Every now and then, there is a particular sector in the market which finds fancy with investors – retail and institutional alike. Share prices of companies in that sector rises unidirectionally – and most, if not all, companies ride on the back of the industry leaders to see their market cap increase. Stocks goes up based on momentum more than on actual fundamentals. Investors make huge amounts of money if invested in these companies at the right time. And when the market gets its share of enjoyment from these stocks, the mood shifts to another sector and another set of companies. The performance of that particular sector is no longer the kind that was seen in the past.

A couple of years ago it was the Power sector which was in the limelight. Then came the telecom sector. After the spectacular rise and fall of Telecom stocks, there is a new sector which is now making rapid progress in the last couple of months. This is the Banking sector. Both public and private sector banks have seen their share prices rise like wildfire recently. This was further strengthened with SBI’s good results in the first quarter of 2010.

If we see the chart of Nifty and the Bank Nifty index for the last month, the difference is clearly seen. Given below are the 3-month and 1-month comparison of the Nifty vs Bank Nifty. Although the Bank Nifty has started its rise only in the last month, I’ve put the 3-month chart to show how much attractive it was a couple of months ago. That would have been the ideal time to enter the Bank Nifty (of course, this is all in hindsight)

As with telecom, I’m kind of late to catch on to the trend. It may be too late to enter good stocks in this sector – Bank of Baroda, HDFC Bank, UCO Bank and Yes Bank look good to me, but they are already trading above my buy price. So let’s wait until things cool down or we get a stronger recovery signal in the economy when it will be time to slowly get in to the market in bits and pieces.

PS. With this post, I’ve also created a new category called Financial Farziwada. Let me first explain the meaning of this word for all those not faimiliar with Hindi. The meaning of “farzi” is non-genuine in Urdu. So farziwada, means activities which are not genuine. The idea for the name of this category comes from a classmate of mine in IIT Madras, who was known for his investing skills. Even though he was from the industry, he knew that most of the so-called analysts and brokers are out to make their own money rather than genuinely advising retail investor. Moreover, finance is only playing with numbers, which in local parlance, translates to farziwada. This also means that you should not blindly believe what any financial analyst tells you even if “it is for your own good.”

Hypothesis: An unequivocal statement by a manager is an oxymoron.

Proof: I am a manager. I just made an unequivocal statement. So there is an apparent paradox. So putting aside the possibility of why the world didn’t disappear in a big flash of light due to this contradiction (which I would not have liked), there are two possibilities. Either the above hypothesis is not true, or I am not a manager.

Revised Hypothesis: An unequivocal statement by a manager may or may not be an oxymoron.

Recently Tata Croma had an offer on one of their products. They were bundling a set of Sennheiser headphones with an ipod nano. It seems this offer was quite popular with the people as the headphones were out of stock when my wife and I went in the evening to check it out.

What is more interesting is the series of events which took place there. We first went to the Croma store and inquired about the offer. They said the headphones were out of stock, but you could buy the ipod now and get the free headphones in a week or so. There was an Apple store just close to the Croma store. So we went there to check out the prices. The price was exactly the same in both places. My wife being the way she is, asked the Apple sales guy about the Croma offer. Surprisingly the sales guy was ready to add some value add for us. He offered us a USB based speaker to match the Croma offer. I examined the speaker and found it not too exciting. So we told him we’ll rather buy from the Croma store. Before leaving, we directly asked him if he could match the offer of Tata Croma store and give us a decent pair of headphones. He called up his boss but sadly his boss didn’t agree. So we went back to the Tata Croma and booked an ipod nano from there.

Why I find this interesting is that normally the high-end stores/brands like these do not offer any value-add on their products. It would be rare to see an Apple store in the US even trying to match such offers from let’s say Walmart or some such store. But here in India the equation seems completely different. The exclusive Apple store had to offer a significant value-add compared to the mass retailer which was definitely taking a significant chunk of their sales. Even though the products on both sides are the same, but the sales guy would be taking a hit just because the Apple store couldn’t match the offer. Note that this Apple store was the same one which once offered me to load new apps and games if I bought an ipod touch from their store.

So its Big Bazaar against Converse/Adidas/Reebok, or Tata Croma against Apple, or a local mobile phone dealer versus Nokia Exclusive stores. Unless the branded store can offer some kind of value-add, the mass market stores would kill their sales.  Thankfully some of these branded stores are taking note of this fact. And that is good news for the Indian consumer. But the best way to get such offers – is to simply ask. As an Indian consumer, you are well within your rights to do so without feeling the least embarrassed.

Click the image for a better view

The latest news from my side. Household work has gone à la carte. The last maid-servant we had hired has left. It’s time to hire a new one. And as anyone who has negotiated for a maid-servant in Mumbai will testify, it is a damn difficult job. As expected, their rates are high. But what is more surprising is the level of detail they go into while negotiating. It is as if they have attended a session on Scientific Management at some IIM or so. They will give you a breakdown of each work and the amount of money they’ll take for it.

For instance, this is what the lady had to say while quoting her rates.

Rs 400 – Washing clothes (assuming 4 people)
Rs 600 – Washing utensils, drying them and placing them in the cupboard (400 for washing and 200 for drying)
Rs 400 -Jhaadu pocha.
Rs 400 – Dusting furniture (excluding windows)
Rs 200 – Cleaning windows.
Rs 200 – Cleaning bathrooms.

That works out to around Rs 2200 for a month’s worth of work. And oh yes, before I forget, here’s the clincher – the paid-leave clause. The lady is expected to take 2 days of leave per month. But if she doesn’t, you have to give her that two days’ worth of pay.

Wow, even I have never gone into such a level of detail during my salary negotiations. Maybe this is not a bad strategy to adopt. After this level of detail, you just don’t have any room left for negotiation. You pick what you want to get done, and do the rest yourself. Obviously the wife isn’t too thrilled about this.

Let’s see, hoping the previous maid resolves all her family problems and returns. Else it is time to tighten the purse strings and make some difficult choices.

The world economy has not even recovered fully from the excesses of Wall Street in the sub-prime mortgage crisis, and these fellows are all set to seek out the next opportunity in financial speculation. A report today in mint describes one such exotic instrument already being explored on Wall Street. A paragraph from the article explains it simply, and clearly this time the stakes seem higher and the risks wilder.

The bankers plan to buy “life settlements”, life insurance policies that ill and elderly people sell for cash—$400,000 (around Rs1.95 crore) for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

The earlier the policyholder dies, the bigger the return—though if people live longer than expected, investors could get poor returns or even lose money. (http://www.livemint.com/2009/09/06215505/New-exotic-investments-emergin.html)

A sick way (no pun intended!) to make money. If anything, this has all the elements of a blockbuster bubble and the crash thereafter. Now it remains to be seen whether the governments around the world have learnt anything from the last crisis. What made the story more humorous was that this story was printed along side another hopeful story – one about the global economy starting to expand.

Oh well, boys will be boys, Wall Street will be Wall Street and MBAs will be rascals.

“The only way to maintain a long term competitive advantage is to change faster than your competitor.”

“Operations are activities which are repeatable and do not have a specific start date and end date. Projects are, on the other hand, one time initiatives which are unique, and have a specific start date and end date.”

The link between these two statements?

Projects drive change. Projects bring something new to the organization.

An organization which is strong in selecting the right projects and executing them tightly will have a sustainable competitive advantage over those which do not have this capability.

This makes project managers in the organization very important as a stakeholder in the overall strategy of the organization.

Ergo, all project managers should be worshipped as Gods, or at least given raises.

The PE ratio, as any MBA worth his salt would know, is considered a measure of the growth prospects of a particular stock. The ratio compares the market price of the company’s share to the earnings per share of that company. The higher the PE ratio the higher the prospects of growth. But a high PE ratio could also be possible if the market has over valued the stock. So a high PE ratio may also be considered risky for someone who has invested in that company’s stock. When there is a shakeout in the market, like the one which happened due to the mortgage market, the stocks could all come tumbling down.

In India, the MBA factories are also very competitive and on a fast growth track. Every year, business magazines publish ranking of B-schools. Various parameters are used to find out the top 10 B-schools of that year. Most of the students generally consider these rankings their bible and often prefer a high-ranking B-school (let’s say by placements) even without considering other parameters which turn out to be more important in the long term.

I’ve always taken these rankings with a pinch of salt, but now that I’ve “been there, done that,” I’ve come up with a parameter myself of one possible way to rank B-schools. Let me introduce the StuFac ratio. This multiple can be used at both the institute level and at an individual student level. At the institute level, it is simply a ratio of the average salary of the students to the average salary of the faculty of that institute. For an individual level, the ratio is the salary of the student to the average salary of the faculty. Just like the PE ratio, the StuFac ratio can be a proxy for an institute/student’s growth potential (as well as the risk associated with overpricing of the student).

Now as innovative as this measure may be, I want to make it clear that it is by no means comprehensive. More than an accurate measure, it is just a (egoistic) way to compare different B-schools and students therein. However, as any MBA grad who has spent a few years in the industry would know, after the first job, it is the student’s initiative and hard work which dictates his growth path and not which B-school he graduated from.

P.S. If any B-magazines are contemplating to use this measure for their rankings next year, do not forget to consider a royalty for me.

Since I joined work, there’s hardly been any time to devote time to the blog. Things have been quite hectic on the personal front as well. Even though Mumbai provides a lot of inspiration, I hardly have the energy to convert that inspiration into writing. For now, I’m posting a very interesting section from a book I’m currently reading. It matches my outlook of the telephone which is nothing but an instrument meant to disturb you and take over your life. I’ve realized this is true all the more after I restarted my work life, this time as a manager.

…Now just relax and imagine a less complicated world in which the phone has not yet been invented. In such a world, you write a note to propose lunch or a meeting and you get a note in response. Everyone plans ahead a little bit more. It’s common to take half an hour in the morning to read and answer your mail. There are no loud bells in your life.

Wednesday mornings in this alternate reality are dedicated to meetings of your company’s pension trust investment committee. Imagine for the moment you are one of the employee representatives charged with watching where the money is placed. On this particular Wednesday, an inventor is scheduled to make a presentation to the committee. The inventor has plans to change the world, if only you’ll invest in his new contraption. His name is A.G. Bell.

“Ladies and Gentlemen, this is the BellOPhone!” (The man unwraps a large black box with a crank on the side and an enormous bell attached to the top.) ‘This is the future. We’re going to put one of these on every desk in America. Homes, too! It will get to the point where people can hardly imagine a world without them.” As he warms up to his subject, he begins gesticulating enthusiastically and hopping around the room to make his points. “BellOPhones everywhere you look, all of them hooked up together with wires under the street or overhead. And now this is the really
exciting part: You can get your BellOPhone specifically connected to somebody else’s BellOPhone, even though it may be all the way across the city or maybe in some other city. And when you’ve connected it just by entering the code, you can make the bell ring on the other fellow’s machine. Not just some rinky-dink bell, either, but a real heart-stopper.”

He sets up a second device and connects it to the first, on the other side of the room. By manipulating a dial on the face of the first, he causes the other machine to come alive. It gives off a loud BRRRRINNNNNNNGGGGGGG! After half a second, it rings again and then again and again, deafeningly.

“Now, what’s a fellow got to do to stop this ringing? He’s got to race over to his BellOPhone and pick up the receiver.” He picks up the receiver on the ringing device and hands it to one of the committee members. Then he bounds back to the other side of the room and starts shouting into the mouthpiece of the originating device. “Hello! Hello! Can you hear me? See that, I’ve got his complete attention. Now I can sell him something, or get him to lend me money or try to change his religion or whatever I want!” The committee is stunned. You raise your hand and venture a question, “Since nobody could possibly have missed the first ring, why bother to repeat it?” “Ah, that’s the beauty of the BellOPhone,” says A.G. “It never gives you the chance to wonder whether you want to answer it or not. No matter what you’re involved in at the time it rings, no matter how engrossed you are, you drop everything to answer it. Otherwise, you know it will just keep on ringing. We’re going to sell billions of these things and never ever allow any to be sold that
ring only once.”

The committee goes into a huddle, but it doesn’t take very long to come up with a judgment. You all decide without a dissenting voice to throw this turkey out the door. The device is so disruptive that if you were ever dumb enough to allow it to be installed, nobody would ever get any work done around the office. A few years’ effect of the BellOPhone and we’d all be reduced to buying goods from Taiwan and Korea. And our country might even have a negative balance of trade.

Of course, there’s no turning the calendar back.

This short story summarizes what the phone will ever be. Consider this situation – you are talking with someone, and suddenly the phone rings. How many of you would interrupt the conversation and pick up the phone? To answer someone who might be at the other end of the city, and to ignore (even for a few minutes) the person standing before you? 99 out of 100 people do that. Why do we give more importance to people on the phone than to people standing before us? How would you feel you’re standing in a line waiting to order pizza, and the person at the counter answers the phone to take a home delivery order? Things to think about.

Next post coming up in a few days, another of my pet peeves – meetings. What they were meant for, and what they are used for.