IIPM NEW-DELHI

Wednesday, October 15, 2008

Grilling times ahead

Olmert's exit complicates Israel's political scenario
There are two pictures of outgoing Israeli PM, Ehud Olmert,

which are imprinted on the minds of every politically active Israeli. The first was a poster displaying the faces of two Israeli soldiers, captured by Hezbollah fighters during the Israel’s disastrous campaign of Lebanon in 2006; with Olmert proclaiming, “Thy children shall come again to their own border” in somewhat prophetic gesture. The second is a front page photo on Jerusalem Post with a visibly ashen Olmert puffing a cigar after the first round of interrogations related to graft charges. In a way, these pictures sum up his turbulent career too. Therefore, in the last few months, the incidence of an abortive end to his career was not a question of ‘if’ but ‘when’. Noted political expert from Israel, Gideon Doron told B&E, “For him, it was getting difficult to dispense his duties. Even if the graft charges are baseless, he’ll have to fight it out till eternity. You simply can't rule after you lose your base of legitimacy.”

A shameful defeat by Hezbollah coupled with a tactical loss in Gaza have not only hurt Olmert's image but that of his Centrist Kadima Party too, which was started by Ariel Sharon as a rag-tag group of leftists and rightists. The then defence minister and the chief of staff had to make an unceremonious exit. But Olmert managed to hang on a bit longer; in the process further denting the party's image. Who leads the party next is the key question now. Tzipi Livni, the dovish Foreign Minister, presently leads the race but she is closely followed by Shaul Mofaz—a hawkish Sephardic migrant Jew from Iran. However, all the polls pitting them against Benjamin Netanyahu, the Likud leader, show them trailing miserably. On the other hand, the Arabs are feeling the jitters from this scenario. As an Arab analyst puts it; with Shaul Mofaz there is a good chance for war, but with Tzipi, there isn't much chance of development in either direction; i.e. war or peace. Either way, there is nothing much for them to look forward to!

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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Tuesday, October 14, 2008

Pill-ion riders

Pharma lobby in Pakistan dunks
“Why don’t Pakistanis ever get a headache? Because Disprin, the top

selling Indian drug, is banned in that country!” Uh, alright, that was a bad joke. But seriously, recently Pakistan banned a proposal for importing 400 medicine brands from India as Indian drugs are 10 times cheaper than those manufactured in Pakistan by the same MNCs. Local entrepreneurs assert that the suggested imports would threaten the employments of over one million people, spoil annual exports worth more than $120 million and compromise the availability of medicines during emergencies.

But almost all the above reasons [save the employment spin] seem more confabulated than Zorro’s mask. After G. K. Pillai, Indian Commerce Secretary (left, above) met S. A. Shah, Pakistan Commerce Secretary, last year, the true reasons became clear. The pharma industry in Pakistan (worth Indian Rs. 83 billion) involves the business interests of major political parties of the country; subsequently, the big pharma players have the ability to apply extensive pressure on the national political and economic scenario. So should India ban Pakistani medicines in return? Pakistani medicines?!? What’s a Pakistani medicine?!?!

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

Monday, October 13, 2008

Why do stock markets rally on bad news?

The US stock market has held up well so far and will continue do so in 2008 As a result of the belief that the “worst is behind us”, and for

other reasons I shall explain below, market participants have remained, while not exuberantly bullish, so at least complacent and optimistic about an economic and corporate profit recovery in the second half of the year and in 2009. According to a recent survey by Barron’s, institutional investors are heavily leaning toward the positive side. 50% of the respondents were either “very bullish” (7%) or “bullish” (43%) about the US stock market whereas only 12% of respondents were “bearish” (nobody was “very bearish”).

There were another two interesting aspects regarding the “Spring 2008 Big Money Poll Results.” Institutional investors tended to be positive about equities (87% of respondents indicated they would be buyers of equities in the next three to six months), very positive about the US dollar and “very bearish” about US Treasuries, and “bearish” about real estate, gold, and oil. Moreover, institutional investors’ favourite industries over the next six to 12 months were “Financial” and “Technology”.

To some extend I can understand why US institutions are positive about US equities and the dollar, and bearish about treasuries. Because of the US dollar’s steep decline since 2001 US equities are in Euro terms still 50% below the peak in 1999 (in Euro terms). So, in Euro terms, US equities are relatively inexpensive. In addition, because US equities sold off less than foreign markets since October 2007 they have begun to out-perform foreign markets.

Then, as Walter Bagehot (who edited the Economist for 17 years) already remarked in the 19th century, “John Bull can stand many things, but he cannot stand 2%.” So, I have some sympathy with the positive stance of institutional investors. However, I find it difficult to reconcile financial institutions very negative stance toward Treasuries (only 3.6% of respondents were bullish versus 62.2% who were bearish) and at the same time their positive stance toward the economy and equities. The reason I think there is an inconsistency here is that if interest rates increase (Treasuries decline in value) the highly leveraged consumer and with him the entire economy are unlikely to recover.

Aside from artificially low interest rates on US short dated Treasuries, excessive optimism regarding an economic and profit recovery in the second half of 2008 and in 2009, and dollar weakness, there are two more reasons why US equities have held up well in face of deteriorating economic news. “Extraordinary monetary measures” by the Fed, which drove real short-term interest rates into negative territory, have propelled commodity prices higher (especially energy and agricultural commodities) and boosted the shares of energy, industrial and material stocks, which make up 14%, 12% and 4% of the S&P weight respectively, far above their previous highs in 2007.

In addition, since households have to spend an increasing portion of their income on non-discretionary items (which include necessities such as food and energy), consumer staple companies, which make up 11% of the S&P 500, have also been strong.

Considering all the above mentioned factors, I hope our readers will understand why US stocks have held up so well – at least so far.

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

Saturday, October 11, 2008

South Africa...

...a tourist spot. Not much more for Bharti!
“Sour grapes!” Just a few days back, the mobile behemoth had

bid for a 51% stake in South Africa’s largest telecom player, MTN at $21.7/share, implying a fair price of $20.7 billion (and a premium of 20% higher to MTN’s shareholders). A $50 billion dream-deal (in-principle a Bharti-controlled structure as decided on May 26, 2008) was in the making. Two weeks later, the dream has literally become “sour grapes”! Surely, Bharti has done more than just read BCG’s July 2007 report that proved “how M&As valued beyond $1 million destroy twice as much value”! So, what’s there in the secret cellar that urged Bharti to back out?

The primary reason – lack of synergies. As a spokesperson from the company justifies, the collapse of the deal was because “this convoluted way of getting an indirect control of the combine would have been just a compromise for minority shareholders of Bharti. Moreover the synergies were not real!” It was also about the price here, which didn’t afterall appear ‘fair’! In order to seal the deal, the company had to procure ‘internal’ funds and leverage its balance sheet to a mind-boggling $40-45 billion – huge for a grossly overleveraged company (which has a debt/equity ratio of a dangerous 43.2!). Finally, with Singtel refusing to pay-up $10 billion, Bharti had no means to make procurement of funds a safe bait.

Therefore, the deal falling flat means Bharti still has ‘young’ international intentions left. As Santana Krishnan, Analyst, Spark Capital opines, “With the deal failing, its balance sheet looks good. But Bharti may soon roll out their operations in other emerging markets.” On news of the same, Bharti’s share price on BSE rose by 3.1% to touch Rs.890.95 (after a fall of 10% since the deal was announced); surely a good omen!

But there’s more to the war left. Post Bharti’s exit, speculations are rife that the $42 billion-worth RCom Ltd. is readying itself to make a $20 billion bid for the African elephant. Whoever gets MTN, one thing’s for sure – South Africa has a telecom CAGR of 22.5% and a high penetration of 70%; a sure inferior investment compared to India (CAGR of 60% & 22% penetration)?! Wonder what’s the logic in risking billions in sour grapes; or do they make better wine?!

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

Friday, October 10, 2008

CONSERVATION EQUATIONS

Even as five animals are felled by poachers in a span of a few weeks, forest officials in Assam are positive that the Rhinoceros Unicornis population can be saved!
If there can be anything that can, even momentarily, diminish the

anguish that can be caused by an image of a dying rhino, its horn hacked off, it is perhaps the reassuring words of a man called MC Malakar, the chief conservator of forests (wildlife), Assam. Hounded by the public and Press alike, he has decided to go on the offensive. “What makes you even think that the gene pool of rhinos in Assam may be unsafe?” he shoots back, even before one can finish a question on whether the rhino is safe, given the department’s efforts to take it to the 3,000 mark by the year 2020, as stated in the Indian Rhino Vision 2020 plan. The tirade continues: “At a meeting recently, the All Assam Students’ Union (AASU) demanded that I agree that we had failed in protecting the rhino. Why should I? Hasn’t the population of rhinos gone to over 2,000 at Kaziranga from a few dozens at the turn of the 19th century?”

According to an analogy that Malakar provides, “It is like trying to keep out all the mosquitoes using a mosquito net. No matter how hard you try, one or two will get in. It is simply not possible for us to put one guard behind every rhino there is in the state”. In terms of the threat to the Rhinoceros Unicornis, the “one or two”, incidentally, translates to a swarm of well-armed, well trained poachers who have brought down over 26 of these pachyderms over the past 17 months alone in Assam.

And that, as expected, has people worried. “There are no rhinos in the Manas and Laokhowa sanctuaries,” says Saumyadeep Dutta, who heads Nature’s Beacon, which first sounded the alarm regarding the killing of rhinos in Kaziranga in 2007. “Then, of course, there are some NGOs,” says Dutta “that have interests with the forest department and thus keep supporting them.”

Malakar, though, refutes such allegations. “We are reintroducing rhinos in Manas after making sure there is adequate public involvement so that there are no security issues,” says Malakar. “As you know, the entire rhino population there was wiped out during the Bodo agitation of the ‘80s and ‘90s.” As for the Indian Rhino Vision (IRV), things are so far going as planned, he says: four female rhinos from Kaziranga and two males from the Pobitora sanctuary near Guwahati (both of which are now overpopulated with rhinos) have been released at Manas over the past few months. “I don’t think there is a problem of inbreeding among rhinos; however, this should help save the gene pool at the two sanctuaries,” says Malakar. Once Manas gets back its population of rhinos (the target for the relocation exercise is 30 to 40 animals), the plan would be to target the Laokhowa sanctuary near Nagaon which too is considered an original rhino habitat which was emptied of its animals. And the officials are banking on the fact that they have a surplus in both Kaziranga and Pobitora: apart from the 2,000 at the world heritage site, Pobitora has more than 90 individuals in a space of 16 sq km. As for the principle, it’s simple: spread them out to their original habitats and make it more difficult for poachers to get to them. Despite the poaching, the officials insist, poachers haven’t been able to keep pace. One only hopes the vision is a success. For the rhino, and us.

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative