BRIC nations doing better than projections: Purushothaman

The four emerging economies including India projected to outshine the rich nations over the next few decades are outdoing the projections made in the BRIC report, said Economist Roopa Purushothaman, who co-authored the report.

"The growth that has come out of the four countries -- Brazil, Russia, India and China (BRIC) -- over the last few years has been higher than what was projected. They are outdoing our projections," Purushothaman said.

The report called "Dreaming with BRIC -- The Path to 2050" was co-authored by Purushothaman along with other economists of Goldman Sachs four years ago where she was working before joining Kishore Biyani's Future Capital Holdings.

The report projected that the BRIC economies together could be larger than some of the richest countries today, in terms of US dollar by 2025 and they could account for half the size of G6 countries against 15 per cent at present.

India's economy could be larger than all but the US and China in 30 years, it stated.

Although the report tends to make projections which were futuristic in nature, there was one near-term projection that China could overtake Germany in four years that is by 2008 as the report was written in 2004. The projection has met with reality a good one year early.

Cyclically the last four years have been good for the BRIC economies, but the real test will come when they are in cyclical downturn and whether they do better than the G6 countries then, she observed.

"But even if two out of the four countries perform according to the projections, it will be considered as a huge success," Purushothaman added.
Source: ET

Double-digit growth sooner than expected...How?

If all goes well (read if the government does not mess up things any more than it already has and we have status quo on the geo-political front in the sub-continent) the Indian economy should be able to record double-digit growth much sooner than anticipated. The driving force will come, not from improved performance in agriculture or continued strength in the manufacturing and services sectors, but from a completely unexpected quarter – greater participation by women in the work force.

A recent study by Roopa Purushottaman et al of the Future Capital group using South Korea's experience as a guide to simulate India's growth path over the next decades, shows increased participation by women will add $ 35 billion to India's GDP over the next five years, raising per capita incomes 12% higher than projected by 2025.

The Korean experience is taken as a good model to try and capture the impact of greater women's participation for two reasons. One the original BRICs (Brazil, Russia, India and China) analysis of Goldman Sachs projects India's per capita income at roughly $ 17,000, similar to Korea's income levels today. Two, our consumption patterns look closer to Korea's than to any of the other developed markets.

Re-running the BRICS model assuming women's participation patterns in India will mirror Korea's during 1965-2005, India's long-term GDP growth gets a 0.3% per annum boost over current projections; a boost that could well see growth tip into double-digit much earlier than predicted.

Wishful thinking? Not really! As education and aspiration levels rise, societal values change, driven in part by the women themselves, and it becomes more and more acceptable for women to take up jobs outside the house, women's participation in the work force is likely to rise significantly. The opening years of this century have already seen a sharp increase, the first in decades, in the percentage of women workers as a proportion of working-age women. From 26% in 2000 the percentage has increased to 31% in 2005.

Some of this increase is, no doubt, due to monetisation of unpaid work done by women at home earlier for which they now have to employ maids, care-givers and so on. But even so, there is no doubt that as women seek employment outside the house they are likely to move to more productive, higher-paying jobs.

In this India will only be following the global pattern where a combination of lower fertility rates, economic growth and changing social dynamics has been associated with more women entering the workforce.

Lower fertility rates – our fertility rate or the average number of children per women has fallen from 4.5 in 1980-85 to 3.1 in 2000-05 and is slated to go down to less than 2 by 2025 - along with later age of marriage – average age of marriage is now close to 20 years as against 17 in 1971 - reduces the opportunity cost of work. At the same time economic growth provides increased employment opportunities and more open social attitudes towards women lower the obstacles to their entry into the labour force.

The signs are already there. Between 1980 and 2002 the number of university women per 100 men studying for commerce-related degrees nearly quadrupled from just 16 to 63. For engineering and technical degrees, the ratio grew from 8 to 33. In many developed countries women's participation rates in the key working-age group range between 50 and 80%; in India the figure is less than 30%. The impact of a catch-up will be huge. Not only in terms of overall demand – monthly expenditure by working women is significantly higher across a range of household spending categories - but also in terms of shifts in demand.

As women gain a larger say in deciding family budgets, expenditures patterns will reflect their priorities much more than at present. A survey to assess future spending patterns suggests the biggest gainers are expected to be financial services, domestic services, educational services, personal care, packaged food, apparel, footwear and accessories, fuel and transport and leisure and entertainment.

The survey does not show health expenditure to be a big gainer. This is a bit surprising, given that women typically tend to place both health and education high on their agenda. What is clear, however, is that the 'future ain't what it used to be.

Indian Shipbuilding Sector

STRENGTHS:
- Locational Advantage
- Availability of technically qualified professionals, engineers and architects
- Skilled low cost labour

WEAKNESSES:
- Low designing capabilities
- Supporting infrastructure at nascent stage of development.

OPPURTUNITIES:
- Ageing global fleet and technological advancement creating replacement demand
- Policy rush on domestic infrastructure development
- Global exploration and production investment
- Growing foreign trade

THREATS:
- Withdrawal of export subsidy on ships
- Significant appreciation in rupee against competing countries in shipbuilding
- Decline in oil prices

Source: BS

Micro-finance: Reaching Consumers at the bottom of the pyramid

Suvarna,a frail,49-year old, grocery vendor in the village of Junnar in Maharashtra's Pune district is spoilt for choice in borrowing money, and the local moneylender is at the bottom of the pile in options.She is being offered Rs.15000 at a seemingly still steep, but less usurious, interest rate of 24% by the likes of SKS Microfinance and Share Microfin.

So far, Seven banks have managed to tap over 50 lakh customers across the country in this segment disbursing about Rs.3000 crore.But thats only a tiny percentage of the addressable market size of 6-7 crore potential customers capable of absorbing about Rs.40,000 crore, shows estimates by Micro=Credit Ratings International. It believes the 60 mn low-income households in India can consume credit worth Rs.8000 cr every year.

Banks are putting in place strategies - both plain vanilla and innovative - in order to achieve some aggressive targets.
ABN Amro Bank
Target: By 2009,10 lakh customers and portfolio of Rs.600 crore.
Key Innovations: Taking the perspective of venture capitalist rather than the lender. ABN Amro Foundation is incubating six-start up MFI's now, with plans to do another 50 MFI's start-ups in 3 yrs.

DCB
Target: Portfolio of Rs.500 cr in 18-24 months.
Key Innovations: Set up a dedicated MFI branch in Bharuch (Gujarat).Plans to use this as a hub to reach 1000 villages.

HDFC Bank
Target: To grow at 100% CAGR over the next 3 yrs.
Key Innovations: Opened a dedicated Self-help groups (SHG) branch in Tamil Nadu,which has over 10,000 individual customers associated with SHGs.By March 2008, a dozen such dedicated branches, pan-India,is planned.

ICICI Bank
Target: N.A
Key Innovation: Floated amicro-finance factory to incubate,churn out and support newer MFI models and provide support to entrpreneurs. Setting up a fanchisee model for MFIs.

Yes Bank
Target: Customer base of 5-7.5 lakh and portfolio of Rs.300 crore by 2012.
Key Innovation: Has identified urban micro-finance as a niche. Plans to disburse loans directly through Yes Microfinance India.

Source: Outlook Business

How some of the Companies names are formed !

RARE Enterprise - RAkesh Jhunjunwala & REkha Jhunjhunwala
ENAM Securities - Nemish Shah & Manek Bhansali
Ess Dee Aluminuim - Sudip Dutta
Zicom Electronic Systems - The company was initially named ZeeCom since in those days Zee TV was very popular but later changed to Zicom since it resembled Zee.
Dabur - Back in 1884, when physician SK Burman started a firm to sell ayurvedic medicines, he named it Dabur,after combining Daktar (Devanagri rendition of doctor) and Burman.
Motorola - Founded in 1928, Motolrola was a pioneer in car radios.Its name was originally a combination of moto (for motor car) and ola (implying sound).
Voltas - Volkart Brothers and Tata Sons who started the company in 1954.

How to select a Mutual Fund

John C. Bogle writes in the book, "Bogle on Mutual Funds - New Perspectives for the Intelligent Investor" on how to invest in a mutual fund.Here are five points to keep in mind:

1)The immediate past performance of the mutual fund.In most cases, a fund should prove its merit over a period of at least five to ten years.” Chances are that a fund which has performed well for this period of time has seen various phases of the market and performed well across these various periods.

2)The fund manager who is managing the scheme. As Bogle writes “Find out whether the portfolio manager has run the fund for a few months, a few years, or a few decades, and give this information whatever weight you deem appropriate".

3)If the fund manager has changed recently for that Bogle’s advice is “when managers change, a wait-and-see policy is usually appropriate.”

4)Portfolio concentration. “It is not enough to know how many stocks a fund owns, because many of them may represent a small percentage of the net assets and have little impact on the fund’s overall performance. The better test is the proportion of total assets the fund holds in its largest positions. One good measure is to check the fund’s ten largest holdings. In the more concentrated funds, the ten largest holdings may comprise up to 50% of the portfolio; in the less concentrated funds, they may comprise as little as 15%. As a general rule, the greater the portfolio concentration, the greater is the opportunity for the fund to provide differentiated performance,”

5)The size of the mutual fund. Investing in schemes with very small assets under management (AUM) is not advisable, as Bogle writes “simply because of the relatively higher expenses associated with small funds.”
Source: DNA

Some facts you may not know about these Influential People!

Mukesh Ambani owns 168 imported cars.

Anil Ambani lost 37 kg after a shareholder raised questions about his health.

Deepak Parekh takes 9 steps backwards if a black cat crosses his path.

Praful Patel owns 20 luxury & vintage cars.

Jignesh Shah started FTIL with a capital of Rs.5 lakh by mortgaging his house.Didnt take a holiday for 10 years after starting FTIL.

Rakesh Jhunjunwala has watched 25 films on the 2nd World War.

Roopa Purushothaman's report "Is Urban Growth Good for Rural India?"

Future Capital Holdings chief economist Roopa Purushothaman and her team’s recent research shows urban and rural India are too intertwined to be treated as two different worlds and when India does well, so does Bharat.

“The question has been doing the rounds in corporate boardrooms and government. There are many in policy circles who believe urban and rural are two different economies and they need different measures,” says Purushothaman. The big message from the research is the two parts of India are really one. “Policy makers just need to let the economy pull itself,” she says.

There might be something to this because the rural economy is increasingly looking urban. It too has popped the services pill. While agriculture continues to remain the bulk of the economy, it is no longer as powerful. It is important to the extent that 73% of the rural population is still stuck in farm jobs.

Unfortunately, agriculture sector no longer creates wealth. There are more wealth and jobs being created in manufacturing, construction, restaurants, hotels and trade — chemists, for example — than in agriculture. The reason why it doesn’t appear as powerful is there are far less number of people to speak for the non-farm sector. Just 27% of the rural workforce is employed in non-farm jobs.

The one large change in rural economy is wage parity with urban centres in some sectors. People employed in trade and manufacturing now earn wages that are on a par with urban centres. There are sectors such as utilities, construction and transport where the rural areas still lag behind, but the improved performance in such sectors is also responsible for closing the gap between the spending power of the two parts of the economy.

The research shows during 2000-05, the rural spending grew at 8% while urban India’s spending grew only 4%. In absolute terms, urban households spend twice the amount that a rural household does. “This will remain, but we are interested in what is changing at the margins, and there it is clear that rural India is growing much faster,” says Purushothaman.

The counter-intuitive bit is that those at the lower income levels in rural areas are closing the gap with their urban counterparts at a much faster rate. So, those in low-income groups in urban areas are facing a greater inequality than the same strata of people in rural areas. This is not surprising because little investment has been made in improving the quality of urban infrastructure.

“Our research shows that over the last 20 years, urbanisation has actually declined in the country. India clearly has a model different from China’s. China is building new urban centres while India is pushing production processes to rural areas,” she says. The rural rich are not faring that well when compared to the urban rich — for the time being.

The changes have largely been possible because the supply chain of goods and services is now spreading nationwide. Since urban headends of the supply chain are now taking more rupees of consumption, a little over a third of the rupees are ending up as income for the rural population

Who's afraid of Wal-Mart?

Historically, MNCs have had high profit margins arising from quasi-monopolies in technology and finance, and political influence translating into protectionism. In the US, trade unions fought for a bigger share of the surpluses, and obtained the highest wages in the world. In effect, MNCs and the trade unions shared monopoly profits garnered at consumer expense.

Wal-Mart has defied this model. Far from seeking high margins, it has relentlessly cut prices and kept profit margins so low that competitors give up. Its profit margin is just 3% of sales. Prices at Wal-Mart can be half or less than at major department stores. Wal-Mart quality is often poor, though that is improving.
So, unlike historical Numero Unos, Wal-Mart has risen by cutting instead of raising prices, by reducing instead of increasing profit margins, by catering to the masses rather than the well-heeled, and by using the cheapest rather than the most expensive workers. Pankaj Ghemawat of Harvard University estimates that Wal-Mart's lower prices benefit US consumers directly by $18 billion a year. Besides, Wal-Mart obliges rivals to cut prices. The net benefit, according to consulting firm Global Insight, is a whopping $263 billion. This dwarfs anti-poverty programmes. The greatest beneficiaries of Wal-Mart are the poor.

Wal-Mart aims at scale economies of every sort. By buying massively, it pays least to suppliers. It has massive stores with acres of parking space to accommodate hordes who drive in. This strategy needs cheap land, so Wal-Mart stores are typically in urban peripheries, small towns and rural areas. Petrol is cheap in the US, so Americans happily drive an hour or more to a Wal-Mart store 30-40 miles away.

Conditions are totally different abroad, so Wal-Mart has often failed in other countries. Ghemawat says that the further Wal-Mart goes from the US the worse is its performance. It shut down in Germany after losing hundreds of millions of dollars, and sold out in Korea too. It now accepts the need to adapt to local conditions, but adaptation erodes the power of its US model.

Land prices have skyrocketed in India, so a US-style superstore would have to be situated miles outside a big city. I simply cannot see well-heeled Indians driving for hours to a big store on the outskirts of Delhi or Mumbai. Unlike in the US, the poor and lower middle-class in India do not have cars or cheap petrol to facilitate long-distance shopping.

So, small shopkeepers will easily compete. They typically evade sales tax. Many pay low rents because of rent control. They are located close to consumers, and provide home delivery at no extra cost. Some even provide credit. Even if Wal-Mart is cheaper, many consumers will opt for the convenience of local shopkeepers.

To succeed in India, the Wal-Mart model needs major surgery. It can procure imported goods cheaper than anyone else. But its Indian partner, Bharti, knows the local market much better. On balance, Wal-Mart needs Bharti more than the other way round.

Given Wal-Mart's limitations, why is the CPM so opposed to its entry? The party says it is worried that small shopkeepers will suffer. Yet, it seems hilarious that a party sworn to protect the poor from the bourgeoisie should suddenly pose as a defender of the bourgeoisie, and oppose lower prices for the poor.

What's happening? Well, ideology obliges the CPM to oppose the biggest MNC. More important, the Left is outraged by the company's anti-union policies. To keep prices low, Wal-Mart seeks only non-unionised labour, and has closed stores rather than accept unions. Some critics claim that Wal-Mart pays less than the minimum wage. In fact, it pays around $10 per hour, fractionally less than the average for all US retailers. Critics think Wal-Mart should pay much more than small companies, and offer higher health and other benefits - that is what Numero Unos have done in the past. But Wal-Mart says it is dedicated to the philosophy of everyday low prices, and gives priority to the consumer over the worker.

In theory, the Left represents the poor. In practice, it represents the labour aristocracy - the big trade unions. These unions provide CPM with cadres that are invaluable for fighting elections. The poor do not provide any such assistance. So, the CPM will always favour unions over the poor. This explains why it is so outraged by Wal-Mart.

Note that Wal-Mart has been welcomed in China, where it has supplemented rather than supplanted small shopkeepers. In the coming year, Wal-Mart will set up 20 new stores and remodel 65 existing ones in China. In keeping with the need to adapt to local conditions, Wal-Mart has even accepted unionisation in China.

The lesson is clear. The CPM should welcome Wal-Mart into India. Once it is here, India's labour laws will oblige it to accept a trade union. The CPM should seek to control that union. What a communist victory that will be!
Source: Swaminathan S Anklesaria Aiyar column in Sunday Times of India

Of market experts and their predictions

It is tough to make predictions, especially about the future - Yogi Berra
One of the professional hazards of being a business journalist is trying to answer the question, “Where do you think the market is going?” My answer to this question always is: “If I knew, I wouldn’t be a journalist.”

But, everyone is not as lucky. Some of us have to try and answer this question day in and day out - among them, business news channels, journalists covering the stock market and so-called ‘stock market experts’. These are the people who present the stock market as a big event every day.

In the book, What Goes Up, The Uncensored History of Modern Wall Street, by Eric J Weiner, Tom Rogers, former president of NBC Cable, says, “At CNBC, what we intended to do was give people a sense that every day you had this huge event, the way a football game is a huge event on Sundays.”

And in their zeal to present everyday as a big event, the various business media experts have an explanation for every rally, every sell-off and everything else that happens in between.

But, it’s hardly the case that a particular rally or a particular sell-off happens because of what they serve. Mostly, explanations start pouring in after the market moves.

As John Allen Paulos points out in his book, A Mathematician Plays the Stock Market, “Because so much information is available - business pages, companies’ annual reports, earnings expectations, alleged scandals, online sites, and commentary - something insightful sounding can always be said.”

By having an explanation for everything, the business media and its experts end up oversimplifying things.And this leads to a lot of people, who do not have a good understanding of the stock market, thinking that they know more than they actually do and then investing in the stock market.

As Bill Griffeth, an anchor with CNBC, points out in What Goes Up, “My take is, and this is probably controversial and I don’t know if the people at CNBC would want me to say this, but there were lots of people watching us in the late nineties who had no business watching CNBC because they didn’t understand fully how the market works, or the companies they were investing in, or the investment process.”

The oversimplification at times magnifies the effect of stock market movements. As Nicholas Nassim Taleb points out in his book, Fooled By Randomness, “The market movements in the eighteen months after September 11, 2001, were far smaller than the ones that we faced in the eighteen months prior - but somehow, in the mind of investors, they were very volatile.
The discussions in the media of the “terrorist threats” magnified the effect of these market moves in the people’s heads. This is one of the many reasons that journalism may be the greatest plague we face today - as the world becomes more and more complicated and our minds are trained for more and more simplification.”

But, why should we be apprehensive of such experts and their analyses. As Taleb writes in The Black Swan, The Impact of the Highly Improbable, “Simply, things that move, and therefore require knowledge, do not usually have experts, while things that don’t move seem to have some experts.

In other words, professionals that deal with the future and base their studies on the non-repeatable past have an expert problem. I am not saying that no one who deals with the future provides any valuable information, but rather that those who provide no tangible added value are dealing with the future.”

Stock brokers, economists and financial forecasters fall in the list of experts who have to deal with future and base their decisions on a non-repeatable past.

“You can watch these economists talk, theorising eloquently and convincingly. Most of them earn seven figures and they rank as stars, with team of researchers crunching numbers and projections. But the stars are foolish enough to publish their projected numbers, right there, for posterity to observe and assess their degree of competence,” writes Taleb.
The problem with experts is that they do not know what they do not know. Lack of knowledge and delusion about the quality of your knowledge come together - the same process that makes you know less also makes you satisfied with your knowledge,” writes Taleb.

Experts keep getting it wrong and the public still keep buying their logic. As Taleb points out, “Many financial institutions produce booklets every year-end called “Outlook for 200X,” reading into the following year.

Of course they do not check how their previous forecasts fared after they were formulated. The public might have been even more foolish in buying arguments” So what is the way out of this situation? A simple solution obviously is not to follow the stock markets on a day-to-day basis.

“The more detailed knowledge one gets of empirical reality, the more one will see the noise (i.e. the anecdote) and mistake it for actual information. Remember that we are swayed by the sensational. Listening to the news on the radio every hour is far worse for you than reading a weekly magazine, because the longer interval allows information to be filtered a bit,” writes Taleb.
Source: DNA