Unless commodities don’t reverse their trend, inflation may go sky high threatening demand for the same and causing major food crisis. There are no clear winners in this inflation saga, not even the OPEC countries who depend on food imports. These OPEC countries not only have to contend with rising food prices but also drop in oil demand.

There is a major lesson in this crisis for all of us to learn. Live and let live.

Rising rupee was the first reason given for drop in export focussed sectors like textiles, software.
Rupee recovered (temporary recovery though), but sensex didn’t stop its downward trend. US subprime mess was second most famous reason by many technical and fundamental analysts for sensex fall. US Stocks are seeing rapid flucations and are reacting to Fed’s action , but Sensex in India is continuing its downward trend. People on the dalal street are as clueless as they were when sensex was on its upward trend. IIP numbers is the latest mantra and rising inflation is another bandwagon kept ready by several analysts to blame on, if sensex doesn’t stabilize at this point.

Simply put, INdian markets rose with the expectations that our GDP would reach double digit growth. The local high networth investors, mutual funds, banks etc don’t have cash to push the sensex in an upward direction. The rise we have seen in the last 2 years was a rally by FIIs.
Indian growth story is dependent on demand by Indina consumers and to meet those demands, supply has to be increased. To increase supply, corporate India needs money. This money can’t be raised locally (don’t know why) and so we are dependent on foreign direct investors or debts from foreign lenders. With liquidity crisis, that channel is more or less closed for corporate sector and an indication that our GDP growth will not touch double digit. FIIs sensing this pulled back money in fear, expansion plans of corporate sector is on hold, but consumers demand is on the rise causing inflation to rise.

There are two things to focus on a) Inflation b) gloabal liquidity crisis.
a) Inflation: Rising inflation is not necessarily a bad thing for a growing economy. Contraray to comon belief this should be a good news. Rising inflation indicates rising demand and thus encourages heavy investments to meet the demand.
Inflation may also rise out of fear to unsustanable levels. Will it rise forever? No.
1% inflation is bad in USA, but considered excellent for India. Inflation geater than 4% in India is bad according to analysts. I ask why?
My salary has risen more than 50% in the last 3 years. For me a mere rise of 2-3% in inflation is barely noticeable.
If the street or the politicians are worried about WPI, then remember everybody including labors have seen their pay rise. This doesn’t mean that their problems have gone, it only means their fortunes (lower class) have not significantly dented due to Inflation. I don’t think, people are necessarily cutting down on their food or spending, fearing Inflation in India. So, don’t sell stocks based on fears that Indian economic growth story will come to an end due to Inflation or due to global economic met down.
Inflation and economic growth go in parallels and in same direction. If they go in opposite direction, they have to meet again at some point for economic well being.
Take for example Crude prices. You cannot expect Crude prices to go up in perpetuity. Oil producing countries like Saudi Arabia, Iran etc know that if OIL continues to rise, the demand for oil will reduce too, causing their earnings to drop. Not to mention political fallout for Saudi Arabia, if Oil continues to rise.. domestically for OPEC countries inflation will rise muti fold too as they are dependent on imports for their food items. Why aim saying all this? Coz, it is in the interest of OIL producing companies to slowly bring down the price of crude to sustainable levels and help subside the global inflation. This arguement which is for OPEC is true for every country that exports commodities whose price have to come back down for gloabl economic health. The emerging countries cannot continue to consume if the prices keep on rising.
Commodity prices will drop helping inflation to subside. This has already begun.
b) Global liquidity crisis: This crisis will never go unresolved. Fed and several central banks are working over night to help banks with liquidity. The only question is how. They are figuring out ways to help flush the banks with cash by lending them or buying out the mortgage backed securities using tax payers money.
There are two big questions. One is will the people in the West especially America allow to use public money? Even if that was allowed and banks are flushed with cash, where will the banks lend that money to remain in good health?

We got to assume few things here to move forward. Banks will never loose in this fight. They will get the cash they need to power the global economy. If that doesn’t happen, then consider that we are all doomed. So, it is safe to assume that Banks will be back to lending now or in some time in future. The only question staring them is where to lend, so that they are guranteed a return? No guesses, it will undoubtedly be in emerging markets where there is risk apetite for people to take debt and keep their prmosie of returning the debt. Also, lending rates are high too, which again is a good reason, why liquidity will come back to emerging markets like India. The investment banks and commercial banks around the world cannot lend money to the same people who defaulted on their home loans or are finding it hard to pay back their loans. So, there is no alternative but to cycle their money in emerging markets. The gains they make here will help keep the jobs afloat in US and help them come back from recession.

So, i am out on a limb suggesting that markets have bottomed in India. Even if they have not bottomed, i have no doubt in my mind that the markets in emerging countries will have to be lifted sometime in future for global economic system to function normally again.

Money flows where there is a risk apetite and where there is demand for consumption. Then what better place than India and China?

TRS Chief KC Chandrasekhar Rao has resigned and got re-elected just few months ago. He along with other M.Ps have resigned again and are getting ready for By-elections. The notification for by-election will be issued next month as per paper reports.

When General Elections are due next year, why should we conduct by-elections now costing Tax payers money and also their time? Also, there should be a law prohibiting Law makers resigning without any strong reason. Also, there should be provision to bar such candidates from contesting again.
These MPs and MLAs are insulting the mandate they received by not performing their duties.
I will be writing another blog with more details on Telengana issue.

Every body has to take their share of blame for the dismal performance of Reliance power shares. To start with, i would blame Anil Ambani, investment bankers and all those analysts who pumped up the stock in the hope of bumper listing.
Due to bumper listing of several IPOs, value investors were sidelined for long now and momentum investors took front seat and technical chartists were revered.

THe right way for Anil Ambani was to do private placement and raise money to get the projects started under Reliance Energy fold. However, seeing the boom period Anil ambani lost his senses and wanted to make a quick buck just like a normal trader.
He quickly made Reliance Energy a holding company and shifted power related projects to Reliance Power and floated another publicly traded company by filing IPO.
The original price was around RS 180-RS 200 few months ago and don’t know, how and why they came up with RS 450-RS 480 range for this Company with no revenue to show, no concrete contracts for sourcing GAS, Coal for these projects. Anil adamantly didn’t listen to any suggestions for private placement as he thought the stock market will give him the right price. By offloading 10%, he was dreaming to get more value for his 90% share holdings and quickly wanted to become richest Indian.

There are many risks in completing the power projects and there will be too many negative trends for this company going forward.
By 2013, the cost of power per watt may become cheaper due to Rupee strengthening and there could be lot of competition from wind power, solar power providers.
So, i certainly can buy Anil Ambani’s shares for less than RS 100 going foward.

I suggest that we should all avoid any IPO led by tainted investment bankers of Reliance IPO.
I suggest you do both fundamental and technical analysis before investing money in stocks.

I am afraid, my earlier prediction of Reliance group promoters becoming poorer by their recent highly pumped Reliance Power listings coming true.
Certainly the investors are to be blamed for thier losses in Reliance Power.

Tata’s nano dubbed as People’s car is the talk of the world. Almost all radio channels, newspapers are covering it breathlessly.
I was driving from Norwood, MA to Acton, MA for my work and turned on Radio FM channel 90.9 and to my surprise there was an ongoing discussion of People’s car. There were echos from people in Afghanistan, Europe etc wanting to buy this car. However, there were also people from Ghana who said big NO for this car as they have seen negative side of it due to cheap cars from Korea.

This is what analysts are saying: Tata’s Nano (alias JEH) could be a huge hit in India. This type of car may work in India in the present conditions of Road infra structure. There is a huge apetitie for such cheap car from Lower and middle class families, who would want to switch from 2 wheelers and also from first time car buyers. Especially families who wanted to buy 2 wheelers to carry their entire family of 3-5 would now switch to buy this cheap car instead of 2 wheelers from Bajaj, Hero Honda.
Youngsters will still prefer 2 wheelers though.

Tata’s car can push the whole auto indsutry into a tailspin. This is my view though.
A) Tata’s nano has the immediate effect of putting a price pressures on 2 wheelers, 3 wheelers and 4 wheelers and ultimately affecting their margins. This will negatively effect the top line and bottom line of all the auto majors. Utlimately Indian people will benefit as the prices will be drastically reduced by Tata’s competitors.
Net affect: 2 wheelers will become lot cheaper. 2-3 lacs car prices will come down and ultimately become attractive to the point that Tata’s nano buyers will start looking around for better options such as safety, design and status.
Tata’s nano can create class wars among car buyers.
B) Tata’s nano can aggravate our traffic jams and burden our creeking infratructure. Unless government does something immediately, 1-2 years from now, you will see traffic jams for hours.
However, contrary to this opinion, if Road infratructure improves inline with Western standards, Tata’s car may not be suitable for fast mobility as their engines are V3 standard and their max speed is much less compared to what it should be on good raods. Tata’s car wil again impede the fast mobility and again create bottlenecks.
C) India has to spend lot on importing OIL. Almost 2-3 times what it does now. Their will be huge pent up demand for petrol.
D) Safety issues will crop.

If i were you, this is what i will do.
Instead of spending 1 Lack rupees on tata’s nano, i will but Tata Motors stock in open market.
No doubt, tata motor stock will go up for next few quarters as their sales volume will pick up. Meanwhile, the car prices and the stock price of other auto majors will come down. I will book profits on tata motor stock and buy Maruti car or other brand with the profits in tata motor stock.

Thanks
Sri

eNewss.com is glad to get an oppurtunity to talk to Anurag Gupta who has extensive experience in diverse industries.  Anurag also maintains a blog and mostly writes about Internet in India. You can access it here http://anuraggupta.blogspot.com/ 

eNewss) Give us a brief introduction about you and your work.
Anurag) I am an MBA from one of India’s premier institute – IIM Ahmedabad 1989 batch with more than 17 years of rich work experience across diverse industries. – FMCG, Office Automation, Stock Broking, Yellow Pages and now Internet.
 
I have recently joined India’s leading Interactive Agency – Mediaturf in Delhi as Exec VP & Director. My mandate is to set up the Northern operations and more importantly to take Mediaturf’s business to next level by aggressively foraying into newer areas like Search marketing, Mobile marketing, Retail advertising and Affiliate marketing. Prior to joining Mediaturf, I worked for 4 years with one of India’s largest Internet Company – Indiatimes.com. I was instrumental in creating and heading the “Subscriptions” business. Starting in February 2003 with a single product Indiatimes Meramail, the business today has a very large number of paid users across varied products with many of them becoming leaders in their categories. I also led Indiatimes’ foray into education by launching testing services at www.testcentre.indiatimes.com . The aim was to eventually offer a full services education portal. You can refer to some of the products that I handle at http://business.indiatimes.com  – these are essentially on similar lines as Yahoo Small business products aimed at enabling and facilitating businesses online.

eNewss) I keep hearing people saying that India lacks enough people with management/managerial skills. Is this true? If true, what are the reasons for it? How are we tackling this problem?
Anurag) India with its 1 billion population has a potential of having a huge employable base of people.

India anyways has a huge talent pool. For the first time in India’s history due to the booming economic growth we are facing shortage of talent in a few high growth industries. Internet is one of them.

It is a demand and supply phenomenon and I am sure market forces will correct this automatically over a period of time. More and more people are doing professional courses / management courses.

eNewss) Most of your blogs are about Internet in India. Why do you think internet population in India is much smaller/insignificant compared to other countries that matter? Are government policies to be blamed?
Anurag) You can see the glass as half empty or half full. Agreed India’s internet population at 43 million users is not near US & China, but at a 5% month-on-month it is a very compelling & lucrative market.

eNewss) We see so much going on with Online video and people are able to see full length bollywood movies on computer. With so many emerging technologies, where do you think people will spend more time in future? TV or Computer?
Will TV over take Computer in future assuming technologies which can feed data to TV for display mature?
Anurag) To watch a full length movie through IP, you need speeds FAR in excess of what we today get even in the name of Broadband!! Eventually as we see speeds improving we will definitely see content being delivered across different pipes / carriers to different devices. People will definitely start spending more time on PCs that they are doing currently.

Having said that, if we look at the past, no new media has been able to REPLACE completely an older existing media. Going forward, I definitely envisage Internet taking a large slice of the share of total media consumption of a user. This share will definitely come from two main sources – firstly an increase per se of TOTAL MEDIA CONSUMPTION & secondly shift from existing mediums like TV & Print.

enewss) What is the status of Internet in India? So far Internet means emails, chatting and web surfing. When will this crowd start doing buisiness online? Why is it not picking up now?
Anurag) Not correct if you see posts on my blog, I have been talking about activities beyond email, chat & news consumption.

Activities that have really grown are:
1)Online Stock broking: http://anuraggupta.blogspot.com/2006/04/online-stock-broking-on-way-to.html 
2)Searching for Jobs / Matrimonials: http://anuraggupta.blogspot.com/2006_03_01_anuraggupta_archive.html  
3)Online travel: http://anuraggupta.blogspot.com/2006/11/online-travel-india-size-of-business.html
4)Online Banking: More than 5 million people are using Internet Banking in India now
5)Online Video Rentals : 
http://anuraggupta.blogspot.com/2006/10/online-video-rental-companies-in-india.html
6)Web 2.0 activities: http://anuraggupta.blogspot.com/2006/10/web-20-companies-in-india.html

Though I agree eCommerce per se of “Bazaar” items has not taken off in a big way yet (http://anuraggupta.blogspot.com/2006/02/online-shopping-in-india.html ), but I am sure this will also change in the next couple of years.

eNewss) Barriers to entry to do business online is too low now and may even get cheaper by time. Do you see these businesses making profits and generate free cash flows any time in future? What was your experience w.r.t making profits at Indiatimes.com and presently mediaturf?

Anurag) There are a fair amount of Indian Internet companies that are making money now – Naukri just got listed post their IPO and is currently trading at almost 100% premium to their offer price!!

I understand a clutch of companies like Indiatimes, Rediff, Shaadi, Bharat Matrimony & Mediaturf are also making money. So are 3-4 online stock broking companies.
Follow up) Do you see these companies making incremental revenue for the next 5 years?

I see these companies growing their profits at almost 100% year on year. This is beauty of an Internet model, once the business model is set then incremental revenues come at a far lower incremental cost.

eNewss) Give us brief introduction to Mobile marketing and online education in India.
Anurag) One has been hearing of internet companies as well as existing brick and mortar education businesses foraying into the eLearning space. I has launched an initiative from Indiatimes (www.testcentre.indiatimes.com)

There are 3 distinct value propositions of Online education:

A) Testing – Internet allows taking mock tests and give results immediately – both in absolute terms (percentage marks scored) as well as relative terms (percentiles). This is a huge benefit and a natural reason why testing can & will be big on Internet. Indiatimes Test Centre is one of the players here.

B) Distance Learning: Existing brick and mortar education organizations have begun looking at this space – NIIT has been an early mover, one also hears of Career Launcher & Educomp (eLearning enabler)

C) eLearning as a BPO / demand supply matching opportunity: Companies like www.Tutorvista.com & www.learninghour.com have already begun their operations and are doing well.

Going forward I am personally very bullish on the scope of online Education in India.

eNewss) Does search marketing produce any business in India?
Anurag) Yes of course, Search marketing has already taken a 30% market share of the total online advertising business in India. The ENTIRE & ONLY proposition of Search is “Performance”. Google has not become world’s most valuable media company without delivering performance!!

eNewss) Cost of opening and manning retail outlets in prime locations are getting higher and higher. Do you think DELL like business model is feasible in India and would bring down the prices?
Anurag) Real estate & manpower costs are still lower in India compared to the western countries. You are absolutely right in your observations that the costs of building & operating retail stores is getting higher.

However, organized retailing in India is almost non existent and it contributes to not more than 3% of the total retailing happening in India. So the way to see ecommerce is not as a competition to brick & mortar retailing on costs yet, but on the pegs of convenience & empowerment of consumers to make informed choices (comparison shopping)

Interview with Anurag concludes. 
eNewss thanks Anurag for spending some time with us and talking to our readers.
Also you can find all blogs from Anurag Gupta on enewss at http://www.enewss.com/index.php?search=anuraggupta

We wish him good luck in all his future endeavours.