has also contributed to the significant drop in gold prices.
The drop in gold prices of the magnitude last week, i.e. US $ 60 an ounce has to be viewed with caution. The last time drop of this magnitude happened was in July / August 2008 and we immediately saw the unfolding of the financial crisis across the world with the start of the bankruptcy of Lehman Brothers and AIG! The continuous drop in the stock market should also be a cause for concern.
The next couple of weeks is going to be a cause for concern in the international markets. The recovery of 2009 may again be tested again. There are already talks of the “w” shaped recovery! That would mean we could see a drop before a complete recovery. Euro is going to be tested quite a bit. The problems in Greece, Spain and Italy is not going to help Euro either. The strengthening of the dollar is not going to help the economy either.
Gold would possibly see some more corrections but would have to go up considering the increasing uncertainties. Short term it would be possible to see some pull back before the Chinese New Year as that period would see increased level of retail buying in the Chinese markets
Sunday, February 7, 2010
Sunday, January 10, 2010
Promote Efficiency
In a relatively capital constrained country like India, it is imperative that all efforts are made to promote efficiency that encourages optimisation of resources and maximisation of the same. Innovation is the key. We need to think out of the box and ensure efficiency is encouraged with due consideration being given for adequate risk management.
To begin with, banks and financials institutions should encourage existing units that proven ability to get better bang for the buck. This should not be restricted to just the MSME's but to all units. Use of traditional evaluation methods like the debt equity ratio or the current ratio needs to be reviewed with more appropriate ones like capital employed turnover ratio or human productivity ratio. I am sure that we could find quite a few and give them weights to arrive at a composite index!
On the fiscal side too we need to encourage units with higher productivity and efficiencies with a lower tax rate! While we encourage new units with tax covers and incentives, we don't seem to recognise ones who drive greater profitability in existing ones.
Archaic labour laws that stipulate minimum wages appear to penalise employers as it does extract any commitment from the employees to ensure greater productivity. The employer is penalised with increasing inflation indexed dearness allowance. The employer has no control over policies or the lack of it, which drive inflation. Competition and customers are consistently driving prices lower. Considering that over 60% of the country's GDP is derived from the service sector, even assuming that 50% of the cost is represented by salaries, a 10% increase would imply that margins are down close to 14%! So here we are perpetually running to stand were we are by constantly increasing capacities.
All pointers therefore indicate that we need radically different thoughts to encourage efficiency!
To begin with, banks and financials institutions should encourage existing units that proven ability to get better bang for the buck. This should not be restricted to just the MSME's but to all units. Use of traditional evaluation methods like the debt equity ratio or the current ratio needs to be reviewed with more appropriate ones like capital employed turnover ratio or human productivity ratio. I am sure that we could find quite a few and give them weights to arrive at a composite index!
On the fiscal side too we need to encourage units with higher productivity and efficiencies with a lower tax rate! While we encourage new units with tax covers and incentives, we don't seem to recognise ones who drive greater profitability in existing ones.
Archaic labour laws that stipulate minimum wages appear to penalise employers as it does extract any commitment from the employees to ensure greater productivity. The employer is penalised with increasing inflation indexed dearness allowance. The employer has no control over policies or the lack of it, which drive inflation. Competition and customers are consistently driving prices lower. Considering that over 60% of the country's GDP is derived from the service sector, even assuming that 50% of the cost is represented by salaries, a 10% increase would imply that margins are down close to 14%! So here we are perpetually running to stand were we are by constantly increasing capacities.
All pointers therefore indicate that we need radically different thoughts to encourage efficiency!
Thursday, December 31, 2009
End of the decade, decay continues!
It appears that we were just being confronted with the implications of the dawn of the new millennium and the impact of the Y2K problems and here we are staring down the fact that not only have we completed another year of the millennium but a decade in that.
Memory they say is short lived and therefore one tends to remember the events that are happening closer to the end of the year! The one that sticks to mind is the now famous “Ruchika Case”! Without going into the case, what is appalling is that it has taken the system 16 years to deliver the judgement. How on earth can a judicial system operate with these delays? Even worse, there has been the gross abuse of the system over the years. Should only the accused be charged with abetment to the crime or the entire criminal justice culpable of the same offence?
If the case was the only one wherein these types of delays have taken place then we could hope that it was an aberration. Unfortunately there appears to be many such cases. Untraced senior police official for 13 years, the convicted son of a senior police official who jumped bail and this list could evidently go on.
The other aspect is the crime registration to conviction ratio. The ratio would evidently be the poorest when it relates to politicians. One is invariable wondering as how this class can get away with such impunity. Either the case has not been investigated or a case has been registered without a prima facie justification. Either way it speaks poorly of the police mechanism.
Let us only hope that we see light at the end of the tunnel in the new decade of next millennium hopefully not that of an oncoming train!!
Best wishes for the season
Memory they say is short lived and therefore one tends to remember the events that are happening closer to the end of the year! The one that sticks to mind is the now famous “Ruchika Case”! Without going into the case, what is appalling is that it has taken the system 16 years to deliver the judgement. How on earth can a judicial system operate with these delays? Even worse, there has been the gross abuse of the system over the years. Should only the accused be charged with abetment to the crime or the entire criminal justice culpable of the same offence?
If the case was the only one wherein these types of delays have taken place then we could hope that it was an aberration. Unfortunately there appears to be many such cases. Untraced senior police official for 13 years, the convicted son of a senior police official who jumped bail and this list could evidently go on.
The other aspect is the crime registration to conviction ratio. The ratio would evidently be the poorest when it relates to politicians. One is invariable wondering as how this class can get away with such impunity. Either the case has not been investigated or a case has been registered without a prima facie justification. Either way it speaks poorly of the police mechanism.
Let us only hope that we see light at the end of the tunnel in the new decade of next millennium hopefully not that of an oncoming train!!
Best wishes for the season
Sunday, December 27, 2009
Tourist friendly, Resident Unfriendly
Recently the Government of Tamil Nadu declared open the beautified "Marina Beach" for public. The beach, for many, is associated with some unforgettable childhood moments. The beautification of one the longest natural beaches in the world hopefully would represent the need for recognition of the natural creations before they are consumed by manmade negligence. One definitely is left wondering if we have mastered the art of fire fighting as more often than not we were instrumental in creating the fire!
That apart what caught the eye was the press release that stated that beach has been more "tourist friendly"! What is that supposed to mean - Resident Unfriendly?! This represents yet another instance of negligence to recognise the rights of the locals and that is invariable is the source of problems in future. We end in creating second class citizens of our own residents. Tourist friendly autos when the local residents are being fleeced? I was reading an interesting news item according to which the estimated amount of excess charging by autos in the city of Chennai alone is in excess of Rs.1100 crores!
It is high time we overcome this export quality and export surplus obsession. The world is recognising the potential of the Indian markets but we are still looking external!
Another news item that irritated me was the proposal to clean up the Elloits beach in Chennai using children from schools during the third week of January 2010. Why on earth should we ask innocent children to clean up the mess up of irresponsible elders? We make fancy statements like the current generations are the trustees of the future generations but end up doing just the opposite of asking the beneficiaries to protect their property. Wonder what the social activists are doing?
It is time we fast track on both educate and enforcement aspects rather than continuously ask children to clean up the beaches making them rag pickers. If at all we need to use children let us use them for community policing which make act a deterrent to the elders!
That apart what caught the eye was the press release that stated that beach has been more "tourist friendly"! What is that supposed to mean - Resident Unfriendly?! This represents yet another instance of negligence to recognise the rights of the locals and that is invariable is the source of problems in future. We end in creating second class citizens of our own residents. Tourist friendly autos when the local residents are being fleeced? I was reading an interesting news item according to which the estimated amount of excess charging by autos in the city of Chennai alone is in excess of Rs.1100 crores!
It is high time we overcome this export quality and export surplus obsession. The world is recognising the potential of the Indian markets but we are still looking external!
Another news item that irritated me was the proposal to clean up the Elloits beach in Chennai using children from schools during the third week of January 2010. Why on earth should we ask innocent children to clean up the mess up of irresponsible elders? We make fancy statements like the current generations are the trustees of the future generations but end up doing just the opposite of asking the beneficiaries to protect their property. Wonder what the social activists are doing?
It is time we fast track on both educate and enforcement aspects rather than continuously ask children to clean up the beaches making them rag pickers. If at all we need to use children let us use them for community policing which make act a deterrent to the elders!
Misplaced Focus
The Indian system has an uncanny knack and ability of beating the system or taking it such levels of irrationality that it grounds it!
The recent emphasis by the regulatory authorities on compliance to the "Know Your Customer" guidelines is yet another case in example. The process has been reduced to an absolute farce with whole emphasis having shifted to the documents rather than tweaking a very critical marketing and risk management tool to meet regulatory requirements also.
The other cases relate to quality management systems like ISO 9001 certification or the CMMi and the like. The objectives of these systems and standards have been completely forgotten! The emphasis has completely shifted to the documentation with little or no focus on the process or the metrics! So much so that these systems have been completely commoditised resulting in a significant erosion of the faith.
The accreditation bodies, the certification agencies, auditors, assessors, consultants’ et al have all to take blame for the same. The mechanism that is prevalent in more mature markets cannot be and should be used in the Indian markets. If we ape the west we will make monkeys of ourselves! The Indian system has always been a much policed system and needs to be dealt as such for some more time to come! Assessors also need to reorient they audit mechanism which currently is operating in extremes mode. They are either so flippant or so very critical. Assessors should be constructive and refrain from taking positions that may their personal point of view.
Till these happen we can only sit back and hope!
The recent emphasis by the regulatory authorities on compliance to the "Know Your Customer" guidelines is yet another case in example. The process has been reduced to an absolute farce with whole emphasis having shifted to the documents rather than tweaking a very critical marketing and risk management tool to meet regulatory requirements also.
The other cases relate to quality management systems like ISO 9001 certification or the CMMi and the like. The objectives of these systems and standards have been completely forgotten! The emphasis has completely shifted to the documentation with little or no focus on the process or the metrics! So much so that these systems have been completely commoditised resulting in a significant erosion of the faith.
The accreditation bodies, the certification agencies, auditors, assessors, consultants’ et al have all to take blame for the same. The mechanism that is prevalent in more mature markets cannot be and should be used in the Indian markets. If we ape the west we will make monkeys of ourselves! The Indian system has always been a much policed system and needs to be dealt as such for some more time to come! Assessors also need to reorient they audit mechanism which currently is operating in extremes mode. They are either so flippant or so very critical. Assessors should be constructive and refrain from taking positions that may their personal point of view.
Till these happen we can only sit back and hope!
Tuesday, December 15, 2009
Inconsistency and Mob Mentality
It is a no brainer to confirm that what is good for the country is good for the economy, industry and the companies that constitute the industry. This would apply to the entire value chain. If that was true then the reverse logic should also apply to a large extent!
This logic has however been given a go by in the recent political developments. There is evidently a double speak by the government on the matter. I was reading a news item of the finance ministry calling the bank unions for talks over the proposed merger of banks about which there are protesting. Here we are at one end of the spectrum justify merger/consolidation of banks to ensure greater strength & optimization of resources and on the other hand we go about taking decisions on bifurcation of states just to appease political classes. It is extremely surprising that successive governments have been procrastinating and holding talks over the need for consolidation banks for years but did not arrive at a decision but took a decision at midnight to bifurcate a state just because one individual has been fasting for a couple of days!
No sooner than an announcement was made regarding one state, the rest of the crowd of political classes joined the chorus making similar demands in other states. Small mercies that I am through having written all my exams - Imagine trying to remember the state capitals of all these states!
This brings me to my next favourite topic of the mob mentality in India. The average Indian firmly believes in my opening statement – what is good for one is good for all! If one person engaging in a activity you will soon find hoards doing the same thing! Be it a business, investing or even frauds!! The media and channels would do well to investigate as to how this information travels so fast down chain!
This mob mentality is already beginning to hurt the telecom companies. The sunrise industry is surely heading towards disaster if companies do not work hard on innovating! The ARPU is dropping quite fast and the only growth in revenue has been through new acquisitions. That is bound to flatten at some point of time. Compounding to the woes number portability is going to add pressures. Consumers are going enjoy but investors may see bloodshed at the market place.
This logic has however been given a go by in the recent political developments. There is evidently a double speak by the government on the matter. I was reading a news item of the finance ministry calling the bank unions for talks over the proposed merger of banks about which there are protesting. Here we are at one end of the spectrum justify merger/consolidation of banks to ensure greater strength & optimization of resources and on the other hand we go about taking decisions on bifurcation of states just to appease political classes. It is extremely surprising that successive governments have been procrastinating and holding talks over the need for consolidation banks for years but did not arrive at a decision but took a decision at midnight to bifurcate a state just because one individual has been fasting for a couple of days!
No sooner than an announcement was made regarding one state, the rest of the crowd of political classes joined the chorus making similar demands in other states. Small mercies that I am through having written all my exams - Imagine trying to remember the state capitals of all these states!
This brings me to my next favourite topic of the mob mentality in India. The average Indian firmly believes in my opening statement – what is good for one is good for all! If one person engaging in a activity you will soon find hoards doing the same thing! Be it a business, investing or even frauds!! The media and channels would do well to investigate as to how this information travels so fast down chain!
This mob mentality is already beginning to hurt the telecom companies. The sunrise industry is surely heading towards disaster if companies do not work hard on innovating! The ARPU is dropping quite fast and the only growth in revenue has been through new acquisitions. That is bound to flatten at some point of time. Compounding to the woes number portability is going to add pressures. Consumers are going enjoy but investors may see bloodshed at the market place.
Thursday, November 19, 2009
Licensed to Kill
Driving on Indian roads has never been a great pleasure but having people who either do not know how to drive or have scant regard for fellow drivers compounds to it. The reason for this is not too far to seek. These so called drivers have obtained license not by knowing driving or rules but having contacts with the right "intermediaries"!
I am not a very keen driver but have been on the highways a couple of times in the recent past. I realise that roads are of standards that compare well but the absolute lack of discipline is appalling. The heavy vehicles will invariably be driving on the lane intended for lighter vehicles. You will have lorries and tractors coming on the wrong side as the driver wants to avoid the trouble of going and taking a U turn. Users paying toll charges would expect not only good roads but safety as well.
Coming back to the issue, the largest source of problems is the indiscriminate issue of driving licenses and if we are in the position to control that at an early stage, road safety would be very high. I wonder as to why there is no concrete measure to exercise greater control. It is not rocket science or does not require enactments like the Right to Information Act to conclude that the department is a virtual cesspool of corruption and touts.
Having got the license, the user (I shall avoid using the terms driver, as does not know to drive) goes about using it road with absolute impunity as he knows tha there is hardly a system to monitor the same. The less said the better about policing on the roads. The levy of penalty is so paltry and the constable is least interested in going through the process and would rather pocket a percentage of the fine! Corporates would do well to learn on this part of the win-win situation. Even in a worst case scenario, if the person's license is impounded it would be easier and cheaper to obtain a fresh one rather can going back through the legal system. There is no way on stop the menance of multiple licenses and one only hope that Mr. Nandan Nilenkani and team address this through the prestigious UIN Project!
The government would do well to privatise the monitoring of traffic signals to unemployed youth! The government and police could through the process of bidding share the revenue of installing cameras as intersections. Alternatively, the traffic offenders should be asked to monitor othe offenders till they book atleast 5 others to take over from them. This would be best form of community policing.
One is not sure if it is indifference or helplessness on the part of the police has led to the situation. I know of a recent case when a group of doctors had petition to the traffic department of recurring fatal accidents at a busy residential intersection. One more life was lost yesterday and by the end of the day the police had rushed into having speed breakers. While on the subject of speed breakers, it is noticed that police department have erected speed barriers on the roads and many a times that appears to be a greater source of threat than speeding itself. Innovative marketeers have found a way to advertise on those barriers to blinding the view further.
The need to reduce the number of vehicles is a known factor but that is not going to happen until the public transport system takes some burden. The drivers of the public transport system are lords of the road and reigning them in appears to be impossible task. The political class would do well in handling polcy issues (assuming that they do) and let these small issues to dealt with by the process of law.
Till then happy and safe driving!
I am not a very keen driver but have been on the highways a couple of times in the recent past. I realise that roads are of standards that compare well but the absolute lack of discipline is appalling. The heavy vehicles will invariably be driving on the lane intended for lighter vehicles. You will have lorries and tractors coming on the wrong side as the driver wants to avoid the trouble of going and taking a U turn. Users paying toll charges would expect not only good roads but safety as well.
Coming back to the issue, the largest source of problems is the indiscriminate issue of driving licenses and if we are in the position to control that at an early stage, road safety would be very high. I wonder as to why there is no concrete measure to exercise greater control. It is not rocket science or does not require enactments like the Right to Information Act to conclude that the department is a virtual cesspool of corruption and touts.
Having got the license, the user (I shall avoid using the terms driver, as does not know to drive) goes about using it road with absolute impunity as he knows tha there is hardly a system to monitor the same. The less said the better about policing on the roads. The levy of penalty is so paltry and the constable is least interested in going through the process and would rather pocket a percentage of the fine! Corporates would do well to learn on this part of the win-win situation. Even in a worst case scenario, if the person's license is impounded it would be easier and cheaper to obtain a fresh one rather can going back through the legal system. There is no way on stop the menance of multiple licenses and one only hope that Mr. Nandan Nilenkani and team address this through the prestigious UIN Project!
The government would do well to privatise the monitoring of traffic signals to unemployed youth! The government and police could through the process of bidding share the revenue of installing cameras as intersections. Alternatively, the traffic offenders should be asked to monitor othe offenders till they book atleast 5 others to take over from them. This would be best form of community policing.
One is not sure if it is indifference or helplessness on the part of the police has led to the situation. I know of a recent case when a group of doctors had petition to the traffic department of recurring fatal accidents at a busy residential intersection. One more life was lost yesterday and by the end of the day the police had rushed into having speed breakers. While on the subject of speed breakers, it is noticed that police department have erected speed barriers on the roads and many a times that appears to be a greater source of threat than speeding itself. Innovative marketeers have found a way to advertise on those barriers to blinding the view further.
The need to reduce the number of vehicles is a known factor but that is not going to happen until the public transport system takes some burden. The drivers of the public transport system are lords of the road and reigning them in appears to be impossible task. The political class would do well in handling polcy issues (assuming that they do) and let these small issues to dealt with by the process of law.
Till then happy and safe driving!
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