Saturday, December 26, 2009

'Size Matters' for Sundaram BNP Paribas Mutual Fund:

Sundaram BNP Paribas Mutual Fund recently launched a unique offering of PSU opportunity fund where the investors’ money would be invested only in the PSU companies. Considering that presently the only option investors have is of equity, debt and commodity funds, this can be thought of as an innovation.

As an asset class, PSUs have dominant share in four sectors, energy, financials, utilities and materials. PSUs have backing of the government and India being a developing nation where infrastructure is going to be the key growth drivers especially with so much of fiscal action happening, PSUs are going to grow exponentially. The market cap of the PSU universe has risen from about Rs. 90000 crore to Rs. 15,10,254 crore in this decade as PSU stocks outpaced the broad markets as well as private sector players. Thus investing in this class of assets is sure to give handsome returns with minimum risk.

Now getting to the advertising aspect followed by Sundaram BNP Paribas Mutual Fund i.e. a print ad in one of the dailies in Mumbai last week. They are selling the might of its multinational giant BNP Paribas which is a mammoth organization. The print ad headline being ‘size matters’. Of course size matters and with deep pockets of BNP Paribas, it surely matters more. But I find a small lacuna in this strategy because of the implantation of the print ad. It shows a sumo wrestler with this ‘size matters’ headline.

A small mutual fund can bring out a similar ad with a small sumo wrestler vs. a big sumo wrestler as shown in the picture above. This is possible in sumo wrestling since agility matters and not the size. Thus a small company can write ‘size doesn’t matter’ in the ad and publish it. It could be quite a coup of sorts.

Cola wars and technology wars (between Apple and Microsoft) are known but mutual fund wars would be quite interesting. Isn’t it?

Friday, December 25, 2009

Kareena and Sony VAIO: Two ‘size zeroes’

India is one of the fastest growing markets for personal computers. Over the last decade or so, laptops have started to be the preference over desktop PCs for the middle and upper middle class due to the crashing prices of laptops per day. It was always the preferred choice for affluent class when they even bought it for more than a lakh.

The cumulative sales of laptop and personal computers in India is around seven million and is likely to grow at 9.7 per cent compounded annual growth rate for the next five years. At present, the ratio stands at 35:65 with the dice loaded heavily in favour of personal computers.

Thus all the major laptop manufactures are present in India namely Sony, Toshiba, and Compaq, Acer, Dell, Samsung, LG, and Lenovo among others. India’s own HCL too is giving these foreign players a run for their money. Apple is a big player which though is surprisingly absent. You will rarely find a Mac unless it is bought from abroad by an Apple enthusiast.

All these players have a brand ambassador for their TV promotions. Compaq has Shah Rukh Khan which I find surprising since SRK isn’t known for this intellectual abilities with due respects. He is a fabulous performer but in films which are his domain. Acer has Hrithik Roshan whose case is similar to SRK. I do not agree to him as a brand ambassador for a laptop. Toshiba has Vidya Balan which is not just surprising but almost shocking. I really would like to know the reasoning behind her as a brand ambassador. Others such as HP, Lenovo, HCL LG, and others advertise but they do not have a specific brand ambassador.

Sony recently signed up Kareena Kapoor for launching Sony Vaio's (Video Audio Integrated Operation) new 'Size Zero’ laptops. The reason for signing her is easy to understand. It is one fo the most perfect fits for a brand. She was the first Indian brand ambassador of Sony Vaio. The actress was responsible for making 'Size Zero' a household term a couple of years ago. She is the only person who embodied what the brand stood for. And the new range of Sony Vaio's 'Size Zero' laptops is compact, classy, chic and sophisticated just like Kareena.

The audience could easily relate the product and Kareena. The TV commercial made is also classy and made considering the affluent class as the target market.

Sunday, December 20, 2009

Recession and the irony of its solution

As a layman who does not understand much of macro economics except for the easy and lucid explanations given by pundits on news channels, I find it difficult to understand the low interest policies by banks the world over to come out of the recession.

The financial and economic crisis of 2008 which engulfed the whole world resulted in recession. A depression was averted due to the timely and coordinated action by central banks the world over. This however happened due to the loose monetary policy by the Federal Reserve; the US central bank backed by the then Fed Chairman Alan Greenspan, an avid supporter of free markets and the present fed chairman Ben Bernanke, the then director on the fed board. They believed that recessions could be a thing of past and that loose monetary policy could stop the boom-burst cycles of economies. Also markets correct themselves based on demand-supply gaps and the central bank should act only as the facilitator rather than a regulator.

The low interest rate regime resulted in debt-fueled consumption by US exacerbated by the high savings in developing countries such as China, India and the oil rich countries who supported the high consumption of the US. These emerging economies had highest savings during these boom times of the last decade. When this consumption led bubble burst following the bankruptcy of Lehman brothers, the world economy was on the verge of collapse. Keynesian policies took front seat and fiscal action was the order of the day. This however was also combined with loose monetary policy so as to facilitate lending by banks who had taken a hair cut on their balanced sheets.

The thing that I do not understand is that how can low interest rate regime, leading to more lending, revive the economy which is in dire straits due to this debt based consumption? The US is buying its treasuries and non- conventional monetary policies such as quantitative easing are followed and the balance sheets of the central banks are broadened to facilitate lending. How can loose monetary policy be a solution when it was the cause in the first place?

In India, SBI is giving 8% loan to induce spending. Isn’t it similar to debt-fueled consumption? Isn’t it similar to what the US banks did by lending to customers with low credit worthiness? Should we not learn from this and look at other ways to revive the economy?

‘Live within your means’ is one of the famous proverbs. If all people follow this, we would not have the kind of materialism in the world. As Mahatma Gandhi once famously said “there is enough in this world for everyone’s need but not for everyone’s greed”. The crisis of last year clearly embodies this.

Friday, December 4, 2009

Per-second billing- non-impressive

Tata DoCoMo came up with the ‘differentiating’ factor of per-second billing to enter the Indian telecom market with a bang. It surely did hit with a bang but unfortunately could not sustain this ‘differentiating’ factor. Other telecom service providers followed suit and converted to per-second billing. It resulted in more problems for the service providers with more losses in revenues.

I do not think this per-second billing is going to result in addition of subscribers or a churn in subscription form one service provider to another. Currently many a subscribers avail a call rate of 50 paise per minute or 30 paise per minute among the same service providers. Many of the plans include friend talk or group talk where the rates are as low as 10-20 paise per minute. The new plans of per second billing have rates of 1 paise per second which equals 60 paise per minute. Thus existing customers would not want to change over to the new plans. Moreover, with the implantation of Mobile Number Portability, I do not think there would be any churn due to per-second billing option.

Apart from this, only the pre-paid customers who are light users will find this useful. Post paid users who are heavy users would not be much impacted since the value of reduction in price would be negligible. The plans would help pre paid users who are almost 90% of the total subscribers but thinking of the future doesn’t seem to be the right idea. The only way the service providers would earn profits was if they used VAS. And thus targeting the post paid user would be a prudent idea.

The urban areas of India are congested and there is hardly any place for a new entrant irrespective of the differentiation. The rural areas are very sparsely penetrated and better infrastructure would result in addition of subscribers there. Even though the rural population are low spenders, the volumes of subscribers could do the trick for the service providers. And low tariffs could see the populace using more communications.

Thus I think, although analysts thought that per second billing would be the game changer in the telecom space in India, it is far from what is going to happen.