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LEAD STORY Living with volatility
The month of May doesn't bode well for the rupee. The May that just went by was no different: the rupee weakened against the dollar, taking its depreciation for the year to 3.6 per cent. Indeed, the 1.5 per cent intra-day volatility on May 25, 2000, took it down to a low of Rs 44.75 before RBI Governor Bimal Jalan talked it up to Rs 44.10 against the dollar. May was bad for the rupee in 1999 too-reason: Kargil-and 1998 (Pokhran II). Sure, it's easy to correlate the slide in the rupee to the net outflow of FII (Foreign Institutional Investors) funds in May 2000. This exodus, which cut across equity and debt, followed the Fed's (the US Federal Reserve) decision, on May 16, to up the interest rate by 50 basis points to 6.5 per cent. Nor is this hike expected to be the last; analysts expect an increase of 25 basis points in the Fed-rate, at the end of the next FOMC (Federal Open Market Committee) meeting in June. However, there is the contrarian view that the slide in the forex market had little to do with the Fed. Agrees K.N. Dey, 45, Vice-President, Mecklai Financial: ''The slide was caused by inter-bank speculation.'' Fine, the Indian currency may not be sensitive to movements in the Fed, but the local equity markets do look to it for direction. Days before, and after the Fed's announcement, Indian markets were, and have been, fluctuating widely: intra-day moves of 100 to 220 points have been the norm rather than an exception. And on May 15, a day before the Fed's announcement, the Bombay Stock Exchange (BSE) Sensitive Index touched a low of 3,912 before closing at 4,212, a spread of 300 points in a five and half hour trading session. In theory, India should not be affected by the Fed. Concurs a CS First Boston Report: ''The markets that derive their value from the long run are expected to be most sensitive to fed interest rate hike. Brazil, Greece, Korea and Thailand are the longest duration markets and are most sensitive to fed interest rates, while India, Israel and Mexico are the least sensitive.'' So, what happened? Says Jignesh Shah, 27, Analyst, Triumph International: ''The volatility is due to the lack of depth in the Indian markets.'' However, a look at the numbers indicates that the market seems to be following the pattern of rise and consolidation it has displayed for the last few years. This done, the indices will move on to the next level. Investors react to information that verifies or suggests new trends and this causes indices to move up, or down, until the impact of these trends is factored into prices. Then, they wait for the next big news. At any given point in time, there is a continuous tug-of-war between major positives (factors that will cause the markets to move up) and major negatives (those that will cause the markets to move down). The positives in the Indian scenario? The monsoon is expected to be normal and on time and the GOI is finally going ahead with the disinvestment of Air India. The negatives? The continuing slide of the Dow and the Nasdaq; the downward spiral that Indian infotech stocks seem to be going through; and the Fed's anticipated 25 basis points hike in June. The market's volatility, then, is just a manifestation of the tugs and pulls exerted by these factors. And once some form of balance is achieved, investors will wait for the next set of developments that will bring with them, a unique set of positives and negatives. To paraphrase the US' best-known bull (accepted, market-lingo is definitely chauvinistic) and Goldman Sachs strategist, Abby J. Cohen: The zig-zags in the US markets simply represent the churning of porfolios along an upward sloping staircase. What does that mean for investors in India? They have to grin and put up with negative and positive g forces. At least, until the market graduates to a new level of sophistication and stabilises in another bull orbit. -Roshni Jayakar HEADING OUT The month of August is unparalleled on the Continent. As most of Europe heads out on vacation, corporations operate on a minimalist plane. Someone rightly described those 31 days as a period to fool around. Desperate to showcase exciting stories at a time when there's no one really left to write about, journalists are known to play up the bizarre. What could be more bizarre than corporate India's CEOs celebrating an Indian summer staying at work? No such luck. Come May and June, corporate India's chieftains pack their bags and hit the airports. It could be a vacation, or even a business trip loaded with a dose of family and pleasure, not necessarily in that order. ''Everyone but everyone's out of town, particularly to Europe,'' blubbered a partner at a Mumbai executive search firm. A dipstick survey from our correspondents revealed that this was indeed true. Cement major Gujarat Ambuja's Managing Director Narottam Sheksaria jetted to the US on a three-week leave. The company's Finance Director, Anil Singhvi, went AWOL, too, for a week-long business trip. Anji Reddy, Chairman of Dr Reddy's Group, went to London on a business trip. According to his son, Satish Reddy, Reddy Sr generally does not take a summer or winter break, but goes on holiday at a time that is ''convenient'' to him at any time during the year. Ditto for B. Ramalinga Raju, Chairman, Satyam Computer Services, who is in the US on a business visit, but plans to drop in on his two sons studying in US universities. The list goes on. Shoppers' Stop CEO B.S. Nagesh went on vacation. The Tata Group's Simone Tata is out while Mahindra Group's Anand Mahindra just got back. Chaitra Leo Burnett's Managing Director Arvind Sharma jetted out of Delhi, as have Escorts' Vice-Chairman and Managing Director Anil Nanda, Whirlpool's Garrick De Silva, Godrej-GE's CEO Vikram Crishna.... There were exceptions, of course. Y.C. Deveshwar, 52, Chairman, ITC, does not usually take summer-breaks and this year is no exception. Apparently, he doesn't opt for autumn or winter breaks either! Is that a good handicap handicap for the keen golfer? There are various interpretations for this exodus. Of course, the summer heat is an all-important factor persuading CEOs to head to cooler climes. And this doesn't only apply to expat CEOs who normally take their annual month-long vacation in May or June. Or could it be an indication that the economic downturn of the past couple of years is finally on its way out? After all, if things are looking up, and there are no fires to be fought, why should CEOs stay back and brave the summer. Indeed, a lot of these ''business trips'' are extensions of vacations. Transact business, travel, and, perhaps, take your family along. In fact, many firms insist that employees take their due leave within the year instead of bunching it up. That means employees get a modicum of respite from work, and do not squirrel away their days off. CEOs, obviously, cannot be the exceptions. In good times only, of course. Or could it be because the millennium madness highlighted a plethora of packaged destinations? New bank CEOs, we are told, are prime vacationers, particularly as most of them spent the New Year close to their computer systems. The government is not far behind either. Union Information Technology Minister Pramod Mahajan is leading a team of CEOs to the US. On the other hand, the Prime Minister has shot down a number of proposals for junkets from other ministers. Unfazed, the CEO of West Bengal, Jyoti Basu, 86, is off on his annual sojourn to London on July 6, 2000. Oh, well! This is dedicated to those who are left behind. -Sunit Arora MOBILISATION It's
an in-between form of capital. And it has an in-between name. Mezzanine
Capital isn't exactly new in the Indian context-several mezz-cap funds
have been operational in the private placement scene in the country for
some years now-but the efforts of the Calcutta based Non-Banking Finance
Company (NBFC), Srei International Finance to raise money through a
mezzanine capital issue should qualify as a first. Mezz-cap is essentially an unsecured form of debt with a specific coupon rate. And investors have the option of converting it into equity at the end of a specified period. However, it is sub-ordinate to all other forms of secured and unsecured debt. The implication? If the company goes bust, its liability to its mezz-cap investors will come after that of secured and unsecured debtors. How does this benefit the company? Simple, It can raise equity-linked, capital without diluting its stake. Nor do the investors end up worse. Explains Sunil Kanoria, 36, Director, Srei International: ''Mezzanine capital is good for the investor who does not want to take the risk of pure equity, and, at the same time, does not prefer the low yield associated with secured debt.'' Indeed, the yield from mezz-cap is higher than what it would have been through secured debt, and the risk associated with it is lower than with equity. Srei, which is into leasing finance activities in the infrastructure sector, claims to have borrowed the concept from the International Finance Corporation, which has a small stake in the company. This capital-form does look like the best of both worlds. All that remains now is for the Securities and Exchange Board of India, to decide whether mezz-cap issues are all right. Call it the middle path, if you will. -Rakhi
Mazumdar ATTRITION BLUES You're a bright young manager who's decided to move from the large entertainment electronics-manufacturer you work for (as a middle-level marketing executive) to the heady environment of a start-up dot. com. You've asked for a meeting with your boss and the hr manager, and got it. You tell them you're leaving. But what's this? Why is your boss smiling and wishing you all the best? And why is the hr manager sparing you a ''are you sure you want to leave?'' lecture? It wasn't supposed to be like this! Scenes like this are being played out across the country in corporate India. At megacorps like PepsiCo India (Pepsi), SmithKline Beecham Consumer Healthcare (SBCH), Xerox Modicorp, EIH, even Hindustan Lever Ltd (HLL), the attitude towards such deserters is one of nonchalance, if not downright indifference. Affirms Mahendra Swaroop, 45, Executive Director (hr), Pepsi: ''There was a threat perception to begin with. But now there is no cause for concern.'' This, when, a year ago, the mere mention of a dot.com made recruiters break into a cold sweat. What's gone wrong (or right)? Plenty. For one, the NASDAQ composite index's 1,500-point plunge over three weeks in April, 2000, and the corresponding crash on Dalal Street, have raised serious issues about the long-term viability of dot. coms and, consequently, their ability to retain employees. Explains Sanjiv Sacchar, 42, Global Partner, Egon Zehnder: ''Suddenly, potential employees (immigrants) are cautious about taking the plunge, and companies are simply not making an effort to retain people unless they are star performers.'' Two, a dot.com needs a unique basket of soft-skills like the ability to take risks and work in an unstructured environment. Most people who move from brick-and-mortar companies to Net start-ups realise that they just don't have these characteristics, and return almost as suddenly as they left. Underscores Piyush Gupta, 40, who left his job as CEO of Citibank's Indonesian operations to return to India and head go4i.com, a start-up portal: ''Working in a dot.com isn't easy, especially if you have worked in traditional, hierarchical companies.'' No one's getting complacent though. And the better companies are in the precautionary-mode. Says Sacchar: ''In our experience, a number of large corporates have started putting in mechanisms to deter potential deserters.'' Thus, HLL has turned its hierarchy upside down to make mini-CEOs of middle-managers; Pepsi offers salaries that are best-in-class; and SBCH is focussing on re-creating the excitement that is inherent in a start-up atmosphere through cross-functional exposure, independent responsibilities, and stints in global or regional offices. Says P. Dwarakanath, 51, Director (HR), SBCH: ''Exit interviews showed that employees were looking for excitement rather than money, and we are trying to provide that. There's no cause for worry.'' Will that happy state of affairs continue? ''Yes,'' says Brij Chandiramani, 51, Executive Director, Xerox Modicorp, ''but only if employees feel they are exposed to cutting-edge management practices and technology. Otherwise, they'll leave for dot.coms, or any other job.'' Chances are, six months down the line, they'll be back. -Paroma Roy Chowdhury |
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