Cut the hype! - says SEBI to investment bankers

Oct 16, 2010

In this issue:
» Indian IT see major deals coming from US, Europe
» RBI finally intervenes to stem rupee's rise
» India's job hopping rate on a tear
» Indian and Chinese companies step up hiring in developed countries
» ...and more!!

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00:00 defines the term 'Hard selling' as "Applying psychological pressure (by appealing to someone's fears, greed, or vanity) to persuade the prospect to make a quick purchase decision."

And 'hard selling' is the very term used by a recent Mint report to describe the modus operandi of investment bankers peddling IPOs.

The implications of this hard selling for the average lay investor can be misdirection at best, and large losses at worst. We've already tasted a sample of this during heydays of January 2008 when a large hyped up IPO ended up in tragedy for a large mass of investors. Many investors are still licking their wounds inflicted during that time.

An executive director from SEBI recently warned bankers against 'planting news articles' and 'making forward-looking statements' in advertisements by companies coming out with IPOs. SEBI, astute as it has proved to be, realises two important things more than anyone else. One, the future is highly vulnerable to the vagaries of the business cycle. That is the hard reality. Precise and confident predictions about the near term future of a company are nothing but displays of arrogance. And two, that the future is also especially vulnerable to vested interests turning and twisting it to suit their needs. An exceptionally rosy and bright future is not very difficult to paint. Especially in times when the general business climate is good.

Skepticism is the investor's best friend. And its doses need to be doubled in times like these. The coming week will start with a large and extremely hyped up IPO, and many more will probably follow. The last thing you want to do is take everything thrown at you at face value.

 Chart of the day
Favourable dependency ratios can be a boon to any nation. And India seems to be on top of this phenomenon. At 28, the median age of India's population is expected to be the lowest in the world by the year 2020. The state of its labour force has a strong correlation with a country's fortunes. The non-working age population, which includes people who are too young or too old to work, rely on the working age population for their survival. Thus, the working population of a country being significantly higher bodes very well for any country as there are that many more people who can add to production and consumption in the economy.

* Western Europe; Data Source: The Economist

Messrs. Barack Obama and company can breathe easy. They no longer need to worry about the fact that outsourcing is a one way street. And that the US citizens will continue to lose jobs to their more cost effective counterparts in India and China. IBM, one of the US' largest companies has done a HR study and it has revealed that as many as 45% companies in India and 33% in China plan to increase headcount in North America. Not just the US, but Europe is also on the list of these emerging market companies.

It should be noted that these plans are not the outcome of a growing outcry over outsourced jobs. Instead, it is a well thought out long term strategy that significantly predates much of the recent outburst. The timing of the report though wouldn't have been more apt. It will help immensely in driving home the point that it is only through globalisation and free market fostering that living standards of people can be improved. A certain Sally's parents in the US may have lost their jobs in a textile company to cheap imports from India. Sally will be able to make up for it by landing herself a plum position in say a TCS or Infosys. And there surely be many more such Sallys to come. Call it the shift in the winds of globalisation if you want.

The Indian IT industry appears to be recovering from the recession seen in 2009, which had been triggered by the crises in US and Europe, the two regions that account for a huge portion of the industry's revenues. As pointed out by IT major Infosys in its quarterly update, they are seeing major deals coming in from US and Europe. This is fuelled by the need of the clients to save costs as well as to manage the change in the uncertain environment that they find themselves in. The deals are mainly in the areas of transformation and outsourcing.

It is interesting to note that they are now more focused towards consulting and implementation services, which indicates a revival in discretionary spending on the part of the clients. For now, it seems that good times are back for the IT industry. These good times will however be marred by the adverse impact of the currency movement as well as the need to employ and retain workforce.

Money from FIIs has kept gushing into the emerging markets including India. With the US and Europe still down in the dumps, the lure of strong returns in emerging markets has been attracting foreign investors in droves. But this has compounded problems in emerging markets. Because of the surge in inflows, their currencies have been appreciating steeply. As a result, many of them have started intervening in the forex markets to stem the rising value of their currencies.

India, so far, chose to stay in the sidelines. Infact, the RBI governor had stated that the central bank would intervene if it believes that inflows are 'lumpy and volatile or if they disrupt the macroeconomic situation.' And because of the persistent rise in the rupee of late, the RBI intervened in the foreign markets in the week gone by. RBI's intervention is estimated to have been in the range of US$ 400 m. To add to that, state-owned oil companies bought dollars worth over US$ 1 bn for making payments for oil imports. This then took the total market intervention to US$ 1.5-2 bn. Indeed, the RBI is going to have quite a task on its hands of controlling inflows at a time when the developed world shows no signs of recovering soon.

Indians are an ambitious lot. And the Indian economy is expanding at a rapid pace opening up huge opportunities in various sectors. Combine the two and you won't be surprised to hear that a recently conducted survey by a firm states that 8 out of 10 employees in India move to another organization for better prospects. This makes India one of the top ranked countries as far as employment switchover is concerned. The survey also highlights the fact that Indian employees are better equipped to handle the downturn and are exploring more innovative methods for growing professionally than their Chinese counterparts. So, if the organizations need to retain talent they will have to engage in various developmental initiatives. More so considering the fact that India's large service oriented businesses need to be more employee focused compared to world average.

The past week was a good one for the global markets, especially China which saw its benchmark index rise by 9%. Gains were seen in markets across regions with Hong Kong, Germany, France and Singapore rising in the range of 1.5 to 3.5%. The US and UK markets rose by about 1% each.

Source: Kitco, CNN Money, Yahoo Finance

Gains in markets across the world were on the back of positive market sentiments, which in turn was on account of receding worries over the global economy coupled with good corporate earnings that were announced during the week. India and Japan were the top underperformers this week, with their benchmark indices ending lower by 0.6% and 0.9% respectively.

 Weekend investing mantra
"Determine value apart from price; progress apart from activity; wealth apart from size." - Charlie Munger

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4 Responses to "Cut the hype! - says SEBI to investment bankers"


Oct 18, 2010

Inspite of repeated failures in the Initial public offer and the exorbitant,unilateral, fixation of premiums,without having any logic, the Indian investors are falling into this trap.God alone can save them.I really appreciate that you are one among a very few who has boldly pointed out this.



Oct 16, 2010




anil mody

Oct 16, 2010





pradeep bisht

Oct 16, 2010

that decesion by sebi it is a wrong decesion because that effect after 7 day the markat is decrese by aprox 20 percent copare present

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