»5 Minute Wrap Up by Equitymaster

On This Day - 29 JULY 2011
Why do global companies prefer Indian CEOs?

In this issue:
» Will the Indian govt stick to its fiscal deficit targets?
» Will Gujarat become a global auto hub?
» China jittery over US debt crisis
» Food inflation at 29-month low
» ...and more!
----------------------------- Mark Your Calendar. Global Crisis Starts August 2nd. -----------------------------

The global economy is in a crisis... And things are only going to get worse.

In fact, this crisis could get really bad on August 2nd and thereafter...

That's the day the US government could run out of money i.e. it will no longer be able to pay its bills.

You can well imagine the fall out of this on the global economy... there will be utter chaos, and stock markets could reflect this sentiment as well.

But how does that affect you?

Well, the chaos that this will trigger in the global economy will not leave India untouched.

And that's why you need to be really sure that your portfolio of stocks is Crash Proof.

How can you do that right away? Just read on to get access to a proven solution to crash proof your portfolio...


What do you think is one of India's leading exports? Time magazine has recently given an interesting answer to this. It says that CEOs are one of India's most important exports to global companies.

Yes, if you look around the global boardroom, the evidence comes pouring. There is a long list of Indians heading global companies. Anshu Jain was recently named co-CEO of Deutsche Bank. This means that once Jeurgen Fitschen retires, we'll see an Indian leading Europe's most powerful bank. Vikram Pandit is already the top boss of Citigroup. Indra Nooyi heads Pepsico. Sanjay Jha heads Motorola.Vindi Banga once led the food and personal care behemoth Unilever before he became a partner at a private-equity firm. His brother, Ajay Banga, was last year elevated to the position of CEO of MasterCard. We could go on naming many more names. In fact, even Warren Buffett has an Indian by the name of Ajit Jain heading his reinsurance business. And he's also one of the probable candidates who will take over the reins of Berkshire Hathaway from the Oracle of Omaha.

It's clear that Indians are the preferred breed for the top jobs at global companies. But what makes them so apt for the position? Let's go the other way round. What is it that global companies value the most apart from obvious things like knowledge and leadership skills? The answer is multiculturalism! In an increasingly globalised world, you need leaders who can easily merge into different cultures, adapt to different environments and have the skills to deal with changing and challenging business dynamics. Interestingly, many Indians grow up doing exactly those kinds of things.

India has a rich and varied culture. We have 29 languages, each of which is spoken by at least a million people. There are another 122 which are spoken by at least 10,000 people. Apart from linguistic diversity, we have people following different religions. So Indians learn early on to mix and adapt with various cultures and traditions. That puts them at ease when faced with similar situations in the global arena.

Secondly, Indians learn the precious art of negotiation pretty well given the political red tape that they have to face in their native country. They learn to kick open rigid doors or create new ones if the need be. The third important ingredient is the gift of the English language, a legacy left by our erstwhile colonial masters.

What, according to you, makes Indians apt for the top jobs at global companies? Share your comments with us or post your views on our Facebook page.

 Chart of the day
The theory of purchasing power parity (PPP) tries to arrive at the correct exchange rate for currencies. It puts forth that over the long term exchange rates should tend towards the rate that would equalise the prices of a basket of goods and services across the globe. The Big Mac index does exactly that. It compares the price of the same kind of burger across the world and accordingly suggests if a currency is undervalued or overvalued against another currency. Today's chart of the day shows that according to the raw Big Mac index, the Indian rupee is 53% undervalued against the US dollar. Of course, a cheap burger in India doesn't necessarily mean that the currency is extremely undervalued. Average prices are usually lesser in poor countries like India where labour costs are relatively much lower than their developed counterparts. It is important to take into account factors such GDP per person to get a true idea of the appropriate exchange rates.

Data source: The Economist

The Indian government is not known for sticking to its fiscal plans. Rarely has it managed to come even close to its budgeted target. The last time we hoped that the Fiscal Responsibility and Budgetary Management Act (FRBM) will bring its due result, the global financial crisis took its toll on government finances. Bringing down fiscal deficit level, was, however one of the key promises that the Union Budget 2011-12 won accolades for. It assured investors in India and abroad about the government's commitment to achieve fiscal prudence. Even a marginal improvement in the fiscal deficit ratio from 4.7% to 4.6% by FY12 seemed relevant. For it meant that the government would make an attempt to grow the economy without relying on excessive debt. The basis of this assumption was tax collections to the tune of Rs 6.6 trillion for the current fiscal. Here again, the GDP growth estimated for the financial year 2011-12 was nearly 9%. Needless to say that the government had been overoptimistic in its projections to give the Union Budget a 'feel good' factor. Given the rise in commodity prices and interest rates, it was not very difficult to assume that growth level in FY12 will be lower than that achieved last fiscal. And tax collections are but a reflection of rise in economic output and profitability. Hence it should come as no surprise if the government fails to meet its tax collection target this year and resorts to more borrowings. But again, convincing investors that it is on the path of fiscal prudence will be more difficult this time.

When Tata Motors had problems in Singur, West Bengal with respect to its Nano plant, Gujarat saw a huge opportunity. Indeed, it left no stone unturned in ensuring that Tata Motors was able to set up its plant at Sanand and produce the world's lowest cost car. This was a part of Gujarat's larger vision of being India's automobile hub akin to Detroit in the US. And close on the heels of Tata Motors, automakers have been making a beeline to set up manufacturing bases in Gujarat. And interest is being shown not just by the Indian auto manufacturers but also by foreign players. Peugeot Citroen SA, General Motors, Maruti Suzuki, Bajaj Auto, Ceat, Apollo Tyres and the likes are all looking to catch a slice of the Gujarat pie and make investments. Indeed, what has brought this Indian state to the forefront is its investor-friendly government, transparency, good infrastructure, easy connectivity to ports and an efficient rail and road network. Hence, it would hardly be surprising if Gujarat becomes a global automobile hub in the years to come.

If you borrow few hundred dollars from a bank, it is your problem. But if the borrowings snowball to millions of dollars, then it is the bank's problem! Certainly, there isn't a better description of the dilemma faced by the Chinese currently. Dilly-dallying on debt ceiling is not just making US policymakers jittery. It is also sending shivers down the spine of the Chinese. This is because at last count, the Chinese had north of US$ 1 trillion invested in US treasuries. Thus, any significant decline in price of the same will erode the value of Chinese foreign exchange reserves significantly. What makes matters worse is the fact that even if they decide to invest elsewhere, their ability to do so is severely constrained. There is simply no other market that could match the depth and liquidity of the US treasury market. Therefore, all that they can do is pray and hope that some fiscal sense is drilled into the minds that govern the US.

That we have seen high inflation is not really news. A part of this was caused by higher food inflation. So it would come as a relief to know that the food inflation has actually started to ease off. This week, the food inflation rate stood at 7.33%, which is a 29 month low. A major reason for this is the higher base effect of last year. But nonetheless, food prices have actually started to ease off as per the government's calculations at least. A large part of this decline is attributable to the decline in prices for proteins and fruits. However, the prices of vegetables still continue to remain high and rose to 10.55% as compared to 4.2% in the previous week. As a result there is little cause to cheer.

In the meanwhile, the Indian stock market is trading in the red, having come off its earlier highs. The BSE Sensex was trading lower by around 10 points at the time of writing. Maruti Suzuki and ITC were trading in the green. All other major Asian indices were also trading in the red with stock markets in Taiwan and South Korea leading the pack of losers. Europe opened on a negative note as well.

 Today's investing mantra
"The average man doesn't wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn't even wish to have to think." - Jesse Livermore

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