Saturday, September 30, 2006

Nobel Prizes

Established 111 years ago by Alfred Nobel, the inventor of dynamite.
Given in the categories of literature, peace, medicine, physics, chemistry and economics.
The prize for economics is technically not a Nobel but a 1968 creation of Sweden’s Central Bank.

Winners get a cheque of 10 mln Kroner ($1.37 mn), handshakes with Scandinavian royalty, and a banquet on December 10, the anniversary of Nobel’s death in 1896.
All prizes are handed over in Stockholm except for the peace prize which is presented in Oslo.

What is a factoid?

Norman Mailer coined this term in a 1973 book about Marilyn Monroe. He described a factoid as “facts which have no existence before appearing in a magazine or newspaper.”

GDRs are now passé

QIP (Qualified Institutional Placement) has emerged as a new fund-raising instrument for listed corporates in India. This is supposed to overcome the limitations of a GDR or FCCB (Foreign Currency Convertible Bond) issue as well as private placement. Funds can be raised from foreign as well as domestic institutional investors without getting listed on a foreign exhange, which is a lengthy process. A QIP issue also has no lock-in clause, unlike a private placement where the funds are locked in for one year.

So far three companies have raised money in this fashion. The first deal was by Edelweiss Capital for Spentex Industries that raised Rs. 46 cr.

Friday, September 29, 2006

Allow foreign venture capital into realty?

The traditional way of funding real estate is through borrowings from commercial banks and housing finance companies. Such borrowing accounts for more than 60% of all institutional real estate investments, and is growing at over 100% per annum. Recently, RBI has expressed concern at the pace of growth of banks’ exposure to real estate. Thus the regulator has raised risk weights on such loans and has introduced provisioning requirements for real estate exposure. That has made bank lending to real estate developers difficult.

Therefore, the emerging trend is financing of real estate through private equity and Real Estate Venture Capital Funds (REVCF). They normally bring in fresh equity that is difficult to arrange and more expensive. Second, the venture fund works as a partner in the project, thus assuming project risks along with the developers. Thirdly, with the introduction of REVCF, the leverage potential of the projects also goes up. Increased transparency, better governance, adherence to time schedule for exit options as funds have commitments to their investors are other benefits of venture equity funding.

Hence venture capital – whether foreign or Indian needs to be given encouragement.

Globalization: Joseph Stiglitz

According to him, the problems of globalization include:
An unfair global trade regime that impedes development
An unstable global financial system that results in recurrent crises, with poor countries repeatedly finding themselves burdened with unsustainable debt
A global intellectual property regime that denies access to affordable life-saving drugs, even as AIDS ravages the developing world.
Instead monies flowing from rich to poor countries, the reverse is happening with the rich better able to bear the risks of currency and interest-rate fluctuations, leaving the poor to bear the brunt of this volatility.

He feels globalization can be changed and will be changed. It is a question of whether the change will be forced upon by a crisis or result from careful, democratic deliberation and debate. Crisis driven change risks producing a backlash against globalization, or a haphazard reshaping of it, thus merely setting the stage for more problems later on. By contrast, taking control of the process holds out the possibility of remaking globalization, so that it at last lives up to its potential and its promise: higher living standards for everyone in the world.

Indian Pharmaceutical industry

Battle over generic drugs
Indian companies always look for an opportunity to play the generics market. They wait for the patents of the US companies to expire and come up with low cost generics.

When Indian companies do so, US companies usually file law suits against the Indian companies (patent challengers) within the 45 day period prescribed by the Hatch-Waxman Act. Nowadays, instead of filing the cases immediately, the US companies are resorting to allowing the Indian companies enter the market. Then after a few months of sales, they file a law suit seeking triple damages.

The innovator companies are also using the authorized generics more aggressively than before. They are launched at very competitive prices and sometimes, even before the patent expires.

The global generics industry is expected to grow at 10-12% over the next few years against the 6-9% for the innovative drugs market.

The domestic pharma is growing by 17% to Rs. 25,700 cr in the 12 month period ended July 2006.

Global contract research and manufacturing services market
This market currently stands at $100 bn and is expected to touch $168 bn by 2009.
The contract research market is expected to reach $21 bn by 2009 from $14.5 bn in 2004.
Outsourcing in the drug discovery alone stood at approx. $4 bn in 2005 and is expected to reach around $7 bn registering a growth rate of 15-20%.

Process of Clinical trials
Research studies in human volunteers are conducted in three phases. At each phase, they have a different purpose and help scientists to answer different questions. In the first phase, researchers test an experimental drug or treatment in a small group of people (20-80) for the first time to evaluate its safety, determine a safe dosage range and identify side effects. In the second phase, the experimental drug or treatment is given to a larger group of people (100-300) to see if it is effective and to further evaluate its safety. In the third phase the drug or treatment is given to large groups of people (1000-3000) to confirm its effectiveness, monitor side effects and compare it to other existing treatments. It is the last phase before the launch of the new molecule.

“One swallow doesn't make a summer”

“One swallow doesn't make a summer” (British & Australian)
Something that you say which means because one good thing has happened, you cannot therefore be certain that more good things will happen and the whole situation will improve.
Example: Okay, they won their last game but one swallow doesn't make a summer. They're still bottom of the league.

Daylight exposure

Mutual Funds maintain a current account with the RBI. This cash account enables the funds to route transactions at a quicker pace. The subscriptions they receive from investors can be immediately deployed in the money market. The funds can debit their account with RBI well before the cheques given by the investors get cleared and money actually flows into the account. Thus there is an element of overdraft being allowed by the RBI which is called ‘daylight exposure’.

The RBI has decided to discontinue this practice of overdraft facility it bas been giving for the mutual funds. RBI said this facility will be withdrawn from November. The RBI feels the law does not allow extending such credit called ‘daylight exposure’.

Thursday, September 28, 2006

Cotton production and trade

Cotton production will touch around 260-275 lk bales in the current year as against 245 lk bales last year.

Cotton exports will probably exceed last year’s level of 43 lk bales.

India has emerged as the second largest supplier of cotton to China after US. China imported about 4.2 mln tonnes of cotton last year.

World Cotton exports are expected to touch 9.4 mln tonnes.

World Cotton production is expected to come down marginally to about 24.7 mln tonnes from 24.8 mln tonnes in 2005-06.

Fixed Mobile convergence

FMC is the fusion of wireline and wireless technologies and services to create a single telecommunications network foundation. It means that each of us will require one handset, have one number, one voice mail and we receive one bill for all our telecom services.

Chennai moves into fast lane

Several companies ranging from Dell and to Nokia have opted for Chennai as their manufacturing base. The reasons for their preference to set up manufacturing base are:

The region’s physical infrastructure, availability of skilled workforce and overall business environment. This coupled with the growing domestic market and global players’ quest for low-cost sourcing hubs have made Chennai one of the natural destinations for electronics manufacturing. For smaller companies, part of Chennai’s attraction is in the investments announced by large players like Nokia and Dell. Chennai and Ennore ports make exports and imports convenient. Air connectivity also is very good with 250 domestic passenger flights and 28 cargo flights. Stable power and friendly government policies, access to healthcare and education and low cost of living are other advantages.

Cuba’s socialist achievements

Compulsory and free education for all up to 15 years of age.
Free further education for anyone keen enough to pursue higher education.
Healthcare that is accessible to all.
Racial integration (up to 400,000 Africans had been brought to Cuba to work on the island’s sugarcane plantations before the slave trade was abolished in the latter half of the 19th century)
Vigorous cultural output
Enviable achievements in sports
Ability to help other countries with teams of doctors and teachers
Independence from domination by other countries.

Police Reform

The supreme court has mandated sweeping police reforms while disposing off the Prakash Singh public interest suit. The Court has said that public order should be separated from crime detection. The key portions of the verdict are:

  1. State Security Commission will be set up in every state, and National Security Commission at the Centre. The state commissions will have the Chief Minister or Home Minister as the Chairman, the DGP as the Ex-Officio Secretary, a member of the opposition, a judge and eminent non-political members of the civil society.
  2. The National Security Commission will follow similar procedure for central police organizations.
  3. The tenure of top police officers from the rank of SP upwards will be fixed for a minimum of two years.
  4. A Police Establishment Board will be created under the DGP of every state to appoint and transfer all officers below the level of SP.
  5. Scientific research will be introduced to enhance crime detection
  6. A Police Complaint Authority under a retired Supreme Court or High Court judge will be created in every district to hear public complaints against cops up to the rank of DSP. Its recommendations will be binding.

Press Note 1

The policy statement by the GoI provides protection to domestic industries from adverse actions of foreign partners. The Press Note is silent on the issue of seeking NOC from states in case activities of the firms are inter-state in nature.

The way the policy intent was implemented has given rise to confusion about the policy. British Gas was allowed to se tup new subsidiaries only after getting NOC from the joint venture partners. Power major AES was allowed to set up a plant in Chhattisgarh despite objections from the government of Orissa where the multinational already operates a plant.

Therefore the Guardian-Modi Rubber dispute is likely to set the tone on the fate of Press Note 1.

Guardian offered to buy out Modis’ 22.4% stake for $40 mln. In turn Modis have offered to buy out Guardian’s 50% at Rs. 55 per share.

Wednesday, September 27, 2006

Meaning of ‘jury is still out’

No decision has been made, especially because information is lacking.

Example: The jury is still out on whether those particular chemicals pose a threat to public health.

Securitization of assets

It is a two stage process in which a bank sells its asset or a pool of assets to a special purpose vehicle. The SPV in turn issues tradable securities that represent claims on the cash flows of the assets. Such asset sales enable banks to transact more business without augmenting their regulatory capital, as they would not have to maintain capital for the assets so disposed of.

Basel Norms

For banks which are active globally, it is imperative to bolster their capital in accordance with the supervisory standards and guidelines formulated by the Basel Committee.

The committee which was constituted by Central Bank Governors of a Group of 10 countries in 1974 under the aegis of the Bank of International Settlements (BIS) has, over the years set out standards for capital measurement.

The BIS is regarded as the bank for central banks and is based in Basel in Switzerland.

Basel II norms require banks to set aside higher capital for more risky assets.

Tier 1 Capital
It is the core measure of a bank's financial strength from a regulator's point of view. It consists of the types of financial capital considered the most reliable and liquid, primarily Shareholders' equity. Examples of Tier 1 capital are common stock, preferred stock that is irredeemable and non-cumulative, and retained earnings.

Capital in this sense is related to, but different from, the accounting concept of shareholder's equity. Both tier 1 and tier 2 capital were first defined in the Basel I capital accord. The new, Basel II, accord has not changed the definitions in any substantial way.

Each country's banking regulator, however, has some discretion over how differing financial instruments may count in a capital calculation. This is appropriate, as the legal framework changes in different legal systems.

The theoretical reason for holding capital is that it should provide protection against unexpected losses. Note that this is not the same as expected losses - provisions, reserves and current year profits are for expected losses.

More specifically, Tier 1 Capital is a measure of capital adequacy of a bank, and is the ratio of a bank's core equity capital to its total risk-weighted assets. Risk weighted assets is the total of all assets held by the bank which are weighted for credit risk according to a formula determined by the Regulator (usually the country's Central Bank). Most Central Banks follow the BIS - Bank of International Settlements guidlelines in setting asset risk weights. Assets like cash and coins usually have zero risk weights, while unsecured loans might have a risk weight of 100%.
It is calculated as:-

Tier One Capital / Risk Weighted Assets

Tier 2 capital

It is a measure of a bank's financial strength with regard to the second most reliable form of financial capital, from a regulator's point of view. The forms of banking capital were largely standardised in the Basel I accord, issued by the Basel Committee on Banking Supervision and left untouched by the Basel II accord.

Tier 1 capital is considered the more reliable form of capital.

National regulators of most countries around the world have implemented these standards in local legislation. This includes the Board of Governors of the Federal Reserve System of the United States(FRB).

There are several classifications of tier two, capital. In the Basel I accord, these are categorised as undisclosed reserves, revaluation reserves, general provisions, hybrid instruments and subordinated term debt.

Undisclosed Reserves
Undisclosed reserves are not common, but are accepted by some regulators where a Bank has made a profit but this has not appeared in normal retained profits or in general reserves.

Revaluation Reserves
A revaluation reserve is a reserve created when a company has an asset revalued and an increase in value is brought to account. A simple example may be where a Bank owns the land and building of its headquarters and bought them for $100 a century ago. A current revaluation is very likely to show a large increase in value. The increase would be added to a revaluation reserve.

General Provisions
A general provision is created when a company is aware that a loss may have occurred but is not sure of the exact nature of that loss. Under pre-IFRS accounting standards, general provisions were commonly created to provide for losses that were expected in the future. As these did not represent incurred losses, regulators tended to allow them to be counted as capital.

Hybrid Instruments
Hybrids are instruments that have some characteristics of both debt and shareholders' equity. Provided these are close to equity in nature, in that they are able to take losses on the face value without triggering a liquidation of the Bank, they may be counted as capital.

Subordinated Term Debt
Subordinated term debt is debt that is not redeemable (it cannot be called upon to be repaid) for a set (usually long) term and ranks lower (it will only be paid out after) ordinary depositors of the bank.

A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". In the case of default, creditors with subordinated debt wouldn't get paid out until after the senior debtholders were paid in full. Therefore, subordinated debt is more risky than unsubordinated debt.

Data exclusivity and pharma industry

The pharma industry conducts tremendous amount of testing (toxicological and clinical trials) and collects data to ensure that only safe products are introduced by them in the market. The industry supplies this data at extensive cost to regulatory authorities to meet their needs on safety and efficacy.

Data exclusivity (DE) means that during a certain period this proprietary data should not be disclosed and is used exclusively by the originator and protected from use by other to their commercial benefit (non-reliance). DE period usually runs concurrently to the patent period. Most countries have a five year period or more of data exclusivity.

What are “conflict diamonds”?

They refer to the diamonds mined in poor African countries in the rebel-held areas.
The share of conflict diamonds has declined from 4% in the 1990’s to less than 1% now ever since the Kimberley Process Certification Scheme (KPCS) was implemented in 2003. As per the scheme, countries importing rough diamonds will only accept gem imports which are certified not to have come from the rebel-held areas.

Tuesday, September 26, 2006

Mutual Recognition of banks with Singapore

Under the CECA with Singapore, both the countries would have to allow three banks from each country to have QFB status. QFB status allows a bank to have 15 branches and provide for other facilities such as ATMs.
While Singapore banks qualify for QFB status in India, Indian banks would not qualify for the same in Singapore in view of their stringent monetary standards. Hence India has been demanding a relaxation of the standards for granting QFB status to Indian banks. In the run up to pressure Singapore, India has not granted QFB status to Singapore banks and has also not allowed Temasek to hike its stake in ICICI Bank as the clubbed stake of Temasek and GIC (another investment arm of Singapore Government) will exceed 10%. According to RBI norms, no foreign entity can have more than 10% in an Indian bank.

Spectrum allocation

The existing rules for spectrum allocation are flawed. Operators receive spectrum based on the number of subscribers on their networks, and not on the amount of spectrum they actually use. As the fee is a proportion of their service revenues and not spectrum allocated, there is no incentive to use the spectrum efficiently. The current system encourages adding subscribers but not expanding the range of services or their quality. There are numerous complaints and disputes about unverified subscribers as well as the deteriorating quality of mobile services. Some operators are in queue for additional spectrum, other have a surplus.

Karnataka-Maharashtra dispute about Belgaum

Both the states stake a claim for the city.
Karnataka wants the Meher Chand Mahajan Commission’s report of 1967 to be implemented in toto. Karnataka held a historic Assembly session in Belgaum on 25.09.06 to strengthen their claim for the city.
Maharashtra Ekikaran Samithi have been waging a relentless battle for the merger of Belgaum with Maharashtra.

Monday, September 25, 2006

Soft landing and hard landing

What is soft landing?
Refers to a moderate slowing of economic growth to a rate of about 2% to 3%, which is expected to keep inflation from accelerating.

What is hard landing?
Refers to the state of economy falling somewhere between soft landing and recession. That is, economic slow down to 1% to 2% growth, which is good for containing inflation but teeters on the edge of recession.
Economy goes directly from a period of expansion to recession due to government or monetary authority more restrictive fiscal or monetary policy than what is appropriate for the economy.

Role of International Monetary Fund

It was set up along with the World Bank after the II World War to aid reconstruction of war ravaged countries. Leaders felt that financial stability was best achieved when countries worked in an environment of interdependence. The idea to create the two bodies came about in a conference in Bretton Woods in the US. Hence, they are known as the Bretton Woods twins. The IMF was supposed to oversee and monitor the economic performance of member countries and warn them of any developing economic crisis. There are 147 members of the IMF as of now. If any crisis does develop and the concerned country approaches the IMF for help, the organization chalks out a recovery plan, including the imposition of conditions for keeping the economy on a particular path.

Slow down in Indian economic reforms?

Some of the recent happenings do lend a hand to the feeling that there is a pause in bringing about reforms in the Indian economy.

  1. Move to cut FDI in courier companies to 49% from the 100%.
  2. Move to impose an FDI cap in stock exchanges, which are not strategic in any sense. More so, when even Banks can have up to 74% FDI.
  3. Move to allow states to impose limits on holding of foodgrains and pulses.
  4. Threats by Chemicals Minister Mr. Ram Vilas Paswan to impose price control on most bulk drugs and pharmaceuticals.
  5. Move to block Chinese investors from investing in strategic sectors.

Sunday, September 24, 2006

The making of Delhi

Delhi has been built and rebuilt from the time of the 11th century Tomars to the British in 1911.
1st city: Lal Kot was founded by Tomar ruler Anangpal.
2nd city: Qutbuddin Aibak, the first Sultan of Delhi in 1206 constructed Qutab Minar.
3rd city: Siri fort by Allaudin Khalji.
4th city: Tughlaqabad by Ghiyasuddin Tuglaq
5th city: Firuzabad by Firuz Shah Tuglaq
6th city: Dinpanah of Humanyun
7th city: Destroying of Dinpanah and reconstruction as Purana Qila by Humayun
8th city: Edwin Lutyens New Delhi

Medical tourism in India

An estimated 1.75 lakh patients came to India treatment in 2005 about 30% more than in 2004. It is estimated that there are 50 mln people in the US without medical insurance for whom domestic treatment costs are prohibitive. Americans are reportedly spending about $25 bn on non-traditional medical therapies and products. Many hospitals in India are opting for accreditation from JCI (Joint Commission International) and NABH (National Accreditation Board for Hospitals and Healthcare Providers).

Our Problems:
India is still a developing country and has some inherent problems
Negative perception about the country because of poor hygiene and sanitation
No uniform quality and accreditation is now becoming a reality
Medical insurance is still in its infancy and has a very low penetration
Flight connectivity needs attention
Infrastructural woes continue to affect the airports, roads and power
Save for the initiatives taken by a few organized players, there has been no focused marketing till now

Foreign patients’ problems:
Lack of knowledge about medical tourism
Lack of trust as they have no local or personal contacts
Lack of follow-up after treatment in India
Lack of medical liability as their courts cannot have legal jurisdiction over Indian hospitals operating in India


Remanufacturing involves reclaiming products after they’ve been used one or more life cycles. The manufacturing process is started again with the materials that are essentially free. Remanufactured can cost, on average, half of what new ones do, and the business can be terrifically profitable for companies that do it well. As a general rule 70% of the cost to build something new is in the materials and 30% of it in the labour. Caterpillar Inc., in Corinth Mississippi is one such company involved in remanufacturing.

Indian art prices

Why have art prices of Indian artists appreciated so much in a short time span?
One school of thought attributes the current high prices to market maturity.
Another school of thought says that it is a bubble built on fancy.
There is a consensus though that some well known artists over the years have developed their original style and established their body of work gaining historical significance.

Saturday, September 23, 2006

Cairns Group

The Cairns Group is a coalition of 18 agricultural exporting countries which account for over 25 per cent of the world’s agricultural exports.

Members of the Group are: Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Pakistan, Paraguay, the Philippines, South Africa, Thailand and Uruguay.

Friday, September 01, 2006