February 22, 2008
Ambani's Billion Dollar Home and Collective Schizophrenia
Mukesh Ambani's billion dollar home, for the lack of better word, has been in news in recent times. And so was his "gift" of a jet to his wife on her birthday. On various forums and in the media, many have labeled this as conspicuous consumption. They consider it vulgar, immoral and obnoxious display of wealth.
It's curious that people upgrading to an apartment with 1 extra bedroom is met with admiration, but the same thing on a bigger scale is uncouth. When we see scale, we conveniently switch back to socialistic creed and question the social sensitivity of the rich. This is collective schizophrenia (or should we say deep hypocrisy?) It's almost as if it the duty of the rich to alleviate the poverty and all other social inequalities in the country. Lest we forget, that, exactly, is the job of the Government. Since independence, political parties have ruled the masses with that only promise.
Second. This is his own money. He earned it in a perfectly legal and respectable way. Can we please let him have the prerogative to spend his money? Again the dichotomy. When (Shiv/MN)Sena folks ransack the Valentine's event, we cry foul call them moral police. With the same yardstick, somebody who tells Mr Ambani how to spend his money, is the torchbearer of moral police brigade. On the other hand, there are politicians who lavishly celebrate their birthdays or weddings of children. And it is a open secret that the money spent on these events has been earned via questionable means (read embezzlement.) We don't see much self-righteous protest against that.
Third. It's good for the economy that he is spending the money which otherwise will be lying dormant in the bank account or some stocks and will push him a notch in the global richest list. Even if much of the stuff which will go in building this home might be imported, they must have paid plethora of taxes to Govt. And local spending directly comes in the economy.
India is better off with rich people who don't care about Forbes rank and go on the spending spree. I don't think there is any shame in such spending, given that it is their own money.
More power to all the seriously rich who are not shy to spend a billion dollars.
It's curious that people upgrading to an apartment with 1 extra bedroom is met with admiration, but the same thing on a bigger scale is uncouth. When we see scale, we conveniently switch back to socialistic creed and question the social sensitivity of the rich. This is collective schizophrenia (or should we say deep hypocrisy?) It's almost as if it the duty of the rich to alleviate the poverty and all other social inequalities in the country. Lest we forget, that, exactly, is the job of the Government. Since independence, political parties have ruled the masses with that only promise.
Second. This is his own money. He earned it in a perfectly legal and respectable way. Can we please let him have the prerogative to spend his money? Again the dichotomy. When (Shiv/MN)Sena folks ransack the Valentine's event, we cry foul call them moral police. With the same yardstick, somebody who tells Mr Ambani how to spend his money, is the torchbearer of moral police brigade. On the other hand, there are politicians who lavishly celebrate their birthdays or weddings of children. And it is a open secret that the money spent on these events has been earned via questionable means (read embezzlement.) We don't see much self-righteous protest against that.
Third. It's good for the economy that he is spending the money which otherwise will be lying dormant in the bank account or some stocks and will push him a notch in the global richest list. Even if much of the stuff which will go in building this home might be imported, they must have paid plethora of taxes to Govt. And local spending directly comes in the economy.
India is better off with rich people who don't care about Forbes rank and go on the spending spree. I don't think there is any shame in such spending, given that it is their own money.
More power to all the seriously rich who are not shy to spend a billion dollars.
February 19, 2008
So much for originality
Bloggers, by and large, have a code of conduct for attribution. All the sources are generally given link love in the posts. But, what I saw today is little surprising.
In a comment, on Basab's blog, Krishna wrote
In a comment, on Basab's blog, Krishna wrote
It looks lot less scam now. The Web 2.0 geeks built their *Velcro business models* tried putting everything in the cloud and on open-source stack and raved about the freedom from vendor lock-in, while locking their own users in. It took a while to dawn on the users - You need to sweat out to get out.5 days before that comment, FSJ wrote,
So here's the racket. All these Web 2.0 guys built their businesses on open-source software like the LAMP stack and all went around raving about the wonders of open source and how great it is that there's no vendor lock-in -- and then they set about locking their own users in.... At Google they call this the "Velcro business model," meaning you can, in theory, get yourself unstuck, but it takes some effort.So, you read one the most prolific blog, "internalize" the thoughts, and them spew them out as your own comment on some other well-known blog. And pray that nobody else reads both the blogs. Cute!
February 13, 2008
Get over the Thackeray episode
As I see, the only people giving Thackeray's son-of-soil campaign this much importance are either non-Marathi or staying too far from Maharashtra. As a Maharastrian, I can vouch that not as many care a damn about the whole campaign as the media believes to be. They are pretty much irrelevant today. They represent Marathi manoos as little as VHP represents the Hindus of the world, which is close to zilch. But, media, and in this case the bloggers as well), loves rubble-rousers for they provide people an opportunity to show their liberal inclination by using fanciful words like "freedom," "right," etc.
Learning the concept of Risk the hard way
I always wonder, how some smart people fail to realize something as basic as there is no such concept as perfectly legal easy money. When these people enter stock markets, mostly for the first time, with the dream of making moolah but without an iota of understanding of risk, something awfully wrong for them. Unfortunately, stock market is the place, where you learn the concept of risk in an expensive way - by losing your hard-earned money. This is exactly what happened with Reliance Power IPO, which has lost 20% of its value in 2 days of listing. Many of these people innocently believed brokers' advice - invest as much as you can because this stock will list with 100% premium. While the listing premium is dependent on the mood of market, the broker gets his fixed cut, even if stock is listed at a discount.
Now, these very people, conveniently, want somebody own the fiasco and do something about it. That "somebody" can be promoters of the company or the Govt or SEBI. And that "something" can be buying from the market to keep valuation afloat, SEBI make rules which put the floor price for listing (and the same people don't want any ceiling on the listing price!)
People losing money can only be attributed to their own greed and ignorance. Such is the greed that they want to borrow to invest, trade in risky derivative instruments and dabble in various asset classes. It's arguable if such people deserve sympathy or help. The massive over-subscription, media buzz, experts' bullish views, excellent report from IPO rating agencies notwithstanding, there are things that can go wrong seriously and put the capital at risk. This is a slippery road and one needs to tread with caution. And the first step begins with understanding the concept of risk. Welcome to capitalism 101!
Now, these very people, conveniently, want somebody own the fiasco and do something about it. That "somebody" can be promoters of the company or the Govt or SEBI. And that "something" can be buying from the market to keep valuation afloat, SEBI make rules which put the floor price for listing (and the same people don't want any ceiling on the listing price!)
People losing money can only be attributed to their own greed and ignorance. Such is the greed that they want to borrow to invest, trade in risky derivative instruments and dabble in various asset classes. It's arguable if such people deserve sympathy or help. The massive over-subscription, media buzz, experts' bullish views, excellent report from IPO rating agencies notwithstanding, there are things that can go wrong seriously and put the capital at risk. This is a slippery road and one needs to tread with caution. And the first step begins with understanding the concept of risk. Welcome to capitalism 101!
Labels: ipo, Stock market
February 04, 2008
Mabani who?
February 03, 2008
Ignore India and China at your own risk
Motorola, after reporting massive drop in profit, is thinking of spinning off its cell phone business. And this happens when the market leader Nokia posts very strong results.
So, what's the difference? Here is one dimension. Motorola is paying the price for ignoring emerging markets, China and India, specifically. Five years back, when Nokia was flooding the market with new handsets Motorola had only couple of utterly ugly and unusable handsets as competition. It simply showed the lack of commitment on the part of Motorola for Indian markets. Guess, which company will be benefited with India's mobile subscriber base is quarter a billion and growing.
Apple is probably also making the same mistake. Its talks with China Mobile failed, supposedly due to Apple playing the big brother. Apple could do it with telcos in developed market as for them iPhone was much needed drug. But in emerging markets telcos are doing fine. China Mobile acquired 300 million subscribers without the help of Apples of the world (may be with the help of Govt.) Apple needs to come down from its high pedestal because the numbers we are talking in India and China are huge. A 5% market-share of handsets doesn't look too high for iPhone in India. (The stinking trash that is being sold at Rs 15,000+ doesn't come close to iPhone which sells at same price.) Even at 5% we are talking about more than 10 million units.
Idea courtesy: Shyam's post about IBM's looking to grow outside US.
So, what's the difference? Here is one dimension. Motorola is paying the price for ignoring emerging markets, China and India, specifically. Five years back, when Nokia was flooding the market with new handsets Motorola had only couple of utterly ugly and unusable handsets as competition. It simply showed the lack of commitment on the part of Motorola for Indian markets. Guess, which company will be benefited with India's mobile subscriber base is quarter a billion and growing.
Apple is probably also making the same mistake. Its talks with China Mobile failed, supposedly due to Apple playing the big brother. Apple could do it with telcos in developed market as for them iPhone was much needed drug. But in emerging markets telcos are doing fine. China Mobile acquired 300 million subscribers without the help of Apples of the world (may be with the help of Govt.) Apple needs to come down from its high pedestal because the numbers we are talking in India and China are huge. A 5% market-share of handsets doesn't look too high for iPhone in India. (The stinking trash that is being sold at Rs 15,000+ doesn't come close to iPhone which sells at same price.) Even at 5% we are talking about more than 10 million units.
Idea courtesy: Shyam's post about IBM's looking to grow outside US.
Labels: business
Why would Microsoft buy Yahoo?
Here is my theory. Microsoft has cash. Lots and lots of it. In last 5 years, Microsoft has made profit of $54 billion. 3 years ago, Microsoft paid dividend of $32 bn for the first time in their corporate history. They returned that money to shareholders probably because there was no better use of that money. Once again, today, when they are sitting on huge mountain of cash, buying Yahoo for $22bn cash and $22bn stocks doesn't seem to be bad use of that money.
Labels: business
February 02, 2008
Another IPO Myth busted
Demand-supply is so Economics 101. Higher demand drives up the prices. Right? Apparently, not, when we are talking about IPO.
When Future Capital IPO closed 2 weeks back, there were 132 takers for each share of the company. And we are not talking about a small IPO, if you don't compare it with Reliance Power IPO. This was a Rs 500 Cr (US$125 mn) IPO. Which means some 65,000 Crores were chasing Future Capital.
Today, as the stock listed, suddenly all those 65,000 Crores went missing. The stock closed at 18% premium to issue price. While the recent meltdown the market can be blamed for lack of buying interest, it highlights the possible exception condition where high subscription doesn't necessarily translate into high listing price. Secondly, such kind of exceptions also entail a huge opportunity cost. (Imagine all those IPO applicants who watched market providing excellent buying opportunity while their funds sat pretty in some escrow account.)
There is a solution for ironing out such anomalies - using Dutch Auction instead of the farce called Book Building. (It will be a topic of another post.)
BTW, shill trades were again at play here, as they were for few other IPOs. First few trade seem to get executed at artificially high price. See how in the initial seconds the price fell from 1000 to 850.
When Future Capital IPO closed 2 weeks back, there were 132 takers for each share of the company. And we are not talking about a small IPO, if you don't compare it with Reliance Power IPO. This was a Rs 500 Cr (US$125 mn) IPO. Which means some 65,000 Crores were chasing Future Capital.
Today, as the stock listed, suddenly all those 65,000 Crores went missing. The stock closed at 18% premium to issue price. While the recent meltdown the market can be blamed for lack of buying interest, it highlights the possible exception condition where high subscription doesn't necessarily translate into high listing price. Secondly, such kind of exceptions also entail a huge opportunity cost. (Imagine all those IPO applicants who watched market providing excellent buying opportunity while their funds sat pretty in some escrow account.)
There is a solution for ironing out such anomalies - using Dutch Auction instead of the farce called Book Building. (It will be a topic of another post.)
BTW, shill trades were again at play here, as they were for few other IPOs. First few trade seem to get executed at artificially high price. See how in the initial seconds the price fell from 1000 to 850.
Labels: ipo, Stock market
February 01, 2008
Will slowdown in IT sector affect economy?
Six months ago, in a post titled Pause On Dream Run, I wrote,
Clearly, the days ahead are not very rosy for IT employees. But, what does it mean for rest of the economy? To consider why IT is important to rest of the economy we need to understand how much money is channeled in the economy by IT industry. The employee cost for the IT industry is approximately 35% of the total revenue, which, probably, is the highest across industries and ahead by wide margin. If IT industry's total revenue is $40 bn in 2007-08, that means $13 bn was the employee cost. Add to this the employees of MNCs like IBM, Accenture, EDS, we are probably looking at a figure of $20 bn. And much of this $20 bn (and rising) is returning to the economy in the form of consumption - housing, automotive, leisure expenditure, etc. This is real money flowing in the economy and not some idle cash lying in high-interest treasury bills. It is unquestionable that the IT spillover effect has happened in past and been one of the key drivers of growth of economy. Now, when the IT industry hits the rough patch, economy will have some impact.
While tech sector may contribute a single digit percentage of GDP, it probably has much more than its fare share of impact of the economy.
But in last few quarters, the INR vs USD equation has changed. INR is at 9-year high against USD. And if the results of latest quarter clearly indicate that it is hurting the profitability of the IT companies. They have reduced their INR profit guidance. What does all this translate for the employees in tech industry? Obviously, the I-want-only-30-per-cent-hike days are summarily over.Looks like the time has come where IT companies are taking a not-so-benign look at the salaries with TCS making a tiny cut in variable pay. While the salary cut is more of tokenism than shoring up the bottomline, it shows the willingness of the companies to stop chasing the bus. According to this article, while Infosys sees no cut in the recent salary raises, TCS and Wipro look more conservative. The larger point is companies will politely say no if candidates demand huge raises over their current salary which already has a 3-month old raise built into it.
Clearly, the days ahead are not very rosy for IT employees. But, what does it mean for rest of the economy? To consider why IT is important to rest of the economy we need to understand how much money is channeled in the economy by IT industry. The employee cost for the IT industry is approximately 35% of the total revenue, which, probably, is the highest across industries and ahead by wide margin. If IT industry's total revenue is $40 bn in 2007-08, that means $13 bn was the employee cost. Add to this the employees of MNCs like IBM, Accenture, EDS, we are probably looking at a figure of $20 bn. And much of this $20 bn (and rising) is returning to the economy in the form of consumption - housing, automotive, leisure expenditure, etc. This is real money flowing in the economy and not some idle cash lying in high-interest treasury bills. It is unquestionable that the IT spillover effect has happened in past and been one of the key drivers of growth of economy. Now, when the IT industry hits the rough patch, economy will have some impact.
While tech sector may contribute a single digit percentage of GDP, it probably has much more than its fare share of impact of the economy.
