May 08, 2007, www.rediff.com, Co-author-Puneet Bambha
It is popularly believed that venture capitalists fund only established players and proven products. There is a lot of cynicism amongst many about all the hype that private equity and venture capital is getting in India of late.
However, the truth is that, in recent times in India, the VCs have actually provided capital to relatively new, start-up companies that have a reasonable, though not certain, prospects to develop into highly profitable ventures. Travelguru.com is a case in point, funded by Sequoia Capital and Battery Ventures.
The advent of firms like Helion Ventures with a $140 million corpus is helping the VC scenario to improve in the country. The three key people behind Helion Ventures, Ashish Gupta, Sanjeev Aggarwal and Kanwaljit Singh, all carry with them a successful track record across various companies in the international arena.
What is interesting is that for first time in India, venture capital will be backed by successful entrepreneurs who themselves have a hands-on experience in handling and developing businesses.
The National Venture Capital Association defines venture capital as: "Money provided by professionals who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors."
Innovation is the key driver of competitiveness within organisations as well as within countries. It has been well said: "Nothing is more powerful than an idea whose time has come." However, innovative ideas need more than research and knowledge to succeed.
They need not only financial, but also, managerial (technical, marketing and HR), support to achieve success. This support is lent in many forms by private funding and incubation organisations such as venture capitalists.
Akhil Gupta, JMD & CFO of? Bharti Airtel, once remarked, "While we could have raised funding from other sources, Warburg Pincus' involvement helped us in scaling up significantly." Almost identical has been the findings of a research conducted recently by Venture Intelligence (founded by Arun Natarajan, a leading provider of information and networking services to the private equity and venture capital ecosystem in India) with the guidance of Prof. Amit Bubna of Indian School of Business, Hyderabad, to study the economic impact of PE and VCs on the Indian businesses.
The following are some of the interesting observations of this study:
The study shows that the PE and VC backed companies grew faster compared to the non-PE backed peers and even better than the benchmark indices like the NSE Nifty. They found that the sales of listed PE-backed companies grew at 22.9% as compared to 10% for non-PE-backed listed firms.
PE backed firms added more jobs to the economy and even the wages at listed PE financed firms grew at around 32% as compared to 6% for non-PE-backed firms.
An astonishing finding was that almost 96% of the top executives felt that without the support and the backing of private equity these companies would not have existed or would have grown at a slower rate, while only about 4% felt that they would have developed the same way even without PE funding.
The study also shows that the biggest support of the PE investors were provided in the area of strategic direction followed by the financial advice and then recruitment and the marketing activities.
Thus venture capital has become an important source of finance for innovative ideas that are risky and have a potential for high returns over a long-term horizon. Venture capitalist investment is driven by the expectation that the start-ups invested in could give them a higher rate of return than other firms.
In the process venture capitalists have created some of the best known companies in the world. Without VCs we might not have seen companies such as Apple, Compaq, Sun Microsystems, and Intel to name a few.
Some of the unique features of a VC firm are:
Investment in high-risk, high-returns ventures: As VCs invest in untested, innovative ideas the investments entail high risks. In return, they expect a much higher return than usual. (Internal Rate of return expected is generally in the range of 25 per cent to 40 per cent).
Participation in management: Besides providing finance, venture capitalists may also provide technical, marketing and strategic support. To safeguard their investment, they may also at times expect participation in management.
Expertise in managing funds: VCs generally invest in particular type of industries or some of them invest in particular type of businesses and hence have a prior experience and contacts in the specific industry which gives them an expertise in better management of the funds deployed.
Raises funds from several sources: A misconception among people is that venture capitalists are rich individuals who come together in a partnership. In fact, VCs are not necessarily rich and almost always deal with funds raised mainly from others. The various sources of funds are rich individuals, other investment funds, pension funds, endowment funds, et cetera, in addition to their own funds, if any.
Diversification of the portfolio: VCs reduce the risk of venture investing by developing a portfolio of companies and the norm followed by them is same as the portfolio managers, that is, not to put all the eggs in the same basket.
Exit after specified time: VCs are generally interested in exiting from a business after a pre-specified period. This period may usually range from 3 to 7 years.
Buyouts and second-stage financing are the most popular stages of venture capital financing. Globally, according to a report by PricewaterhouseCoopers, around 80 per cent of the total private equity investment is done at these stages.
However, in spite of the venture capital scenario improving, several specific VC funds are setting up shop in India, with the year 2006 having been a landmark year for VC funding in India.
Sumir Chadha, MD of Sequoia Capital India, feels that a slowdown could be on the cards for the year 2007 as the companies and investors may try to give some time and test the investment decisions made by them over the last year.
The first quarter of the calendar year 2007 is already over. There is no sign of the VC story slowing down. This is a good sign for all the entrepreneurs out there with an idea! If you have an idea, this is the time to tell it. You never know, someone might be listening round the corner!
Tuesday, May 8, 2007
Thursday, May 3, 2007
Valuation, Structuring & Monitoring Of The Deals By Vcs
3rd May 2007, www.indiainfoline.com, Co-author-Puneet Bambha
During the late 1990s, as the internet boom was at its peak so was the Venture Capital
(VC) and Private Equity (PE) activity. Led by the huge expectations of the Y2K coupled
with the soaring success of the large number of software startups, various VC firms were
enticed to promote and fund such kind of businesses. It is pertinent to note that ripple
effect of private funding was felt not only in US but across the globe including emerging
markets like India.
But what followed was nothing short of disaster. Firstly, there was the dotcom bust which
badly affected the fortunes of several leading firms including ChrysCapital, eVentures
India, Draper International and ConnectCapital etc. The damage was further accentuated
by the 9/11 attacks in the US followed by the general US economic slowdown. The US
being the largest source of private funding in the Indian markets, these events resulted in
premature death of private funding in India.
However what is interesting to note is that once again the VCs and PE players have
staged a comeback not only in developed markets but also in emerging markets like India
and China. The tide started turning again from 2003 and since then there has been no
looking back. See Graph 1 for the VC and PE investments in India since the year 2003.
The combined total investment of the PE and VC firms for the year 2003-2005 has been
close to $505 billion globally. Notably the share of VC firms has been close to $100
billion out of the total pie. For India, although the year 2006 saw record investments
which were far ahead of the expected $6bn for the year, the Indian share of the global pie
is still just close to 6-7%. While China still takes the lion’s share of the pie in the Asia
Pacific region.
An interesting observation is that slowly other emerging markets like South America,
Middle East and Asia Pacific have been increasing their respective shares over the last
few years. Also, over the past few years it has been noted that the various PE/VC firms
have been globalizing their investment base so as to diversify the risks and as well gain
from the world wide opportunities.
With so much of improvement in the VC scenario globally, and especially in India, and
with so much scope for improvement of the market share for India, understanding the
various aspects related to VC investments become pertinent for Indian businesses. In this
article, we look at the various approaches used by the VCs for valuation of a deal.
Valuation is one of the most important factors when obtaining VC funding. It gives rise
to maximum conflicts at the time of negotiation between the management & VCs. This is
because valuation is not an absolute but a relative factor, which may change from one
situation to another.
The Cost Based approach to business valuation is based on the premise that the
economic value of an asset can be determined by the cost of an asset. However, there is
usually controversy over definition of cost and the usage of different types of cost
(historical or current). Also, estimating the cost of Intangibles can be very judgmental.
The Market Based approach assumes that the value of the business can be assessed by
observing the value at which comparable business ownership interests presently are being
exchanged in either the public or private markets. But obtaining data in case of private
market deals can be difficult and there can be arguments over what is comparable.
Income Approach to business valuation estimate the value of the expected economic
benefits of ownership of the business as equal to the present value of expected future
income streams. The problems with this approach are that income forecasts are uncertain
and based on assumptions. Also, the process of estimating an appropriate discounting rate
for future earnings can become controversial.
Amongst the above three approaches, the Income approach is the one which is considered
to be the better one. The discount rate used in the calculation of the present value of
future earnings is generally very high if the VC is providing the funding at the start-up
stage (it can be as high as 70-80%). However, this approach may not work when it comes
to valuation of the early stage of enterprises where there is no certainty in case of future
cash flows or some tangible assets.
In early-stage investing, valuation is simpler. Valuation has little to do with the
company’s worth at that point of time. Valuation is derived from how much capital the
company needs and the percentage of the company the VCs would like to own, given the
high-risk nature of the investment. Except for a vague sense that the market being
addressed is adequately large, there is no pretense of knowing future revenues or
profitability. In fact, most VCs in this situation ignore all future earning forecasts after 18
to 24 months.
At the other extreme, valuation of large publicly-listed companies is much simpler.
Besides the traded stock price, these companies have dozens of equity analysts figuring
out what the stock is worth and which way it will move. The true value of these stocks is
as much a function of supply-demand and investor preferences, as they are of cash flows
and discount rates. Analyst estimates and the actual stock price typically fall within a
reasonable band.
This leaves the companies which are somewhere between the above two extremes. In
India, most investment opportunities are in such cases. These are often privately-held and
almost always project rapid growth (that’s why they need the funds in the first place).
The valuation process may get messy, as these are neither here nor there. Given the small
size and relatively early stage in their lifecycle, their future performance is subject to a
high level of variability.
The Valuation in such cases is a lot more about the softer factors – supply-demand for
deals, relationships, competitive dynamics, bull or bear nature of the investing
environment. The actual projections and valuation techniques may at times tend to be
more distracting than helpful.
Once a value is agreed upon by both the VC and the company, the next challenge is to
structure the deal. The objective is to choose an instrument (or a mix of instruments)
which would protect the interests of both the parties involved, that is, VCs and the
entrepreneur. The various instruments commonly used are Equity Shares, Convertible
and Non-Convertible Preference Shares, and Convertible and Non-Convertible
Debentures.
Investments made by VCs in early stages are usually in the form of debt or debt related
instruments, which allow them to keep their principal safe to guard against failure of an
enterprise. In case of later stage investments, they are usually made in the form of equity
or similar instruments. This is because during this stage, there is lesser uncertainty and
more chances of success of the enterprise. Thus, the deals are generally structured in a
way that would involve safety of principle and a chance to participate in the super profits
(if they occur). Thus, the usual deal structuring is that about 2/3rd of the investment is in
the form of debt related instruments and one third is in the form of pre-decided
proportion of equity.
Once a deal has been made, Monitoring the Project becomes of utmost importance to
the VCs. It has been well said that "A venture is most prone to failure during its first
three years of operation - the so-called 'valley of death'. A key to getting through these
early years is to avoid the obvious mistakes." – ‘Devising Venture Strategies' by Invest-
Tech Ltd.
Hence to safeguard their interest and to ensure the success of the project VCs usually
monitor the project on an ongoing basis. Their involvement in the venture can range from
sitting on the board of the company (in general about 30-60% board seats may be held by
the VCs) to providing consultancy services to reviewing the internal documents and
reports of the company on a regular basis. Seats on the board of the company are
generally a point of contention between the company’s management and the VCs. The
company management usually prefers to share less number of seats with the VCs.
Apart from Valuation, Structuring of the deal and Monitoring the Project, the Exit Route
is one of the most important factors in the VCs evaluation process. The VCs normally
invest for a range of 3-7 years and if the smooth exit route is not available then the VCs
might not like to commit funds no matter how attractive the project is. The various exit
options used by the VCs range from IPO’s, Secondary Offering, Acquisitions, Buy-Back,
and Third Party Sale.
It has been seen in the past that IPO’s and Acquisitions provide the maximum gain to the
VCs, averaging approximately 300% of the initial investment. Hence, they are also the
most commonly used exit routes. An IPO is also a preferred option by the company’s
management and/or the entrepreneur. IPO allows the original management to stay in
place and retain control of the company and also allows management who hold shares to
realize their value in the business or retain a share and benefit from the future growth of
the company. Example: SHAREKHAN, an Indian stock broking firm provided exit route
to three of its VCs (HSBC, Intel and Carlyl) holding 49% stake in the company in 2002
through an IPO.
Apart from the above, it is pertinent to note that the period 2003 – 04 onwards when the
private investors staged a comeback in the Indian Territory, the stock markets were at the
lower level and the valuations of the companies were not stretched. But now with such
high valuations, the private investors would be skeptical about investing liberally and
would be all the more choosy in making their investment decision in future. However,
investment bankers feel that even though now private investors would have to be choosy
but still there are several opportunities available in the Indian markets. To quote Mr.
Nandakumar Ranganathan, Head, Investment Banking, DBS Bank, “Going ahead, the
challenge for PE players will be to go beyond the obvious opportunities and mine out
undiscovered sectors. Companies need to be convinced about the value proposition,
which companies bring to the table, in addition to the funding”.
During the late 1990s, as the internet boom was at its peak so was the Venture Capital
(VC) and Private Equity (PE) activity. Led by the huge expectations of the Y2K coupled
with the soaring success of the large number of software startups, various VC firms were
enticed to promote and fund such kind of businesses. It is pertinent to note that ripple
effect of private funding was felt not only in US but across the globe including emerging
markets like India.
But what followed was nothing short of disaster. Firstly, there was the dotcom bust which
badly affected the fortunes of several leading firms including ChrysCapital, eVentures
India, Draper International and ConnectCapital etc. The damage was further accentuated
by the 9/11 attacks in the US followed by the general US economic slowdown. The US
being the largest source of private funding in the Indian markets, these events resulted in
premature death of private funding in India.
However what is interesting to note is that once again the VCs and PE players have
staged a comeback not only in developed markets but also in emerging markets like India
and China. The tide started turning again from 2003 and since then there has been no
looking back. See Graph 1 for the VC and PE investments in India since the year 2003.
The combined total investment of the PE and VC firms for the year 2003-2005 has been
close to $505 billion globally. Notably the share of VC firms has been close to $100
billion out of the total pie. For India, although the year 2006 saw record investments
which were far ahead of the expected $6bn for the year, the Indian share of the global pie
is still just close to 6-7%. While China still takes the lion’s share of the pie in the Asia
Pacific region.
An interesting observation is that slowly other emerging markets like South America,
Middle East and Asia Pacific have been increasing their respective shares over the last
few years. Also, over the past few years it has been noted that the various PE/VC firms
have been globalizing their investment base so as to diversify the risks and as well gain
from the world wide opportunities.
With so much of improvement in the VC scenario globally, and especially in India, and
with so much scope for improvement of the market share for India, understanding the
various aspects related to VC investments become pertinent for Indian businesses. In this
article, we look at the various approaches used by the VCs for valuation of a deal.
Valuation is one of the most important factors when obtaining VC funding. It gives rise
to maximum conflicts at the time of negotiation between the management & VCs. This is
because valuation is not an absolute but a relative factor, which may change from one
situation to another.
The Cost Based approach to business valuation is based on the premise that the
economic value of an asset can be determined by the cost of an asset. However, there is
usually controversy over definition of cost and the usage of different types of cost
(historical or current). Also, estimating the cost of Intangibles can be very judgmental.
The Market Based approach assumes that the value of the business can be assessed by
observing the value at which comparable business ownership interests presently are being
exchanged in either the public or private markets. But obtaining data in case of private
market deals can be difficult and there can be arguments over what is comparable.
Income Approach to business valuation estimate the value of the expected economic
benefits of ownership of the business as equal to the present value of expected future
income streams. The problems with this approach are that income forecasts are uncertain
and based on assumptions. Also, the process of estimating an appropriate discounting rate
for future earnings can become controversial.
Amongst the above three approaches, the Income approach is the one which is considered
to be the better one. The discount rate used in the calculation of the present value of
future earnings is generally very high if the VC is providing the funding at the start-up
stage (it can be as high as 70-80%). However, this approach may not work when it comes
to valuation of the early stage of enterprises where there is no certainty in case of future
cash flows or some tangible assets.
In early-stage investing, valuation is simpler. Valuation has little to do with the
company’s worth at that point of time. Valuation is derived from how much capital the
company needs and the percentage of the company the VCs would like to own, given the
high-risk nature of the investment. Except for a vague sense that the market being
addressed is adequately large, there is no pretense of knowing future revenues or
profitability. In fact, most VCs in this situation ignore all future earning forecasts after 18
to 24 months.
At the other extreme, valuation of large publicly-listed companies is much simpler.
Besides the traded stock price, these companies have dozens of equity analysts figuring
out what the stock is worth and which way it will move. The true value of these stocks is
as much a function of supply-demand and investor preferences, as they are of cash flows
and discount rates. Analyst estimates and the actual stock price typically fall within a
reasonable band.
This leaves the companies which are somewhere between the above two extremes. In
India, most investment opportunities are in such cases. These are often privately-held and
almost always project rapid growth (that’s why they need the funds in the first place).
The valuation process may get messy, as these are neither here nor there. Given the small
size and relatively early stage in their lifecycle, their future performance is subject to a
high level of variability.
The Valuation in such cases is a lot more about the softer factors – supply-demand for
deals, relationships, competitive dynamics, bull or bear nature of the investing
environment. The actual projections and valuation techniques may at times tend to be
more distracting than helpful.
Once a value is agreed upon by both the VC and the company, the next challenge is to
structure the deal. The objective is to choose an instrument (or a mix of instruments)
which would protect the interests of both the parties involved, that is, VCs and the
entrepreneur. The various instruments commonly used are Equity Shares, Convertible
and Non-Convertible Preference Shares, and Convertible and Non-Convertible
Debentures.
Investments made by VCs in early stages are usually in the form of debt or debt related
instruments, which allow them to keep their principal safe to guard against failure of an
enterprise. In case of later stage investments, they are usually made in the form of equity
or similar instruments. This is because during this stage, there is lesser uncertainty and
more chances of success of the enterprise. Thus, the deals are generally structured in a
way that would involve safety of principle and a chance to participate in the super profits
(if they occur). Thus, the usual deal structuring is that about 2/3rd of the investment is in
the form of debt related instruments and one third is in the form of pre-decided
proportion of equity.
Once a deal has been made, Monitoring the Project becomes of utmost importance to
the VCs. It has been well said that "A venture is most prone to failure during its first
three years of operation - the so-called 'valley of death'. A key to getting through these
early years is to avoid the obvious mistakes." – ‘Devising Venture Strategies' by Invest-
Tech Ltd.
Hence to safeguard their interest and to ensure the success of the project VCs usually
monitor the project on an ongoing basis. Their involvement in the venture can range from
sitting on the board of the company (in general about 30-60% board seats may be held by
the VCs) to providing consultancy services to reviewing the internal documents and
reports of the company on a regular basis. Seats on the board of the company are
generally a point of contention between the company’s management and the VCs. The
company management usually prefers to share less number of seats with the VCs.
Apart from Valuation, Structuring of the deal and Monitoring the Project, the Exit Route
is one of the most important factors in the VCs evaluation process. The VCs normally
invest for a range of 3-7 years and if the smooth exit route is not available then the VCs
might not like to commit funds no matter how attractive the project is. The various exit
options used by the VCs range from IPO’s, Secondary Offering, Acquisitions, Buy-Back,
and Third Party Sale.
It has been seen in the past that IPO’s and Acquisitions provide the maximum gain to the
VCs, averaging approximately 300% of the initial investment. Hence, they are also the
most commonly used exit routes. An IPO is also a preferred option by the company’s
management and/or the entrepreneur. IPO allows the original management to stay in
place and retain control of the company and also allows management who hold shares to
realize their value in the business or retain a share and benefit from the future growth of
the company. Example: SHAREKHAN, an Indian stock broking firm provided exit route
to three of its VCs (HSBC, Intel and Carlyl) holding 49% stake in the company in 2002
through an IPO.
Apart from the above, it is pertinent to note that the period 2003 – 04 onwards when the
private investors staged a comeback in the Indian Territory, the stock markets were at the
lower level and the valuations of the companies were not stretched. But now with such
high valuations, the private investors would be skeptical about investing liberally and
would be all the more choosy in making their investment decision in future. However,
investment bankers feel that even though now private investors would have to be choosy
but still there are several opportunities available in the Indian markets. To quote Mr.
Nandakumar Ranganathan, Head, Investment Banking, DBS Bank, “Going ahead, the
challenge for PE players will be to go beyond the obvious opportunities and mine out
undiscovered sectors. Companies need to be convinced about the value proposition,
which companies bring to the table, in addition to the funding”.
Wednesday, April 11, 2007
What VCs look for while funding a business
April 11, 2007, www.rediff.com, Co-author-Puneet Bambha
"In the world today, there's plenty of technology, plenty of entrepreneurs, plenty of money, plenty of venture capital. What's in short supply are great teams." -- John Doerr, Partner, KPCB.
Early investors in amazon.com, Apple Computers and the Body Shop got returns of 260, 1,692 and 10,500 times their initial investments, respectively. That's mind boggling. Now let's look at some other numbers.
According to http://www.1000ventures.com/, only six out of 1,000 business plans get funded on an average. Only about 5 per cent of the business plans are read beyond the executive summary and 10 per cent of proposals pass initial screening. Only and only 10 per cent of these screened proposals pass due diligence and receive funding.
The investor, at whichever stage of the venture he might be investing, as per a report by Lehman Brothers, makes detailed evaluation of the quality of people, quality of business and the quality of investment involved. A decision to invest is reached after several rounds of presentations and negotiations.
The most difficult to assess is however the quality of people. As John Doerr rightly put it, 'What's in short supply are great teams.'
So given a great idea, a great business plan, and plenty of money, will the people involved be able to pull the project through to make great returns possible for the investors?
Before deciding to invest in a project, venture capitalists (for the purpose of ease, we are using venture capitalists as the term representative of incubators, angel investors, private equity investors and mezzanine financiers) undertake a series of steps to evaluate the project.
The following paragraphs broadly explain the various steps of the evaluation process.
Initial Screening: VCs are in the business of making more than the average returns and only the proposals which can match or exceed the VCs expectation will get an attention from them. Thus initial screening is a step in which the venture capitalist reaches an initial decision to investigate further the investment (or not).
The initial screen is a cursory glance at the business plan to determine whether or not the proposal fits within the investor's areas of expertise. VCs carry out initial screening of all projects on the basis of some broad criteria.
For example, the screening process may limit projects to areas with which the venture capitalist is familiar in terms of product, technology or market scope. The size of investment, stage of financing and geographical location could also be used as the broad screening criteria.
Detailed Business Plan: If the plan manages to clear the initial screening round then the VCs call for the detailed business plan from the entrepreneur. The business plan is the main tool with the help of which VC would make up his mind. Thus the entrepreneur should present clarity of thinking about the business in the plan as the "Surprises can be great for parties, but potentially could be fatal for businesses."
Due Diligence: In the next and the most important phase, due diligence is conducted by the VC to verify the accuracy of the statements made by the entrepreneur. The two main types of due diligence conducted are Business and Legal.
The legal due diligence involves verification of the documents by the lawyers of the VC. These documents include Memorandum and Articles of the Association, important contracts, patents, copyrights, et cetera.
Business due diligence involves looking at the quality of people, quality of business and the quality of investment. Quality of people is one of the most important criteria. There is unanimity among theorists that venture capitalists prefer a Grade A team with a Grade B idea to a Grade B team with a Grade A idea. However, how the quality of team is evaluated is a source of controversy.
Many feel that the integrity of the team members is the most important criterion. Past research shows that trustworthiness, enthusiasm and expertise of the entrepreneur are the most important factors considered by the VCs. It has also been seen that about 50-60 per cent of the projects which are seriously considered for financing but are ultimately rejected is due to the factors related to the entrepreneur.
The other major consideration is quality of business. Some VCs, especially the early stage ones, may not give a lot of importance to details; however, the idea must necessarily and clearly signify a distinct and unique competitive advantage.
Generally, market potential and attractiveness are an integral part of a marketing plan.
Though visibility and transparency in a business may not necessarily increase its attractiveness, it is more of a necessity. One of the most important considerations for VCs while judging an investment proposal is clarity of the exit mode and the expected return from the project, which is quality of the investment. This is because the VC is ultimately a fund and they (like mutual fund managers) need to manage their portfolio to get maximum return.
Dr A K Mishra of IIM Lucknow, conducted a detailed study in the year 2001 on the investment evaluation criteria used by the Indian venture capitalists. Even though the study was conducted six years back, its findings are still relevant and confirm the findings of researchers globally.
Mishra found the entrepreneurs' personality (integrity, attention to detail, long term vision, etc.) to be the most important criteria for the VC, followed by growth prospects of the business.
Finally, if the VC is positive after the due diligence, he will issue a term sheet which is an indication that he is seriously looking at the proposal. It is pertinent to note that the term sheet is not the final document, but only a basis for further negotiations.
So, behind those mind boggling returns lies serious evaluation. Apart from luck and being in the right business at the right time, venture capitalists must also be given due credit for the detailed evaluation that they carry out before deciding to invest.
"In the world today, there's plenty of technology, plenty of entrepreneurs, plenty of money, plenty of venture capital. What's in short supply are great teams." -- John Doerr, Partner, KPCB.
Early investors in amazon.com, Apple Computers and the Body Shop got returns of 260, 1,692 and 10,500 times their initial investments, respectively. That's mind boggling. Now let's look at some other numbers.
According to http://www.1000ventures.com/, only six out of 1,000 business plans get funded on an average. Only about 5 per cent of the business plans are read beyond the executive summary and 10 per cent of proposals pass initial screening. Only and only 10 per cent of these screened proposals pass due diligence and receive funding.
The investor, at whichever stage of the venture he might be investing, as per a report by Lehman Brothers, makes detailed evaluation of the quality of people, quality of business and the quality of investment involved. A decision to invest is reached after several rounds of presentations and negotiations.
The most difficult to assess is however the quality of people. As John Doerr rightly put it, 'What's in short supply are great teams.'
So given a great idea, a great business plan, and plenty of money, will the people involved be able to pull the project through to make great returns possible for the investors?
Before deciding to invest in a project, venture capitalists (for the purpose of ease, we are using venture capitalists as the term representative of incubators, angel investors, private equity investors and mezzanine financiers) undertake a series of steps to evaluate the project.
The following paragraphs broadly explain the various steps of the evaluation process.
Initial Screening: VCs are in the business of making more than the average returns and only the proposals which can match or exceed the VCs expectation will get an attention from them. Thus initial screening is a step in which the venture capitalist reaches an initial decision to investigate further the investment (or not).
The initial screen is a cursory glance at the business plan to determine whether or not the proposal fits within the investor's areas of expertise. VCs carry out initial screening of all projects on the basis of some broad criteria.
For example, the screening process may limit projects to areas with which the venture capitalist is familiar in terms of product, technology or market scope. The size of investment, stage of financing and geographical location could also be used as the broad screening criteria.
Detailed Business Plan: If the plan manages to clear the initial screening round then the VCs call for the detailed business plan from the entrepreneur. The business plan is the main tool with the help of which VC would make up his mind. Thus the entrepreneur should present clarity of thinking about the business in the plan as the "Surprises can be great for parties, but potentially could be fatal for businesses."
Due Diligence: In the next and the most important phase, due diligence is conducted by the VC to verify the accuracy of the statements made by the entrepreneur. The two main types of due diligence conducted are Business and Legal.
The legal due diligence involves verification of the documents by the lawyers of the VC. These documents include Memorandum and Articles of the Association, important contracts, patents, copyrights, et cetera.
Business due diligence involves looking at the quality of people, quality of business and the quality of investment. Quality of people is one of the most important criteria. There is unanimity among theorists that venture capitalists prefer a Grade A team with a Grade B idea to a Grade B team with a Grade A idea. However, how the quality of team is evaluated is a source of controversy.
Many feel that the integrity of the team members is the most important criterion. Past research shows that trustworthiness, enthusiasm and expertise of the entrepreneur are the most important factors considered by the VCs. It has also been seen that about 50-60 per cent of the projects which are seriously considered for financing but are ultimately rejected is due to the factors related to the entrepreneur.
The other major consideration is quality of business. Some VCs, especially the early stage ones, may not give a lot of importance to details; however, the idea must necessarily and clearly signify a distinct and unique competitive advantage.
Generally, market potential and attractiveness are an integral part of a marketing plan.
Though visibility and transparency in a business may not necessarily increase its attractiveness, it is more of a necessity. One of the most important considerations for VCs while judging an investment proposal is clarity of the exit mode and the expected return from the project, which is quality of the investment. This is because the VC is ultimately a fund and they (like mutual fund managers) need to manage their portfolio to get maximum return.
Dr A K Mishra of IIM Lucknow, conducted a detailed study in the year 2001 on the investment evaluation criteria used by the Indian venture capitalists. Even though the study was conducted six years back, its findings are still relevant and confirm the findings of researchers globally.
Mishra found the entrepreneurs' personality (integrity, attention to detail, long term vision, etc.) to be the most important criteria for the VC, followed by growth prospects of the business.
Finally, if the VC is positive after the due diligence, he will issue a term sheet which is an indication that he is seriously looking at the proposal. It is pertinent to note that the term sheet is not the final document, but only a basis for further negotiations.
So, behind those mind boggling returns lies serious evaluation. Apart from luck and being in the right business at the right time, venture capitalists must also be given due credit for the detailed evaluation that they carry out before deciding to invest.
Wednesday, February 14, 2007
The world is waking up to a New India
February 14, 2007, http://www.rediff.com/, Co-author-Puneet Bhamba
With the third wave sweeping the globe, the concept of business has changed. During the second wave, that is the industrial revolution, scale of operations, economies of scale, plants and equipments were the buzzwords.
Machinery and automation were keys to success. Any need for financing an expansion by an established company or starting a new company were met by banks, financial institutions etc. These traditional providers of funds evaluate an investment option based on tangible assets, regularity and certainty of cash flows and past history of a business or the past history of promoters.
With the advent of Knowledge Based Enterprises, which is a direct consequence of the third wave, that is the information technology revolution, the rules of doing business have changed.
Now, technology and intellectual capital have become the buzzwords. Innovation and ideas, the courage to nurture them, and then take them to their logical conclusion are the things that the fund providers look for in such enterprises.
In KBEs, the business idea is untested, the promoters are relatively unknown, tangible assets form very small part of the entire investment, cash flows cannot be predicted with certainty and human beings and their knowledge are considered the most valuable assets.
Sunrise sectors like information technology, IT enabled services, biotechnology, are especially the kind of businesses which can be called KBEs. This is where the alternative modes of raising funds come in and have gained importance.
However, it is pertinent to note that even these players providing specialised funding can also be classified into various types depending upon the stage at which they invest in an enterprise and the kind of support provided by the incubators, angel investors, venture capitalists and private equity players.
Incubators: These provide infrastructure and advisory services to the startups at a very early stage. They encourage entrepreneurship and facilitate growth of new businesses, particularly for high technology firms, by housing in one facility a number of young enterprises, which share range of services.
These shared services may include meeting areas, research library, secretarial services, accounting services, on-site professional and management counseling, and computer word processing facilities.
For example, the Beijing Zhongguancun International Incubator Inc assists companies introduced by the Nanyang Technological University, Singapore, to set up or expand their businesses in China and helps attract talents from Chinese universities for these business ventures.
Angel investors: Angel investors are rich individuals funding risky/uncertain ventures at very initial phase. They are usually interested in the field in which an entrepreneur is working and are conversant with the operational aspects. Thus the benefits of angel investors are: experience of funding such ventures and contacts.
They are generally less formal and less public in their approach to investing. This is a common form of funding tech ventures, especially in the US.
Ram Shriram of Sherpalo Ventures was one of the primary financers (read 'angel') of Google in its early phase.
Some of the successful Angel Deals include an investment of $100,000 by Thomas Alberg in the online bookshop, www.amazon.com.
At exit, the value of his investment was $26million, a whopping 260 times the original investment. Even better are the stories of the angel investors of Apple Computers and the Body Shop. The returns at exit for both the companies were 1,692 and 10,500 times of the original investment respectively.
Venture capitalists: Venture capitalists are professional money managers (in fact they usually manage something like a mutual fund with much larger investments made by investors), who provide risk capital to businesses at a stage advanced than the angel investors.
In the year 2006, more than $200 million has been invested by various foreign venture capital firms in Indian companies like travelguru.com and AppLabs Technologies.
VCs may be found in many different forms, but all share the common trait of making investments at an early stage in privately held companies that have the potential to provide them a very high rate of return on their investment.
It is pertinent to note that generally funds for venture capitalists are obtained from number of sources while for the angel investors it's generally one source. Further the return expectations of the Angel investors are more moderate as compared to the VCs, which target a higher return.
Private equity players: Private equity (PE) investments are essentially investments in relatively more matured companies at their expansion stage. They usually invest in proven and established businesses.
Private equity firms look for greater control in the company and often take a lot of interest in the activities of the management, usually also guiding them. In practice, most of the VCs often act as PEs and vice versa. The actual difference between a VC and PE is in the stage at which finance is provided and not the actual investors.
PE has recently become the buzzword in India, especially after some of the private equity funds struck gold here.
One such deal was the $300 million investment made by private equity fund Warburg Pincus LLC in Bharati Televentures of India between the years 1999 to 2001. It later sold off two thirds of its investment for $1.1 billion in 2005.
Corporate ventures: These funds are promoted by the large established corporations such as Intel and Motorola, usually in the hope of funding small companies that have technology or resources that larger companies want or need.
Corporate venture capital revolves around the company's goal to incubate future acquisitions, obtain intellectual property licenses and gain access into newer technologies and newer markets.
Cisco and General Electric are two companies known to invest billions annually in hundreds of such companies, then later acquiring them or exiting them.India Shining and India Poised may just be the slogans created by the media, but the fact is that the world is taking note of the New India and is eager to have a piece of the pie in some way or the other. So angel investors or private equity funds, they are all swarming India right now and we shall make hay while it lasts.
Machinery and automation were keys to success. Any need for financing an expansion by an established company or starting a new company were met by banks, financial institutions etc. These traditional providers of funds evaluate an investment option based on tangible assets, regularity and certainty of cash flows and past history of a business or the past history of promoters.
With the advent of Knowledge Based Enterprises, which is a direct consequence of the third wave, that is the information technology revolution, the rules of doing business have changed.
Now, technology and intellectual capital have become the buzzwords. Innovation and ideas, the courage to nurture them, and then take them to their logical conclusion are the things that the fund providers look for in such enterprises.
In KBEs, the business idea is untested, the promoters are relatively unknown, tangible assets form very small part of the entire investment, cash flows cannot be predicted with certainty and human beings and their knowledge are considered the most valuable assets.
Sunrise sectors like information technology, IT enabled services, biotechnology, are especially the kind of businesses which can be called KBEs. This is where the alternative modes of raising funds come in and have gained importance.
However, it is pertinent to note that even these players providing specialised funding can also be classified into various types depending upon the stage at which they invest in an enterprise and the kind of support provided by the incubators, angel investors, venture capitalists and private equity players.
Incubators: These provide infrastructure and advisory services to the startups at a very early stage. They encourage entrepreneurship and facilitate growth of new businesses, particularly for high technology firms, by housing in one facility a number of young enterprises, which share range of services.
These shared services may include meeting areas, research library, secretarial services, accounting services, on-site professional and management counseling, and computer word processing facilities.
For example, the Beijing Zhongguancun International Incubator Inc assists companies introduced by the Nanyang Technological University, Singapore, to set up or expand their businesses in China and helps attract talents from Chinese universities for these business ventures.
Angel investors: Angel investors are rich individuals funding risky/uncertain ventures at very initial phase. They are usually interested in the field in which an entrepreneur is working and are conversant with the operational aspects. Thus the benefits of angel investors are: experience of funding such ventures and contacts.
They are generally less formal and less public in their approach to investing. This is a common form of funding tech ventures, especially in the US.
Ram Shriram of Sherpalo Ventures was one of the primary financers (read 'angel') of Google in its early phase.
Some of the successful Angel Deals include an investment of $100,000 by Thomas Alberg in the online bookshop, www.amazon.com.
At exit, the value of his investment was $26million, a whopping 260 times the original investment. Even better are the stories of the angel investors of Apple Computers and the Body Shop. The returns at exit for both the companies were 1,692 and 10,500 times of the original investment respectively.
Venture capitalists: Venture capitalists are professional money managers (in fact they usually manage something like a mutual fund with much larger investments made by investors), who provide risk capital to businesses at a stage advanced than the angel investors.
In the year 2006, more than $200 million has been invested by various foreign venture capital firms in Indian companies like travelguru.com and AppLabs Technologies.
VCs may be found in many different forms, but all share the common trait of making investments at an early stage in privately held companies that have the potential to provide them a very high rate of return on their investment.
It is pertinent to note that generally funds for venture capitalists are obtained from number of sources while for the angel investors it's generally one source. Further the return expectations of the Angel investors are more moderate as compared to the VCs, which target a higher return.
Private equity players: Private equity (PE) investments are essentially investments in relatively more matured companies at their expansion stage. They usually invest in proven and established businesses.
Private equity firms look for greater control in the company and often take a lot of interest in the activities of the management, usually also guiding them. In practice, most of the VCs often act as PEs and vice versa. The actual difference between a VC and PE is in the stage at which finance is provided and not the actual investors.
PE has recently become the buzzword in India, especially after some of the private equity funds struck gold here.
One such deal was the $300 million investment made by private equity fund Warburg Pincus LLC in Bharati Televentures of India between the years 1999 to 2001. It later sold off two thirds of its investment for $1.1 billion in 2005.
Corporate ventures: These funds are promoted by the large established corporations such as Intel and Motorola, usually in the hope of funding small companies that have technology or resources that larger companies want or need.
Corporate venture capital revolves around the company's goal to incubate future acquisitions, obtain intellectual property licenses and gain access into newer technologies and newer markets.
Cisco and General Electric are two companies known to invest billions annually in hundreds of such companies, then later acquiring them or exiting them.India Shining and India Poised may just be the slogans created by the media, but the fact is that the world is taking note of the New India and is eager to have a piece of the pie in some way or the other. So angel investors or private equity funds, they are all swarming India right now and we shall make hay while it lasts.
Tuesday, October 31, 2006
Late Hai To Safe Hai
"Seedhe twenty feet paani ke ander"...The words reached my ears as I lazily turned to look down from the upper berth of my coupe. I turned, but did not look down as I was reluctant to open my eyes. I had already slept for 21 hours since I boarded the Falaknuma Superfast Express, to Secunderabad, from Kharagpur. Did not want to break the momentum. "3 more hours and I will be able to boast of sleeping for 24 hours at a stretch.
I dismissed the comment as the banter of the whining stout girl (well her stoutness and the whining voice are the only two things I remember about her) and did not bother to look down. Her boy friend retorted "shubh shubh bolo...hameshaa galat sochti ho". I thought, " how can you think of spending your life with a stout, whiny girl, who always "thinks wrong"....sorry, thats the direct translation from Hindi...". Another passenger, now he was a sweet one, an IIT Kharagpur aluminus (married ofcourse...all sweet men are married!), said "Don't worry, they are working on it. It will be ok in a few hours".
Hold on...what will be ok? What's wrong? Now curiosity had taken over my laziness. So I slowly opened my eyes...all this while, I had not even realised that the train was not moving...so much so for being absent minded. As I looked down, I got the shock of my life when I saw that there were about 30 people sitting in our coupe (which is made for eight, including the side berths), and as my eyes drifted to the windows, I saw that there was flowing water on both sides, and we were on a small bridge.
On enquiry, I came to know that the train had derailed, of course I got this information after getting dirty looks from many passengers who were obviously envious and disgusted by the fact that someone can sleep in the middle of so much of chaos. While I was contemplating descending from my cosy seat, a few policemen entered the coupe and coach and asked everyone to evacuate it and go to either the one before it or after it.
Now its often said that in a grocery store, the queue you stand in moves slower. True of the trains too. The coach I moved to was stalled for five hours in that deserted place, while the other part of the train left for Secunderabad. Our part of the train went all the way back to Vishakhapanam, got a new engine, a new route and reached its destination, Secunderabad, around 11 hours late.
Now you can ask me, "But you haven't described anything about the derailment and the details related to it". Well, the true answer is, I don't know. And I don't care. When the derailment happened, I was sleeping. And after I got up, I was more interested in finishing the James Patterson's book that I was reading and was glad that I was getting the time to finish reading the book before hitting the regular schedule of going to the office and eating and sleeping....and then again going to the office and eating and sleeping and then again....
I dismissed the comment as the banter of the whining stout girl (well her stoutness and the whining voice are the only two things I remember about her) and did not bother to look down. Her boy friend retorted "shubh shubh bolo...hameshaa galat sochti ho". I thought, " how can you think of spending your life with a stout, whiny girl, who always "thinks wrong"....sorry, thats the direct translation from Hindi...". Another passenger, now he was a sweet one, an IIT Kharagpur aluminus (married ofcourse...all sweet men are married!), said "Don't worry, they are working on it. It will be ok in a few hours".
Hold on...what will be ok? What's wrong? Now curiosity had taken over my laziness. So I slowly opened my eyes...all this while, I had not even realised that the train was not moving...so much so for being absent minded. As I looked down, I got the shock of my life when I saw that there were about 30 people sitting in our coupe (which is made for eight, including the side berths), and as my eyes drifted to the windows, I saw that there was flowing water on both sides, and we were on a small bridge.
On enquiry, I came to know that the train had derailed, of course I got this information after getting dirty looks from many passengers who were obviously envious and disgusted by the fact that someone can sleep in the middle of so much of chaos. While I was contemplating descending from my cosy seat, a few policemen entered the coupe and coach and asked everyone to evacuate it and go to either the one before it or after it.
Now its often said that in a grocery store, the queue you stand in moves slower. True of the trains too. The coach I moved to was stalled for five hours in that deserted place, while the other part of the train left for Secunderabad. Our part of the train went all the way back to Vishakhapanam, got a new engine, a new route and reached its destination, Secunderabad, around 11 hours late.
Now you can ask me, "But you haven't described anything about the derailment and the details related to it". Well, the true answer is, I don't know. And I don't care. When the derailment happened, I was sleeping. And after I got up, I was more interested in finishing the James Patterson's book that I was reading and was glad that I was getting the time to finish reading the book before hitting the regular schedule of going to the office and eating and sleeping....and then again going to the office and eating and sleeping and then again....
Tuesday, October 17, 2006
Gold is still cheap and a great investment
October 17, 2006, http://www.rediff.com/, Co-author-Aditya Jadhav
Diwali being just a few days away, the sale of gold ornaments, coins and bars are already going up. So is the price of gold. However, contrary to popular belief, gold is still a very cheap buy when compared to many other commodities. When adjusted against inflation, gold is just about as expensive as it was in 1980.
India is the largest consumer of gold in the world, consuming around 18 per cent of the total world's production. India has to import around 70 per cent of its total gold consumption, thus imparting a lot of foreign exchange to major gold producing countries.
With the development of the stock markets, especially on-line trading systems, urban India is slowly shifting its investment focus from gold to the other avenues of investment such as stocks, bonds, mutual funds, et cetera.
But, rural India still has its major investments in the form of gold. Around 65 per cent of the total demand for gold in India is from people involved in agriculture and allied industries which contributes to around 30 per cent of the GDP of the nation.
An effective hedging tool
Gold provides an effective hedge against inflation. Gold prices are considered to be highly sensitive to inflation and rise accordingly. Gold also provides effective liquidity higher than other forms of real assets like gemstones, land and antiques which require some time to get liquidated.
The only problem that arises with the liquidity of gold is its resale value in the form of jewellery. Jewellery requires gold to mix with a little amount of other base metals like copper and zinc which reduce the purity of gold and hence gives lower returns than pure gold (99 per cent pure) of equal weight.
Oil price impact on gold
The demand for gold also goes up with an increase in oil prices. Increase in oil prices have a major impact on inflation as most of the inflation indices give a lot of weight to the increase in oil prices (30-35 per cent). Hence, increase in oil prices result in an increase in inflation.
People buy gold to hedge against inflation. Oil prices have been on a rise and will continue to be on a rise with the increase in demand for fuel, plus, recently Organisation of Petroleum Exporting Countries (OPEC) has given indications that it will curtail the supply of oil.
Commodity trading and gold
With the opening of the commodities market for gold, gold futures has become another mode of investment in gold. Although this avenue is not as extensively used as spot purchase of gold or the securities market, gold futures do impact the spot prices of gold, as the wholesale traders have started to use this avenue to hedge against future price changes.
Gold is different from other commodities traded on the futures market, as the consumed gold can be brought back into the market (though at a discount) unlike other commodities. This creates a situation where the current demand and price of gold is not only dependent on the current purchase, current demand and future demand but also on the past purchase and demand.
Gold is the only commodity in which the total supply can be higher than the demand making the trading of this commodity unique.
Gold is not just a mere investment for Indians. It is woven into the fabric of the Indian culture, traditions and religious beliefs. There is a popular Jataka tale where a poor farmer donates a gold cat to the Brahmin to get rid of the sin of killing a stray cat. The farmer has to take a loan from the money lender for this purpose resulting in the ultimate forfeiture of his land by the money lender.
Women are the majority users of gold ornaments in India. Parents give their daughter gold ornaments during her marriage which is her exclusive property (streedhan) and not to be used by the husband for his personal gain without her permission.
Gold is also a status symbol helpful in asserting the status of a person in the society, especially in India. The importance attached to gold, along with its scarcity in the earth's crust compared to other metals, and its ability to provide a good hedge against inflation, makes it a highly demanded precious metal. The demand ensures that the prices will surely look northwards in the future too.
So, this Diwali, invest in gold without worrying about the prices being too high!
Diwali being just a few days away, the sale of gold ornaments, coins and bars are already going up. So is the price of gold. However, contrary to popular belief, gold is still a very cheap buy when compared to many other commodities. When adjusted against inflation, gold is just about as expensive as it was in 1980.
India is the largest consumer of gold in the world, consuming around 18 per cent of the total world's production. India has to import around 70 per cent of its total gold consumption, thus imparting a lot of foreign exchange to major gold producing countries.
With the development of the stock markets, especially on-line trading systems, urban India is slowly shifting its investment focus from gold to the other avenues of investment such as stocks, bonds, mutual funds, et cetera.
But, rural India still has its major investments in the form of gold. Around 65 per cent of the total demand for gold in India is from people involved in agriculture and allied industries which contributes to around 30 per cent of the GDP of the nation.
An effective hedging tool
Gold provides an effective hedge against inflation. Gold prices are considered to be highly sensitive to inflation and rise accordingly. Gold also provides effective liquidity higher than other forms of real assets like gemstones, land and antiques which require some time to get liquidated.
The only problem that arises with the liquidity of gold is its resale value in the form of jewellery. Jewellery requires gold to mix with a little amount of other base metals like copper and zinc which reduce the purity of gold and hence gives lower returns than pure gold (99 per cent pure) of equal weight.
Oil price impact on gold
The demand for gold also goes up with an increase in oil prices. Increase in oil prices have a major impact on inflation as most of the inflation indices give a lot of weight to the increase in oil prices (30-35 per cent). Hence, increase in oil prices result in an increase in inflation.
People buy gold to hedge against inflation. Oil prices have been on a rise and will continue to be on a rise with the increase in demand for fuel, plus, recently Organisation of Petroleum Exporting Countries (OPEC) has given indications that it will curtail the supply of oil.
Commodity trading and gold
With the opening of the commodities market for gold, gold futures has become another mode of investment in gold. Although this avenue is not as extensively used as spot purchase of gold or the securities market, gold futures do impact the spot prices of gold, as the wholesale traders have started to use this avenue to hedge against future price changes.
Gold is different from other commodities traded on the futures market, as the consumed gold can be brought back into the market (though at a discount) unlike other commodities. This creates a situation where the current demand and price of gold is not only dependent on the current purchase, current demand and future demand but also on the past purchase and demand.
Gold is the only commodity in which the total supply can be higher than the demand making the trading of this commodity unique.
Gold is not just a mere investment for Indians. It is woven into the fabric of the Indian culture, traditions and religious beliefs. There is a popular Jataka tale where a poor farmer donates a gold cat to the Brahmin to get rid of the sin of killing a stray cat. The farmer has to take a loan from the money lender for this purpose resulting in the ultimate forfeiture of his land by the money lender.
Women are the majority users of gold ornaments in India. Parents give their daughter gold ornaments during her marriage which is her exclusive property (streedhan) and not to be used by the husband for his personal gain without her permission.
Gold is also a status symbol helpful in asserting the status of a person in the society, especially in India. The importance attached to gold, along with its scarcity in the earth's crust compared to other metals, and its ability to provide a good hedge against inflation, makes it a highly demanded precious metal. The demand ensures that the prices will surely look northwards in the future too.
So, this Diwali, invest in gold without worrying about the prices being too high!
Saturday, October 14, 2006
Hats off to Ekta Kapoor!
More than six years, more than 1200 episodes, more television awards than any other soap on the Indian television, more number of characters than you care to remember, more drama than ever seen on Indian television before, more generations than can ever come together in reality, thats the Virani Parivaar of Kyunki Saas Bhi Kabhi Bahu Thi (KSBKBT).
Tulsi Virani, the central character of the serial, holds the family together with a carrot and a stick attitude. She instills the right values, evokes the appropriate emotions, scolds and slaps at the right time. The same amount of drama as KSBKBT, again more number of characters and more generations than one cares to remember, over dressed bahus, scheming bahus, crying bahus, ideal bahus, you will find them all in the Agarwal household of Kahani Ghar Ghar Ki (KGGK). Parvati Agarwal, the eldest bahu of the family does everything to save the family from evil eyes, fulfilling the duties of her dead husband.
Produced by Balaji Telefilms, the brainchild of Ekta Kapoor, who is the celebrated daughter of our own jumping jack of yesteryears, Jitendra, KSBKBT and KGGK, are two of the oldest and most popular of the popularly called ‘K’ series soaps.
These serials are a subject of ridicule for the so called generation ‘X’. And I was one of them till fate too a 180 degree turn and hurled me in the opposite camp of those who religiously watch these serials. I used to laugh at the senseless melodrama, the eccentricities, the emotional blackmailing, the lovey-dovey-weepy-villainy scenes which are so common to these soaps. I started watching these soaps with the sole intention of making fun of those who watch them. However, the more I watched, the more I got hooked on to them.
I soon realized that there is a lot more to these serials than just the apparently ridiculous stuff. For example, there is something about the background music “Ram Ram Jai Raja Ram, Ram Ram Jai Sita Ram” of KSBKBT or the pain in the eyes of Parvati Agarwal when she talks to her dead husband, Om.
Somewhere these serials catch the imagination of the viewers with the portrayal of the values, the traditions, the culture, which are a part of the extended joint family system in India, which has been breaking up rapidly now. For example, the respect that Tulsi commands from her sons or the emotions shared by the brothers which keeps them together in spite of the differences between them, these values touch a chord within me which is difficult to express.
Similarly, Parvati Agarwal selflessly taking care of every member in the household in spite of the others mistrusting her or accusing her of various wrong doings stands out as the epitome of patience and perseverance. Well, I had
resolved to stop watching the serials after a few episodes.
And I would have. But, at this point, I must laud Ekta Kapoor for being a master story teller. As soon as I was ready to stop watching both the serials after Tulsi Virani came back to the palatial Virani house and accepted Mihir Virani again in KSBKBT and in KGGK, Parvati Agarwal was finally able to send Suyash Mehra to Jail for the murder of her husband Om, story in both the serials have taken a twist.
In KSBKBT, a new character named Abeer has been introduced who is apparently taking revenge from the Virani’s. But for what? Who is he? What does he want? Will he be able to marry Bhumi (daughter of Karan, son of Tulsi)? Has Karan survived the accident orchestrated by Abeer? Or will we see Karan, a very popular character, exiting the serial? Similarly in KGGK, suddenly Suyash Mehra is being shown as a victim.
He seems to be genuinely in love with Parvati Agarwal. There is someone else who has masterminded the whole thing, making it appear as though Suyash killed Om. But who is this person? There is also this angle of three ladies in the Agarwal household being pregnant at the same time. The serial has been fast forwarded six months in one episode.
Three months more to go. There have been indications that at the end of these three months, the mystery surrounding Suyash Mehra and the mind behind Om’s murder would also be revealed. Whoa! When you are caught with such important questions, how can you stop watching the soap?
Tulsi Virani, the central character of the serial, holds the family together with a carrot and a stick attitude. She instills the right values, evokes the appropriate emotions, scolds and slaps at the right time. The same amount of drama as KSBKBT, again more number of characters and more generations than one cares to remember, over dressed bahus, scheming bahus, crying bahus, ideal bahus, you will find them all in the Agarwal household of Kahani Ghar Ghar Ki (KGGK). Parvati Agarwal, the eldest bahu of the family does everything to save the family from evil eyes, fulfilling the duties of her dead husband.
Produced by Balaji Telefilms, the brainchild of Ekta Kapoor, who is the celebrated daughter of our own jumping jack of yesteryears, Jitendra, KSBKBT and KGGK, are two of the oldest and most popular of the popularly called ‘K’ series soaps.
These serials are a subject of ridicule for the so called generation ‘X’. And I was one of them till fate too a 180 degree turn and hurled me in the opposite camp of those who religiously watch these serials. I used to laugh at the senseless melodrama, the eccentricities, the emotional blackmailing, the lovey-dovey-weepy-villainy scenes which are so common to these soaps. I started watching these soaps with the sole intention of making fun of those who watch them. However, the more I watched, the more I got hooked on to them.
I soon realized that there is a lot more to these serials than just the apparently ridiculous stuff. For example, there is something about the background music “Ram Ram Jai Raja Ram, Ram Ram Jai Sita Ram” of KSBKBT or the pain in the eyes of Parvati Agarwal when she talks to her dead husband, Om.
Somewhere these serials catch the imagination of the viewers with the portrayal of the values, the traditions, the culture, which are a part of the extended joint family system in India, which has been breaking up rapidly now. For example, the respect that Tulsi commands from her sons or the emotions shared by the brothers which keeps them together in spite of the differences between them, these values touch a chord within me which is difficult to express.
Similarly, Parvati Agarwal selflessly taking care of every member in the household in spite of the others mistrusting her or accusing her of various wrong doings stands out as the epitome of patience and perseverance. Well, I had
resolved to stop watching the serials after a few episodes.
And I would have. But, at this point, I must laud Ekta Kapoor for being a master story teller. As soon as I was ready to stop watching both the serials after Tulsi Virani came back to the palatial Virani house and accepted Mihir Virani again in KSBKBT and in KGGK, Parvati Agarwal was finally able to send Suyash Mehra to Jail for the murder of her husband Om, story in both the serials have taken a twist.
In KSBKBT, a new character named Abeer has been introduced who is apparently taking revenge from the Virani’s. But for what? Who is he? What does he want? Will he be able to marry Bhumi (daughter of Karan, son of Tulsi)? Has Karan survived the accident orchestrated by Abeer? Or will we see Karan, a very popular character, exiting the serial? Similarly in KGGK, suddenly Suyash Mehra is being shown as a victim.
He seems to be genuinely in love with Parvati Agarwal. There is someone else who has masterminded the whole thing, making it appear as though Suyash killed Om. But who is this person? There is also this angle of three ladies in the Agarwal household being pregnant at the same time. The serial has been fast forwarded six months in one episode.
Three months more to go. There have been indications that at the end of these three months, the mystery surrounding Suyash Mehra and the mind behind Om’s murder would also be revealed. Whoa! When you are caught with such important questions, how can you stop watching the soap?
Thursday, September 28, 2006
All you wanted to know about yuan revaluation
September 28, 2005, www.rediff.com, Co-author-Vivek Kaul
China's move to revalue the Yuan on July 21, 2005, was hailed as a surprise. But its revaluation by 2.1% was definitely not surprising!
China once again proved its mettle by taking action on its own terms. It pegged the Yuan against a basket of currencies of China's major trading partners but refused to reveal the constituents of the basket.
Finally, the Chinese authorities revealed, almost a month after the revaluation, that the basket consisted of the US Dollar, the Yen, the Korean Won and the Euro.
On Thursday, July 21, 2005, the day Yuan was revalued, it closed at 8.11 Yuans per dollar. On that day, the Chinese officials announced that the Yuan will now be allowed to float against the dollar within a band of plus or minus 0.3% of the previous day's closing.
The band of 0.3% within which the Yuan is allowed to float against the dollar is too narrow and a 2.1% revaluation is just a drop in the ocean given that Yuan is said to be undervalued by as much as 40%.
Beijing made a move which will hardly have an effect on its exports and at the same time has managed to shut up Washington for some time.
Later, a band of 1.5% was announced for non-dollar currencies. On Friday, September 23, 2005, once again this band was widened further to 3% per day for non-dollar currencies. This means that now Yuan is allowed to float within a band of plus or minus 3% of the previous day's closing against non-dollar currencies and 0.3% against the dollar.
The different bands for dollar and non-dollar currencies will prove a difficult act to balance for the People's Bank of China as both these currencies are also trading against each other.
The Chinese pegging of the Yuan has been in the line of fire for a long time now. Yuan was pegged to the US dollar in 1994 at 8.28 Yuans per dollar. This has been a source of grief for most of the industrialised nations (G7 members), particularly the United States (US).
Nearly 10% of the huge current account deficit of the United States, which was a staggering $164.7 billion in the third quarter of last year, was on account of China alone.
People's Bank of China Governor, Zhou Xiaochuan, claims that China needs time to reform its financial sector. But the industrialised nations are becoming more and more desperate as they are getting increasingly aware of the fact that poorer countries are financing the current account deficits of industrialised nations.
The current accounts of all the G7 countries taken together are in a deficit. On the other hand, China had a trade surplus of $31.98 billion in 2004.
The move to revalue Yuan by China was seen as a way to ease the growing tension between the US and China, before the impending visit of the Chinese President Hu Jintao to Washington in September 2005. It is definitely not expected to make any significant improvement to the trade deficits of US with China or the fiscal deficit of US.
Heads I win. . .
Recently, the Hong Kong-based, China National Offshore Oil Corporation (CNOOC), a publicly listed company in which the Chinese government has a 71% stake, made a bid to buy Unocal, America's eighth biggest oil company, for an all cash deal of $18.5 billion.
CNOOC outbid Chevron, the American oil company which made a bid of $17 billion for Unocal. Even though the deal did not go through, this bid to acquire Unocal (and similar bids to acquire other foreign companies) signals that China is now following an aggressive policy of investing overseas to utilise its huge forex reserves.
For the Chinese government such deals make a lot of sense. These deals will help China to reduce the monetary impact of keeping its currency, the Yuan, undervalued. Since the dollars, spend in acquiring the overseas assets need not be exchanged for Yuan, this will lead to a real contraction in money supply.
If the Chinese are able to successfully execute this strategy then even without revaluing the Yuan to a great extent, China can prevent its internal economy from overheating.
This can become a thorn in the neck of Alan Greenspan and Co who have been relying on the consistent purchase of the American Treasuries at low interest rates by China and other Asian nations to finance America's burgeoning fiscal and current account deficit at extremely low interest rates.
This has also helped in keeping the inflation low. China is sitting on top of $700 billion of forex reserves of which $230 billion has been invested in American Government securities.
Now with Chinese companies actually prowling for overseas assets China's investment in American treasuries can go down. This might lead to increased interest rates in America.
So basically, now that the pressure to revalue the Yuan will be taken off China's back for sometime, China can relax and not go for any further revaluations and still be at a comfortable level.
. . . tails you lose
On the other hand, even if China goes for more revaluations of Yuan in the future, being a developing economy with a large and growing manufacturing sector, China's import demand is going to be continuously high in the coming years and the importers are going to benefit from a stronger Yuan.
Also, China is a net oil importing country with demand for oil expected to go up as China progresses, once again a stronger Yuan will benefit China, as the US dollar is the currency in which oil is traded.
The Chinese executives and analysts believe that the Chinese exporters will remain competitive even if the yuan appreciates, say by as much as 25%. It will still not make much difference to the Chinese businesses.
The competitive advantage of the Chinese firms goes much beyond just cheap labor and an undervalued currency. The Chinese firms have mastered the art of building plants and factories at much lower costs than it's possible in the Western countries.
Too early to celebrate
Malaysia has already dropped its peg to the US dollar just after the Chinese announcement and moved to a managed float against a basket of currencies. Those Asian countries which were not letting their currencies appreciate by resorting to sterilisation so that their exports maintain their competitiveness vis-a vis the Chinese, have let their currencies strengthen considerably since the revaluation announcement.
Is this just the beginning? We do not think so. It is the beginning of a very long wait. It may be too early to laud the People's Bank of China's move wholeheartedly. The Bush administration may see the revaluation as a victory, but the real victory will be if China continues to revalue the Yuan at regular intervals to bring it to its intrinsic value.
And this as of now seems too farfetched. It should not be forgotten that China has taken ten long years to make the small change that it did on July 21, 2005. From the comments of the Chinese officials in the past, it was clear that eventually the Yuan would be let free, but when that would be done was the question. And we are no closer to the answer now than we were earlier!
China's move to revalue the Yuan on July 21, 2005, was hailed as a surprise. But its revaluation by 2.1% was definitely not surprising!
China once again proved its mettle by taking action on its own terms. It pegged the Yuan against a basket of currencies of China's major trading partners but refused to reveal the constituents of the basket.
Finally, the Chinese authorities revealed, almost a month after the revaluation, that the basket consisted of the US Dollar, the Yen, the Korean Won and the Euro.
On Thursday, July 21, 2005, the day Yuan was revalued, it closed at 8.11 Yuans per dollar. On that day, the Chinese officials announced that the Yuan will now be allowed to float against the dollar within a band of plus or minus 0.3% of the previous day's closing.
The band of 0.3% within which the Yuan is allowed to float against the dollar is too narrow and a 2.1% revaluation is just a drop in the ocean given that Yuan is said to be undervalued by as much as 40%.
Beijing made a move which will hardly have an effect on its exports and at the same time has managed to shut up Washington for some time.
Later, a band of 1.5% was announced for non-dollar currencies. On Friday, September 23, 2005, once again this band was widened further to 3% per day for non-dollar currencies. This means that now Yuan is allowed to float within a band of plus or minus 3% of the previous day's closing against non-dollar currencies and 0.3% against the dollar.
The different bands for dollar and non-dollar currencies will prove a difficult act to balance for the People's Bank of China as both these currencies are also trading against each other.
The Chinese pegging of the Yuan has been in the line of fire for a long time now. Yuan was pegged to the US dollar in 1994 at 8.28 Yuans per dollar. This has been a source of grief for most of the industrialised nations (G7 members), particularly the United States (US).
Nearly 10% of the huge current account deficit of the United States, which was a staggering $164.7 billion in the third quarter of last year, was on account of China alone.
People's Bank of China Governor, Zhou Xiaochuan, claims that China needs time to reform its financial sector. But the industrialised nations are becoming more and more desperate as they are getting increasingly aware of the fact that poorer countries are financing the current account deficits of industrialised nations.
The current accounts of all the G7 countries taken together are in a deficit. On the other hand, China had a trade surplus of $31.98 billion in 2004.
The move to revalue Yuan by China was seen as a way to ease the growing tension between the US and China, before the impending visit of the Chinese President Hu Jintao to Washington in September 2005. It is definitely not expected to make any significant improvement to the trade deficits of US with China or the fiscal deficit of US.
Heads I win. . .
Recently, the Hong Kong-based, China National Offshore Oil Corporation (CNOOC), a publicly listed company in which the Chinese government has a 71% stake, made a bid to buy Unocal, America's eighth biggest oil company, for an all cash deal of $18.5 billion.
CNOOC outbid Chevron, the American oil company which made a bid of $17 billion for Unocal. Even though the deal did not go through, this bid to acquire Unocal (and similar bids to acquire other foreign companies) signals that China is now following an aggressive policy of investing overseas to utilise its huge forex reserves.
For the Chinese government such deals make a lot of sense. These deals will help China to reduce the monetary impact of keeping its currency, the Yuan, undervalued. Since the dollars, spend in acquiring the overseas assets need not be exchanged for Yuan, this will lead to a real contraction in money supply.
If the Chinese are able to successfully execute this strategy then even without revaluing the Yuan to a great extent, China can prevent its internal economy from overheating.
This can become a thorn in the neck of Alan Greenspan and Co who have been relying on the consistent purchase of the American Treasuries at low interest rates by China and other Asian nations to finance America's burgeoning fiscal and current account deficit at extremely low interest rates.
This has also helped in keeping the inflation low. China is sitting on top of $700 billion of forex reserves of which $230 billion has been invested in American Government securities.
Now with Chinese companies actually prowling for overseas assets China's investment in American treasuries can go down. This might lead to increased interest rates in America.
So basically, now that the pressure to revalue the Yuan will be taken off China's back for sometime, China can relax and not go for any further revaluations and still be at a comfortable level.
. . . tails you lose
On the other hand, even if China goes for more revaluations of Yuan in the future, being a developing economy with a large and growing manufacturing sector, China's import demand is going to be continuously high in the coming years and the importers are going to benefit from a stronger Yuan.
Also, China is a net oil importing country with demand for oil expected to go up as China progresses, once again a stronger Yuan will benefit China, as the US dollar is the currency in which oil is traded.
The Chinese executives and analysts believe that the Chinese exporters will remain competitive even if the yuan appreciates, say by as much as 25%. It will still not make much difference to the Chinese businesses.
The competitive advantage of the Chinese firms goes much beyond just cheap labor and an undervalued currency. The Chinese firms have mastered the art of building plants and factories at much lower costs than it's possible in the Western countries.
Too early to celebrate
Malaysia has already dropped its peg to the US dollar just after the Chinese announcement and moved to a managed float against a basket of currencies. Those Asian countries which were not letting their currencies appreciate by resorting to sterilisation so that their exports maintain their competitiveness vis-a vis the Chinese, have let their currencies strengthen considerably since the revaluation announcement.
Is this just the beginning? We do not think so. It is the beginning of a very long wait. It may be too early to laud the People's Bank of China's move wholeheartedly. The Bush administration may see the revaluation as a victory, but the real victory will be if China continues to revalue the Yuan at regular intervals to bring it to its intrinsic value.
And this as of now seems too farfetched. It should not be forgotten that China has taken ten long years to make the small change that it did on July 21, 2005. From the comments of the Chinese officials in the past, it was clear that eventually the Yuan would be let free, but when that would be done was the question. And we are no closer to the answer now than we were earlier!
Wednesday, September 13, 2006
Whats wrong with everyone?
I am a kid. My parents remind me daily to study hard so that when I grow up, I earn a lot of money. I go to school. My teachers tell me that if I talk in the class, I will not be able to do anything in life. I will never make it "Big". I am growing up. Not "Big" though.
I do everything I want to do, slyly though. As my parents will not approve of me playing cricket when I ought to be in the tuition class. They will not approve of me reading Enid Blyton when I should be reading the basic concepts of Physics. I will not make it to the IIT's if I do what I want to do, according to them.
So I do everything I want to do, but I don't tell them. I know for sure that even if I do everything they want me to do, I will still not make it to the IITs.
I grow up. A loser in the eyes of my parents as I did not make it to any of the top ranked Engineering colleges.
A loser in the eyes of all my relatives and teachers. I have learnt to live with it. I have learnt to turn a deaf ear to all of them. They keep complaining and comparing though. Why do they do it? Who is listening to them? Who is getting affected by it? No One. Not me atleast. I am happy. I am happy to do what I want to do. Stare out of the window and think about nothing. Cry and laugh whenever I want to. I have no intellectual image to maintain. No baggage to carry.
I am an engineer. Like everyone does now days, I end up working for a Software giant.
And suddenly, I am a hero. Suddenly people start recalling incidences which never happened, but nevertheless they prove that I was always a very good student, a very good child, a very promising fellow, since my childhood. Revelations for me. I remember everything that was said about me in the past, they do not. Their perception has changed, I remain the same. The software giant has a huge appetite. It makes me work endless hours. I do. And I get handsomely paid for it.
But, I have no time to look out of the window. I have no time to cry and laugh. I have no time to do what I want to do. I am doing everything the software giant wants me to do, my parents want me to do, my relatives want me to do. But I am not doing what I want to do.
I leave the job and take up an assignment with a smaller firm, which allows me to do as much work as I want to do and pays accordingly. This means, I have taken a huge paycut. And this also means that perceptions have changed again. Once again, I am a loser. And once again, I have turned a deaf ear to all the advices I get from my well wishers. I am happy. What else do my well wishers want for me? I do not want anything else. I just want happiness.
I just want the time to gaze at the stars, to read books, to watch movies, to walk in the rain, to paint, to listen to music. What more do my well wishers possibly want for me? Money? But what will that money buy me? Time? If it cannot buy me time, if it cannot buy me happiness, I do not want it. What’s wrong with everyone? Why can't they understand these simple theories of my life? Why do they want me to lead my life the way they want me to lead it? Alas, there's no answer to these questions and I am afraid, some things never change, and my well wishers are amongst those things.
This is the story of all of us born after the early 1970's. In a race to make it Big, we forget the happiness that smaller things in life could provide. We keep running after things till we no longer know what we are running for. We forget to enjoy life and then a day will come when we would leave this world without knowing what life was.
I do everything I want to do, slyly though. As my parents will not approve of me playing cricket when I ought to be in the tuition class. They will not approve of me reading Enid Blyton when I should be reading the basic concepts of Physics. I will not make it to the IIT's if I do what I want to do, according to them.
So I do everything I want to do, but I don't tell them. I know for sure that even if I do everything they want me to do, I will still not make it to the IITs.
I grow up. A loser in the eyes of my parents as I did not make it to any of the top ranked Engineering colleges.
A loser in the eyes of all my relatives and teachers. I have learnt to live with it. I have learnt to turn a deaf ear to all of them. They keep complaining and comparing though. Why do they do it? Who is listening to them? Who is getting affected by it? No One. Not me atleast. I am happy. I am happy to do what I want to do. Stare out of the window and think about nothing. Cry and laugh whenever I want to. I have no intellectual image to maintain. No baggage to carry.
I am an engineer. Like everyone does now days, I end up working for a Software giant.
And suddenly, I am a hero. Suddenly people start recalling incidences which never happened, but nevertheless they prove that I was always a very good student, a very good child, a very promising fellow, since my childhood. Revelations for me. I remember everything that was said about me in the past, they do not. Their perception has changed, I remain the same. The software giant has a huge appetite. It makes me work endless hours. I do. And I get handsomely paid for it.
But, I have no time to look out of the window. I have no time to cry and laugh. I have no time to do what I want to do. I am doing everything the software giant wants me to do, my parents want me to do, my relatives want me to do. But I am not doing what I want to do.
I leave the job and take up an assignment with a smaller firm, which allows me to do as much work as I want to do and pays accordingly. This means, I have taken a huge paycut. And this also means that perceptions have changed again. Once again, I am a loser. And once again, I have turned a deaf ear to all the advices I get from my well wishers. I am happy. What else do my well wishers want for me? I do not want anything else. I just want happiness.
I just want the time to gaze at the stars, to read books, to watch movies, to walk in the rain, to paint, to listen to music. What more do my well wishers possibly want for me? Money? But what will that money buy me? Time? If it cannot buy me time, if it cannot buy me happiness, I do not want it. What’s wrong with everyone? Why can't they understand these simple theories of my life? Why do they want me to lead my life the way they want me to lead it? Alas, there's no answer to these questions and I am afraid, some things never change, and my well wishers are amongst those things.
This is the story of all of us born after the early 1970's. In a race to make it Big, we forget the happiness that smaller things in life could provide. We keep running after things till we no longer know what we are running for. We forget to enjoy life and then a day will come when we would leave this world without knowing what life was.
Tuesday, September 12, 2006
Our own Daphne Du Maurier
After a long long time, I have come across a book, which is not a murder mystery or does not classify to be a thriller, which I was not able to put down. And no, it is not because of the story, it is because of the writing style. Well, that should not undermine the story which must be given the credit for being unique too.
We have had many authors of Indian origin doing well in the international literary circles. Inspite of their achievements, the writing style would be uniquely Indian. Take for example R.K.Narayan or V.S.Naipaul. The settings, the characters, the stories mostly revolve around India or Indians or people who reflect the Indian mindset.
Over the years I had begun to believe that Indians cannot write like Gabriel GarcĂa Márquez or Daphne Du Maurier and why should they?
That Summer in Paris by Abha Dawesar was a pleasant surprise which changed the notion that authors of Indian origin cannot paint with words. I was struck by the beauty of words used by the author. I had not experienced such urge to keep on reading a book just to find out how is the author going to construct her next sentence since I read Rebecca by Du Maurier.
Read this: "The spoken word was more fluid than the written; it could be modified with new words and adapt itself to the situation". This sentence made me rethink my belief that writing down once's feelings is more appropriate than speaking them. Spoken words are definitely more fluid, hence may be more expressive. Some expressions cannot be written about.
On the other hand this senence: "...the yin and yang of my life, the occident and orient, have really been about whether to devour all your books swiftly-for the pleasure of the moment, or to abstain-so that a new one and its promises are always on the horizon"...is exactly the way I used to feel when I was reading "Shantaram" by Gregory David Roberts. I don't think anyone else could have put it so beautifully.
I had started associating with Shantaram so much that I did not want the story to ever get over. Everyday I would deliberately restrain myself from reading too many pages so that I could keep on reading the book for more number of days. And the day I finished reading the book, I felt a kind of emptiness. I felt a kind of loss which is difficult to write down, reinstating the authors words that "The spoken word was more fluid than the written".That Summer in Paris is not the first book by Abha Dawesar.
Her previous work "Babyji" was also critically acclaimed and recieved many awards. Though, I must admit that Babyji gave me the impression of another one of those Indian authors trying to get recognition by overtly using sex and desire as the theme. I found it a grotesque narration of a confused, zealous, curious and perhaps a perverted girl.
But, with her latest book, Abha Dawesar has taken a leap which puts her in the same league as Du Maurier, Gabriel GarcĂa Márquez or Lord Byron, in my eyes. In some of the places, her sentences reminded me of "She Walks in Beauty" by Lord Byron. Read this: "The point at which it diverges from reality is exactly where it becomes true. Its so strange. By being so unreal, it creates reality". Please don't get me wrong.
What I mean is that the creation of her sentences struck me just like the creation of Lord Byron's sentences. Ofcourse Ms. Dawesar is only three books old (have not read her first book Miniplanner) and has a long way to go. It might be too early to shower so much praise on her. But then I am only talking about this one book. And That Summer in Paris is worth all the praise.
We have had many authors of Indian origin doing well in the international literary circles. Inspite of their achievements, the writing style would be uniquely Indian. Take for example R.K.Narayan or V.S.Naipaul. The settings, the characters, the stories mostly revolve around India or Indians or people who reflect the Indian mindset.
Over the years I had begun to believe that Indians cannot write like Gabriel GarcĂa Márquez or Daphne Du Maurier and why should they?
That Summer in Paris by Abha Dawesar was a pleasant surprise which changed the notion that authors of Indian origin cannot paint with words. I was struck by the beauty of words used by the author. I had not experienced such urge to keep on reading a book just to find out how is the author going to construct her next sentence since I read Rebecca by Du Maurier.
Read this: "The spoken word was more fluid than the written; it could be modified with new words and adapt itself to the situation". This sentence made me rethink my belief that writing down once's feelings is more appropriate than speaking them. Spoken words are definitely more fluid, hence may be more expressive. Some expressions cannot be written about.
On the other hand this senence: "...the yin and yang of my life, the occident and orient, have really been about whether to devour all your books swiftly-for the pleasure of the moment, or to abstain-so that a new one and its promises are always on the horizon"...is exactly the way I used to feel when I was reading "Shantaram" by Gregory David Roberts. I don't think anyone else could have put it so beautifully.
I had started associating with Shantaram so much that I did not want the story to ever get over. Everyday I would deliberately restrain myself from reading too many pages so that I could keep on reading the book for more number of days. And the day I finished reading the book, I felt a kind of emptiness. I felt a kind of loss which is difficult to write down, reinstating the authors words that "The spoken word was more fluid than the written".That Summer in Paris is not the first book by Abha Dawesar.
Her previous work "Babyji" was also critically acclaimed and recieved many awards. Though, I must admit that Babyji gave me the impression of another one of those Indian authors trying to get recognition by overtly using sex and desire as the theme. I found it a grotesque narration of a confused, zealous, curious and perhaps a perverted girl.
But, with her latest book, Abha Dawesar has taken a leap which puts her in the same league as Du Maurier, Gabriel GarcĂa Márquez or Lord Byron, in my eyes. In some of the places, her sentences reminded me of "She Walks in Beauty" by Lord Byron. Read this: "The point at which it diverges from reality is exactly where it becomes true. Its so strange. By being so unreal, it creates reality". Please don't get me wrong.
What I mean is that the creation of her sentences struck me just like the creation of Lord Byron's sentences. Ofcourse Ms. Dawesar is only three books old (have not read her first book Miniplanner) and has a long way to go. It might be too early to shower so much praise on her. But then I am only talking about this one book. And That Summer in Paris is worth all the praise.
Tuesday, August 22, 2006
To admit or not to admit…That is the Question!
More than six years, more than 1200 episodes, more television awards than any other soap on the Indian television, more number of characters than you care to remember, more drama than ever seen on Indian television before, more generations than can ever come together in reality….thats Kyunki Saas Bhi Kabhi Bahu Thi (KSBKBT).
Produced by Balaji Telefilms, the brainchild of Ekta Kapoor, who is the celebrated daughter of our own jumping jack of yesteryears, Jitendra, KSBKBT has been a subject of ridicule with the so called generation ‘X’. Well, actually it can be generalized to all the entire genre of the lovey-dovey-weepy-villainy soaps.
Why do people fall in love, why do they break up, why do they have extra marital affairs, why do they turn villainous, why and how do they scheme and plot so many things against each other, and above all, why do the ladies of the house keep crying all the time, is beyond the understanding of my generation people.
Making fun of those who watch such soaps and ridiculing everything about the characters, from the twentyish looking grandmother to the always overdressed Bahu’s, was something I considered to be my birthright, till fate took a 180 degree turn and hurled me on to the opposite camp!
It all started about two months back with giving company to a few others while they watched the episodes of KSBKBT religiously. Initially I spent all my time either reading a book or making fun of those watching the serial. Slowly, I was watching more of the serial and reading less. Then I stopped reading completely and started to discuss the serial with others who watched, and then a time came when I waited for the serial to start at 10.30 every night.
I am ashamed to admit that I have started watching the serial. Me? How can I watch a serial like this? I, who appreciates documentaries and art movies, how can I like meaningless stuff like KSBKBT? Well, the reality hits hard. The fact is that I have started enjoying the serial. It’s like a friend of mine once said, whether you like to admit or not, you get hooked on to Himesh Reshammia songs. ‘There is something about the nasal twang’, he said.
Similarly, there is something about KSKBT. From the background music of “Ram Ram Jai Raja Ram, Ram Ram Jai Sita Ram” to the dialogues of Tulsi, the episodes catch the imagination of the viewers. Will Tulsi come back to the palatial Virani house? Will she accept Mihir again? When they finally meet, for good, will Ekta Kapoor show that scene with Mihir sprinkling red color on Tulsi accidentally (the way it always happens when they meet)? Well when you are caught with such important questions, how can you stop watching the soap?
I guess the easy thing would be to just admit that it’s okay to watch such serials as long as you like them and are happy watching them. Wow, that’s some journey, from writing hard core finance articles to writing about KSBKBT. I guess the two can go hand in hand and I am definitely more at peace after admitting to the fact that I am addicted to the soap, just like I am addicted to the movement of the SENSEX.
Produced by Balaji Telefilms, the brainchild of Ekta Kapoor, who is the celebrated daughter of our own jumping jack of yesteryears, Jitendra, KSBKBT has been a subject of ridicule with the so called generation ‘X’. Well, actually it can be generalized to all the entire genre of the lovey-dovey-weepy-villainy soaps.
Why do people fall in love, why do they break up, why do they have extra marital affairs, why do they turn villainous, why and how do they scheme and plot so many things against each other, and above all, why do the ladies of the house keep crying all the time, is beyond the understanding of my generation people.
Making fun of those who watch such soaps and ridiculing everything about the characters, from the twentyish looking grandmother to the always overdressed Bahu’s, was something I considered to be my birthright, till fate took a 180 degree turn and hurled me on to the opposite camp!
It all started about two months back with giving company to a few others while they watched the episodes of KSBKBT religiously. Initially I spent all my time either reading a book or making fun of those watching the serial. Slowly, I was watching more of the serial and reading less. Then I stopped reading completely and started to discuss the serial with others who watched, and then a time came when I waited for the serial to start at 10.30 every night.
I am ashamed to admit that I have started watching the serial. Me? How can I watch a serial like this? I, who appreciates documentaries and art movies, how can I like meaningless stuff like KSBKBT? Well, the reality hits hard. The fact is that I have started enjoying the serial. It’s like a friend of mine once said, whether you like to admit or not, you get hooked on to Himesh Reshammia songs. ‘There is something about the nasal twang’, he said.
Similarly, there is something about KSKBT. From the background music of “Ram Ram Jai Raja Ram, Ram Ram Jai Sita Ram” to the dialogues of Tulsi, the episodes catch the imagination of the viewers. Will Tulsi come back to the palatial Virani house? Will she accept Mihir again? When they finally meet, for good, will Ekta Kapoor show that scene with Mihir sprinkling red color on Tulsi accidentally (the way it always happens when they meet)? Well when you are caught with such important questions, how can you stop watching the soap?
I guess the easy thing would be to just admit that it’s okay to watch such serials as long as you like them and are happy watching them. Wow, that’s some journey, from writing hard core finance articles to writing about KSBKBT. I guess the two can go hand in hand and I am definitely more at peace after admitting to the fact that I am addicted to the soap, just like I am addicted to the movement of the SENSEX.
Wednesday, May 24, 2006
There is peril as well as profit in riding the leverage tiger
DNA, 24th May 2006
It has happened before, and it's happening again. Futures markets were widely blamed for the Black Monday crash in the US in October 1987 - even though research has shown that futures cannot be blamed for the unfortunate turn of events then. Similarly, futures are being blamed now for the falling indices in India. Let us examine how trading in futures has an impact on the cash markets.
Let us take, for example, the Reliance Industries share for the past one month.On April 24, 2006, the share closed at Rs 977 in the spot market and Rs 988 in the futures market. Buoyed by the positive market sentiment, investors bought into the Reliance stock futures in the hope that its price will rise in the future, and then they can offset or close their positions in the futures market by selling.
People prefer to take a long position in the futures market as they have to pay only a small margin for the contracts rather than the entire amount. For example, an investor can buy one lot of Reliance futures consisting of 600 units by paying a margin of around 28% on the total contract value.
The total contract value would amount to Rs 5,92,800 (Rs 988 x 600 = Rs 5,92,800). The investor, though, needs to pay only Rs 1,65,984 (5,92,800 x 0.28). To buy the same number of shares in the spot market, the investor would have had to pay Rs 5,86,200 (977 x 600) on the same day.
Now, say, an investor has bought in one lot of Reliance futures contracts by paying a margin of Rs 1,65,984. He is of the view that the price of the futures contracts will keep rising. And indeed they do, till May 12, 2006, after which they start falling. The investor thinks that it is just a temporary downward move and does not square off his position.
But the markets continue to fall. On May 22, 2006, all hell broke lose and the Sensex lost more than 1,000 points during intra-day trading. The Reliance futures price also took a heavy beating and closed the day at Rs 928. On account of the daily mark-to-market system in the derivatives segment, the investor receives margin calls as the value of his investment falls.
Mark-to-market essentially is a term used for adjusting the value of an investor's investment on a daily basis. Here, the difference between the settlement price (the closing price of the futures contract) of the previous day and the settlement price of today is settled in cash daily. So if the price of the futures is falling, the investor needs to deposit cash with his broker, who, in turn, needs to deposit it with the clearing house.
Now, the investor has three choices. If he has the cash to meet the margin call, he pays the money to the broker who will then deposit it with the clearing house. Second, he can square off his position by selling one lot of futures contracts and can book a loss on his position (loss of (Rs 988-Rs 928) x 600=Rs 36,000).
Thirdly, if he holds Reliance shares or any other shares in the spot market, he can sell them and raise the money to meet the margin call. Most of the investors fall in the second and the third category. They either square off their positions on their own or the brokers do it compulsorily if the investor fails to deposit the margin call or they sell shares in the spot market to meet the margin call in the futures market.
In both the circumstances, there is selling pressure on the spot market. When an investor squares off his futures position by selling futures contracts, there is a drop in the futures price due to selling pressure on the futures contracts. If the futures prices drop, and they start selling at a price which is lower than the cash market, the market players will start buying in the futures market and selling in the spot market. This will create a selling pressure on the cash market, sending the prices down.
Similarly, there is selling pressure on the cash market if investors start selling their shares in the spot market to raise cash in order to meet the margin calls in the futures market. And so, futures market influence the spot market.
Note: Stock and futures prices have been rounded of.
It has happened before, and it's happening again. Futures markets were widely blamed for the Black Monday crash in the US in October 1987 - even though research has shown that futures cannot be blamed for the unfortunate turn of events then. Similarly, futures are being blamed now for the falling indices in India. Let us examine how trading in futures has an impact on the cash markets.
Let us take, for example, the Reliance Industries share for the past one month.On April 24, 2006, the share closed at Rs 977 in the spot market and Rs 988 in the futures market. Buoyed by the positive market sentiment, investors bought into the Reliance stock futures in the hope that its price will rise in the future, and then they can offset or close their positions in the futures market by selling.
People prefer to take a long position in the futures market as they have to pay only a small margin for the contracts rather than the entire amount. For example, an investor can buy one lot of Reliance futures consisting of 600 units by paying a margin of around 28% on the total contract value.
The total contract value would amount to Rs 5,92,800 (Rs 988 x 600 = Rs 5,92,800). The investor, though, needs to pay only Rs 1,65,984 (5,92,800 x 0.28). To buy the same number of shares in the spot market, the investor would have had to pay Rs 5,86,200 (977 x 600) on the same day.
Now, say, an investor has bought in one lot of Reliance futures contracts by paying a margin of Rs 1,65,984. He is of the view that the price of the futures contracts will keep rising. And indeed they do, till May 12, 2006, after which they start falling. The investor thinks that it is just a temporary downward move and does not square off his position.
But the markets continue to fall. On May 22, 2006, all hell broke lose and the Sensex lost more than 1,000 points during intra-day trading. The Reliance futures price also took a heavy beating and closed the day at Rs 928. On account of the daily mark-to-market system in the derivatives segment, the investor receives margin calls as the value of his investment falls.
Mark-to-market essentially is a term used for adjusting the value of an investor's investment on a daily basis. Here, the difference between the settlement price (the closing price of the futures contract) of the previous day and the settlement price of today is settled in cash daily. So if the price of the futures is falling, the investor needs to deposit cash with his broker, who, in turn, needs to deposit it with the clearing house.
Now, the investor has three choices. If he has the cash to meet the margin call, he pays the money to the broker who will then deposit it with the clearing house. Second, he can square off his position by selling one lot of futures contracts and can book a loss on his position (loss of (Rs 988-Rs 928) x 600=Rs 36,000).
Thirdly, if he holds Reliance shares or any other shares in the spot market, he can sell them and raise the money to meet the margin call. Most of the investors fall in the second and the third category. They either square off their positions on their own or the brokers do it compulsorily if the investor fails to deposit the margin call or they sell shares in the spot market to meet the margin call in the futures market.
In both the circumstances, there is selling pressure on the spot market. When an investor squares off his futures position by selling futures contracts, there is a drop in the futures price due to selling pressure on the futures contracts. If the futures prices drop, and they start selling at a price which is lower than the cash market, the market players will start buying in the futures market and selling in the spot market. This will create a selling pressure on the cash market, sending the prices down.
Similarly, there is selling pressure on the cash market if investors start selling their shares in the spot market to raise cash in order to meet the margin calls in the futures market. And so, futures market influence the spot market.
Note: Stock and futures prices have been rounded of.
Wednesday, May 10, 2006
Lamhe
Choti choti baatein, ban jaati hain yaadein
Bhooli bisri yaadein, ban jaatey hain saharey.
Saharon se guzarish hai, kabhi na hona fanaa.
Jeevan ke har lamhe thaam kar meri baahein dena mujhe panaah.
Woh har lamha jo beet gaya hai
Usse yeh arja hai meri samaye rahna dil me meri, dhadkanon ki tarah.
Jo kabhi juda huey mujhse, meri saanse bhi saath le jaana.
Bhooli bisri yaadein, ban jaatey hain saharey.
Saharon se guzarish hai, kabhi na hona fanaa.
Jeevan ke har lamhe thaam kar meri baahein dena mujhe panaah.
Woh har lamha jo beet gaya hai
Usse yeh arja hai meri samaye rahna dil me meri, dhadkanon ki tarah.
Jo kabhi juda huey mujhse, meri saanse bhi saath le jaana.
Friday, May 5, 2006
All about commodity derivatives
May 05, 2005, www.rediff.com, Co-author-Vivek Kaul
Trading in derivatives first started to protect farmers from the risk of the value of their crop going below the cost price of their produce. Derivative contracts were offered on various agricultural products like cotton, rice, coffee, wheat, pepper, et cetera.
The first organised exchange, the Chicago Board of Trade (CBOT) -- with standardised contracts on various commodities -- was established in 1848. In 1874, the Chicago Produce Exchange -- which is now known as Chicago Mercantile Exchange -- was formed (CME).
CBOT and CME are two of the largest commodity derivatives exchanges in the world.
The Indian scenario
Commodity derivatives have had a long and a chequered presence in India. The commodity derivative market has been functioning in India since the nineteenth century with organised trading in cotton through the establishment of Cotton Trade Association in 1875. Over the years, there have been various bans, suspensions and regulatory dogmas on various contracts.
There are 25 commodity derivative exchanges in India as of now and derivative contracts on nearly 100 commodities are available for trade. The overall turnover is expected to touch Rs 5 lakh crore (Rs 5 trillion) by the end of 2004-2005.
National Commodity and Derivatives Exchange (NCDEX) is the largest commodity derivatives exchange with a turnover of around Rs 3,000 crore (Rs 30 billion) every fortnight.
It is only in the last decade that commodity derivatives exchanges have been actively encouraged. But, the markets have suffered from poor liquidity and have not grown to any significant level, till recently.
However, in the year 2003, four national commodity exchanges became operational; National Multi-Commodity Exchange of India (NMCE), National Board of Trade (NBOT), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX).
The onset of these exchanges and the introduction of futures contracts on new commodities by the Forwards Market Commission have triggered significant levels of trade. Now the commodities futures trading in India is all set to match the volumes on the capital markets.
Investing in commodity derivatives
Commodity derivatives, which were traditionally developed for risk management purposes, are now growing in popularity as an investment tool. Most of the trading in the commodity derivatives market is being done by people who have no need for the commodity itself.
They just speculate on the direction of the price of these commodities, hoping to make money if the price moves in their favour.
The commodity derivatives market is a direct way to invest in commodities rather than investing in the companies that trade in those commodities.
For example, an investor can invest directly in a steel derivative rather than investing in the shares of Tata Steel. It is easier to forecast the price of commodities based on their demand and supply forecasts as compared to forecasting the price of the shares of a company -- which depend on many other factors than just the demand -- and supply of the products they manufacture and sell or trade in.
Also, derivatives are much cheaper to trade in as only a small sum of money is required to buy a derivative contract.
Let us assume that an investor buys a tonne of soybean for Rs 8,700 in anticipation that the prices will rise to Rs 9,000 by June 30, 2005. He will be able to make a profit of Rs 300 on his investment, which is 3.4%. Compare this to the scenario if the investor had decided to buy soybean futures instead.
Before we look into how investment in a derivative contract works, we must familiarise ourselves with the buyer and the seller of a derivative contract. A buyer of a derivative contract is a person who pays an initial margin to buy the right to buy or sell a commodity at a certain price and a certain date in the future.
On the other hand, the seller accepts the margin and agrees to fulfil the agreed terms of the contract by buying or selling the commodity at the agreed price on the maturity date of the contract.
Now let us say the investor buys soybean futures contract to buy one tonne of soybean for Rs 8,700 (exercise price) on June 30, 2005. The contract is available by paying an initial margin of 10%, i.e. Rs 870. Note that the investor needs to invest only Rs 870 here.
On June 30, 2005, the price of soybean in the market is, say, Rs 9,000 (known as Spot Price -- Spot Price is the current market price of the commodity at any point in time).
The investor can take the delivery of one tonne of soybean at Rs 8,700 and immediately sell it in the market for Rs 9,000, making a profit of Rs 300. So the return on the investment of Rs 870 is 34.5%. On the contrary, if the price of soybean drops to Rs 8,400 the investor will end up making a loss of 34.5%.
If the investor wants, instead of taking the delivery of the commodity upon maturity of the contract, an option to settle the contract in cash also exists. Cash settlement comprises exchange of the difference in the spot price of the commodity and the exercise price as per the futures contract.
At present, the option of cash settlement lies only with the seller of the contract. If the seller decides to make or take delivery upon maturity, the buyer of the contract has to fulfil his obligation by either taking or making delivery of the commodity, depending on the specifications of the contract.
In the above example, if the seller decides to go for cash settlement, the contract can be settled by the seller paying Rs 300 to the buyer, which is the difference in the spot price of the commodity and the exercise price. Once again, the return on the investment of Rs 870 is 34.5%.
The above example shows that with very little investment, the commodity futures market offers scope to make big bucks. However, trading in derivatives is highly risky because just as there are high returns to be earned if prices move in favour of the investors, an unfavourable move results in huge losses.
The most critical function in a commodity derivatives exchange is the settlement and clearing of trades. Commodity derivatives can involve the exchange of funds and goods. The exchanges have a separate body to handle all the settlements, known as the clearing house.
For example, the seller of a futures contract to buy soybean might choose to take delivery of soyabean rather than closing his position before maturity. The function of the clearing house or clearing organisation, in such a case, is to take care of possible problems of default by the other party involved by standardising and simplifying transaction processing between participants and the organisation.
In spite of the surge in the turnover of the commodity exchanges in recent years, a lot of work in terms of policy liberalisation, setting up the right legal system, creating the necessary infrastructure, large-scale training programs, et cetera still needs to be done in order to catch up with the developed commodity derivative markets.
Also, trading in commodity options is prohibited in India. The regulators should look towards introducing new contracts in the Indian market in order to provide the investors with choice, plus provide the farmers and commodity traders with more tools to hedge their risks.
Trading in derivatives first started to protect farmers from the risk of the value of their crop going below the cost price of their produce. Derivative contracts were offered on various agricultural products like cotton, rice, coffee, wheat, pepper, et cetera.
The first organised exchange, the Chicago Board of Trade (CBOT) -- with standardised contracts on various commodities -- was established in 1848. In 1874, the Chicago Produce Exchange -- which is now known as Chicago Mercantile Exchange -- was formed (CME).
CBOT and CME are two of the largest commodity derivatives exchanges in the world.
The Indian scenario
Commodity derivatives have had a long and a chequered presence in India. The commodity derivative market has been functioning in India since the nineteenth century with organised trading in cotton through the establishment of Cotton Trade Association in 1875. Over the years, there have been various bans, suspensions and regulatory dogmas on various contracts.
There are 25 commodity derivative exchanges in India as of now and derivative contracts on nearly 100 commodities are available for trade. The overall turnover is expected to touch Rs 5 lakh crore (Rs 5 trillion) by the end of 2004-2005.
National Commodity and Derivatives Exchange (NCDEX) is the largest commodity derivatives exchange with a turnover of around Rs 3,000 crore (Rs 30 billion) every fortnight.
It is only in the last decade that commodity derivatives exchanges have been actively encouraged. But, the markets have suffered from poor liquidity and have not grown to any significant level, till recently.
However, in the year 2003, four national commodity exchanges became operational; National Multi-Commodity Exchange of India (NMCE), National Board of Trade (NBOT), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX).
The onset of these exchanges and the introduction of futures contracts on new commodities by the Forwards Market Commission have triggered significant levels of trade. Now the commodities futures trading in India is all set to match the volumes on the capital markets.
Investing in commodity derivatives
Commodity derivatives, which were traditionally developed for risk management purposes, are now growing in popularity as an investment tool. Most of the trading in the commodity derivatives market is being done by people who have no need for the commodity itself.
They just speculate on the direction of the price of these commodities, hoping to make money if the price moves in their favour.
The commodity derivatives market is a direct way to invest in commodities rather than investing in the companies that trade in those commodities.
For example, an investor can invest directly in a steel derivative rather than investing in the shares of Tata Steel. It is easier to forecast the price of commodities based on their demand and supply forecasts as compared to forecasting the price of the shares of a company -- which depend on many other factors than just the demand -- and supply of the products they manufacture and sell or trade in.
Also, derivatives are much cheaper to trade in as only a small sum of money is required to buy a derivative contract.
Let us assume that an investor buys a tonne of soybean for Rs 8,700 in anticipation that the prices will rise to Rs 9,000 by June 30, 2005. He will be able to make a profit of Rs 300 on his investment, which is 3.4%. Compare this to the scenario if the investor had decided to buy soybean futures instead.
Before we look into how investment in a derivative contract works, we must familiarise ourselves with the buyer and the seller of a derivative contract. A buyer of a derivative contract is a person who pays an initial margin to buy the right to buy or sell a commodity at a certain price and a certain date in the future.
On the other hand, the seller accepts the margin and agrees to fulfil the agreed terms of the contract by buying or selling the commodity at the agreed price on the maturity date of the contract.
Now let us say the investor buys soybean futures contract to buy one tonne of soybean for Rs 8,700 (exercise price) on June 30, 2005. The contract is available by paying an initial margin of 10%, i.e. Rs 870. Note that the investor needs to invest only Rs 870 here.
On June 30, 2005, the price of soybean in the market is, say, Rs 9,000 (known as Spot Price -- Spot Price is the current market price of the commodity at any point in time).
The investor can take the delivery of one tonne of soybean at Rs 8,700 and immediately sell it in the market for Rs 9,000, making a profit of Rs 300. So the return on the investment of Rs 870 is 34.5%. On the contrary, if the price of soybean drops to Rs 8,400 the investor will end up making a loss of 34.5%.
If the investor wants, instead of taking the delivery of the commodity upon maturity of the contract, an option to settle the contract in cash also exists. Cash settlement comprises exchange of the difference in the spot price of the commodity and the exercise price as per the futures contract.
At present, the option of cash settlement lies only with the seller of the contract. If the seller decides to make or take delivery upon maturity, the buyer of the contract has to fulfil his obligation by either taking or making delivery of the commodity, depending on the specifications of the contract.
In the above example, if the seller decides to go for cash settlement, the contract can be settled by the seller paying Rs 300 to the buyer, which is the difference in the spot price of the commodity and the exercise price. Once again, the return on the investment of Rs 870 is 34.5%.
The above example shows that with very little investment, the commodity futures market offers scope to make big bucks. However, trading in derivatives is highly risky because just as there are high returns to be earned if prices move in favour of the investors, an unfavourable move results in huge losses.
The most critical function in a commodity derivatives exchange is the settlement and clearing of trades. Commodity derivatives can involve the exchange of funds and goods. The exchanges have a separate body to handle all the settlements, known as the clearing house.
For example, the seller of a futures contract to buy soybean might choose to take delivery of soyabean rather than closing his position before maturity. The function of the clearing house or clearing organisation, in such a case, is to take care of possible problems of default by the other party involved by standardising and simplifying transaction processing between participants and the organisation.
In spite of the surge in the turnover of the commodity exchanges in recent years, a lot of work in terms of policy liberalisation, setting up the right legal system, creating the necessary infrastructure, large-scale training programs, et cetera still needs to be done in order to catch up with the developed commodity derivative markets.
Also, trading in commodity options is prohibited in India. The regulators should look towards introducing new contracts in the Indian market in order to provide the investors with choice, plus provide the farmers and commodity traders with more tools to hedge their risks.
Wednesday, May 3, 2006
A Short History of Nearly Everything-Bill Bryson
If someone knows of a better book which talks about the evolution of the Universe, explains important discoveries in physics, chemistry, geology and palaeontology more lucidly than this book, please let me know. I am not a science person.
This is the first time I am hooked on to a book on science. Newton, Einstein, Marie Curie, Charles Darwin...names that I had forgotten soon after the 10+2 exams, are once again intriguing me. Questions like the mass of the Earth, the age of the Earth, the size of the Earth, how did it come into existence...how about our Solar System? How big is it? How far are the planets from the Earth? What if the planets collide with each other? Will they in the first place? And many more such Questions, have been answered much before the so called revolution in technology and the age of computers.
The dedication with which many of the names who find mention in the book used to work is amazing. Probably its because for many of them finding answers to these questions was a hobby rather than a job. And their hobbies became their passion. This once again reinforces my point that in order to make a difference, we must do things that make us happy rather than working just for money.
This is the first time I am hooked on to a book on science. Newton, Einstein, Marie Curie, Charles Darwin...names that I had forgotten soon after the 10+2 exams, are once again intriguing me. Questions like the mass of the Earth, the age of the Earth, the size of the Earth, how did it come into existence...how about our Solar System? How big is it? How far are the planets from the Earth? What if the planets collide with each other? Will they in the first place? And many more such Questions, have been answered much before the so called revolution in technology and the age of computers.
The dedication with which many of the names who find mention in the book used to work is amazing. Probably its because for many of them finding answers to these questions was a hobby rather than a job. And their hobbies became their passion. This once again reinforces my point that in order to make a difference, we must do things that make us happy rather than working just for money.
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