Monday, July 28, 2008

Narayana Murthy's words of wisdom

Way back in 1981, Nagavara Ramarao Narayana Murthy and six other young engineering graduates launched an information technology company from a garage in Mumbai.

Murthy had borrowed Rs 10,000 from his wife (Sudha) to launch Infosys Technologies. Infy, as it is popularly known, recently, reported a net profit of Rs 1,302 crore (Rs 13.02 billion) for the quarter ended June 2008.

For 21 years Murthy served as the company's chief executive officer, before he handed over the reins to co-founder Nandan M Nilekani in March 2002.

To know more about the man, his life's philosophy and his success mantra, read on...

"We were huddled together in a small room in Bombay (now Mumbai) in the hope of creating a brighter future for ourselves, for the Indian society, and perhaps, we dreamed, even for the world."

"Our value system was like the British Constitution - it was all unwritten but extremely well practiced...Our value system is the true strength of Infosys."

"Unless we can sell well we cannot do anything, such as create jobs, pay good salaries and satisfy investors. Right from the beginning we realised that we have to focus on selling better and better in the marketplace."

"Truth is God. Our success at Infosys depends on our continual learning."

"Entrepreneurship is about running a marathon, not a 100 metre dash."

"Capitalism and Marxism intend to better the lot of humanity. Consequently, responsible Capitalism that creates wealth and allows it to percolate down seems to be a better option."

"I am a 100% free marketeer but I call myself a compassionate capitalist. While I'm very conservative in economic matters I'm very liberal about social matters."

"If we have to make life better for these (rural) people and give them reasonable standards of living, disposable incomes, healthcare and nutrition and education, I personally believe we have to look at low-tech manufacturing to start with and then high-tech manufacturing in a big way just as China has done because most of these people are semi-literate or educated at a very basic level."

"I define globalisation as sourcing material from where it is cheapest, talent from where it best available, producing where it is most cost-effective, and selling where the markets are -- without being constrained by national boundaries."

"Entrepreneurship, resulting in large-scale job creation, (is) the only viable mechanism for eradicating poverty in societies."

"I believe that we have all at some time eaten the fruit from trees that we did not plant. In the fullness of time, when it is our turn to give, it behooves us in turn to plant gardens that we may never eat the fruit of, which will largely benefit generations to come. I believe this is our sacred responsibility, one that I hope you will shoulder in time."




Wednesday, July 23, 2008

China vs India: Which stock market is better?

For all of 2006 and till October 2007, the Chinese stock markets were on a roll. From a paltry 1,220 in December 2005, the Shanghai Composite Index multiplied 4.27 times to 6,429 by October, registering one of the most rapid rises in stock markets across the globe.

During the same period, the Dow appreciated by just 32 per cent, the FTSE by 20 per cent, the Nikkei by 8.5 per cent, Hang Seng by 114 per cent and Sensex by 115 per cent.

China is a nation of high savers. Their savings rate is known to be 40 per cent. In those 22 months, the Chinese poured their savings into the stock markets as if there was no tomorrow.

Brokerage accounts were opened at the rate of 2 lakh accounts per day. Even during the frenzy of the Reliance Power issue, the NSDL opened under 4 lakh accounts in the entire month of December 2007.

During the scorching rise, the benchmark index fell for just three months. The longest running bull phase was for 10 months from August 2006 to May 2007. The best phase that the Indian markets have had in the history since 1990 was for nine months during the Harshad Mehta-led rally, from July 1991 to March 1992.

Now the shoe is on the other foot. Shanghai is the worst performing stock market of the world in CY 2008. It has just replaced Vietnam at the top of the ladder among the worst performers with a 48.97 per cent fall.

Vietnam with 47.16 per cent comes second and our Sensex with a 35.17 per cent slide takes third place at the victory podium. From its rally peak of 6,429, the Chinese index is down 55 per cent.

But the Indian bourses are much better in many ways. There are just 893 companies listed on the Shanghai Stock Exchange, compared to 4,909 companies listed on the BSE and more than 2,500 stocks traded every day.

Indian markets by comparison are much more advanced compared to their Chinese counterparts, which are still planning to introduce index futures trading. In India, we not only have index futures but also index options, stock futures and stock options apart from several sectoral indices.

Though we are ahead in terms of regulation and capital market reforms, China is huge in terms of overall size. Even after seeing a deflation of 58 per cent from the highs, their market cap is $2.58 trillion, compared to ours at $0.96 trillion.

At the peak, their market cap was $4.75 trillion and ours was $1.89 trillion. In terms of market cap to GDP ratio we are better placed at 0.97; the Chinese are at 0.67. At the peak, we were at 1.96 and the Chinese at 1.38.

While listed Chinese companies are smaller in number, they are huge by Indian standards. The IPO of the Industrial and Commercial bank of China, which came in October 2006, was a mammoth at $21 billion and the largest the world had ever seen. The largest we have had in India was Reliance Power, which raised just $2.9 billion.

China is a real giant when it comes to consumption of commodities. It consumes 34 per cent of the world's steel, 29 per cent of zinc, 28 per cent of aluminium and 25 per cent of copper. It also produces 36 per cent of the world's steel, 32 per cent of zinc and 30 per cent of aluminium.

As a result, if China catches cold, the world sneezes. Earlier this month, when China closed down a few smelters to improve the quality of air in and around Beijing ahead of the Olympics, aluminium prices raced to an all-time high.

Foreign direct investment (FDI) is another area where China leads by a very wide margin. China has received $500 billion of FDI since 2000. India, by comparison, has got just $15.8 billion since 1991.

Till now, China was considered the world's workshop and India, the software lab. But the appreciation of the Renminbi by 21 per cent since October last has suddenly made Indian capital goods competitive. There was never an issue of quality with India. India could soon attract FDI in the sector. Hopefully, things will change for the better for India as the Dragon breathes a little easy.

Friday, July 4, 2008

Taxi + drive = smooth ride

Down a bustling hallway, across a call-centre and rows of busy executives, Neeraj Gupta, MD of Meru Cabs, paces restlessly. It's almost 4 pm, and he hasn't come up with a new idea all day "Every day, I need to come up with one new idea to help further the business," he said, as the turquoise blue of his firm's Maruti Esteem taxis seeped into his cabin's large bay windows. "It gives me sleepless nights if I don't manage to."

Idea
One thousand taxi drivers and a customer base of 30,000 passengers across the city are sure glad he came up the idea for a 24x7 call-taxi service in January 2007. An idea he got from Singapore's nearly 25,000-strong round-the-clock, on-call taxi service, which bowled him over.

Business
In July 2006, six months before he started up, the state government had announced it would grant licences to anyone who wanted to operate private taxi fleets.

His timing was perfect. Gupta set about creating his business plan. The 300 per cent growth of Gupta's four-year-old private fleet service V Links - from one bus to 13,000 vehicles - was testament to the fact Gupta was no Johnny-come-lately.

Over six months, he sat with global consulting firm Accenture's executives and convinced private equity firm India Value Fund to invest Rs 10 crore in the venture. He made three trips to Singapore to study its taxi system and finally sourced a state-of-the-art mobile communication device system - a mapping device to track the exact location of the taxi - from Australia at Rs 10 crore for 1,600 vehicles. His project was ready to roll.

"We carried out a survey on the passenger transport market and felt that Neeraj's concept had huge potential," said Prateek Roongta, vice president of the fund. "He had four solid years of experience in running a private fleet service - the perfect platform to securely invest in."

But manpower sourcing turned out to be a lot more difficult than Gupta had expected. The government had stopped issuing fresh permits to new drivers in 1997. "So we had to convince the existing black-and-yellow drivers to join us," said Gupta. "But the fear of losing their freedom to a corporate set-up with fixed works hours held most of them back."

But all it took was convincing the first batch of five to sign up in July 2007. "We told them that they were free to take as many street pick-ups as they wanted when they were not on call, as long as they submitted Rs 600 to the company daily," explained Sajid Rane, senior manager, operations at Meru cabs. "What they earned beyond this was theirs as the company managed maintenance and vehicular insurance."

The first batch of recruits then convinced their peers to make the switch. Within four months, the company had 1,000 drivers on its payroll. Mohammed Sheikh was one of them. He cannot believe how much his life has changed over the past nine months.

He is glad he took fleet service Meru Cabs up on its offer to Mumbai's taxi drivers: Trade your black-and-yellow taxi for an air-conditioned Maruti Esteem, wear a smart ochre and chocolate brown uniform and double your income.

It was a challenge when he changed over. The rattletrap had been the 32-year-old breadwinner's sole source of livelihood for two-and-a-half years, and helped him buy a one-room home in Mumbai. "But I don't regret my decision," said Sheikh of his giving up the familiar. "I now earn almost double what I did before, and my passengers treat me respectfully. I enjoy going to work everyday."

As Sheikh talks about the gifts he bought his family a month ago, ten clean shaven, uniformed men seated in the company's plush meeting room nod in unison to his testimony. Their lives changed too after they took a risk and changed course.

"As a Cool Cab driver, I would spend hours unengaged by the side of the road and make half the money I do today," said another Meru driver, whose earnings have even peaked to Rs 10,000 to Rs 12,000 a day over the last six months. "The permission to take both street pick-ups and phone appointments keeps me busy all day."

Success

Meru's drivers are not the only ones to praise Gupta's business plan. Smita Shrivastava, a corporate communications manager at Mastek India, uses only Meru cabs to ferry her to the airport for business trips. "I can be assured of a pick-up even if I make a call to Meru 10 minutes before I leave," she said. "The drivers are very polite and hand over a printed bill at the end of the journey. You feel safe knowing you are not being taken for a ride."

That's because Gupta's blueprint ensures that the entire service works with clockwork precision. A call on the helpline sets off a flashing red dot on a digital map stored in the call centre executive's computer. That helps him or her locate the caller's location and the number of engaged and free drivers in the vicinity.

The executive then sends a message with the caller's address to the closest free vehicle through the communication system. The address flashes across a digital screen inside the vehicle.

"I've timed the entire process," said Gupta, pointing to tiny maps with red and green dots across the call centre. "If executed perfectly, it shouldn't take more than two minutes. I've invested in GPS (global positioning system) and MCD (mobile communication device) because you will never be able to grow beyond a fleet of 200 without the right technology."

It's this eye for detail that is evident in Gupta's choice of drivers as well. Each of the 1,000 drivers has been picked after three rounds of scrutiny - a personal interview, a psychometric test and a five-day training programme at the Meru Academy, the small training division.

In fact, he picks just one percent of the 1,000 applications he receives every month. "One of the major complaints that customers had with the black-and-yellow cabs was bad driver behaviour," Gupta said. "We have to ensure that our drivers speak courteously, dress neatly and are on their best behaviour while on duty."

Erring drivers are counselled and put through monthly etiquette refresher courses.

Future

Gupta displays a similar perfectionism when chalking out his expansion plans. With his fleet of 500 having made a statement across Mumbai, Gupta is in the process of expanding to a fleet of 400 in Hyderabad, 250 in Delhi and 350 in Bangalore. And Roongta of private equity firm India Value Fund, which invested in Meru, said Gupta is bang on course. "Over the last year alone, Meru's services have grown so rapidly," he said. "Like all evolving economies, different transport formats will eventually co-exist, posing no threat to the other."

Gupta also has a team that is in charge of thoroughly researching the potential market in Chennai, Ahmedabad and Pune, with the aim of permeating every major metro by March 2009. "We're not even considering Kolkata, which already has a well-established private cab network," Gupta said. "But I am determined to have 5,000 Meru Cabs plying across the country by December. When your business plan is well thought-out, nothing can stop you from expanding."

Thursday, July 3, 2008

Ten mistakes equity investors generally make

1. Guided by greed

Many investors have been losing money in stock markets owing to their inability to control greed and fear. The lure of quick wealth is difficult to resist, particularly in a bull market. Greed augments when investors hear stories of fabulous returns being made in the stock market in a short period of time and, thus, lose their hard-earned money in many cases.

2. Following herd mentality

Following herd mentality is another reason for the investors’ losses. “It has been witnessed that the typical buyer’s decision is heavily influenced by the actions of his acquaintances, neighbours or relatives. So, if everybody around is investing in a particular stock, the tendency for potential investors is to do the same. But this strategy may backfire in the long run,” says Ashish Kapur, CEO, Invest Shoppe India Ltd

3. Resorting to speculation

Investors also face losses because they speculate and buy shares of unknown companies. They should, therefore, avoid relying on random tips and go for long-term gains only.

4. Lack of research

Proper research should be undertaken before investing in stocks. But this is rarely done. Investors generally go by the name of a company or the industry they belong to. But this is not the right way of putting one’s money into the stock market. “Therefore, if one doesn’t have time or temperament for studying the markets, one should always take the help of a suitable financial advisor,” says Kapur.

5. Creating leveraged positions

Many investors suffer from creating heavy positions in the futures segment without really understanding the risks involved. Instead of creating wealth, however, these investors burn their fingers very badly in case the sentiment in the market reverses.

6. Panic selling

In a bear market, investors panic and sell their shares at rock bottom prices. Trading on the bourses was suspended on May 17, 2004, May 18, 2006 and recently on January 22, 2008. Investors who had taken speculative positions lost heavily when blood was on the street. Even investors who had the capacity to hold on to their investments, lost faith in the markets and sold their investments in a hurry, thus incurring heavy losses.

7. Timing the market

Many investors try to time the market. But this has not proven to be a great strategy. Historically, in fact, it has been witnessed that even great bull runs have shown bouts of panic moments. The volatility witnessed in the markets has inevitably made investors lose money despite the great bull run. Therefore, only prudent investors who put in money systematically, in the right shares and hold on to their investments patiently, have made outstanding returns. So it’s not ‘timing the market’, but ‘time in the market’ which creates wealth. Hence, it is prudent to have patience and always keep a long-term broad picture in mind.

8. Putting all eggs in one basket

Another mistake which investors generally make is non-diversification of their portfolio. They generally put all their money in limited and favourite stocks which are in momentum. So, investors should diversify their portfolio across industries and size of the companies. Also, it is important to diversify across asset classes – equities, real estate, bonds, commodities, cash etc.


9. Avoiding financial planning

Investors also do not apply financial planning practices in their investment approach. They should follow an asset allocation model and invest only in long-term funds in the equity markets. They should also keep rebalancing their overall portfolio from time to time to keep their exposure to equity markets at the desired ratio of the total portfolio.

10. No monitoring of portfolio

We are living in a global village. Any important event happening in any part of the world has an impact on our financial markets. Hence, we need to constantly monitor our portfolio and keep affecting the desired changes in it. If one can’t review one’s portfolio due to time-constraint or lack of knowledge, they should take the help of a financial advisor.


Tuesday, July 1, 2008

Pilgrims deserve better

It is distressing and alarming that communal tension is rising over the decision of the Jammu and Kashmir state government to transfer a little less than 40 hectares of land to the Sri Amarnathji Shrine Board to enable the latter to provide accommodation facilities to the thousands of Hindu pilgrims who visit the Amarnath shrine every summer. One cannot expect separatist and militant outfits in Jammu and Kashmir to make a sober and mature appraisal of the larger issues at stake. It is the attitude of mainstream political parties that is most disappointing and worrying.

The specious grounds for the the Peoples Democratic Party's objections are that the implementation of the decision of the state government would change the "eco-cultural character" of the state. What is the nature of this eco-cultural character of Jammu and Kashmir that is so fragile that it cannot survive the transfer of a small tract of land? Does the Kashmir valley have only a "Muslim" character? What happened to the much-touted Kashmiriyat? Or is that a politically correct platitude that has become an inconvenience to be ignored now that most of the Kashmiri Pandits have been hounded out of their homes in the Valley to Jammu, Delhi and elsewhere in India? Kashmiri politicians owe it to the rest of India to clarify their position on this issue.

To my mind, whether or not the land in question should be transferred to the SASB is only a technical question, not the heart of the issue. The more important thing is whether the state government feels that it has an obligation to improve the facilities that would make the pilgrimage of thousands of Hindu devotees more secure and more comfortable. For centuries pilgrims have been making the arduous trip to Amarnath cave without the benefit of any facilitation by the state. They relied on the local people for food, accommodation and other facilities. They lived in tents. But a caring State in independent India can and should do more.

It would be instructive to see what the Government of India does for Haj pilgrims visiting Mecca and Medina. The government is, in the words of External Affairs Minister Pranab Mukherjee, "committed to ensure that the best possible arrangements are put in place for the comfort and well-being of Indian pilgrims to facilitate their sacred pilgrimage." The "welfare and well-being of Haj pilgrims," he says, "is always a matter of utmost concern to the government."

In keeping with these public policy statements, the Government of India makes elaborate arrangements for the welfare of Haj pilgrims and strives to improve the facilities provided to them every year. That is how it should be. The Government of India, and the ministry of external affairs in particular, deserves credit for providing perhaps the best arrangements that any government makes for their Haj pilgrims.

And what exactly does the Government of India do? For starters, it provides an airfare subsidy to about 100,000 pilgrims selected by the Haj Committee of India who go for Haj annually. Pilgrims pay only Rs 12,000 for their air travel. This figure has remained unchanged for at least a decade or more.

According to official figures, this subsidy was Rs 280 crores in 2006, or about Rs 28,000 per pilgrim. Today, with rising fuel prices, this figure would have gone up to Rs 350-400 crores. Although there is a 2006 Allahabad high court judgment ruling against this subsidy, it continues to be given because the government got the Supreme Court to pass a stay order.

Add to this the losses suffered by Air India, and the inconvenience to passengers because its planes are diverted to carry Haj pilgrims. For the convenience of pilgrims, charter flights are operated directly from 16 airports in India to Saudi Arabia. Returning pilgrims can transport 10 litres of holy Zam Zam water with them free of cost. At Delhi airport there is a separate Haj terminal. To improve the comfort of pilgrims, Air India has been advised to use wide-body jets in future for their Haj flights.

Great attention and care to Haj matters is given at the highest levels of government. The United Progressive Alliance government has successfully lobbied with the Saudi government to increase the quota for pilgrims from India, as a result of which the annual quota has increased by 38,000 over the last four years. It will go up by a further 3,000 or so this year because of the exertions of External Affairs Minister Pranab Mukherjee during his visit to Saudi Arabia in April this year.

There is a separate Haj cell in the ministry of external affairs. The Haj Committee of India has its own premises in Mumbai. Similarly the State Haj Committees have their own premises in various other Indian cities. These facilities have been built on land provided by the state governments.

Very high priority is given to Haj matters in the mandate given by the government to both the Indian ambassador in Riyadh and the Indian consul general in Jeddah. Every government in Delhi has ensured that only Muslims are appointed to these posts, a practical decision intended to facilitate their travel to Mecca and Medina, where non-Muslims are not allowed. There is also a separate consul for Haj matters in the Indian consulate general in Jeddah.

Accommodation in Mecca and Medina is decided keeping in mind the need to provide maximum convenience and comfort to the pilgrims. Typically, all accommodation has lifts, telephones, running water, electricity and telephone at the minimum. There is total computerisation of pilgrim location and movement. During Haj, a large contingent of seasonal local staff, supervisors, data entry operators, as well as drivers and messengers (whose job is to round up and bring home safely elderly pilgrims who may have got lost) is appointed by the consulate general of India, Jeddah, during the Haj period.

For Haj 2007, a contingent of 115 doctors (including 63 specialists with post-graduate degrees) and 141 nurses and other para-medical staff, 3 coordinators, 46 assistant Haj officers, 165 Haj assistants and 186 Khadimul Hujjaj were sent from India on short-term deputation to Saudi Arabia. Special attention is given to medical facilities for the pilgrims.

Some of the facilities provided by the government are: arrangements for polio, meningitis and influenza vaccinations for pilgrims before departure; a 75-bed hospital and 12 branch offices-cum-dispensaries in Mecca; a 15-bed hospital and 6 branch offices-cum-dispensaries in Medina; three medical teams at Jeddah airport to provide medical care round the clock to Haj pilgrims; 17 ambulances in Mecca and Medina; supply of medicines, medical supplies and critical medical equipment from India. All this adds up to the total money spent by the government to facilitate a hassle-free Haj pilgrimage each year for tens of thousands of Muslims from India.

Perhaps our self-righteous and petty Kashmiri politicians in India's only Muslim-majority state should reflect over these facts and tell us whether they think it is at least their moral if not political obligation to be more caring and sensitive to Hindu pilgrims visiting Amarnath. If we can do so much for Indians going on a pilgrimage abroad, should we not be able to do as much if not better for pilgrims at home?

For a start, should not the Jammu and Kashmir government at least try to match the facilities given to pilgrims to Vaishno Devi shrine, which is located in the same state? And is it too much to expect our politicians and other "secular" leaders to be a bit more courageous and vocal in trying to knock some sense into the heads of shortsighted and irresponsible Kashmiri politicians?

As those in power, both in Delhi and Srinagar, ponder over this matter, the litmus test has to be whether the decision finally taken adds to the comfort and convenience of the pilgrims.


Indian citizens and taxpayers deserve honest answers to the questions posed above.