Monday, April 13, 2009

Indian Premier League
From Saturday the 18th starts the 2nd edition of the “entertainment jamboree” called IPL 2.0. It is not just cricket, it’s Cricket ++; cricket packaged with several layers of entertainment. It won’t be wrong to call it a Reality Show televised on prime-time. Cheerleaders, dug-outs, strategy breaks, slap-gate and a few emotional moments are all equally important if not more important than the game itself. I’m sure it would make W.G Grace turn in his grave.

I too was a firm critic of the T-20 format until sometime back. Infact last year I wasn’t even following it during the first month. It was only when the Royals started upsetting one team after another did I actually start getting hooked onto it. (The triumph of the underdog somehow has this ability to galvanize the entire nation). The debate of the purists has been that IPL is the final death knell on the already dying game on test cricket and the magnet called IPL with all its lucre would pull the gen-next cricketers away from test cricket and towards it. Rahul Dravid might have grown up practicing the art of leaving the cricket ball but be rest assured tomorrows cricketers would prefer investing that time in perfecting the art of “switch-hitting” instead.
I was wondering if all this is good or bad for the game? My sense is that it is good, purely from the point of view of getting newer audiences to the game. Take the classic case of cricket in the Caribbean. After ruling the world in the 70s and 80s cricket had reached its nadir there in the last decade. Matches played to empty stands, the usual rege music that one associates with cricket in this part of the world missing, and news of students opting for much more lucrative options like basketball and soccer had become synonymous with this region. The pipeline of quality players had dried up completely.

It is against this backdrop that I happened to watch the recent T-20 encounters between England and West Indies. (Stanford Challenge and the one played as part of the England tour). Both the matches played to packed audiences, games of shorter duration, music and entertainment galore and much more bucks to be made for all the players involved. All the necessary ingredients to attract the youth back to the game!
Cricketing legend and my guru Brian Lara recently said something on similar lines "Cricket is a dying sport and I believe that Twenty20 is going to be beneficial for many reasons.
"This new game has brought a different spectator. Not necessarily the right ones I think. But at the end of the day, spectators and television is what make sport and I'm very happy and very welcoming of the Twenty20 game,"

Whether these players and audiences, once attracted to T-20 be equally committed to the 5 day format of the game is unknown, but then as time moves on, everything changes and I guess this great game has to change. Only then can it hope to attract the right talent, television, money, spectators, media and a lot more…………..

Sunday, April 12, 2009

Summer Vaccations Time

It is that time of the year. The air is a tad warmer. I can sense that the mercury is definitely up several degrees; the summer is just setting in. I can almost "smell" the season change. At 7 am, as I look out of my window, sipping into a glass of hot kapi, I can see children getting ready to board their school bus. But they are not their normal cheerful self, playing some prank or the other. As they wait for their bus to arrive, I can seen them with a note book in hand, probably revising a "long answer" one last time. Yes, it is the annual exam season. The annual examination has its set of unique characteristics, completely different from the other exams that school children undertake.
  • It is the most eagerly awaited exam; not since the papers are generally on the easier side but for what lies after the exams; 2 months of absolute "fun filled" holidays. I remember having my own countdown ( x days left for vaccation; x - 1 days left for vaccation...and so on).
  • The results are not declared until a month after the exams; unlike other unit tests/term papers where I used to get my answer sheet corrected within 10 days. Also the answer sheets of the annual exams are never shared in a parents-teachers meet thereby eliminating the chance for parents to conduct a detailed analysis of the mistakes done !
  • Incase I ended up with "less than expected" marks in either my unit tests/terms I could not get away by just saying 'I will study better and make up in the next exam' but over the next couple of weeks (solving 10 extra sums or writing answers to eliminate all possibilities of spelling mistakes) had to demonstrate that I was serious about it. In case of annual exams, I could use the same excuse and still continue to enjoy for a month and a half more as no one studied during vaccations !
  • I did not have to re-open the same books again; but dump it all in one place; ready to be disposed.
So the basic rule was => Here is your 2 months; just cricket, read story books, join the library nearby, learning painting..blah..blah...and recharge yourself. And this break did get me re-charged. The arrival of the monsoon in the first week of June was accompanied by buying new note-books and brown covers and plastic covers and labels. A day or two were spent getting covering all the books, buying a new school bag and uniforms (if needed). And come June 13th the batteries were re-charged for another accademic session!

I wonder why organizations can't follow a similar routine ? Give employees a months break. No official e-mails, no phone calls, no documentations, no meetings......Just like a school summer vaccation. And when they get back after a month give them a new profile/ a new role / a new project / a new assignment. I'm sure it would get them all re-charged.
To Heaven and back

After a 52 min drive along the xpressway connecting Pune and Mumbai comes a non-descript place [in comparison with huge sign boards of McD and other branded outlets ]. Known as the Khopoli vada-pav centre, it serves traditional Maharashtrian dishes; namely :- (a) Vada Pav (b) Misal Pav (c) Kande Pohe (d) Sabudana Vada (e) Sabudana Khichdi (vi) Kothimbir Vadi (vii) Thalipeet.

It has become my Friday evening ritual to take a pitstop here en route to home (Thane). After 5 days of work, I make it a point to halt here for my weekly dose of Misal Pav. As I approach the cash counter, each time there are several thoughts that rush to my mind;
  • "Should I go for Kothimbir Vadi today?"
  • "Am I feeling a bit too full to have an entire plate of Misal? "
  • "Why not settle for the milder Kande Pohe" ?
It takes me just a couple of minutes to dispel all such "negative" thoughts and opt for the one and only Misal. I collect my Misal Pav, find a seating place (extremely difficult to find) and gorge into it. It is so deliciously hot, that Dubya would have surely called it "Missile" !

As I relish my dish, I realize that there is something quite magical in dipping into a plate of misal pav on a quiet Friday evening. It's like touching heaven and coming back, ready to touch it again next Friday !

Friday, April 10, 2009

It’s all about re-skilling dude!

The views mentioned here are solely mine and people could find it extremely radical! If you do, then plz ignore J

For a moment consider yourself being transported back to the 30s and the 40s in the hustling city of Bombay. The famous lines “Yeh Hain Mumbai meri jaan” playing in the background, people leaving for work to the various mills doting the landscape of the city. Bombay then was the nerve centre for mills and rightly called the “mill land”. Infact the history of the mills can be tracked back even further. The story goes like this……

Before the middle of the nineteenth century, India used to export cotton to Britain and then reimport the textile. The impetus towards the founding of a cotton industry came from Indian enterpreneurs. The first Indian cotton mill, “The Bombay Spinning Mill”, was opened in 1854. By 1870 there were 13 mills in Bombay and at the end of 1895 there were 70 mills; growing to 83 in 1915. A period of stagnation set in during the recession of the 1920’s. In 1925 there were 81 mills in the city. This rapid growth in mills was sustained by a large migration of workers into the city. These workers were initially accommodated in hostels and then the famous “chawls”. The mills filled up Parel and expanded westwards all the way to Worli.

What started off as a decline in the 80s went into a death spiral. By the 1980s a majority of the mills closed down after prolonged strikes. Most of the private mill owners declared their units as “sick” and closed down. State owned mills hung on, trying various options of revival, all in vain. Finally they also caved in. Today the same mill land has acquired a completely different landscape. As a newspaper report put it “CENTRAL Mumbai is acquiring a new landscape, which seeks to obliterate any trace of its vibrant industrial past. The textile mills, which played an important role in the industrialization of Mumbai and evolved around the culture of the city's working class, are now giving way to development of upscale neighborhoods. Mill floors that resounded with the clang of machinery have been converted into shopping arcades, and residential towers have replaced their chimneys in the new skyline”

The point is that a geography/country/region might prove to be most cost effective and attract a set of industries to form a cluster. It would create huge employment opportunities, attract people from other cities and attract thousands students to major in that field. The companies having gained an entry using the cost route would then try to move up the value chain using levers like differentiation and increasing their product/service offerings. Isn’t that what happened to the IT landscape in India. Again, the seeds for growth being planted solely by the entrepreneurs. We managed to convince the world that it is extremely cost-effective to offshore their development work to India, convince them that we have the right talent pool and yes managed to deliver quality. The industry experienced unparalleled growth during the last decade (in the 30% range) and has been the biggest employment creator. It saw large migration of workers to key IT hubs, namely Bangalore and Pune.
But can I say that it would remain the same say 20 years hence. Can things go the mills way? Would all companies have moved to a much more cost effective country by then? Would India no longer be the preferred destination to deliver these services? The answer is I don’t know.
. What I do know is that as an industry slows down and companies look at cutting costs – the middle layer can be an easy target. As you gain more experience you are termed as a “costly” resource and highly susceptible to cost cutting measures Freshers are always the last ones asked to leave, as they are more cost effective. And if it does happen it would happen quicker than what happened to the mills; simply because the world is much more interconnected.

The key is to recognize this fact and be re-skillable. Or even better start developing multiple skills from a very early stage so that you can easily move to the next one, if the need arises. Start looking at areas that interest you. Look at ways and means to upgrade yourself. Reading, more reading, helping someone out with his work, showing interest and learning new areas of work. Check if you can work on them during your weekends. Basically by the time you are 40 you should have abstracted your skill level to a level where you are not viewed as a sector/industry specialist but someone who could manage the delivery of a large IT project/ or manage the administration of a school / manage a services business.

This is no fool proof solution – but I feel it’s better than not doing anything!

Saturday, April 04, 2009

Debt is Sexy

As an avid reader and follower of the global economic slowdown (I prefer to use this as it looks more polished than recession) one can’t help but sit back and reflect on something which our grandparents used to say very often “Stay away...far far away from debt”. In the Indian society, debt was considered a taboo.

Like the RBI being the lender of the last resort for the Banks, debt was the lender of the last resort for people. When no other means of finance were available people used to approach, the local money lender or the PSU banks. Still debt was a very bad thing to carry on your resume – It had massive ramifications. A dad with debt burden could not get his daughter married off; a house in debt was always something children were asked to stay away from (lest they pick up some bad habits). The underlying point is that debt was considered as one of the greatest evils.

However in the last few years, things seem to have changed – atleast in the large metro cities of India. A lot of it has to do with the rapid economic growth that India was making – resulting is higher salaries at a very young age. Something that took our parents 20 years to buy – we wished to get it in 2 years time! So out of college the coffee table discussions centered around not how to buy a flat in the new swanky DLF construction (that comes with it a large gym and a swimming pool) but how to finance it. The decision to buy was a foregone conclusion; it’s just about deciding how to finance it. The answer was simple. Debt! The economy was booming, interest rates were sufficiently low and paying of the EMIs was just a formality.

Personal debt (taken to finance purchase of assets like land, apartments or luxuries like a car) bears a striking similarity to corporate debt in the way it functions. The next few points explain this.

Debt helps you save Tax
Debt is a magical wand. It helps a firm save tax. Yes, it provides the much needed interest tax shield. So if a firm raises a debt of D, there is a direct tax relief of Tc * D and thus ends up paying lower tax than it normally would have.

The sample principal applies to retail debt, say a home loan. The interest on the loan amount taken and also a certain % of the principal amount can be reduced from the taxable income and thus taking debt helps an individual save a significant amount of tax. So instead of paying a whopping amount to the Government of India as tax, it was much better to approach the nearby swanky MNC bank who offer home loans –
In quick time. (Service Quality!)
Provide excellent support in all the pre-processing work
Implications: Take more debt, buy your dream home and ya pay less tax.

Apart from this debt helps the corporations in the following ways:-

Debt helps bring down your WACC
Debt is sexy. Corporate Finance tells us that a good Finance Manager would always look at bringing down the Weighted Average Cost of Capital (WACC) and the more funds he is able to raise using debt, the lower is the WACC. (Cost of Debt < Cost of Preference Shares < Cost of Equity).
Implications: Companies looked at raising a large chunk of their funds via the debt route. It certainly helps when debt was available not only in India but in countries like Japan where interest rates are nearly 0%. Raise more debt, bring down your WACC.

Debt helps increase the EPS
Another tool to measure the performance of a company is the Earnings per Share which is calculated as Profit after Tax / Total No of Shares.
Implications: If a firm needs to raise Rs 100 and issues equity for it, what it is doing is increasing the denominator and hence bringing down the EPS. Companies could instead raise that amount using the debt route. Again debt helps in boosting your EPS.

Thus we see that debt is sexy, so long as the cost of debt is low; i.e we are living in a low interest rate regime. But unfortunately interest rates are not always low, it follows a business cycle. A slowdown as we are seeing now result in extremely low and attractive interest rates. However if the economy picks up in a years time and we are big to high growth phase (which generally lasts for 4 to 4 years) it won’t take much time for the central banks to raise the interest rates. After all they are also responsible for preventing the overheating of the economy. Thus, a few percentage points increase (above the threshold) in lending rates by the banks can have direct implications on the bottom line of corporations; similarly an increase in your home loan rate could pinch you big time and has the ability to send our entire financial planning for a toss.

Does that mean we should completely shy away from debt? I feel the answer is no. The best way forward is to use the combination of the wisdom of our elders and the knowledge of how debt works to make sound financial decisions. The advantages that come along with debt can be exploited by choosing the right size of debt and timing it correctly. We know that business cycles of boom and bust are a reality. The debt amount should be chosen in such that it can be repaid in one business cycle. So you might not have to wait for 20 years to buy that house of yours and maybe it might not be possible in 2 years, but right planning can help you time it somewhere in between these two. The key once again is ability to repay in one business cycle! Go…get your home.

Friday, April 03, 2009

Dear Top BJP Member,

A few days ago, as I was surfing through the various television channels I happened to catch a debate in which you were participating in. On the issue of taxation you had said that during the last five years, a lot of additional taxes have been imposed (including ones like the fringe benefit tax) and once in power your party would ensure that the tax rates are reduced. A couple of days later we find the BJP manifesto clearly stating that the you raise the minimum limit for income tax to a whopping 3 lakhs resulting in huge savings for the (tax paying) people. Apart from this it also talks about tax concessions to senior citizens and members of the armed forces.

As a young, educated urban voter, this sounded music to my ears. I could easily save a lot more every month and yes splurge it in something “really cool”. But then when the “educated” part of me took over and I started pondering on the following:-

With this “urban populist” move of yours you would remove 1.25 crore people from the tax base (which is just 3.25 crore) and this move would cost the ex-chequer a whopping 25000 crores (approx). The economic slowdown has forced governments all over the world including India to introduce several fiscal stimulus packages to try and revive the economy which has resulted in our fiscal deficit touching around 12% of the GDP.

I am sure you are aware of all these facts and hence would really appreciate if your manifesto could also state the measures that your party would take to reduce the additional burden on the fiscal deficit that would arise out of these new “tax” incentives. The tax incentives present only one half of the picture, albeit incomplete – the roadmap to address its impact on the overall macro-economic situation of the country is required to convince me that’s it’s a good move. After all what value does a young, educated, urban voter bring if he cannot raise a few uncomfortable questions!