f o r    m a n a g i n g    t o m o r r o w
MARCH 25, 2007
 Cover Story
 BT Special
 Back of the Book

Mobile Security
Today, it is all about information and how the right information is sent to the right people at the right time and right place. Uncertainty about how to secure mobile phones in the face of increasing threats is slowing individual adoption of mobile applications. There are many facets of mobile security, including network intrusion, mobile viruses, spam and mobile phishing. Analysts expect big telecom companies to develop security solutions on various security platforms.

Rough Ride
These are competitive times for the Indian aviation industry. As salaries zoom, players are scrambling to find profits. Even the state-owned Indian is now seeking young airhostesses to take on the competition. It is planning to introduce a voluntary retirement scheme for airhostesses above 40 years. On an average, they draw a salary of Rs 5 lakh a year. The salaries of pilots, too, are soaring. According to industry estimates, the country needs over 3,000 pilots over the next five years.
More Net Specials

Business Today,  March 11, 2007

The Property Bubble
Dizzy heights: Realty prices are losing momentum now
By all accounts, the last 10 years have been extraordinary for the global real estate market. Prices have soared across the world. In the UK, house prices rose more than 200 per cent between 1995 and 2005, in the US by 100 per cent, and in other countries such as France, New Zealand, Australia and Spain, between 100 and 170 per cent. In key Indian cities, prices have risen much faster and in a shorter duration. Most of the recent boom started well after 2000, coinciding with the boom in it and ITEs outsourcing. That was also the time when the stock market (read: the Bombay Stock Exchange Sensex) embarked on its spectacular bull run, going from 3,000 or so to near 15,000 earlier this year.

As several thousands (if not millions) of Indians, many of them in their 20s and 30s, saw their wealth grow, it was only natural that they would begin buying what is considered the single-most important material possession by middle class families: a house of their own. Interestingly enough, as interest rates started their march downwards on the back of benign inflation, buying an apartment or a house became even easier for the Indian middle class. But in less than five years, real estate prices appear to have peaked. As our cover story points out, from Delhi to Bangalore to Mumbai, the change in average price has slowed remarkably. That means, while the bubble may not be close to bursting, it is starting to correct. Don't expect prices to double like they have over the last few years.

Recent research on global real estate markets reveals that there is a strong correlation between macroeconomic factors and real estate prices. For instance, in the case of North America, a 1 per cent increase in national income was found to result in 1-4 per cent increase in real house prices. A 1 per cent reduction in interest rates was found to increase house prices by half to 1.5 per cent. Finally, a boom in stock market was also found to result in higher house prices-by as much as 35 per cent in the case of the UK over a three-year period.

The research findings are important to keep in mind, since two of the three determinants are beginning to go against the real estate market in India. Interest rates have started rising, making mortgage instalments expensive for buyers. Also, the stock market has begun to fall and the short-term outlook doesn't look too rosy (see the edit below). In fact, this may be the beginning of a vicious cycle that comes back to haunt the property buyer.

D-Street Blues

On a roller coaster: But don't write it off yet
Was it the budget? Or was it china? It's easy to blame last fortnight's sell-off on Dalal Street on Finance Minister P. Chidambaram's Budget, after all the Sensex shed 541 points on B-day itself, even as he was delivering his speech in Parliament. In fact, the Sensex's decline had more to do with what was going on in the global markets-a massive melt-down on the Shanghai Stock Exchange that cascaded into a worldwide plunge in stocks, including Indian shares. The world's stock markets are today more integrated than ever before. So a shock in one market gets quickly transmitted to others.

Yet, India's stock market may be more prone to wild swings than most. Statistics show that the Indian equity market has been historically more volatile than the world average and it may be one reason why the reaction to last fortnight's rumblings on the Shanghai bourse were so pronounced in Mumbai, where, while most global markets fell, the Sensex declined the most. Also, foreign investors have steadily increased their presence in the Indian market with the number of such investors and the funds they have infused in India's capital markets growing steadily. This has its downside. Global fund managers often look at a region-say, Asia-in a holistic manner and decide to invest or sell generically in that area. So, even if nothing has changed materially about the prospects of Indian businesses, their stocks can suffer from collateral damage if a sell-off happens elsewhere, in this case, China.

India's stock market has, since 2006, outpaced the world average and while cheers have greeted the Sensex's rise, many experts feel that market may have become overheated and that the time was ripe for a correction. Already, pundits and punters alike are predicting the next "psychological" bottom for the Sensex, ranging from 9,000 to 11,000. Still, it would be premature, naïve even, to write off the Indian equity story. The next couple of quarters could see companies face pressure on their margins and profit as the impact of higher interest rates kicks in and inflation induces cooling off of some demand. But it is unlikely to see interest in Indian stocks wane. Who would not want to stay invested in an economy that is growing the fastest in the world?


Let's Cut Out the Hype

FM Chidambaram (centre): Read my lips, they are sealed
What do you say after everything that had to be said has already been said? You write a third edit. Ever since Finance Minister P. Chidambaram presented Budget 2007, you've been bombarded with "exclusive" analyses of and learned editorials on its various features. So, we will refrain from adding to the voluminous body of literature on the subject (we have said what we had to say in the Special Budget Edition dated March 2007); let us take any additional insights we might have been able to offer as read.

But there's one aspect that's largely escaped the attention of the pundits. Yes, we're talking of the hype and expectations that build up in the run-up to every Budget; it's a self-propagating cycle-driven largely by media houses in search of fickle eyeballs (and here, we too plead mea culpa, lest we be accused of being blind to our own "contribution" to this phenomenon). If one financial daily comes out with an "exclusive" on how "top-level" or "informed" sources have disclosed on condition of anonymity that the exemption limit on personal income tax will be raised to Rs 1.5 lakh, its competitor immediately follows this up with a "scoop" on how corporate tax rates will be reduced. Not one of the reports cites any credible source; and there are no "on record" quotes. We hasten to add that we are not for one moment doubting the honesty of the reporters concerned. It's just that the Budget-making process, being hush-hush and secretive, lends itself to speculation and misinterpretations. Then, this is also the time when journalists turn lip and thought readers. Every innocuous statement of the Prime Minister, the Finance Minister, the Chairperson of the UPA, of sundry Left leaders (who have their own agendas) is scanned for hints, nuances and hidden meanings and interpreted as being pointers to what the Budget documents may hold.

The stock markets pick up the cues from these and its own sources and drive the markets up or down depending on how it perceives these "insights" and "scoops" to impact particular industries and companies.

It's almost as if everyone involved is playing an elaborate derivatives trading game based on the underlying "asset value" of the expected pronouncements. What is lost in all this hype is the fact that the Budget is merely a statement of accounts of the government. As Chidambaram, and Yashwant Sinha before him, has said on several occasions (to BT and other publications), the era of the Big Bang Budget is over. Policy issues are now increasingly being delinked from the budgetary process. That's how it is in mature economies, where the statements by the central bank chief are considered more important than those of the Finance Minister. Will India get to that stage anytime soon? Going by empirical evidence, it seems unlikely.