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Want to predict the Sensex? Using complex maths, researchers are willing to take a crack. A butterfly flapping its wings in Mexico can set off a cascade of changes, enough to eventually cause a cyclone in the Phillipines. It's a layman's illustration of an evolving science called the chaos theory, which states that seemingly random events-like weather, disease outbreaks, even equipment failure-are not really random events, just complex. A man-made example of a chaotic system is the financial market. The meanderings of the Sensex appear random and unpredictable, but every financial decision is conscious and reasoned-well, mostly. Computations are made every at every step, but because of the sheer complexities of the variables, the results appear far from rational. Life's complexities are made of patterns, some regular, some irregular. If you can identify, oh a few trillion patterns, you should be able to cobble together a formula and take a crack at whether the Sensex will begin crawling upwards, whether consumers will start buying television sets again. A clutch of researchers are creating sophisticated software that can make predictions from patterns. In Hyderabad, G. Bala Reddy's tech firm has created a heuristic engine, complex software that identifies billions, trillions, perhaps even quadrillions, of patterns in daily events and generates predictions. In Bangalore, at the Centre for Mathematical Modelling and Computer Simulation, government scientists are using a neural network-software that mimicks the analytical capabilities of the human nervous system-to draw up long-range weather forecasts, which they hawk to financial institutions. The scientist who runs the neural net, Prashant Goswami, says it could easily be put to use in the financial sector. Apparently, the heuristic engine successfully predicted malaria outbreaks to an accuracy of 90 per cent in Mizoram and Sikkim for April and May 2001. It could easily be adapted elsewhere. ''Managements can plan maintenance or replacement schedules at optional levels and minimise costs,'' says Reddy, Chairman of Innareddy Computer Software Associates (ICSA). ''They can similarly forecast demand for goods and services and schedule investments and production.'' Reddy's heuristic engine was developed in collaboration with the government-run Indian Institute for Chemical Technology, Hyderabad. Spurred by the successful predictions in the North East, IICT's head of bioinformatics, U.S. Murthy, is now starting a Pest Disease Information System to generate advance warning of pest infestations. Right now, Reddy's heuristic engine can store 687 trillion patterns in the form of a huge set of formulae. That's quite piffling actually as complexities increase. But T. Sreekanth, Director (R&D) of ICSA, says the software can be greatly scaled up, and so can the hardware that hosts it. All he needs now is something willing to become a guinea pig at the altar of patterns. -Samar Halarnkar CEO
Survival Kit
CELLPHONE: Nokia 6210. It is my constant companion, as my wife says. I largely use it for phone calls-and SMS, especially during long, laborious meetings. LAPTOP: Toshiba Tecra 8100-It is the key to my survival. I use it in the office, in flight, any time I am away from home, at least three to four hours a day. I have dispensed with the desk-top PC. (After all) our business runs off the Net. PDA: I rely on my good old Palm IIIxE. I store schedules when I travel, and some spreadsheets. A true friend away from home. TELEPHONE: Cisco 7960 IP phone. Just one integrated infrastructure. No complex manuals, just simple English. SALES & MARKETING
Earlier this year, G. Raghavan was doing just fine in his new job in the US as global director of e-business at a division of airconditioning giant Carrier Aircon, when he was told to move to India. The reason for his second transcontinental move in a year: its Indian operations are going into a freeze. A host of top managers-the managing director, the marketing director and the manufacturing head-have quit. The latest quarterly results show a startling decline in net profits from Rs 10.7 crore to Rs 2.5 crore over the same quarter last year, and quarterly sales have similarly dipped from Rs 155 crore to Rs 151.18 crore. In an otherwise buoyant home-ac market, Carrier has yielded market leadership to Korean multinational lg. For Rs 81.5 crore, Carrier Corp. has also hiked its stake in Carrier Aircon from 51 per cent to 86 per cent, a move that Raghavan, who does not acknowledge Carrier's unhappiness with its Indian subsidiary, says is ''a global practice''. After a cool-relatively-summer and a construction slowdown, 2001 was a bad year for ac sales. Growth fell to 7 per cent from 20 per cent this quarter last year. Driven down by fierce competition and stocks of imported ACS, prices crashed by up to 20 per cent. While nearly three-fourths of sales are institutional-where Carrier is still the leader-the real growth rates come from home owners moving up the economic ladder. Carrier's problem is that it has exclusive dealerships when 70 per cent of home sales are done by multi-brand retail shops. The Koreans, lead by LG, sold ACS like any consumer durable, while Carrier stuck to its exclusive dealerships. Now a host of companies are laying siege. ''They did not see that the industry and buying behaviour was changing in the last two years'' says Salil Kapoor, Head (Product Group), lg. Carrier now intends to reach out to multi-brand dealers without hurting its powerful, exclusive dealers, who will be given the chance to diversify. Operating-profit margins have slipped from 10.44 per cent last year to 5.47 per cent this year. With market prices dropping, Raghavan has no choice but to cut costs. The summer is almost done, but for Raghavan, the heat is just beginning. -Vinod Mahanta INVESTIGATION
For a group that prides on its professionals, it was the worst kind of betrayal. The man put in charge of safeguarding and, indeed, growing its finance business, makes reckless bets, flouts all accounting regulations, and like Nick Leeson, who brought the mighty Barings down, endangers the survival of a venerable institution. As investigators dig deeper into the affairs at Tata Finance, the role of its former Managing Director, Dilip Pendse, gets curiouser and curiouser. The first information report (FIR) lodged by the Tatas reveals that in barely 18 months, Pendse-once a blue-eyed boy of group Chairman Ratan Tata-systematically pumped money out of Tata Finance (as much as Rs 400 crore) to make risky stockmarket bets through subsidiary company, Niskalp Investments. Towards the end of 1999, Pendse-who was not available for comment-made Niskalp buy large quantities of shares with borrowed funds. The portfolio soon became lopsided with K-10 stocks, particularly Global Telesystems, a favourite of KP and a company owned by a relative of Pendse. By end March 2001, Niskalp reportedly held about 6.6 lakh shares of Global Tele at a cost of Rs 67 crore (or Rs 1,100 per share). The share is now quoting at around Rs 90-that's a loss of around Rs 66.6 crore in this scrip alone. It had also embarked upon vyaj badla (done via the clearing house at BSE) transactions between December 2000 and March 2001, in DSQ, Global Tele, Zee Telefilms and Pentamedia, leading to a loss of around Rs 30 crore in the last quarter of fiscal 2001. The total loss suffered by TFL subsidiary in vyaj badla was to the tune of Rs 46 crore. How did these irregularities go unnoticed? The fir says Pendse falsified accounts, and camouflaged the losses. Now with auditors probing the accounts, there may be more nasty surprises in store for the Tatas and the investors. -Roshni Jayakar
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