07 February, 2009
NEWS FOR THE WEEK
IBM is offering a choice to the employees it recently laid off in North America - work in India, Russia and some other countries. It calls the program Project Match and includes moving costs and visa assistance. Interestingly, the company says that the employees should be willing to work on local terms and conditions. It is not clear if that is a euphemism for lower pay. This initiative has not gone down well with Alliance@IBM, the unofficial union at the company. Its spokesman has said, "IBM not only is offshoring its work to low-cost countries, now IBM wants employees to offshore themselves."
We believe this initiative highlights the compelling logic that the outsourcing model is based on. Despite the heartburn that it causes in the developed countries, it is simply too hard to ignore the value of a low-cost talent workforce reachable by modern communications.
The appointment of A.S. Murty as the new CEO of Satyam has evoked a mixed response. There are those who believe he has been a steadying influence for the company for 15 years. He has previously served as the chief delivery officer, head of HR and other business verticals. Others believe that he should not have been appointed given his proximity with Ramalinga Raju. Moreover, Mr. Murty sold 40,000 shares of the company in the days preceding Satyams announcement of the Maytas deal.
Just a day after it found itself at the center of a controversy concerning vendor payments, Tata Motors has issued a public statement stating that the media seems to be making a mountain out of a molehill and as much as 75% of its purchase from vendors have been paid immediately through an arrangement with banks. Elaborating further, the companys MD added that Tata Motors works under a tripartite agreement, whereby the bank pays the vendor for purchases by Tata Motors and then in due course of time, the company reimburses the money to banks. And as per the companys own admission, there could have been delays for the remaining 25%. But this indeed is not as big a problem as it is made out to be. The company may be having very little cash to spare as all avenues for raising the same, including sales of vehicles, have dried up, but given its size and bargaining power, it would be a little unwise to assume that it cannot sail through few months of difficult times without committing large scale defaults.
There are tell tale signs that economic slowdown has hit China. And there is perhaps no better indicator of disposable income than the price of McDonalds. The company has sharply cut the prices of its offerings in the land of the dragon in a bid to stimulate demand. Others like KFC have also begun promotions for attracting the bargain hunters. This development shows, if not anything else, how economic problems that began in the US have affected patterns in buying and selling all over the globe.
Amidst uncertainty surrounding the 26% stake sale in UTI AMC, the MD of the fund house has cleared the air. He has stated that the stake sale is on track and is taking place at the request of the shareholders and not against their will. It must be noted that SBI, PNB, Bank of Baroda and LIC hold 25% stake in the fund house. While there are talks flying about that UTI AMC would buy a fund house from the proceeds by roping in a strategic investor, the AMC has not yet lent any credence to the same. It may be noted that each of these banks have their own fund houses to manage as a result of which they were unable to participate on a day-to-day basis in the management of the company. These shareholders had attempted to exit earlier through the IPO route, but had to withdraw their plans as the stockmarkets plunged. Thus, it would be interesting to see to whom the stake would be sold to eventually especially in these times.
Warren Buffett has become an oasis of capital that fund-starved companies all over the word are steadily marching to. After the American icon Harley Davidson, it is the turn of Swiss Re. As per the International Herald Tribune, the Zurich based reinsurer (it takes on insurance risk of other insurance companies) is all set to receive an infusion of US$ 2.6 bn from Berkshire Hathaway. Berkshire will buy 12% bonds convertible into shares at 25 francs after 3 years. While it is a tribute to Buffetts achievement as a capital allocator, the development also indicates that the credit crisis is far from being over. Deutsche Banks December quarter loss of US$ 6.2 bn highlights the fact.
At a time when demand for financial products is at its weakest in a decade, the Tata Groups financial services arm Tata Capital seems to be the rare optimist. The company is raising capital to the tune of Rs 5 bn via non convertible debentures in order to foray into retail as well corporate lending, broking, wealth management, investment banking and private equity verticals. Although the company has the wide retail client network and business linkages of the Tata Group to fall back on, how far it will be able to realise its ambitions in a field dominated by established players and in a tough economic environment is left to be seen.
Now, primes are turning sub-primes in the US. The Economist has reported that even better-heeled Americans have started defaulting on their mortgages. And credit rating agencies that rated their people as above investment grade or having good credit score, are again in the line of fire. As a matter of fact, of all the AAA-rated securities that Moodys has lowered over the past week, an astonishing 91% has gone straight to junk!
The next season of the Indian Premier League (IPL) begins soon and every detail makes breaking news. The latest is that English players, Kevin Pietersen and Andrew Flintoff have fetched US$ 1.6 m each at the IPL auctions today. Thats more than what Dhoni received last year. While Bangalore Royal Challengers snapped up Pietersen, Flintoff was acquired by Chennai Super Kings. It is believed that the management of Royal Challengers was willing to shell out even more for Pietersen. Surely there are no signs of liquidity crunch on the T20 field!
SOURCE: EQUITY MASTER
31 October, 2008
WHY FEAR
Asian economies are facing problems on various fronts. The major one being that the growth of exports will be curtailed as the US and Europe slows down. Further, their net imports of capital will also shrink forcing countries that live beyond their means to cut back on spending. Each of the emerging economies have their own set of problems.
While Russia has surplus on its current account due to oil and gas exports, the overseas liabilities of the Russian banks far exceed their net foreign assets. Brazil’s heavy reliance on commodity exports, is also at the receiving end as the prices of commodities are cooling down.
But hang on! All is not lost. The silver lining in the cloud for Asian nations is the fact that they tend to save more than their developed counterparts and this will ensure that they do not witness the same fate that befell the people of the US and Europe, who have been used to living beyond their means.
14 October, 2008
Maradona NEEDED
At the post-match conference, Maradona claimed that the goal was scored ‘a little with the head of Maradona and a little with the hand of God.’ So it was. The goal was later termed as ‘Hand of God’ goal. Maradona scored another goal in the match that was later voted as the ‘Goal of the Century.’ Argentina went on to win their second world championship title.
The financial world wants a Maradona now! It wants a ‘Hand of God’ to take it pass the crises that has been the creation of past so many years of financial mismanagement.
Maradona’s goal was an example of players skirting the laws of the game in the hope that the referee does not see. In context of the current financial system, we have already seen so many players (a.k.a. bankers and investment bankers) skirting the laws...driven by greed and hubris.
But with the pain that investors are feeling currently, will ‘greed’ that created so much money in the first place vanish anytime soon?
Not till we remain truly ‘human’. The inherent nature of the human being to speculate will never die. Greed will come back. And irrational expectations from money, stocks, bonds, gold, commodities etc. will again find their place under the sun.
The imperative for you, the long-term investor, is to arm yourselves against the hubris that too much of money creates. The idea is to stay away from greed and get over the fear factor. Invest within your means. Keep saving - and investing. When the cycle turns, and it will, you will be glad to have pulled the trigger.
But for this moment, the world financial system needs a Maradona...a hand of God.
08 October, 2008
Looking at The Future
Decoding the crash:
The main reason being given for the pain is the mortgage crisis in the
When things look Bleak be an optimist:
Always ask the question why? When the Sensex was at 21000, people were talking about 25000. If asked why? The common answer was “The India Growth Story”. Now suddenly it has turned into a fairy tale for all.
One of the most important things we should understand is that, in the last 4-5 years
The world hasn’t changed in a year. What has changed is the mindset. Optimism has given way for pessimism. Even though the eternal optimism in the last 3-4 years (especially in 2007) was uncalled for, today we surely are not in dire straits.
My First Blog: The Bear
Everyone can be seen dying for returns giving the impression of a camel who is alone in the desert looking for water to quench his thurst.But I have a simple question to ask? Please tell that except me, has anyone realised that the camel has enough water in his hump to sustain himself from the vagaries of desert.
I can see the same attitude developing in the minds of a common investor. Why the hell is he cribbing? Didn't he fill his pockets in the last year's third quarter by booking ample profits. Even some 'A' Group scripts have given 40-50 percent returns in 2-3 days. Don't mind but A group scrips are supposed to be the most stable ones. If a person has not booked any profits in the mentioned period and has kept his scripts hatching, I am sorry to say to them , "PLEASE STAY AWAY FROM THE MARKETS!!!!". If the so called "SATTA" is the only means of the person's living please find some other way to earn your bread and butter. Not booking profits simply displays one's immateur and childish like behaviour.
There is no place in the world where a statue of a bear can be seen outside the stock markets. I think the time has come taht the investor learns to give equal importance to both the animals , the market has tamed over the years so as to make the markets a better place to survive in!