investment mantras..!

Equities are back and with it comes the thrill and accompanied pressure of producing above average returns. Business pundits have come up with lots of advice about new investment avenues. Most of them are pure common sense and some of them can be easily deciphered if we use little of our grey cells. However, a systematic approach based on pure fundamental analysis can easily produce returns of the the order of 30 to 50 % in 2010. Lets look at some of them.

The solution to the last years's financial crisis has created excess liquidity in the system. Most of them will be absorbed in the commodities. We can already see such signs in the prices of gold and crude oil. Secondly, as the world economy recovers and especially Chinese demand for raw materials to power its throttling growth rate, we can safely assume commodities will easily produce handsome returns in the next year. So , it won't be foolish to invest in steel and other metals.However, gold appears to be overvalued and its time to book profits . The world financial system is not going to break down and thus this rush to gold is pure panic driven without driven by strong fundamentals. Finally, infrastructure stocks like power and real estate will do well for quite sometime. However, we need to be cautious as real estate assets often get caught in vicious cycles of counter productive bubbles which result in irrational pricing . Similarly, all this hype around power sector needs to be closely examined before we land up into another type of dot-com bust.

india: dirt capital of world..!

There was a statement made by our environment minister about a month ago that if there were a Nobel prize for filth, India would surely get it. This statement is an accurate reflection of the real situation prevailing in India. Most of our cities are the dirtiest in the world . Municipal corporations exist in name only and the problem of waste management is tackled on an ad hoc basis. In many cases large heaps of solid waste keep lying outside many of our cities and they become breeding grounds for harmful pathogens along with the release of harmful gases like hydrogen sulphide and ammonia. It has an adverse impact on the health conditions of our fellow citizens.

Most of our tourist destinations are not maintained properly and tourists often complain about foul smell around these places. For example, Varanasi is a very famous tourist destination in India but the the mountain of filth in which the city is submersed doesn't leave much scope for happy memories in the minds of visitors. It appears that its in our DNA thereby which we attract dirt and filth and we don't realize it unless we have seen what goes behind the word "cleanliness" in western countries . Our poverty and illiteracy can't be used as an excuse to justify our present state and we need to take serious steps before we get branded as a country of filth.

the big three..!!

It refers to 3 big global IT companies namely IBM, HP and Sun Microsystems. These 3 companies have earned a place for them in computer technology sector. However, Sun has faltered in recent years and talks are underway for its acquisition by Oracle Corporation.

IBM can be considered as the pioneer and founder of this industry. It has been recognized as a leader in a number of technology segments ranging from Mainframes to nanotechnology. IBM has a very strong research and development division which conducts basic as well as applied research . However, the company seems to be suffering from too much investment in expensive R&D . The company finds it difficult to convert its research knowledge into commercially viable products. Recently, IBM sold its computer hardware business to china based Lenovo in the face of increased competition . It has strong presence in server business, enterprise based software applications and other technology products. This company which used to enjoy monopoly position in most of the business segments has seen its share falling on account of new entrants.

It is present in about 150 countries of the world with employee base at 3,45,000. The company will have to face big challenges in the coming years. The software companies from India like TCS and Infosys have started to give IBM a run for its money in the segments like business integration and IT infrastructure . The absence of significant number of cash cows puts tremendous pressure on the revenues of the company in times of uncertainty. It needs to get its business focus right and target funds in the right areas rather than engaging in useless investments in different directions.

HP appears to be a company which has a clear strategy to power its growth in the 21st century. The company has gone through several transition phases in its 70 year old history. Initially, it became a leader in the instrumentation technology and used to manufacture instruments like frequency meter, medical equipments and other power equipments. It was the first company to manufacture hand held calculator. It ventured into computer hardware business in mid eighties and in a small period of time became a household name. It acquired Compaq in 2001 and thus consolidated its position in the hardware segment. It has leadership position in desktop, laptop, printers, scanners etc. It accounts for 80 % of the printing/imaging segment and this segment ensures abundant cash flows for the company to fund its new projects.

It has research and development division which conducts mainly applied research in areas of its business interests. HP has tie ups with major universities in US and Europe for conducting basic research. It has grown in leaps and bounds under the leadership of Mark Hurd who has been instrumental in getting HP back on track after the bad phase of 2000-2003. As a whole, the company seems to be heading in the right direction and it has the potential to dominate the information technology sector.

its all in your mind..!

There is nothing called absolute picture of this world. Each person is entitled to his own viewpoint. Some views may appear more intelligent and insightful but they exist only in our minds. An event may evoke different responses depending upon our state of mind. Sometimes, we often come up with different plausible explanations for certain events indicating that mind has a very important to play in modern sciences.

It has an important role to play in modern finance. For example, the very thought of boom in business cycle tempts us to overspend and this in turn fuels consumption activity resulting in higher sales for companies. It leads to improved macroeconomic figures which in turn makes us think that we are in some big time boom. This continues until this vicious cycle yields due to lot of unproductive expenditures. It causes fear psychosis whereby consumers reduce their consumption expenditure and postpone their major investments. This in turn adversely affects the sales of companies and that results in downturn and poor macroeconomic figures which makes consumers believe that economy has landed in a sharp recession. It continues till consumers begin to feel that they can no longer postpone their expenditures and the increased spending leads to optimism in the markets and this fuels the next upturn in the economy. So remember, its all in our mind..!!

creating new states..!

The demand for granting statehood status to Telangana has strengthened in recent years. There have been massive protests by local population led by their leader Mr Chandrashekhar Rao. The issue remains unresolved due to lack of consensus among the political community. Moreover, political parties seems to be non committal towards the issue. In some cases, it has given them new issue which can be used as a carrot at the time of elections .

Similar demands have also been made people in Vidarbha region of Maharashtra. There has been demand for dividing UP into three smaller states for better governance. The struggle in Darjeeling region of west bengal is not hidden from anybody. Many of our states have population which are much more than many European countries and its really difficult to administer such big states. For example, the population of UP is 3 times that of Britain. The end result is inadequate administration and endless corruption. In some cases ,people from separate cultural histories have been clubbed into a single state. The legitimate aspirations of these populations must be respected. There are instances where resources are spent in a arbitrary fashion resulting in uneven development.

Finally, smaller states ensure efficient governance and improved allocation of resources. So, we shouldn't shy away from creating new states.

copenhagen summit..!

Copenhagen summit, a hope for environmentalists, has come quite near as the summit is scheduled from 7th to 18th of December. There will be a series of meetings between different groups of countries to arrive at a consensus about the quantum of emission cuts by 2020. It is believed that the burden will be shared by most countries in an equitable and fair manner whereby developed countries will be required to have ambitious targets for reduction in emissions. On the other hand, it would be unfair to expect similar actions from developing countries but they will be expected to reduce the energy intensity of their economies. Energy intensity measure amount of energy required to produce one unit of GDP.

Its true that developing countries have not contributed to this crisis but they should try to become a part of the solution. The arguments on the basis of low per capita emissions for populous countries like india and china is farce. The disaster will not differentiate between countries on the basis of their contribution to the crisis. Moreover, these countries have already begun to experience the consequences of global warming in the form of droughts, cyclones etc. Its time these countries take actions at least for their own sake. US has decided to deduce emissions by 17% by 2020. European countries and japan have been very aggressive with regard to steps taken to preserve the environment. China has decided to reduce energy intensity of its economy by 40% by 2020. India has announced that it would reduce its energy intensity by 24% by 2020. We find that most of the major countries have realised the perils of climate change. There is a hope that a comprehensive deal would be clinched at Copenhagen for the sake of humanity

capital market reforms..!

A vibrant capital market is a necessary requirement of a fast growing economy. Capital markets directly link ultimate savers with final investors . They lower the cost of capital for these companies by getting rid of intermediate layers such as banks . The two most popular forms of capital markets are stock market and bond market. Stock markets represent democratization of economics whereby common man directly get to own shares of different corporate giants. Moreover, the people can choose appropriate companies through detailed search thus can get higher returns by targeting funds to well performing companies.

The stock market indices are a good measure of the investors faith in the economy. The real time market scrutiny on a continuous produces a sense of discipline in these companies. However, Indian stock markets are shallow and can be manipulated . The over-reliance on FIIs makes our markets susceptible to external shocks such as the one we experienced early this year. Moreover, the standards of corporate governance need to be strengthened to avoid Satyam like situation as its the faith of the investors in the system which is responsible for the success of stock markets.

Bond market is another facet of capital market whereby companies get direct access to debt. Its a sad story that corporate bond markets are not well developed in India. The present bond markets are dominated by government bonds and we need to take steps to promote the market for corporate bonds as it will reduce the cost of doing business for better companies. Finally, financial literacy is not up to the mark in this country and we need to promote financial literacy to have inclusive growth.

how to deal with big banks..?

Banks have played a very important role in modern economic development. The process of mobilization of capital for investments serves as lifeline of modern economies. It has reduced the transaction costs associated with the flow of money from savers to investors. However, modern banks have grown large in size and they wield considerable influence over their national government. There is an implicit sovereign guarantee which ensures the survival of these banks even in the worst of crisis. Generally,the cost of allowing these banks to fail far exceeds the pain of burden on ordinary taxpayers in the case of bailouts. Its amazing that these banks enjoy all the fruits in the times of success like hefty bonuses etc but the the entire society is made to bear the loss in case of bank failures. As a result, many of these banks engage in excessive risks in the absence of proper accountability . It has been suggested that large banks can be broken into smaller ones but it might increase the cost of doing business in the absence of such synergies.

The balance sheet of many banks has gone up even after this financial crisis. France based , BNP Paribas, the world's largest bank by asset has amassed assets to the tune of some $3.5 trillion .Similarly, London based ,Barclays has assets to the tune of $2.6 trillion. Many of these banks have made commitments to reduce the size of their balance sheet over the next few years. Secondly, it appears that there is a broad macroeconomic factor which can't be handled at the level of individual banks but it ultimately drives the health of global banking system .

A global banking forum needs to be established to address such issues which should be able to measure the systemic risk in the banking system as a whole and accordingly policies can be tuned by the respective central banks. It should be more of a dynamic approach based on real time monitoring rather than calculating some vague numbers once a year. Finally, we need to have stringent regulations for capital adequacy norms which optimizes efficient banking operations with stability.

the future of IT industry..!

The information technology industry had been growing in leaps and bounds before the crisis. The period from 2003- 2008 saw almost 30% per annum growth in revenues for major companies. The past year was not good for the industry as most of the major clients deferred their investments in IT infrastructure . Secondly, the huge fluctuations in the exchange rate made it difficult to conduct business. Finally, the increased competition from other low cost countries like Vietnam, Bangladesh , Hungary , Russia etc have added to the woes of the industry. The tax holiday granted to IT industry would end in 2011 and that may severely affect profit after tax.

However, there is no need to become pessimist. Most of our IT firms have made substantial investments to develop higher end technologies . Its just a matter of few years when our portfolio of exports would include higher end services and with some concerted effort we might have product-based companies which would command higher margins. Secondly, we have the largest number of english speaking people among emerging countries which provides us an added advantage compared to countries like China. Finally,there has been attempt by this government to improve the quality of higher education by opening new world class universities. It is hoped that the IT industry will emerge stronger after this crisis.!

convergence of technologies..!

Technological innovations have been at the forefront of economic development since the beginning of the industrial revolution. They have been the growth drivers of productivity in our day to day activities. In some cases, revolutionary breakthroughs have given rise to totally new field of knowledge like genetic engineering,nuclear energy which have accelerated human welfare on an unprecedented scale. On the other hand , technologies like internet and mobile communication have truly made this world a global village . The transaction costs of conducting intercontinental business has come down and productivity has gone up in leaps and bonds. It has led to a situation where most of the business can be performed in virtual cyber space without having to suffer the pain of physical travelling from one country to another. However, the multiplicity of different technological standards and the presence of different technologies aimed at the same market has led to convergence of technologies. It reduces confusion among the developers and customers.

For example, now a days, the distinction between a cellphone and a laptop has come down significantly. Similarly customers expect that their personal computer should also perform the tasks of a television and music system. Similarly, the boundary between internet and telephone has disappeared due to online services like gtalk, skype etc. We have reached a stage where a simple stand-alone technology is not going to succeed in the marketplace.We require strategies based on targeting a set of related needs of the customer which ultimately leads to convergence of different technologies.!!

Gold is back..!!

Gold seems to have regained its attraction among the investors. It has outperformed almost all other assets by a huge margin in the last 4 years with its present price hovering around $1200 an ounce .Other asset classes like equities and dollar have fared poorly compared to our yellow friend. The attraction towards gold didn't happen overnight. A large number of macroeconomic factors and the collapse of the equity markets contributed to this phenomenal rise. People have begun to use gold as a part of their investment portfolio.

The events in the last few years led to the erosion of investors's faith in paper currency. In the aftermath of the crisis, many countries resorted to printing money to ease credit crunch. The monetization of fiscal deficits in the US and Europe aroused suspicions in the minds of investors about the value of those paper currencies. Moreover, the flooding of banking system due to prevailing low interest rates didn't augur well for the investors. It gave rise to inflationary expectations. Such events contributed to the flight towards gold as a safe haven in this unstable times.

. Gold has become a friend of common man as a hedge against inflation.There appears serious concern that currencies like dollar may suffer prolonged decline .Some emerging countries have decided to alter the composition of their reserves in the favour of real assets. India bought 200 tonnes of gold from IMF in an attempt to diversify its foreign reserves. Thus, many countries have begun to use gold as a hedge against likely crash in the value of dollar.