NSWORLD

Two Ad. campaigns which made their appearance, one during later part of 2007 and the other during  the early  2008, and which i think were successful in striking a chord, were `Jeete raho`from ICICI Prudential and `We all change for the Ones we Love`from Canara Bank.Both of them incidentlly belong to Financial Service Industry.

Jeete Raho: Agency Lowe, prefers the old method of `story telling` in this campaign to pass on the message of importance of Insurance, and is successful to a great extent also. Couple seemingly in their early thirties, perfectly pass on the message to the targeted customers, with the combination of humour and sentiment. Ad starts with, telling  about the uncertainties surrounding in this world  in a subtle manner and finally ends up saying `why to worry`when you have the simple solution in the form of Insurance.`Story telling` is also successful because of the cast involved with whom the targeted customers can easily relate to, and identify with. 

We all change….Ogilvy and Mather which launched the re-branding exercise for Canara Bank has done a series of ads both for print and electronic media, with the base line `We all change for the ones we love`. Electronic media series has two superbly done ads. exactly conveying the base line `We all change…

In one of the ads, a young twenty something woman tries to master her knowledge on the game of cricket to impress her husband. She tries to identify the various fielding positions(such as silly point, gali, third man)  by substituting vegetables for players on her dining table and trying her hand on umpiring  with children playing on street.

Another ad. in the same series shows  Kannada speaking Woman learning Punjabi to welcome her daughter in law who is a Punjabi. Finally she welcomes her daughter in law in Punjabi and says “She is part of our family”. Both of these, very clearly and emotionally shows the intention and effort of the part of Bank to adopt to new technologies and methodologies to suit to the changing needs of  modern world, and this clearly drives home the point “We all change for the ones we love”.

  Budget season, and all eyes on North Block once again. And as usual pressures from three quarters on the man who is going to present his seventh budget and become the `Finance minister` who has presented second heighest number of Budgets, in Independent India.(First being Morarji Desai with eight budgets).

Pressure, One, from various industries which have their own grievances` ranging from Excise duty to FBT. Two from the `Economy`, which has its own problems in the form of Inflation, Monetary pressure, Fiscal health, Global pressure, what and what not. Third and the most powerful from the political lobby which despartely wants a `Feel good` factor to face the electorates, in the days to come.

Really a balancing act, but this is not the first time he is facing such a situation. He has proved his talent in dealing with a situation like this in the previous UF regime.

No amount of discussion and debates on what to expect, what not to and what is the better way? will solve the good old problem of `Delivery mechanism` being the faulty one.  Flawed Delivery mechanism can fail the ambitious and most well intentioned programmes and NREGP (National Rural Employment Guarantee Programme) being the classic example. Ironically, Adopting a Zero base concept and creating a robust Delivery mechanism are the two important factors which are forgotten budget on budget.

This is the one question that crops up in everyone’s mind, whenever we read reports such as, Rs. appreciating, US Dollar falling down, everywhere.

In a very simple language ,we can say that Demand and supply determines the value of any currency against any other currency. Suppose the demand for Rupee is higher owing to excess supply of dollar (i.e. more number of people want to convert their dollar in to Rupee), value of dollar will naturally decline against Rupee. This is the fundamental principle of Demand and Supply driven Exchange rate.

Not every nation on the earth follows the system of Demand and supply for determining the exchange rate. Some have pegged the value of their currency against others (like china) and some follow the route of `Free float` and intervention (by central bank) now and then whenever required (like India).

 `Gold Standard`It was the earliest method used  for determining the value of a currency… Under the gold standard, currency issuers guarantee to redeem notes, upon demand, in that amount of gold. Governments that employ such a fixed unit of account, and which will redeem their notes to other governments in gold, share a fixed-currency relationship.This system avoids frivolous printing of currency and keeps the inflation under check. With expanding trade beyond geographies and transactions taking place across nations, this system of Gold standard was ill equipped to address the concerns and complexities of the new changing and dynamic world order. 

Bretton Woods SystemThis new order came in to exisistence in 1944. Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, for the United Nations Monetary and Financial Conference. The delegates deliberated upon and signed the Bretton Woods Agreements during the first three weeks of July 1944.Here the participating countries agreed to fix the value of their currencies with in the fixed value (i.e. plus or minus some percentage in terms of gold) and it was also agreed that IMF would help those nations in case of serious problems in Balance of Payments.But this system also collapsed in 70s when US unilaterally decided to move out of this system and refused to convert the dollar into gold.

 Demand and Supply This is the simple and most effective method to determine the value of currency which is used almost everywhere worldwide. (With some exceptions and modifications)This is also popularly called as free float system, where the market forces are given a free hand to determine the value of any currency based on Demand and supply for respective currencies. Today in India we follow a middle path that is in-between free hand to market forces and occasional intervention by central banker. Still we have very long way to go so that our exchange rate is completely determined by market forces. , For that various other regulatory issues including `Capital account convertibility `have to be sorted out. Then what are the advantages or disadvantages of opting for `no intervention policy by government` is another topic for debate and we will discuss some time later…

I think the entire theme for the month of June was , money , money and more money everywhere. First it started with entire National Media highlighting the takeover of substantial stake in Deccan Airways by flambuyont businessman Mallya. Then everywhere there was the news of two major public issues, one IPO and another FPO by DLF and ICICI Bank respectively which together runs into some thousand crores of Rupees.This month also saw the hot debate over  recently released film `Sivaji` ,the money spent on it and the remuneration paid to Mr. Rajanikanth.

Suddenly I am feeling `Oh am fed up yaar`. So much `money` news around and discussion on  hundreds and thousands of crores. (Let me be honest I may take little too longer to figure out exact zeros to be put in these figures)

All these news bytes and regular corporate news which involves buyouts, private equity investments here and there makes at least a particular section of Indian society to believe that everything is great about India and we Indians are happy and rocking.

But is this true????_______ NO !!!!!

Not so representative ,Stock market indicies, GDP figures, and Whole sale  Price Index numbers can never tell you the real story of majority of People especially for a country like India which is so vast and heterogeneous.

Still we have millions of people living below `Poverty Line`,millions suffering from malnutrition, millions without proper housing, sanitation, potable water, millions waiting for that elusive job, and still many more millions of farmers waiting for rain god and thinking of there overburdened debt to be repaid.

You need not be an Economist or a Statistician to sense this. Just step out of your metro (or State capital) and enter any semi urban (tier II city) or rural area, you will notice that lopsided development, imbalance. Greatest theory in Economics, `The Trickle down effect` is not at all working for these poor chaps. Why it is not working?? Because they don`t have proper connectivity, and infrastructure to attract big investments to their part of the world . Who will create this condusive atmosphere so that some trickle down happens there also??? Definitely it is the responsiblity of the state.

It is high time that our policy makers should think of Inclusive growth and revisit their Urban centric policies.

Aftermath of the Percy Mistry (former world bank economist) committee report, `Mumbai as an IFC `debate has started again. It was Finance minister P Chidambaram who first mooted this idea in his 2005 budget, but since then this idea has taken new dimensions and come a long way.

What is an IFC? `International Financial Centre` means , includes and provides a `one stop shop` for all the Financial Services needs of big corporates. When I say Financial Services for large corporates it includes , services ranging from Due delligence, Accounting, Legal, Private placements, Investment Banking,Leveraged Buy Out assistance,Fund rising, sorts of services required by corporates when they go for Mergers and Acquisitions overseas.

What is the Status Quo? Due to various regulatory bottlenecks such as ,No scope for full capital account convertibility, (100% Capital account convertibility allows any one to freely move from local currency to foreign currency and back) Absence of regulatory `go ahead` for forex futures market, Large stakes of government in big Financial corporations, and excess intervention of Central banks in Money and Forex markets, etc are few of the reasons that are discouraging Globally big Financial Service providers from opening their shops in India in general and Mumbai in specific and they prefer places like Singapore, London, Newyork.

What is the Loss? A booming Indian Economy is encouraging more and more number of domestic corporates to take the route of international mergers and acquisitions, this is creating more and more demand for `International Financial services` such as Fund rising in the form of debt or equity, private placements. And also services such as Legal , due delligence and accounting . In 2005 Indian companies paid a whopping $13 billion in the form of commissions to these financial intermediaries for their services and it went to intermediaries situated in Singapore, London and Newyork. Recently Tata steel completed its LBO (Leveraged Buy Out ) of Corus for $12.9 billion and imagine the service charge paid by the company for intermediaries.(just take 1.5%of the total value)Like this when our economy is growing at 9% what will be our demand for `International Financial Services` in the years to come and how much we end up paying?

What is the solution? If the regulatory environment is condusive many of the leading `International Financial Service` providers set up their shops in India itself and we can ensure that the amount spent by the corporates for these services remain in India and it inturn creates employment  , and has some trickle down effect also.

Isn`t it funny? What the length of a skirt has got to do with , the movement of a stock market index? Yes there is a correlation , says Ralph Rotnem, a Harvard graduate and the propounder of Hemline theory/indicator.
Hemline theory is a sort of study of social mood and behaviour and an effort to link that to stock market movement. According to Ralph, when people become affluent and mood is upbeat in the society length of skirt decreases, this he connects with stock market performance and has found that even stock markets perform well at that time. He links both of these to Liquidity phenomenon.
Seems to be an interesting theory and observation. Just like stock/index, skirt length also has a support and Ressistance level and reaching of upper or lower limit implies concurrance of an extreme positive or negative mood.
But can we use it in India where we don`t have an uniformity in dressing across our vast geography?
Heel length Indicator:Suppose if i want to create another indicator called Heel length Indicator and test whether there is any correlation between this and stock market returns, then what i will do? Simple i will collect the numbers of the average length of heels of foot-wears sold by top Foot wear companies and quantity in different quarters and juxtapose it with stock market returns of respective quarters. Then i will find the correlation i.e, Beta and write my observations, that’s it.
Believe me, am not a Harvard Graduate!!!!

Yet again RBI has increased the CRR by another 50 basis points and Repo by 25 basis points. Now CRR and Repo rates stand at 6.5% and 7.75% respectively. This is the third time since Jan 2007 , RBI has done this in its continued  battle against rising inflation.

This write up is an effort to simplify the concepts like CRR and Repo and explain their impact on inflation and liquidity.

CRR-Cash Reserve Ratio- It is the portion of cash balance that every bank has to keep with RBI and it is calculated every fortnight. It is simple! more the CRR, more the cash to be deposited with RBI and inturn it reduces the lendable cash balance of Banks and reduces the supply of money in market. Thus it is used as a weapon to reduce inflation.

Repo-Repurchase agreement- In simple language Repo is referred as Selling to buy and Reverse repo is the inverse of that. Here RBI sells the govt. securities, to Banks at certain rate and after the stipulated period it buys back them paying , a price which is over and above what it received.  For example if the RBI sells the security at Rs.100 and buys back them after, say 1 year at Rs. 110, then Rs. 10 is the interest paid by RBI for the amount it received while selling the security. And this is called as Repo rate. When RBI increases the Repo rate Banks will park more money in govt. securities to earn more interest and this will again reduces their lendable balance and hence the liquidity in the market is reduced and inflation curbed.

By this time it is a well known fact that Krrish by Rakesh Roshan has earned three times the capital invested. Probably it is the first time an experiment in making cinema has made its place in the case studies of the elite IIMs. IS it an indication of the developments that is going to take place in Bollywood in the near future? can Bollywood take on Hollywood and produce equally superb and technically superior movies? Time only will answer that.
When it comes to case studies  our Lalu is not far behind , he has  gone a step ahead. His performance and turnaround of railway finances during his tenure has made it to the Harvard case studies. Three cheers to Rakesh Roshan and Lalu.