Do you know that:
Ancient scrolls reveal that Jesus spent seventeen years in India and Tibet?
From age thirteen to age twenty-nine, he was both a student and teacher of Buddhist and Hindu holy men?
The story of his journey from Jerusalem to Benares was recorded by Brahman historians?
Today they still know him and love him as St. Issa. Their ‘buddha’?
Read this….http://reluctant-messenger.com/issa.htm
Here’s why..
The FIIs stand to gain much more than us Indians.
Here is why?
The rupee rate is 48 rupees to 1 USD. Assume, we buy Nifty BEES (Benchmark ETF) at 480. This means Nifty is at 4800. We get to buy 100 units of Nifty ETF with 1000 dollars.
ow a couple of months have passed by and Nifty reached 5350. Our ETF rate has gone to 530. The Indians earn 10.41 pc rate of return. Now our friend Mr Bernanke continues with his low interest rate regime, interest rate of almost 0 pc, he prints some more dollars, gold rallies and USD weakens. Now 1 USD gives us 44 rupees. We decide to encash our Nifty BEEs 100 units. We get back Rs 53000 = 53500/44 = 1215 dollars. A return of almost 21.5 % and the game goes on.
If the rupee strengthens to 42, we make even more returns. Now, FIIs are always leveraged that is they for every 100 dollars they invest, they can buy up to 300 dollars worth of stocks. They can make triple the profit. At the opportune time, they sneak away and the game begins in some other emerging market.
This is the secret of the so called FII flows.Of course, one can go with the trend and aim to move away before the music stops playing.
Being an economist must be the most amusing job in the world. It’s a laugh a minute. So many foolish pretensions, so many claptrap theories, so much pomposity and vanity…
We used to enjoy reading Thomas L. Friedman in the New York Times. Whenever he wrote about anything even remotely connected to economics we were assured a good chuckle. But he’s moved on to geo-politics. Israel this… Palestine that… It’s probably just as funny, but it’s not our field. The only thing we know about the subject is that it shouldn’t exist.
Now, if we want entertainment we turn to Paul Krugman. He’s not as funny as Friedman, frankly. And he’s right about things often enough to make him unreliable. But it’s still fun to watch a popular economist strut his stuff.
Krugman was really annoyed that the Senate refused to extend unemployment benefits, for example. He called them “heartless…clueless…and confused” as if that was some sort of revelation. We don’t know about ‘heartless,’ but clueless and confused could apply to just about every US Senate since the beginning.
And as for failing to extend unemployment benefits, was that really a bad thing?
“Where you stand depends on where you sit,” goes the expression. If you’re sitting in an unemployment office, you’re likely to be in favor of more benefits. If you’re paying taxes, struggling to make ends meet, you might resent having to pay more for others who don’t work.
Krugman points out that it’s not their fault. Unemployment compensation doesn’t really reduce people’s desire to find work – not when there are 5 applicants for every job. Still, adjustments need to be made…and not having any money coming in the door is bound to be a motivator to make them. (More on Krugman below…)
The real reason people are unemployed is that the price of labor is too high. We’re in a period of price and debt destruction. Output prices are going down. So, labor prices should be going down too.
But labor prices are ‘sticky’ ….they don’t go down easily. Especially when there is unemployment compensation to keep them stuck. Unemployment compensation just interferes with the correction, delaying the necessary adaptations.
You are getting tired of hearing us say this. But we are in a period of debt destruction. The world has too much debt…particularly the ‘rich’ part of the world…particularly the people who speak English…and particularly the US and Britain.
Instead of spending money they don’t have, people are beginning to save even the money they do have. This plays hell with the economy. Not only does it eliminate the sales it should not have had in the first place…it also reduces the sales it should have had – those that come from honest, current earnings. For now they must be foregone to make up for those that had gone before. Does that make sense?
Yes, it does. Sales that are paid for with credit are really a call on future earnings. They consume today what will be earned tomorrow.
That’s why sales that come from credit are the best kind – from an economy’s point of view. Usually, business pays its employees, who then buy its products. But when the employees spend credit – they’re spending money that hasn’t been earned yet. The employer gets extra current sales without any offsetting current expense. Profits go up.
There is some unwritten law in nature that everything must balance out somehow. So, if profits go up in a credit expansion, they’re bound to go down in a credit contraction. So are prices. And labor rates too.
Yesterday, the Dow managed an additional advance, a nice follow-up from Wednesday’s big move to the upside. Up another 120 or so points. Is this the start of a new bull phase? We don’t know. But we wouldn’t bet on it.
Not as long as the credit contraction continues. Bloomberg:
July 8 (Bloomberg) — Consumer borrowing in the U.S. dropped in May more than forecast, a sign Americans are less willing to take on debt without an improvement in the labor market.
Borrowing that’s increased twice since the end of 2008 shows consumer spending, which accounts for about 70 percent of the economy, will be restrained as Americans pay down debt. Banks also continue to restrict lending following the collapse of the housing market, Fed officials said after their policy meeting last month.
“The trend in consumer de-leveraging is clear as credit has declined 11 of the last 13 months,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in a note to clients. “Credit card debt continues to be paid down at a heady pace.”
*** “I just am not sure what I want to do…”
Jules, 22, has been out of school for a year. He has a remarkable talent for music.
“You like music. Why not just go for it? I’ll help you…” said his father.
“I don’t know. I don’t know if I can do it. I don’t know if I have enough talent. And there are a lot of other people trying to do it…and a lot of them are a lot more talented than I am…
“And I don’t know if I should do it either. When I write songs I have to reach so deep into myself that I’m almost afraid of what I find. It’s too painful emotionally…it makes me think too much.
“Sometimes I think I’d be better off at a career that didn’t involve so much creative imagination. Something that I could do without becoming too emotionally engaged. A normal career. Like working for a big business. Or something completely different. When I was working with you fixing the barn roof, for example, I was completely at ease. I enjoyed it. But then when I went back to work on my music, I got in a gloomy mood again.”
Father is supposed to know best. But there are some things he thinks he knows and some things he knows he hasn’t a clue about.
He replied:
“Well, you can stop worrying about the ‘talent’ issue. In the first place, I’ve seen what you can do. There’s no lack of talent.
“Besides, when I was your age I thought talent was so important. Raw talent is very important when you’re just starting out in life. Because it’s all you’ve got. The guy who is very smart, for example, is the guy who gets good grades without hardly trying and gets into good schools and seems like he’s going to set the world on fire.
“But there are different kinds of talent. There’s a talent for being able to remember things. There are guys who have perfect pitch. And there are guys who are able to get to work on time and keep at it. As you grow older, raw talent becomes less and less important. Because you have more and more accumulated experience, wisdom, skill, instinct and so forth. The guy who was naturally talented gradually loses ground to the guy who gets to work early and stays late.
“You want to be a success? It’s very simple. Get to work at 8AM. Stay on the job until 8PM. Repeat that. Keep at it for 10 years. I guarantee you’ll be a success at whatever you’re trying to do.
“As for the question about whether it would be better to avoid a career in the arts, I can’t help you very much. We’re a moody bunch. It comes from your Irish ancestors. We’re a race of dreamers and diehards, full of romantic illusions, and probably better off doing masonry than poetry. But whatever you decide to do, you’re probably better off getting on with it…
“You know, you can treat an artistic career in a businesslike way too. Not all artists are tortured souls. In fact, it’s probably more of a posture than a reality. And very hard to maintain for a long time. Those tortured souls tend to end badly and early. The real professionals keep going.
“Some writers, for example, will put their pens down at 5 o’clock…even in the middle of a sentence. Yes, it’s probably a good idea to keep some distance between your soul and your work. Work in a businesslike fashion. Torture your soul on weekends. Or, replace barn roofs.
“Hope this advice helps.”
***
Shouldn’t do it; couldn’t do it anyway
Paul Krugman, Martin Wolf and the other big spenders are remarkably resilient. And cunning. On their advice, the world’s governments put up as much as 4 years’ worth of the entire planet’s savings to bring about a ‘recovery.’ On the evidence of the last couple of weeks, it didn’t work.
In world’s leading economy, 8 million jobs have been lost. The US government disappeared almost a million jobseekers from the unemployment lists in the last two months to try to make the numbers look better. Still, fewer people have jobs now than when the stimulus began. Those workers with jobs earn less than they did then. And those who lose their jobs wait longer than ever to find a new one. Housing is sinking again, too, with nearly half of all the mortgaged houses already worth less than their mortgages. Illinois has stopped paying its bills. California is laying people off wholesale.
But instead of falling on their swords in shame, the economists behind the stimulus efforts are positioning themselves for an ‘I told you so,” moment.
In our last installment, Britain and Euroland had just turned towards austerity. Alone among the Western nations, the United States of America pledged to stay the course, continuing its program of counter-cyclical stimulus. Then, last week, the US Senate rejected a measure to extend unemployment benefits. Suddenly, we’re all austerians now.
Krugman was quick to distance himself: “As I and others have been arguing at length, penny-pinching in the midst of a severely depressed economy is no way to deal with our long-run budget problems. And penny-pinching at the expense of the unemployed is cruel as well as misguided.”
‘Spend now; cut later,’ is still his advice. But with so much spending…and so little to show for it… you’d think he’d be shy about proposing more. At least, he might feel the burden of proof more heavily upon his shoulders. Is there any evidence that increased government spending – even in time of private sector retrenching – makes people better off? And even if ‘spend now, cut later’ were good advice, is there any evidence that they can actually do it? None that we know of.
Based on the experience of the ’80s and ’90s, we observed last week that it didn’t seem to matter what governments did or what they said…the markets went about their business. Today, we add a further provocation.
Let us take a look back at the penultimate budget of the Clinton years:.
“Eight years ago, our future was at risk,” Bill Clinton congratulated himself on Sept. 27, 2000. “Economic growth was low, unemployment was high, interest rates were high, the federal debt had quadrupled in the previous 12 years. When Vice President Gore and I took office, the budget deficit was $290 billion, and it was projected this year the budget deficit would be $455 billion.”
The Clinton team claimed to have turned things around. They claimed credit for a budget surplus of $122 billion. This was the third surplus in a quartet…the only surpluses in US budget history after 1972. That year may be significant. Before then, the world did business in dollars backed by gold; if a nation spent too much, its gold would be called away to settle its debt. After that, the US could spend as much as it wanted; the gold parked in Ft. Knox stayed put.
And so the deficits grew year after year like the children of Abraham. But in the ’90s, a remarkable thing happened. Practically the entire developed world began running fiscal surpluses. The US. Canada. Sweden. Finland. Europe. The entire OECD. From deficits of about 1% of GDP, budgets improved, with surpluses of about 2% by the end of the ’90s. This seemed to prove that civilized men and women, even in the time of paper money, can get control of their budgets. We already knew they could ‘spend now.’ It was beginning to look like they could ‘cut later’ too.
In June 2000, Clinton administration economists predicted that the surpluses would keep coming, rising to as much as $1 trillion over the next 10 years. But the US economy seems to have gone from Heaven to Hell in less than a decade. The race that turned deficits into surpluses lost its magic touch within 18 months. By 2002 deficits were back. And they were staggering, nearly $3 trillion worth of deficits in 2009 and 2010 alone.
The economists completely misunderstood what was going on. The triumph they celebrated was not in themselves but in their stars. They had just been lucky. Bill Clinton’s administration had kept up spending just as the Reagan team had before them, from $1.4 trillion in ’94 to $1.8 trillion in 2001. But interest rates fell. Credit grew. And the economy boomed.
The Clinton era boom is now the Obama era bust. When the contraction hit, the feds followed the formula. They mustered their fiscal and monetary stimulus. But they got no recovery. Spending more now won’t help. Not because the Obama team is less competent than the Clinton crowd. They are just unluckier. Credit is contracting.
So Krugman will be proven right after all after all. Austerity will not bring prosperity. But then, neither would stimulus. Krugman will say ‘I told you so’… and spend the rest of his career in darkness and confirmed delusion.
(Nice excerpt from http://www.equitymaster.com)
The turf war between the Insurance Regulator (IRDA) and the Securities Regulator (SEBI) is finally over. The government, on June 19th, passed an ordinance that granted full regulatory control of the Unit Linked Insurance Product (ULIP) market to IRDA, foxing many financial commentators. To an outsider, the brouhaha seems strange, but there’s a history to it. (Isn’t there always?)
Insurance has meant that you pay a certain amount of money so that if there is damage or a demise, there is a cash payout to compensate. If nothing happens, you lose the ‘premium’ paid.
In India, life insurance, in particular, has seen a different twist. People are sold products that return money even if they survive. So you pay Rs. 100,000 per year for 20 years, and you can get Rs. 50 lakhs back if you survive, and should you die, you have ‘insurance’ of 5 lakhs during this period. A part of your premium goes to cover the ‘risk’ of the 5 lakhs of insurance. Another part goes to cover fees and charges. What is left goes into an investment fund that will be invested and will grow over time.
Such products mix investment and insurance, and traditional ‘endowment’ products have been opaque offerings. An insurance company would only take the premium from you, and not tell you how much of that was fees or risk premium or investments-they would announce a ‘bonus’ every year, which would range from 4% to 9%, and you knew that was how much your total premium had grown that year.
Unit Linked Endowment products came in, promising more transparency, segregating and revealing costs, insurance and investment pieces. Additionally, you could choose the broad categories in which your money was invested-from risky avenues like stock markets, to very safe avenues.
This should have been good, compared to the traditional endowment market. But not the way it was implemented. ULIPs started confusing customers with complex products, where the costs weren’t obvious. For example, some brochures mention ‘Premium Allocation Charges’ of 30% – meaning, they charge you 30% of your premium as this particular charge, and after taking out all other charges, the remaining is invested. Another product would mention a ‘Premium Allocation Rate’ of 30% – meaning only 30% of your premium was invested. And sometimes they would move the costs into a Policy Administration Charge, as the IRDA, the insurance regulator, looked the other way.
Other strange charges were surrender charges-after charging you through the roof for the act of investing, insurers decided it was correct to penalize you for an attempt to take your money back-charges range from 5% to 100% in the first five years. The standard reply: ULIPs are long-term products, and this is the way we make them so. Yet, they charge the highest in the first few years of a policy and reduce the charges later-meaning, they’re not thinking longer term themselves; if they were, they would spread the charges evenly over the entire term. And the practice defeats the compounding concept: your first investments make the maximum rupee gains in the long term, but when they extract the maximum flesh from the initial premiums, your eventual gains are crippled.
The muddled and high cost structure negated any transparency benefits. It didn’t matter that some of these quirks were unearthed by financial journalists. Indeed, if you search for ULIP-related articles, nearly every single mainstream financial publication has carried articles against such practices; yet, people continued to buy them, even those with continuous access to the internet.
The reason: agents, who got a good chunk of those high initial charges as commissions, chose to highlight products as god-like offerings tailor-made just for those people who didn’t have time to decode a complex brochure or, seemingly, search the internet. They would lie, oversell, under-insure, or generally ignore their fiduciary duty as ‘advisors’. Again, IRDA chose not to cap the incentive commissions that promoted such behavior, arguing that any cap would hurt the industry.
In comparison, mutual funds have been much better products to invest in. With their regulator, SEBI, actively clamping down on mis-selling, charges have been reduced to just one-the ‘fund management charge, capped at 2.5% per year. There is no entry load, and any advisory fees must be paid directly to the advisor, not embedded in the products. SEBI’s actions made mutual fund agents poorer-the milking through entry loads was no longer possible-so agents moved substantial amounts of assets from the mutual-fund industry to higher -commission-paying ULIPs.
As a response, SEBI unearthed a technicality: since most ULIPs have a negligible insurance component, they are really collective investment products, which SEBI has the right to regulate. IRDA, noting that nearly 50% of the insurance business was ULIPs , decided to fight it out.
The rules were ambiguous, so the government had to take a stand. Admitting to SEBI oversight would unearth an uncompetitive product that gathered investment of nearly 1% of GDP, and perhaps even hurt investors in the short term as the concept was overhauled. IRDA would be embarrassingly compromised as a regulator. Insurers who made money milking investors would see immediate cash-flow problems. In hindsight, SEBI didn’t have too much of a case; there are many products that qualify under SEBI’s criteria of collective investment, but aren’t regulated by SEBI. Plus, the main issue was the mis-selling, which most commentators thought the IRDA wasn’t capable of curing.
A political decision was taken- in a process that some say did not include SEBI -to make IRDA the regulator for ULIPs. Some say insurers rescued certain government public issues, and this was just quid-pro-quo. What happened doesn’t matter anymore-what matters are consequences.
It may just be that investors have been thrown to the wolves, to decide which financial product to take, all by themselves. Which, shamefully, is a bad thing because we suspect our collective ability to decide for ourselves; but until we demonstrate lack of stupidity by actually not buying these products, we will continue to hear calls for stronger regulation, reduced incentives and fiduciary responsibility.
At one level, it’s a free market; people should be able to buy what they want, even if they choose to overpay, especially when such information is available to them. On the other hand, we have seen a worldwide financial crisis built on the back of information asymmetry; you must decide based on what you know, and you can’t possibly know enough. The answer: regulate, de-incentivise, litigate. There has to be a little of each, because in the end we are not rational beings. But it looks like the government decision seems to have just favoured the unregulated market.
Buyer beware. If you ask me, I would tell you to blindly refuse any ULIP offered to you, for which you will undoubtedly receive a large number of unsolicited enquiries in the coming months. But maybe there is a way to benefit: I suggest you demand Rs. 500 per phone call, payable in advance. For this advice, I demand no commissions.
2nd post:
My last column, ‘The ULIP War’, has yielded a number of responses from anxious readers asking me if I would recommend exiting from ULIPs (Unit Linked Insurance Plans) they already own. I wish there was an easy way out like saying ‘yes’, but there are no blanket answers. The only correct answer is ‘it depends’.
People seem to want to exit ULIPs for, largely, two reasons – either they trusted people who made them buy such policies in ignorance, or they were looking to only invest for a few years and exit anyhow.
So a ULIP holder can:
* Stop paying any further premiums, and consider withdrawal immediately or within a few years.
* Continue the policy, paying further premiums till a point where exit or continuance can be considered afresh.
Stopping further premiums is a knee-jerk reaction. Most ULIPs are designed so that if you stop prematurely there is a significant hit to your ‘fund value’; each product has its own idiosyncrasies. Since such surrender charges tend to diminish over time, it might actually make sense to continue your policy.
For instance, in one policy I consider, they mention that should you discontinue paying premiums within three years of starting the policy, they will hold your money until the three years are complete and then pay it back to you after deducting surrender charges. If, like most normal people, you think a small surrender charge is no big deal, the very next page tells you the charge is 75% in the second year, and 50% in the third year, effectively burning a significant hole in your pocket.
Look further. As the brochure says, 30% of your first year’s premiums have already vanished through a ‘Premium Allocation Charge’. A complex ‘Fund Management Charge’ results in the loss of about 6% of your premium, additionally. So a person paying Rs. 100,000 annual premium will, after one year, have this kind of decision to make:
* After year 1, I’ve paid 100,000. I have lost 36,600 to charges, and the remaining amount after some gains is Rs. 70,000.
* If I stop paying any further premiums now, I stand to lose another 75% as surrender charges, and I’ll have to wait another two years to get what’s left.
* That means if I exit right now, I’ll get only about 17,500 out of the 100,000 I invested.
* If I continue to pay premiums for just one more year, and I do similar calculations, including future charges: assuming a 10% gain on my portfolio, I would’ve invested 200,000 and will get back about Rs. 88,000.
* For another two years, I’ll have paid 300,000 and will get back 222,000
* After five years, it starts to make me ‘positive’ – that is, I invest Rs. 500,000 and get back Rs. 572,000. The main reason – surrender charges after paying five premiums is zero.
What it really means is that all other things being equal, it’s better to stay invested for the five-year term in this policy and then consider an exit, because before that date, you lose money in exit charges. While you may have been sold the policy on the idea that you have to pay just three years of premium, the optimal date for this policy is five years. It will differ from policy to policy.
In another case, the insurer charges 100% of the first year’s premium as charges. After one year, you have zero in your fund account; which should make the decision very simple – leave now, and incur no further costs.
(A technical issue to consider here is that the first year’s premium is actually returned to you after 15 years, if you really want to continue to pay premiums that long, or wait that much. Given their costs are higher than competitive products – mutual funds – in subsequent years, you will make a better return should you exit in the first year and buy those other products instead.)
Note: See a full spreadsheet of both products here. Observe that I don’t recommend exits: Exits should be considered with an analysis in mind.
This ‘exit after the first year’ is a leap of faith for many. Effectively, they would have lost the entire amount of money, and we are psychologically averse to taking a loss. This is categorized as a ‘sunk-cost fallacy’. We want to continue the policy even though we have, under all circumstances, lost all the money we have already invested, and continuing the policy is actually much more inefficient compared to saying goodbye and investing in other products instead.
An example of a sunk cost is evident in business – many projects are continued despite all evidence pointing to the fact that there is no further business case for it — (The Concorde fallacy.) Or, you pay a lot of money to buy a ‘membership to a five -star hotel, which offers you discounts – and then you keep wanting to go back there to ‘recover’ the money, even if you’re bored stiff of the food, or it’s priced too high even after the membership discount.
Buying timeshares with a large sum upfront also preys on a similar concept – once you buy in, you will rework your holidays according to the timeshare’s availability, going to places you might not otherwise go, because you’ve paid all that much in advance and by golly, you’re not going to lose any of it. Except it was lost the minute you paid for it.
In a way, this is throwing good money after bad, and is usually done to satisfy that part of our brain that is wired to avoid losses; it’s not rational, but it’s the way we are.
Note also that the decision to stay in a policy, like in the first example above, is justifiable because the initial investment is not necessarily a sunk cost; there are no better options available that would make returns better. For instance, quitting in year 1 and putting subsequent amounts in a mutual fund still does not make more sense than continuing on with the policy for five years, because the ‘gain’ that happens in year 5 because of dropping surrender charges outweighs the loss you take now. On the other hand, the ‘30% policy allocation charges’ are sunk; regardless of what you do now, it’s gone.
The problem, unfortunately, is that many such policies, which make sense for a long-term investor, have been sold with the short term in mind. People are told to pay for just three years and you’ll see a lot of money. While it is evident now that will not happen, bidding adieu to the product now versus a few years later will depend on a number of factors that are specific to your situation: the surrender charge schedule, additional costs going forward, comparable completion and your ability to continue paying premium. It’s sad that products are this complicated, but that is our current reality. I hope there will a less muddled tomorrow.
Mutual funds in India have a tall hurdle to cross. The Securities Exchange Board of India (SEBI) wants the net worth of companies that manage mutual funds to be five times larger than it currently is. Recently, the sub-group headed by Roopa Kudva, managing director and chief executive officer of credit rating agency CRISIL, has recommended that the net worth requirements of asset management companies (AMCs) be increased to Rs. 50 crore from Rs. 10 crore. According to the committee, this will signal the AMC’s seriousness
of intent in setting up the business, and also bear the AMCs initial losses without facing serious financial strain.
*The Issue*
Naturally, this has not gone down well with AMCs having a low capital base. They fear these norms favour big mutual funds that are part of the committee and can easily meet the net worth requirement of Rs. 50 crore. The SEBI group, on its part, feels that a net worth requirement of Rs. 50 crore is just 0.33 percent of Rs. 15,000 crore, which is the average capital under management for Indian mutual funds. Hence, although the new norms will hurt small players, this number is not high enough to deter serious contenders.
*Our Take *
An AMC is not like a bank. A bank is in the business of taking and lending deposits. If the borrowers default then the bank has an obligation towards the deposit holders. An AMC works differently. It simply collects funds and buys stocks. If people want their money back, it can sell the stock and return the money. Investors in mutual funds know that the value of their investment can decrease. One key logic behind the SEBI proposal is that a higher net worth will enable AMCs to be better placed to obtain liquidity lines from banks, in case they suddenly need to draw cash to meet investor redemptions. This may not be the case.
At Rs. 50 crore net worth, the mutual fund will perhaps get a Rs. 80 crore short term credit line from the banks. In reality, this is of very little use because a fund might have raised and deployed anywhere between Rs. 500 to Rs. 1,000 crore in the market. The recent crisis has shown that even the best run bank with the highest capital reserves cannot withstand a run without government guarantees. If customers lose confidence in a mutual fund scheme, even a net worth of Rs. 100 crore will be insufficient to stem the tide of customer redemptions. The cost of starting and managing an AMC is very low worldwide. The SEBI sub-group appointed for this task itself states that in the USA, an AMC can be started at as low as $100,000. In the Euro Zone, AMC capital is linked to assets under management.
Indian AMCs need a healthy environment to compete. Competition should be encouraged by allowing all kinds of players to get into the AMC market, else it will lead to a situation where three to four AMCs will dominate the entire mutual fund market and this will be a huge disservice to the investors. Thus, instead of concentrating on net worth criteria for AMCs, it is important to concentrate on investor protection and risk management systems without hurting the spirit of competition.
As if bleeding revenue wasn’t enough of a problem, India’s wireless telecommunications companies now have to deal with a hefty pile of debt.
The country’s private telecom firms on Monday finished paying New Delhi $10.8 billion for licenses to operate third-generation wireless services. That tab was mostly funded with short-term loans, which the companies now have to refinance. It means they can add interest payments to the list of factors eating up profits. Margins are already declining, thanks to intense competition.
Still, some will emerge from this in better shape than others. Bharti Airtel, India’s biggest wireless company, proved more conservative than rivals even though it spent the most. The $2.6 billion Bharti bid for 13 licenses across the country accounts for just 12% of its market capitalization. Smaller rivals Reliance Communications and Idea Cellular are spending more than 30%.
Bharti’s balance sheet, too, will wind up in better shape than others. Even after adding the 3G costs to $8.3 billion in debt taken on to buy the African operations of Kuwait’s Zain Telecom, Bharti’s net debt will be 2.6 times earnings before interest, taxes, depreciation and amortization, Citi Investment Research says. For Reliance and Idea, that will be closer to 3.6 times.
It is a burden being taken on when a price war is pushing profits lower and narrowing margins. In the March-end quarter, for example, average revenue per user at Bharti fell 28% from a year earlier. Meanwhile, with no company winning a 3G network that covers the entire country, competition will only mount.
Idea, which is seen as the most negatively affected of India’s three listed wireless companies, may still produce some value from its pricey new network in the long run. It bought licenses covering regions that already contribute 80% to its revenue, more than any other operator. That existing subscriber base means it can upgrade services quickly. But analysts aren’t taking any chances. Daiwa Capital Markets recently halved its forecast for Idea’s full-year earnings per share. At Bharti, by comparison, profit will fall 14%.
If all this weren’t enough, most of the same companies are bidding in a continuing auction of broadband wireless Internet licenses. Fortunately, the cost of these licenses is well below those for 3G, but competition is pushing them higher quickly. By Monday, one week into the bidding, an all-India license was going for $1.53 billion, four times its starting price.
This sin, committed twice, seems a crime.
The country’s spending on social programmes, aimed at helping the poor, is likely to increase hugely. Problem is, can India afford it?
India has appointed several socialist intellectuals and activists to a powerful government policy advisory body, officials said on Monday, signalling the possibility of higher spending on costly social programmes.
The National Advisory Council (NAC) is headed by Sonia Gandhi, powerful chief of the ruling Congress party who is seen as more inclined toward favouring the predominantly rural poor to help boost the party ahead of some key state elections.
While higher spending may be cushioned by windfall gains from a recent auction of telecom spectrum, the risk is it could fuel rural demand, feeding inflation, already high, and increasing the pressure on the central bank to raise rates aggressively.
The NAC, formed in 2004, initiated social programmes credited with helping return the Congress party to power last year. The council has cleared 11 names, including a left leaning economist, social and human rights activists and former civil servants.
They will try to advocate left-liberal policies. The appointments show that the Congress is still in favour of a socialist policy as opposed to a capitalist line, said political analyst Amulya Ganguli.
Those appointed, officials said, include economist Jean Dreze, former Planning Commission official N.C. Saxena, rights activist Farah Naqvi, former civil servant Harsh Mander and agricultural scientist M.S. Swaminathan.
MOST APPOINTEES HELPED GOVT PROGRAMMES
Most of the appointees have, in some capacity, helped the government give shape to programmes such as the rural job schemes and food security that won the Congress Party votes in the last election.
Gandhi is credit with creating some of the flagship schemes, including the rural jobs programme that already costs about 1 percent of GDP. She has overruled ministers to widen a food subsidy bill and is pushing a women’s rights bill in parliament.
On issues of economic reforms, Indian media often report differences between her and Prime Minister Manmohan Singh, an economist credited with opening up India’s heavily socialist economy in the 1990s.
Some analysts say the appointments signal a government willingness for a stronger oversight of its current social programmes rather than a push for fresh social investments.
Most central schemes still continue to elude millions of poor people. Experts say badly run programmes may add to deficit spending and hinder India from following rival China by broadening an economic boom to hoist millions from poverty to become well-fed middle class consumers.
These are people with impeccable credentials and it signals the seriousness with which the government want to pursue inclusive economic growth and meet social commitments, said Siddharth Varadarajan of The Hindu newspaper.
The NAC will also likely influence domestic security policy in a country fighting a worsening Maoist insurgency.
The chair of the NAC holds the rank of a cabinet minister, allowing Gandhi to call for and work with government officials and documents.
Surprising many experts, Chinese car sales have become higher this year than in America. The demand for purchasing a vehicle is so high that there are long waiting lists for the most popular models of cars.
After years of huge spending and consumption, Americans are reacting to the recession in a frugal manner. In China, however, spending has grown steadily on an increasing number of consumer goods. The market in China has surpassed the U.S. for items including cars, washing machines and dishwashers.
For China’s population of 1.3 billion people, larger incomes are finally allowing a large number of consumers to purchase big-ticket items.
How long will this level of consumption last? The Beijing government is helping it along by allowing rebates, subsidies and heavy bank lending.
Automakers are hoping to sell around 12.8 million cars and small trucks in China this year, all manufactured in China. Appliance manufacturers are estimating 185 million sales of refrigerators, washing machines and other general appliances compared with only 137 million in America.
Chinese banks are playing a large role in consumer spending by financing double the amount of loans throughout China. Credit card spending has risen 40% since the beginning of the year.
However, this prosperity based on lending may be leading to problems in the future economy.
Are you in the same situation of having been retrenched or are facing some crossroad in your career or professional life? Here are some suggestions on how to get yourself out of it:
1. Acknowledge the Crisis
Losing a job can create as much emotional turmoil as losing a loved one; one may go through the different stages of loss, starting with denial, followed by anger and depression, before acceptance comes.
I know one 45-year old man who went through these stages recently, after losing his high paying job of 15 years. Initially, he refused to accept that he was facing a professional crisis. He dismissed the whole situation as “just a bad patch” that he was going through, blaming it all on an “incompetent boss” and was confident that the ex-boss would soon be begging him to rejoin the company. “Right now,” he said, “all I want is to take a long holiday and worry about it later.”
Two months after this discussion, when it finally dawned on him that his ex-boss was not going to call him back, he then became consumed with anger and hurt. He started bad-mouthing his former employer and told everyone he had resigned because of unethical practices.
When he first came to me, he was already in the depression stage. He could not understand why he, of all the staff in the organization, was fired. Was it because he was too frank and not adept at politicking? Was it some inadequacy on his part?
I told him that the first step towards moving forward is to acknowledge that he is indeed facing a crisis in his life. He was now 45, and it is a fact that many potential employers would prefer younger candidates to fill up job vacancies. No doubt experience counts, but many would-be employers are willing to forego that for they perceive as creativity that is unfettered by past experiences.
Once he has acknowledged he is facing a professional crisis he can then choose how to respond to it.
2. Explore the Options
I have always loved the way the Chinese express the word “crisis”. The Chinese character for “crisis” actually comprises two characters – one means “danger” and the other “opportunity.”
Oxford Dictionary defines “crisis” as “a time of intense difficulty or danger; a turning point for better or worse.” The origin comes from the Greek word krisis which means “decision.”
Whichever way we choose to look at it, one unifying theme defines it: A crisis serves as a wake-up call to alert us to both danger (and turmoil) arising out of non-synchronicity in our lives, as well as to opportunities that can lead to greater things in life. The eventuality depends on the choices and decisions we make.
So take this as a wonderful opportunity to step back and detach yourself from the situation, take a new, fresh look at what you really want for your life and then make the move forward to the life you deserve!
3. Redefine Your Purpose and Passion
How many people really take the time to push the pause button on their lives in order to explore what is their true passion and purpose? Very few, I believe. People just tend to flow along in the path of least resistance – from school to college to job after job, with very little thought given to what they really want to achieve in their lives until it’s probably too late for them to do very much.
So count your blessings now that you have received this wake-up call and been given this opportunity to pause from the auto-drive mode you are in to explore and to discover your purpose and passion.
Reflect on the following questions:
a. Do you feel good about yourself, your life, and where you are going?
b. If time and money are not a problem, what would you be doing on a daily basis?
c. What do you really want for your life? What don’t you want? What have you settled for?
d. Do you feel fulfilled and satisfied with your life choices so far? If not, what would you change if you could?
Whether you are experiencing a professional crisis right now or not, let this article be a reminder for you to step back, re-assess where life is leading you and if you discover that you have been sacrificing meaning, fulfillment, balance and happiness in life for the outward trappings of “career success”, it’s time to regain control of your life and choose a more meaningful path to self-fulfillment.
Internet thrives because of its openness but the Indian government is still trying to censor the internet by framing laws for internet based on 150-year-old statute. India, the land of Kamasutra where SEX is still considered a taboo and at the same times it is one of the most sort after keyword in Google search.
Keeping in view of the dynamics in India, Bing and Yahoo have yielded in front of Indian government by censoring certain results having sexual explicit content. This means that you can no longer search for sex and other related keywords in Bing if you are in India. What it says when you have search for it.
Yahoo as of now only censors images that have sexual content (give it a try) and you can still search for sex in web search.
Also we can’t switch off the Safe Search option in Flickr, which is owned by Yahoo.
But Google is still not bowing in front of Indian government and you can still search for sex and for both web as well as image search.
This has been in response to the Indian Information Act of 2000, which has seen some recent changes. Also this law is based on a 150-year-old statute, section 292 of Indian Penal Code.
What the heck? How can you make laws for the Internet based on the law that has been framed 150 years back? Ridiculous and at the same time quite amusing. Just thinking quote from George Bernard Shaw The only man I know who behaves sensibly is my tailor; he takes my measurements anew each time he sees me. The rest go on with their old measurements and expect me to fit them. You can’t even search for ‘sex discrimination’ as it involves sex in it.
But guys from India calm down…. if you still want to search for sex related keywords in Bing then just go to US or UK version of the search version (this will satisfy you), it is not dependent on the IP address of the country. FYI – Porn results of Bing were far superior than Google and Yahoo! thats been my personal experience! 🙂
News Now
Seed Newsvine
WEBSIDE ALLEY 
Write to me….