Buffett's priceless gift to India Inc.

Mar 25, 2011

In this issue:
» Can the Japanese tragedy bring in better times for global economy?
» Another doom theory on the Euro
» Rental properties luring realty investors
» Are Indian banks staring at NPA blues?
» ...and more!

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His generosity in philanthropic efforts has come to be as well known as his investing genius in recent times. But when it comes to sharing some pearls of wisdom, this man's generosity stands unmatched. We are certainly referring to value investing legend Warren Buffett. Some Indian business minds had the good fortune to meet Buffett in person yesterday. And the gift that the octogenarian gave them is bigger than his billions of dollars in charity.

India Inc now needs to put the economy's demographic dividend to better use than ever before. Hence, Buffett advice could not have been better timed. The Oracle of Omaha shared the key traits he looks for in people he hopes to work with. But he also emphasized on why it is necessary for all the traits to be present for the organization's success. "I look for three qualities in people I do business with - intelligence, passion and integrity. But God forbid, if the integrity of the person is questionable and the man is highly intelligent, it can lead to worse scenario". There is little doubt that Buffett words will have a lasting impact on India Inc. For the economy has been witness to some of the biggest scams in recent times.

Labour is theoretically the only resource available to Indian businesses in abundance. But securing skilled and ethical employees require loads of effort. We often come across managements of India's biggest corporate telling us that labour issues are the biggest risk to their business. Only if Indian businesses take that extra effort to select the right people will they accomplish their long term goals. No one better than a shrewd investor like Buffett to drive this point home.

What do you think should Indian companies do to get the right kind of people? Let us know your views on post them on our facebook page.

 Chart of the day
Views on the extent to which the Japan crisis will affect global businesses have been coming in from every corner of the world. When it comes to India, we are more worried about whether the investments from Japan will continue to come in. The Indian auto sector in particular has a lot riding on FDI from Japan. Investments from Japan accounted for nearly 40% of the total FDI received by the sector over the past decade. Not to mention assistance on technical knowhow. Thus if the FDI from Japan were to slowdown in coming months, the Indian auto sector could be the one most affected by it.

Data source: ICRER

Indeed, the calamity in Japan is saddening. Our hearts go out to the people who are affected directly or indirectly by it. But most economists seem unanimous in their view when it comes to economic fallout. The earthquake and tsunami, they reckon, could be beneficial to the global economy in the short to medium term. Most of them seem to draw their conclusion from a similar earthquake that took place in Japan in 1995. However, a certain Mohamed El-Erian of PIMCO thinks otherwise. He argues that more troubled times lay in store for the global economy rather than good times as a consequence of the Japanese tragedy.

He has put forth five reasons. First, the economic damage from the current calamity could well be twice that of the 1995 earthquake. Second, Japan's public finances at present are weaker than in 1995. Third, Japanese monetary policy could be ineffective this time around as benchmark rates are already near zero. Fourth, given the nuclear fall out, it may take time for Japan to fully recover from lost power production. This can hurt economic growth and global supply chain. Last but not the least, global economy today is not in as comfortable position as in 1995. Multiple headwinds are staring in its face. Given these factors, El-Erian feels that it is too premature to get all optimistic about the economic fallout from Japan's calamity. He thus requests policymakers across the globe to have proper action plans in place. Given the cogent arguments put forth by El-Erian, we couldn't help but agree with him.

This list of doomsayers for the Euro is just getting longer. One more name that gets added to it is that of Warren Buffett. In an interview with CNBC yesterday, Buffett has warned that the Euro could collapse. "I know some people think it's unthinkable...I don't think it's unthinkable," Buffett is reported to have said.

He sternly added, "You can't have three or four or five countries that are in effect free-riding on the other countries. That won't work over time — they have to get their fiscal houses in reasonable harmony."

There's no denying that the Euro-zone is in a tough spot as of now. But then, so is the rest of the western world including Buffett's US. Years of misguided borrowing and spending has brought these countries to such dangerous levels that moving out from here would depend largely on luck if not anything else.

Real estate investors are now finding investments in rental properties more lucrative than development projects. This is quite a shift from the earlier trend. The reasons are apparent. Development projects have doled out lower than expected returns. This is has been mainly due to drastic drop in prices following the slump in 2008-09. Project delays also tend to erode returns.

The interest is now focused on developed commercial space which has not been completed and rented out. Investors are more willing to invest in stabilised assets as they do not carry development risks, particularly issues relating to land acquisition. The lure of rental yield assets has also increased as there is now a substantial stock of property that has been developed in the past few years. There are at least four real-estate funds that are raising nearly Rs 25 bn to invest in rental properties. These funds are betting on the growing demand for office space in the country.

The recent spate of scams and scandals has laid bare various irregularities in the way the government system operates. And in this regard, the road and highways sector is not far behind. Because of many irregularities noted in the bidding system, the National Highways Authority of India (NHAI) intends start e-tendering of projects from April. The rationale behind e-tendering is to make the bidding process more transparent and weed out any traces of corruption. This move seems to be a step in the right direction what with the government stressing on the need to ramp up infrastructure as a result of which many projects will be lined up. But as has been the case in the past, the real test for NHAI will be on the execution front. Does it have the will and the determination to ensure that this new system is put in place as fast as possible without any delays and cost over runs? Also, even after implementation of e-bidding, will various road projects envisaged get completed in time? Only will have to wait and see.

The Reserve Bank of India (RBI) raised interest rates for the eighth time. But the banks are skeptical about passing this rate hike on to its customers. Most banks feel that raising lending rates would lead to worsening balance sheets for the banks. The reason - higher interest rates would limit the borrowers' repayment capacity. If this were to happen then a large part of the banks' asset base would deteriorate in quality. And the banks are just not ready to see that happening. Moreover, most banks expect RBI to further raise interest rates in the coming months. As a result, they are hesitant about raising rates now and then do so again in just a few months. The banks are absolutely justified in their stand. But unless rate hikes by RBI are actually implemented by the banks, the RBI may not be very successful in controlling inflation merely through monetary policies. It will be forced to look at other alternatives.

The benchmark indices in Indian stock market managed to hold on to the momentum led by buying interest in banks and IT stocks. Positive cues from markets across Asia also helped sentiments. The BSE Sensex was trading 425 points (2.25%) higher at the time of writing this. The European markets have also opened on a positive note.

 Today's investing mantra
"Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols." - Warren Buffett

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11 Responses to "Buffett's priceless gift to India Inc."

Jamnadas Dayah

Mar 27, 2011

Indian corporate house to take interest in our education system so that right type of educated youth are available in first place.


jagdish sanghvi

Mar 26, 2011

Dear all
It would be very interesting to put Mr Buffet's principles of integrity/intelligence analogy at work in the top level managers (politicians) in context of our country (as a company). According to Mr Buffet if there is total bankruptcy of integrity, the situation is hopeless.
We know how immoral the top level managers of our country are while being very intelligent and extremely passionate about looting the country. Then can we ever be hopeful to become world/super power by 2050??? What ever rise we see in the economy is temporary/eye wash or is it for real?? Our definition of honesty has changed (adulterated) so much that congress to cry hoarse that Dr. Manmohan singh is an honest man because he did not know/steal any thing for himself but he only looked the other way while the theft was/is going on so others can loot the country.
There is still a bleak ray of hope for India. Mr Buffet although a strong proponent of "integrity", did not seem to be perturbed about the height of corruption in India, when asked. He even went to explain about the corruption levels in America in the 19th century and only things changed some time in 20th century. So India has a chance and Dr. Manmohan singh can still look the other way, or better yet, just close the eyes without being/feeling accountable for anything,plead total ignorance, while his cronies can loot/rape the country.

India has a chance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!



Mar 26, 2011

It is not too tough to find men of integrity coming straight from colleges - it is what jobs do to them that matters. How many companies are willing to retain independent & hardy men of spotless integrity vs. the usual henchmen / yes-men of their bosses?
In fact the Indian entrepreneur ranks are full of men who finally ditched corporates for such reasons. And the middle management has a very high concentration of leftovers who should never ever try entrepreneurship.


Gopal Kalpathi

Mar 25, 2011

Why does it always has to come from the west? No doubt, Mr. Buffet is a noble person but was there any doubt about the quality of the employees for the organizations to covet for?

The second aspect I would like to point out, especially in the Indian scenario, is about the 'integrity'. Of course it is one of the most important quality to seek and have in an employee, but can we expect the same from the employers as well? There is a general lack of mutual trust between employees and employers. Employees are always looking for proper guidance and direction from the management, but what can they learn when they see lack of governance and want of integrity from the top management? I am sure, Mr. Buffet must have meant his gem of an advise for the owners of business to crate a top level management team based on the three qualities of those who will make this team. Such qualities are generally not taught in B-schools but needs to be built as a culture starting from the parents, peers and teachers. That is what is the scarce resource among the multitude of Gen-Y. Get rich quick does not call for such qualities.


Anupam Garg

Mar 25, 2011

why is it tht i m finding a lotta similarity between Mr. Buffett and renowned Indian yoga guru Swami Ramadeva. While both hav done miraculous wonders in their respective field of work, now both r spreading 'words of wisdom'. While a lot of Indians criticise Mr. ramdeva for attracting attention by publicising himself, the same remarks r never found 4 Mr. Buffett. I fail to understand the meaning of philanthropy in which the entire world is informed prior to philanthropic work itself. All in the name of integrity or fame, Mr. buffett?



Mar 25, 2011

Integrity is the most difficult to be ingrown, imbibed in the young of India. Right from KG class to any discipline of education one is required to pay bribe.To earn back the expenses the integrity is sold. our politicians at any level only reinforce people to do away with integrity to make a quick buck. Reforms must start with education.


Ganesh K

Mar 25, 2011

Japanese are hard working and intelligent race. One cannot but admire them for this and emphathise with them for the disaster they face.However the slow down in FDI in Indian Auto sector from any quarter ( not only Japan) is welcome news. See our clogged roads and poluted weather and burden on foreign exchange due oil imports. What india needs is environmentally clean & energy efficient Public Transport system and not road blocking SUVs which are guzzling oil.


Shome suvra chakraborty

Mar 25, 2011

Performance appraisal should be accompanied with potential appraisal. Proper flow of information should be dissipated through the entire organization, halo effect and other biases should be stopped.Intrinsic awards are important along with the extrinsic rewards.Recruitment should be matched with the profile of the co.



Mar 25, 2011

First let us get good politicians. Now a days we elect(mostly from poor sections)the people who doll us everything right from rice to laptops. They don't care whether the party leaders are looting the country or selling it to greedy people. The result is taxes are increased on all items and middle class and uppper middle class people pay for the inefficiency of our politicians. Rich people don't bother and poor people don't fore-see the future. If India is in this stage, it is only because of the efforts of middle/upper middle class people. But they do not or can not de-throne the corrupt policiticans, sheerly because of their laziness to cast their votes. So, get use to sufferings in near future and watch unethical politicians looting this country. Best of luck.



Mar 25, 2011

Indian Companies should put the Finance, Investment and Accounts portfolio in the hands of men above middle-age, (say 45+ years,) experienced and men with family whose background is not only impeccable but also of business integrity having privously worked with respectable business houses.

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