CEOs and competitive Arousal !

Few days back, The Economic Times had an interesting story on the front page on the Bharti-MTN deal. The writer’s point was how Bharti’s Sunil Mittal was back pursuing a deal he had to give up last year. The most interesting thing about the story was a Mittal quote that came lower down in the fourth paragraph. In that, a quote recounted by the CEO friend it was made to, Mittal says how winning MTN had become “a question of my ego”.
If you look at it, these are just five words. But what a window it offers to the mind of one of India’s most successful entrepreneurs. A 100 million subscribers on, Mittal is still in, what you could call, a state of ‘competitive arousal’.
It’s actually the subject of an article that Deepak Malhotra, Gillian Ku, and J. Keith Murnighan wrote for the Harvard Business Review last year. Their contention is simple. When a CEO is in a state of competitive arousal, he’s more prone to make the sort of (rash) decisions he would not otherwise.
But what leads to this state of competitive arousal? According to Malhotra et al, there are primarily three reasons.
1. the CEO is going head-to-head with one or two rivals and feels compelled to beat them to the target.
2.when there’s a stiff deadline, self-imposed or otherwise, that the CEO is trying to meet. In that situation, he’s unlikely to weigh all the pros and cons.
3. presence of an audience. When people (especially the ones with pens and cameras) are watching, an M&A can spiral into a gladiator sport. The CEO is under tremendous pressure to win at any cost.
In the case of Bharti-MTN, where Anil Ambani’s Reliance Communications was a rival contender last year, Dalal Street’s initial reaction was to beat the stock down. But some considered opinion now seems to suggest that the deal, if it goes through, may not dilute Bharti’s earnings per share to any great extent. That said, it’s also likely that Mittal is forced to sweeten the deal for MTN shareholders; quite a few of them are grumbling about what they are getting. At what point Mittal says ‘no more’ to them is a question that’ll get answered only closer to the July 31st deadline.

Mittal, of course, isn’t the only CEO who’s getting tested this way. Ratan Tata ended up paying $12 billion for Corus—34 per cent more than the initial offer price. A fortnight after Tata sewed up corporate India’s biggest cross-border deal, Kumar Mangalam Birla announced he was buying Novelis for $6 billion. In hindsight, both these deals look way too expensive, but it’s only Tata who has admitted that the Corus buy (not to mention Jaguar Land Rover) happened at “an inopportune time”.
In the long term, each of these CEOs may be proved right, but there’s no doubt that their companies will face some pain till that time. In India so far, we haven’t had a deal that’s been a complete dud (Dr Reddy’s Betapharm buy, though, comes painfully close). But as more and more CEOs seek to expand their business empires beyond India, an ill-conceived AOL-Time Warner kind of merger may well happen.
Malhotra et al suggest three ways in which CEOs can avoid getting into the competitive arousal trap. One, bring not your heart but head to the deal. That means keeping away from negotiations the CEO who thinks he must win at all costs. Two, do away with any unreasonable timelines. And, three, let not the deal become one man’s glory game; instead, deflect media attention to a team. That way, the deal doesn’t become a matter of prestige for the CEO.
That said, one cannot be ordinary and hope to achieve extraordinary results. Sunil Mittal is what he is today because he pursued big dreams and took the sort of risks a more ordinary CEO would have shied away from. The secret to success, then, is in knowing how much risk is too much. Unfortunately, there’s only one way to find that out. And that’s to do the deal.

Head wise budget snapshot!!

BUDGET
Taxes

· Surcharge of 10% on personal income tax removed

· No change in Corporate taxes

· Increase exemption on personal income tax by Rs 15,000 to Rs 2,40,000 for
senior citizens

· Increase exemption on personal income tax by Rs 10,000 to Rs 1,90,000 for
women

· Increase in exemption on personal income tax by Rs 10,000 to Rs 1,60,000
for all others

· Surcharge of 10% on personal income tax removed

· Propose to phase out surcharge on Direct Taxes

· To remove Fringe Benefit Tax

· To remove Fringe Benefit Tax

· States agree on basic structure of Goods and Services Tax

· To raise Minimum Alternate Tax(MAT) TO 15 % of book profit

· MAT hiked from 10% to 15%

· Commodity Transaction Tax scrapped

· Carry Forward Tax credit on MAT to 10 year

· To exempt Pension trust from Securities Transaction Tax

· To create Alternate Tax disputes resolution mechanism for foreign
companies

· Software Technology Parks of India (STPI) extended by a year

· GST to be a dual regime with Central and state terms

· No Securities Transaction Tax (STT) on sale/purchase of shares by NPT

Reforms, Tax reforms

· To work on Saral 2 form to make income tax procedure simple

· Tax reform system to be completed in 4 years

· Balanced approach to financial de-regulation in justified

· Review and aims of the budget

· It a mandate we accept with humility and will do all we can for the
welfare of the nation

· Strong mandate for growth

· Sensitive to the challenges of a young India

· The govt has to sustain a growth of 9% create 12 mn jobs per year

· Reduce poverty levels by half by 2014 infrastructure investment to more
than 9% by 2014

· Focus to sustaining momentum in exports

· Strengthen primary healthcare delivery

· Plan to strengthen primary health care

· Broaden inclusive growth agenda

· Our target of agricultural growth at 4%

· Signs of revival of domestic industry

· Fiscal deficit has widened from 2.7 % to 6.2% of GDP

· Institutional reforms to bring the fiscal deficit under control

Challenges

· To get the GDP growth to 9% at the earliest

· To deepen the process of inclusive development

· To reenergise govt, govt must provide service with accountability

· Growth driver in the last 5 yrs has been private investment

· Structure of Indian economy has changes in last 10 yrs

· Now services constitutes more than 50% of GDP

· Increase investment in infrastructure to 9% by 2014

· To focus on infrastructure development

· Growth co-operative effort of Centre and States

· Job growth rate hit by dip in GDP

· Integration of Indian economy with the world has opened up new
opportunities and new challenges

· Aim to return to FRBM target at the earliest

For revival

· Govt provided three stimulus package

· RBI took monetary measures to meet the needs of productive sector

· This led to fiscal deficit to rise to 6.2% in 08-09

· We achieved a growth of 6.7% of GDP last fiscal

· Signal of recovery visible in the last few months

· Uncertainty about revival of global economy remains

Infrastructure

· We had set up IFFCL to provide financial assistance to infra companies

· IIFCL will be given greater flexibility

· IIFCL will refinance 60% of bank loans in critical sectors

· IIFCL will evolve a take-out financing schemes for incremental funding in
infra

· Fiscal stimulus at 3.5% of GDP helped economy revive

· Sensitive to the needs of young India

· Endeavour to make Budget participatory and ensure continuity

· Significant increase in capital inflows needs

· PPP to be encouraged especially in infrastructure

· Need to improve and strengthen regulatory framework

· To speed up Golden Quadrilateral Project

· Total investment of 100000 CFR in infrastructure

· Need to remove bottlenecks for speedy implementation of infra projects

· Highways allocated 23% more than 08-09

· Rs 15800cr for Railways

· JNURM allocation increased by 80% to Rs 12887 cr

· Basic amenities for urban poor to get more than 3000 cr to make country
slum free in 5 yrs

· Provision for housing urban poor at Rs 3973 cr

· Allocation to NHAI increased to 23& Y-O-Y

· Fiscal deficit has widened to 6.7% of GDP

· Target agriculture credit inflows ay Rs 3.25 lakh cr

· · Focus of NCC, Gammon for highway development

· JNNURM to get more than Rs 12000 cr up 87%

· Basic amenities for urban poor to get more than 3000 cr to make country
slum free in 5 yrs.

· Provision for housing urban poor at Rs 3973 cr

· Allocation to NHAI increased to 23& Y-O-Y

· Fiscal deficit has widened to 6.7% of GDP

· Target agri credit inflows ay Rs 3.25 lakh cr

· Focus of NCC, Gammon for highway development

· Rural electrification allocation up 27%

Agriculture

· Interest subvention scheme for agriculture loans to continue

· 60% population depended on agri

· Sustained increased in plan allocation

· Target credit flow Rs 325000 cr

· Loans upto 3 lakh at 7% per annum

· Those who pay their loans in time will get loans at 6%

· Task force set up to look into farmer suicides in Maharashtra

· Rajiv Gandhi Krishi Vikas Yojana allocation up by 30%

· Fertilizer subsidy to go to farmers directly

· To move towards Nutrient based subsidy regime

· Additional allocation of Rs 1,000 crore for accelerated irrigation
project

· Central assistance for storm-water drainage project increased to Rs 500
crore from Rs 200 crore in the interim Budget

Exports

· Market development assistance schemes allocation up by 180% to 124 cr

· Interest subvention extended to march 2010 for employment extensive
export sector

· Special fund for small industries development bank of Rs 400 cr

· Focus to sustain momentum in exports

· 2% Interest subvention for exporters

· Extension of interest subvention scheme extended upto March 2010 to cover
sectors like handicrafts and handlooms

· Allocation for market development assistance scheme enhanced by 148 per
cent

· To set up handloom mega clusters in Rajasthan, West Bengal and Tamil Nadu


· Export Credit Guarantee scheme extended till March 2010

Oil and gas

· Domestic oil prices should be in sync with global crude

· National gas grid to be set up

· Outlay for Assam Gas Project increased

· Effective interest rate is 8% for farmers with foreclosures

· Expert group to be set up petro product pricing

· Domestic oil prices should be in syncy with global crude

· To develop National Gas Grid

PSUs, banks and Insurance

· To hike promoter shareholding in PSUs

· Encourage people participation in disinvestment

· Banks and insurance will remain in public sector and will get all support


· Banking network to be expanded

· One banking centre in every block planned

· 160% hike in ADPRP

· Capital in fusion in PSU banks to keep them competitive

Inclusive development

· Creating entitlements backed by legal authority to provide basic facility
to the aam aadmi

· NREGA gave employment to 4.4 cr household

· Reserve wage of RS 100 per day as an entitlement under NREGA

· Rs 39100 cr for 09-10 for NREGA an increase of 140%

· NREGA allocation increase at 144%

· New scheme PMAGY for integrated development of under developed villages

Pilot project this year

· Poverty eradication goal by 2014-15

· Interest subsidy to poor families for loans upto Rs 1 lakhs

Pension

· Substantially improve pension for armymen

· Pension benefit extended to war wounded being liberalised

· One Rank One Pension committee recommendations accepted

National Food Security

· BPL entitled by law for Rs 25 kg of rice/wheat at Rs 3 kilo

· Bharat Niraman allocation up 45%

· PM Gram Sadak Yojana allocation up to Rs 12000 cr

· Indira Gandhi Awas Yojana allocation up by 63%

Women and child development

· Focus on women self help groups

· 22 lakhs such groups of women active today, aim to link such self help
groups to banks

· Corpus for such schemes to be raised to Rs 500 cr in this fiscal

· Aim to reduce female literacy by half in 3 years

· New scheme to give interest subsidy to poor students pursue any
recognised course

Climate change

· Rs 562 cr for national river and lakes conservation

To build accountable institutions:

· RTI act an important step in ushering in accountability

· Unique ID project is major step in this regard: it also marks a beginning
of the private involvement in projects of national importance

Police and security

· Rs 430 cr for police modernisation

· 1 lakh housing units for central paramilitary forces

· Borders: 2284 cr for strengthening of borders

Education

· Rs 50 crore for Chandigarh University

· Interest subsidy on loans for higher education

· Rs 2130 crore to set upto more IITs and IIMs

· Spending on higher education raised to Rs 2010 crore

Minorities

· Allocation hiked from Rs 1000 cr to 1700 cr in 09-10

· Scholarships for minorities

· AMU to get Rs 25 cr for each of its new campuses

· Rs 1740 crore outlay for minorities

Budget estimates

· Rs 1020838 cr total budget allocation for 09-10

· Out this more than Rs 6000 cr is planned expenditure while the rest is
non-plan

· Increase in non-plan expenditure was due to pay commission and food
subsidy

· Interest payment consists of 36% of non-plan expenditure

· Defence outlay up from Rs 105600 cr in 08-09 to 104703 cr in 09-10

· Total tax receipts expected at Rs 641079 cr

· Revenue deficit is estimated at 4.8% and 4.6 as per provisional account
for 09-10

· Revenue deficit as percentage of GDP is pegged at 6.8%

· To spend Rs 10.20 lakh crore as total expenditure in 2009-10, crossing
the Rs 10 lakh mark for the first time in history

· Increase in plan expenditure 34 %, non-plan at 37 %

· Revenue deficit projected at 4.8% in FY 10

· Fiscal deficit projected at 6.8 % in FY 10

Others

· DEPB scheme for print media extended

· Stimulus package for print media extended to Dec 31

· Hike in allocation for management of Mumbai Floods

· New project for modernisation of employment exchange

· A national web portal for the same

· New programme for rehabilitation of those effected by cylone Alia

Why did the US government abandon Lehman while arranging for quick bailout packages for AIG, Citi and the likes?

The collapse of Lehman Brothers and its fallout
The global financial markets were worst hit post the fall of the Lehman Brothers. On September 15, 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection, giving the worst blow to the economic confidence level. The company's besetting sin was its large positions in subprime and other lower-rated mortgage-backed securities, which saw huge losses accrue throughout 2008. Another factor that did Lehman in was over leveraging, which was beyond 30 times at the time of their declaring bankruptcy. This leaves a question : Why did the government abandon Lehman while arranging for quick bailout packages for AIG, Citi and the likes? Why the government chose to merely remain a mute spectator just watching the company meet its unfortunate fate? This thought was resounded when several lawmakers asked why the government stepped in to help insurance company American International Group (AIG). As a reply to this Richard Fuld, the disgraced head of Lehman Brothers, said, "Until the day they put me in the ground I will wonder. I do not know why we were the only one that was not rescued". According to him, regulators knew the full scale of its condition and knew how it was pricing its distressed assets in the months prior to its bankruptcy.

Indeed, this is question, which will forever haunt the financial world!!!

" The world before Lehman and world after Lehman is totally different. The world before Lehman was based on the trust and confidence that banks don’t fail. The world after Lehman raises doubts that even banks can fail."

Reference: Magazine wealth compass february 2009 issue

Lessons from this downturn due to global meltdown

1. Markets are all about greed and fear.

2. We have to live the markets, literally 24/7/365. We have to be extremely alert.

3. There are a few good years and a few bad years in the markets and nothing will keep perpetually going up or going down.

4. The businesses are cyclical and environment is cyclical and after every up, there will be a down. We need to be prepared for the upside as well as the downside.

The industry must quickly learn its lessons from the crisis and find ways to ‘reassure customers’.

Keynes theory: proving to be so true in this period of slowdown!!

Our economics teacher of 2nd semester Ms Renu Verma was so fond of Keynes, in every situation she would introduce Mr. Keynes in the lecture and say, " You can bring the horse to water but never force it to drink it".
This theory has become so relevant when linked to the current financial situation.The research work done by this economist in 1930s is applicable !! Hats Off to you sir..... The theory propounded by John Maynard Keynes, popularly known as the Keynesian Theory, serves as a foundation for the modern economics. The great Depression period which began in 1929 left the government yearning for more study in the field of Macroeconomics. Mr. Keynes, in his magnum opus 'General Theory of Employment, Interest and Money' published in 1936 suggested that subject to certain assumptions, level of equilibrium at full employment could be reached only with the deliberate intervention of the governments. What Keynes advocated was to introduce Government Expenditures to overcome the shortages in aggregate demand to achieve the level of full employment in an economy. He strongly professed Government intervention through fiscal policy measures to solve the problem of unemployment and stabilise the economy. The theory states that in order to reach the level of full employment, the government must increase its spending to generate employment opportunities in the nation. This would lead to income generation which would stimulate the consumption demand thus balancing the demand and supply at the full employment level. To attain this purpose, the government can use the fiscal and monetary policies as weapons to control the activities in the economy.

Hence, the governments across the world have made efforts to infuse liquidity directly into the systems by means of economic stimulus packages.

A link describing US Economy situation!!

Hey people. check out this link

www.usdebtclock.org

Is there any relation between stock market success and your intelligence quotient?

What are some of the character traits of people who have a high I.Q.?
1. Quick on the uptake - ability to grasp new concepts faster
2. Curiosity - eager to learn and try new things
3. Out-of-the-box thinking - looking for alternative and unconventional solutions - the story of how Columbus made an egg stand on a table without spilling its contents comes to mind;
4. Inability to concentrate on routine or boring tasks
5. Intolerant towards those who can't or won't follow their arguments and advice
You may not agree about some of these traits, or, may think of other characteristics that apply better.
The point is, the above traits of a high I.Q. person are not conducive to achieving fame and fortune in the stock market. The most well-known example is that of Sir Isaac Newton, discoveror of Gravity and the Laws of Motion. He lost his shirt by investing in stocks.
People with high I.Q. excel in fields like science, mathematics, economics, engineering. There are set formulae with predictable results. Stock market investments don't work as per formulae. Even detailed analysis may lead to wrong choice of a stock. Unforeseen things happen. It is part of the game.
Intelligent people find this difficult to accept. They are accustomed to success, not failure. Their ego gets in the way - "How can I be wrong?" So, they hang on to their shares, convinced that the market is wrong and the share price will soon hit the roof.
When it dawns on them that they are still losing money, they try to think of 'smarter' alternatives, like 'hedges', 'averaging down' and 'puts'. A bad situation gets worse.
The attitude of a sales person works better in the stock market. Failure and success are accepted with equanimity. He may not be very bright, but has learned to be diligent in regularly updating his prospects list.
When one door gets shut on his face, he just moves on to the next prospect on the list. When he makes a sale, he is pleased but not elated. Each day is the same as the day before. Routine work. Not very creative. But a plan of action that works and meets targets.
That was the long answer. The short answer?

Stock market success and high I.Q. tend to be inversely proportional.

WELCOME!!

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