Economy

My view that a slowdown in the US would actually benefit the Indian outsourcing market has been endorsed by Mr. Narayanamurthy. A report by Standard & Poor also states that India & Korea will not be affected by the slowdown.

Yesterday, the RBI decided to leave a status quo on interest rates despite expectations of a 25 basis points cut. RBI expects the banks to lower the rates themselves rather than wait for RBI to do it.

Another of my view about ever increasing salaries seems to be coming true. TCS has decided to reduce its staff salaries. They have made an across the board reduction in variable pay linked to company performance of 1.5%. It is against economics to see everincreasing salaries in India. At some stage we are bound to lose the competitiveness.

The resurgence

After the mayhem came the resurgence of the market. The market covered a lot of the losses it had made, though overall the week closed in the negative. This week also we expect the market to be volatile. The RBI rate decision would be closely followed. The market is expected to be in a range over a few weeks. The budget could be the major cue to set the direction of the markets.

Mayhem II

If day before it was mayhem, yesterday was mayhem continued. The crash was due to a combination of FII pull out and the unwinding of leveraged positions. The crash has given a great opportunity for value pickers. Since it was not a few stocks that had crashed, but almost all the stocks were down, it was much easier to cash in if you had the cash.

The US Fed concerned by the signs of recession came up with a higher than expected and unscheduled rate cut of 75 basis points. This was definitely a tonic for the Indian markets which are up and going. Today the sensex ended higher about 900 points. The rally could continue tomorrow. But the question is till when?

Mayhem

Yesterday the stock markets crashed like there was no bottom. though there were many expecting a correction in the markets, the speed and extent of the crash has taken everyone by surprise. If you thought there was any chance of a bounce back today, the chance is minimal. The Asian stock markets are all in the red today as well and we can expect the same in India. I feel that this crash is providing a good opportunity to buy value stocks.

Bull phase is over?

Last week saw a big slide in the Indian market. Everybody now thinks the markets could slide till some positive news comes. In my view markets most of the times see a rise during the period November to January. It seems to me an end to this rally. Also a large amount has gone into the Reliance power IPO.

IPO

As we see the listing of the largest IPO till date, Reliance Power, we have the news of BSNL planning a larger IPO soon. BSNL plans a $10bn IPO. However, the large size IPOs should not be surprising considering the market capitalisations of the Indian stocks which are record highs. It is but natural for the IPOs to set new records.

I also read about the presence of many pension funds on the Indian market. Indian pension fund money is yet to enter the Indian stock market, however many public and private pension funds from the US (including Microsoft) have registered with SEBI. Pension fund money can be expected to be long term unless we have a crisis. Soon we should have the part of Indian pension funds managed by UTI and SBI entering the stock market. This should only help to improve valuations.

Interest rates

There have been indications from the US that large interest rate reduction is on the anvil to avoid (or reduce the effect of) recession due to the sub-prime crisis. In India, the bankers seem to suggest that if the macroeconomic policies are left intact, i.e.the CRR or lending rates are not raised, then there is a case of the banks to reduce the rates. A reduction in interest rates would be a boost for the markets. I think particularly, demand for housing loans will again see a rise, bringing along an increase in real estate.

Innovation

All the buzz around is about Nano, the revolutionary small car from Tata Motors. Indeed, I endorse that Nano will bring about a huge change in the car market. The number of cars on the road is set to rise sharply. I think the low end cars from Maruti Suzuki will take a hit. The luxury cars would not be affected, but the entry level car will be Nano. It will be a sign of the rich poor divide which is becoming increasingly evident.

Another, large evidence from the Nano launch is the capability of India in manufacturing innovation. The team has accomplished something which has been dismissed by almost everyone as impossible. They have shown that it is infact I M possible.

IPO

The year 2007 was very good for IPOs. Lot of companies came up with IPOs and had good success with the issues doing very well. Most of the IPOs belonged to the real estate and financial firms. DLF set the record for the largest IPO. There are a lot of IPOs lined up for 2008 as well. The major ones in the queue are Future Capital and Reliance Power. Reliance Power is set to break the record set by DLF. I am sure it will also be a very successful issue. The Reliance IPO would have a special discounted price for retail investors. Despite the size of the issue, it is to be seen how much the retail investors finally get. Retail investors usually end up with only 2 to 3% of the market cap.

I had thought I would publish something on a daily basis... however at the beginning itself I have had a gap of 5 days..

Never mind, I will try to improve. Improvement is something we need to do on every front.

Having worked throughout my career on the operations side, I have hardly been exposed to the outside world, except for colleagues. Now, when I am keen to develop the business for my company, I need to improve my communication skills. I am quite focussed on this aspect of improvement.

Happy New Year!

Happy New Year!

As we hope of a very bright future for India in the new year and beyond, we are being warned of some challenges ahead.

First and foremost the Subprime meltdown in the US which is dragging the US into a recession (mild or severe is what the debate is about). The bright side to this is that the US corporations would like to cut down on costs and this would mean higher outsourcing to India.

Second, the Rupee appreciation. I feel the Indian industry would learn to cope with the Indian Rupee appreciation. What came in 2007 was an unexpected large move. In future I think it will be more of a steady appreciation.

Third, the shortage of skilled people to fill up the jobs. This is a current problem, which has caused huge increases in compensation at all levels. This cannot go on forever. I think that major reforms to the Education system like allowing entry of foreign institutions to train the Indian population would take care of this issue. The compensation levels cannot go up forever and would flatten out or increase at reasonable pace as we lose the competitive edge.

All the best for a wonderful 2008!