Grossly indebted BRIC economies!

IIPM MANAGEMENT INSTITUTE

Overview
Brazil
The general government debt and the long term debt of Brazil have witnessed a minimal increase of $26 million and $ 20 million, respectively in the first quarter of this year, as compared to 2006 Q2 figures. The bank debts and the direct investment has been on the surge, the bank debts stand at $49.913 billion and direct investment figures stand at $33.462 billions. The gross external debt has increased by 21%.

Russia
The general government debt and the long term debt have been on the decline for Russia. The 2007 Q1 figures for the two stand at $43.3 billion and $40.93 billion, respectively. On the other hand bank debts & direct investment have increased to $110.01 billion and $29.03 billion, respectively. The gross external debt has increased to $339.3 billion in 2007 Q1 from $288.8 billion in 2006 Q2.

India
The general government debt and the long term debt both bear equal figures; they stand at $48.6 billion in 2007 Q1 as compared to $45.87 billion in 2006 Q2. The banks debt has been continuously on the surge; there has been an increase of 12% in bank debts in 2007 Q1, as compared to the same figures in 2006 Q2. The gross external debt too has increased to $155.03 billion from $132.27 billion.

Hong Kong, China
The general government debt at the end of 2007 Q1 stands at $1.667 billion, as compared to $1.631 billion at the end of 2006 Q2. The long term debt too bears the same figures. The bank debt has increased by 11% to $337.6 billion and the direct investments have decreased by 4.8%. The gross external debt stands at $509.9 billion in 2007 Q1, as compared to $472.87 billion in 2006 Q2.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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Fed monetary policy: Back to the drawing board!

IIPM Mumbai Parables - Stories that change life

After the cut in the discount rate, markets are longing for rate cut in September

First, I do not regard the current market conditions to be unusual but I do consider the market conditions that preceded the current correction (the period between March 2003 & July 2007) to have been unusual since they were characterised by extremely low volatility and a relentless increase in all asset prices. Compare the recent low volatility bull market to the conditions in the 70s!

We had, in the 1970s, every year, huge market swings. Therefore, what is unusual about the present is how just a minor correction of 10% could create so many problems among hedge funds and other financial institutions and how it led to calls by some ‘experts’ for the Fed to cut rates. This, especially in light of the fact, that it is precisely the Fed’s expansionary monetary policies, which have led to the current problems in the credit markets. However, it is indicative of the rot and the leverage, which are nowadays endemic to the global financial markets.

In my view, the current correction is of course, a minor one, when compared to the 1987 or 1998 corrections.

But, as was the case in 1987 & 1998, the stock market became, after an initial decline, as of August 16, 2007, from a near term perspective, incredibly oversold. On that day, the Dow first sold off more than 300 points, but ended the session basically unchanged. On the same day, we had on the NYSE only 10 stocks hitting 52 weeks new highs, but a staggering 1,045 stocks reaching new lows.

On August 17, the S&P 500 soared 34 points and the Dow Jones 233 points, as the Fed cut the discount rate. However, 52 weeks new highs expanded to only 55 and were outpaced by 149 new lows, which is unusual during such a powerful upward move. Personally, I am not surprised that the Fed cut the discount rate and injected liquidity into the system by moving the Fed fund rate below the target rate of 5.25%. I have repeatedly maintained that should Goldman Sachs’ stock decline by 20% off its high, the Fed would cut rates under pressure from the now ‘impoverished’ Wall Street jackals. I am also not surprised by the strong rally from the August 16 intra-day low because investors are still conditioned to buy the dips and not to sell into strength. I regard the fear to miss the next advance to be negative for the market from a contrarian point of view.

My best guess is that we have seen an intermediate low, but that the S&P 500, which, as at last week’s close, was still down 100 points from its July 2007 high, will have great difficulties to make a new yearly high. A very strong overhead resistance now exists between 1,500 & 1,540. Therefore, I would use additional strength as a selling opportunity. It is also my view that, in time, the recent August low and the March 2007 low at 1,363 will be taken out on the downside.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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Designed to last long... Beyond the first generation!

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Christian Dior, Versace, Giorgio Armani, Hugo Boss, Pal Zileri – these are the bon ton brands that have emerged from the Meccas of fashion industry – Italy & France, and this we all know. But what most of us haven’t known for long is the strategic and long term planning done by these designer brands which Indian brands lack. In simpler terms – these global brands have from the very start grown under the umbrella of a ‘professional group’ with deft vision and aggressive expansion plans, much of what has resulted into them becoming legendary names. Affirms Manuela Miola, Director Marketing, Pal Zileri, “Good designers are the intellectual property of a fashion house. But only on the basis of them, you can’t create a global market. It requires a professionally managed team who could handle everything – starting from the logistic to the front end global operations.”

No wonder these designers have created big organised fashion houses, which live on, even ages after the person who created them perished. Now consider the Rs.2 billion Indian designer industry (as per Ernst & Young’s 2006 estimate), there is no denying that Indian designers like Satya Paul , Rina Dhaka, Manish Malhotra, Raghavendra Rathore & Rohit Bal are creating waves globally, but question arises – what after they cease to exist? Would their brands live on? Well, the answer for now sadly is – a big “NO”! “I think we lack funds as compared to global designers,” is what Manish Malhotra gives as a reason. Sure enough, but lack of professional management beyond the first generation ensures that the brand dies with the founder. The need of the hour is therefore to rope in professional management, who can handle financial and logistic-related issues, something which Satya Paul is currently doing by roping in Genesis Colors Pvt. Ltd., a professional management group.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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