16.06.2008

• RIL’s objection to RCOM-MTN merger – should such spanners be thrown in the works?
• It is very surprising that Anil Ambani’s elder brother decided to put a spanner in the works of RCOM-MTN merger. Whose interests is it trying to protect? Of the shareholders? I have serious reservations on this. In fact the merger should help the shareholders, many of whom are RIL’s shareholders also.
• Having been a highly educated and a top notch businessman in the world in his own right, I think with this one step, Mukesh Ambani is undoing what all he has earned – whatever may be the outcome. He ought to allow Anil Ambani go ahead with the deal and create one of the world’s largest telecom giants.
• Anil Ambani for his part also should not try and pull off some similar trick. It will only do them both some damage in the long run.
• Look at the synopsis of the controversy here.
• Commercial establishments to get only branded fuel?
• Hospitals, hotels, malls, cinema halls and other commercial establishments will not be able to avail subsidised diesel anymore. They have to buy costlier premium (or branded) diesel. Public sector oil companies IOC, BPCL and HPCL plan to stop supply of subsidised diesel to commercial establishments. Retail price of branded fuel is not regulated by the government and its price could be substantially raised, depending on the demand.
• Branded fuel is costlier (petrol Rs 4 per litre and diesel Rs 2.25 per litre) than the normal fuel in Delhi.
• One more high-profile CEO loses his job due to subprime crisis?
• This time it is AIG’s Martin Sullivan.
• AIG – American International Group is insurance major. One of its units issues credit-default swaps that promise to reimburse investors for losses on securities that included subprime assets. The business started issuing swaps a decade ago.
• In just a year after he took over the job in 2005, AIG showed record performance with $14 bn in earnings. But by 2007 it started showing declines in profits and by the 4^th quarter of 2007-08, it posted $5.29 bn loss.
• That’s the corporate world for you. Have guts to head a financial conglomerate? Most of these losses, mind you, are reported to be related to a revaluation of the assets it holds; they are not losses that are booked yet.
• Looks there is only one way for corporate head honchos – down. After working for a couple of years at the helm of affairs, one should be prepared to retire – mostly licking wounds.
• Know the meaning of ‘Kalaignar’?
• All of you might know that Tamilnadu Chief Minister Mr. Karunanidhi is often referred to as ‘Kalaignar.’ Ever wondered what it meant?
• Being a non-Tamil, I didn’t know the meaning till today; when one of ET editorials revealed it to me. It means ‘creative artist.’
• You might know that he is originally from the cinema field.
• Inflation and rate of returns on investments
• With inflation touching the 8.75% levels, the debate about negative returns is appearing again. If you have invested in a bank fixed deposit which gives you a 7-8% rate of return, you are actually earning a negative real rate of return on your investment (rate of return minus rate of inflation).
• What could be the consequence of negative returns? When inflation is high, there is a natural incentive to consume more in the present as inflation acts as a disincentive to save for future consumption. This is because your money is worth more today than it will be tomorrow. This is especially true if your investments are rendering a negative return.
• The best way to cope with a situation where you could potentially be receiving negative returns is to move your portfolio away from low-yielding fixed income instruments, like bank fixed deposits, towards assets that offer a better rate of returns. Time and again, studies have shown that the return on equity and equity-linked instruments have typically beaten inflation by a substantial margin, over the long term.
• Experts say that over the past 10 years, India has never had a negative rate of return for extended periods of time. There may have been short periods when inflation temporarily overtook the rate of return on fixed income instruments. But those were aberrations and were promptly reversed.
• In this context, one concept that is worth our attention is Fisher relation. This explains the co-movement between interest rates and the inflation expectations. This is stated to be not very strong in India. This means that any rise in the inflation rate in India need not necessarily be followed with a hike in the domestic interest rates. It also depends on factors other than inflation.
• What is regulatory dissonance?
• You might remember that RBI is very unhappy with Sahara India group and has sought to impose severe restrictions on its deposit taking practices.
• But the IRDA, the insurance regulator of the country is not worried by its practices and it is business as usual for the IRDA and the Sahara Group.
• A situation like this is what is defined by the term regulatory dissonance. Regulators take opposing views.
• On corporate social responsibility
• We would be seeing some debate or the other about this catch phrase time and again in the press. This is a favourite general essay topic.
• Take a look at a very good piece written by RC Bhargava, Chairman of Maruti Suzuki India Limited here. Worth a read.
• Look at the Euro 2008 championship update
• It is here.