Politics & the Nation
  • What do you call this?
    • An ET front page report says that the UP government has asked Gurdeep Singh aka Ponty Chadha to manage liquor business on its behalf -- the first of its kind of arrangement in the country.
    • What this means is that he will decide what stock to buy, how much and at what price, from domestic as well as multinational spirits companies.  The Chadha group will buy wholesale stock at a discount from the firms and sell to the trade at a margin.
    • The Chadha group directly and indirectly influences the liquor trade in Punjab, Chandigarh, Haryana and Uttar Pradesh and has operations in Rajasthan, Uttarakhand and Chhattisgarh. 
    • Sales of Indian Made Foreign Liquor in Uttar Pradesh are estimated at over six million cases and the volume of country spirits sold is pegged at nearly 2.5 times that number. With over 3,200 vends, the state is expected to earn around Rs 4,600 crore in excise receipts in the fiscal ending March 2009. 
  • Auditors to have a bigger say than at present
    • Companies will have to restate financial statements to accommodate auditors’ objections to any figure in their annual accounts.  If they don't do so, they would be barred from paying dividends or raising funds.
    • This will be the scenario if the ICAI's recommendations to the government are accepted.  If the proposal is accepted, accounts will become more transparent, and the auditor will be taken far more seriously than at present by companies. 
    • At present, an auditor’s scepticism about any portion of the accounts presented by a company is tagged along with the annual report and an investor has to work hard to correlate every auditor qualification with the number or numbers under challenge. 
Finance & Economics
  • The case for independent third party ATM operators
    • In the wake of the ICICI Bank's decision of hiving off its ATM operations into a separate entity -- possibly for an eventual sale to third parties -- let's look at some reasoning put forth by today's ET editorial on third party operators:
    • Third-party operators would be able to rationalise the network, moving the less used machines to other areas. While the savings so obtained would help reduce ATM usage fees for banks, the bigger gain would be a leg up for financial inclusion. Independent ATM operator whose business is to install and manage the machines would be more interested in their spread than banks who may increasingly see them as noncore in the charge-free regime.
    • You might recall our recent notings that from April 2009 all banks would have to allow charge free cash withdrawals from the ATM of any bank.  This is a mandate from RBI.
  • An excellent quote from today's op-ed article
    • The business of business is only business, said Milton Friedman the Nobel Laureate in economics from Chicago, with the corollary that government has no business to be in business. 
  • Are there any flaws in using shareholder value as a measure of a company's performance?
    • If you ever had any background in management or finance, you would surely have heard about this concept of shareholder value.  Jack Welch the former CEO of GE who was credited with being the proponent of the concept has recently criticised it in no small measure.  Let's look at a couple of reasons given by our own venerable TT Ram Mohan, Professor from IIMA:
    • Using shareholder value as a measure of performance undoubtedly has its flaws. One, it rests on the premise that markets are efficient and that the share price accurately captures the long-run performance of a firm. The fact that there are booms and busts in the stock market shows that markets are not all that efficient.  We have seen the havoc that a focus on shareholder value can cause in the financial sector. In banks, results show up with enormous lags. Highly risky investments can produce high returns in the short-term but can destroy the firm over a longer period. Investment banks, whose share prices soared through 2006 and 2007, went bust a year later. 
    • Secondly, managers are substantially rewarded by being paid bonuses in the form of stocks of companies they run. Where markets are not efficient, managers have every incentive to do things that push up stock prices in the short-run and cash out their holdings of their companies’ stocks. In other words, managers can take advantage of inefficiencies in the market — and at the expense of other stakeholders. 
  • Snippets about interest rate spreads in banks
    • A bank has to maintain a margin of 3% between its borrowing and lending rates to be in good health. 
    • Of late banks appear to have instructed their branches to go slow on accepting bulk deposits of Rs. 5 crore and above.  This is because they are not able to find adequate avenues for deploying the funds for onward lending at reasonable rates (i.e., with a spread of more than 3%).
    • So branches which are approached for depositing Rs. 5 cr or above, will have to obtain the prior approval of the banks' Alco (Asset Liability Committee) before accepting the deposit.
    • What a change of scenario!  Banks saying No do deposits!
  • India's diamond hub
    • Surat’s Varaccha Road, which is home to nearly 10,000 diamond units can perhaps be considered the country's diamond hub.
    • The recent economic slowdown has taken the shine off this Rs 50,000-crore diamond industry and resulted in no less than 4.2 lakh job losses. 
    • So, how are they trying to beat the slowdown?
      • By resorting to joint sourcing of rough diamonds, putting a stop to credit selling, localising assorting operations, keeping inventory low by cutting production, slashing brand-building expenses and bidding for small mines in South Africa to avoid dependence on major traders like De Beers. The primary goal is to save on costs — their best bet to see through what appears to be one of their toughest years, and prepare themselves for the road ahead.
    • BTW do you know that the international retail market for polished diamonds is estimated at $52 billion?
  • Slimona, Obitone and Riobant
    • These are antiobesity drugs that reportedly cause suicidal tendencies in consumers.
    • Therefore, the government is reported to be considering banning these drugs.
  • Cricket
    • India trail NewZealand by 1 run on day 2 of the first test at Hamilton.  Indians bowled out the Kiwis for 279 on the first day.  Sachin and Yuvraj are at the crease with 70 and 8 runs each.
Language lessons
  • pennant: Noun
    • The award given to the champion
    • A flag longer than it is wide (and often tapering)
  • ditty: Noun
    • A short simple song (or the words of a poem intended to be sung)
  • pernickety: Adjective
    • Characterized by excessive precision and attention to trivial details