1) Going against the crowd

Devangshu Datta / New Delhi August 30, 2009, 0:45 IST

Contrarians, depending on their risk appetite, can enter aviation or maritime stocks

Stock prices are leading indicators. They bottom and start rising before the real economy does.
Markets also peak earlier than the gross domestic product (GDP) growth rate. A recent
example is India in 2008-09. The stock market peaked in January 2008 (last quarter 2007-08)
but GDP growth declined only in the second half of 2008-09. Of course, different sectors led
and lagged by different amounts. Auto stocks peaked before the Nifty. Real estate peaked
after the Nifty.

The majority of investors, let's call them the crowd, places great weight on trend-following
indicators, such as results. Most long-term investor will want to see a minimum of two or three
quarters of earnings growth. Value investors also look for sound financial histories.

The logic is that genuine business trends last longer than two quarters. Hence, a conservative
trend-following style works much of the time. Value investors try to reduce the risk and
maximize the returns by only entering when discounts are low.

Contrarians carry the value-investor logic a step further and try to be consistently out of step
with the crowd. While contrarians will study balance-sheets, they place more emphasis on
behavioral factors in making investment decisions. If a stock is heavily touted, the contrarian
assumes that it is fully-valued. If a business is known to be in trouble, the contrarian hopes that
it has already been beaten down.

This approach carries more risks than standard trend-following approaches. A contrarian is
betting that he or she can decode crowd behaviour well enough to enter at trend-reversal
points when the crowd is wrong.

Contrarians tend to book profits too early when they exit investments. Contrarian logic can also
be really risky when it's the basis for a short-selling strategy. The timing has to be perfect and
the losses could be catastrophic while shorting.

Arguably there is some safety factor in following contrarian long strategies. A contrarian will
enter only when a stock is unfashionable and hence, low-priced. However, the counter-
argument is that stocks are often low priced for reasons such as inferior past records, and poor
future prospects.

Despite those risks, contrarian plays seem to work best in highly cyclical but sound businesses
where the contrarian may often manage entries near the very bottom. Which sectors would a
contrarian invest in right now with say, a perspective of 18-24 months? Definitely not power, IT
or telecom – these sectors seem to be in high fashion at the moment. Probably not real estate,
media or pharmaceuticals either, after the recent price-bounces across those three sectors.

Automobiles are more promising from the contrarian viewpoint. The sector is seeing flat sales
and a poor monsoon implies trucks and tractors will not do well in 2009-10. Fertilisers and
pesticides will also not do well for the same reasons. Cement is another possibility because off
take could remain slow since it lags housing finance, and real estate.

Aviation is deep in the doldrums and apart from Jet, airport-construction and management
businesses like GMR, and GVK would be struggling to meet projections. Shipping along with
shipbuilding, ports, offshore logistics, and so on, has also been hit very hard so there could be
plays there as well. Most engineering and construction firms will also struggle in 2009-10
because infrastructure project awards have slowed.

Now there is quite a lot of overlap in the contrarian and value investor matrices. For example,
some auto companies will show profit growth in 2009-10 and so will some engineering,
pharma, cement and fertilisers companies. These businesses have attractive price-book value
ratios and value investors would also accumulate them.

The outright contrarian would look at aviation and shipping, shipyards, offshore logistics and
ports because these sectors are showing fewer signs of turnarounds. There's less regulatory
confusion, better track records and hence, less risk, in the maritime plays compared to
aviation. The aviation situation could get worse before it gets better while maritime prospects
may have hit rock-bottom.

Offshore logistics has received some investment already due to the promise of NELP awards
and therefore, enhanced business prospects. However, conventional shipping, shipyards and
ports are likely to have longer down-cycles. All three are driven by trade and heavily
dependent on global economic conditions. The high-risk contrarian will pick aviation plays
while the conservative contrarian will enter maritime stocks.
(2) Pratip Kar: A game change for mutual funds

Pratip Kar / New Delhi September 14, 2009, 0:31 IST

Sebi’s decision to abolish entry loads has given mutual funds a chance to relook their model
which hasn’t caught the fancy of retail investors in a big way.

In the olden days (by that I mean the early 1990’s) when the financial markets in India were
preserving their pristine purity, and life in such markets was simple, conventional wisdom was
that mutual funds were the appropriate investment vehicles suitable for the small investors. But
then times changed. Our markets became modern. The word ‘small’ was replaced by ‘retail’. It
was, therefore, very interesting to note that Association of Mutual Funds in India (AMFI) that
claims ‘developing the Indian Mutual Fund Industry on professional, healthy and ethical lines
and to enhance and maintain standards in all areas with a view to protecting and promoting
interests of mutual funds and their unit holders’ as one its lofty goals, still faintly echoes the
remnants of the yesteryears when it describes in its web site ‘…thus a Mutual Fund is the most
suitable investment for the common man…’ This calls for an ‘Aha’, because the data which the
same web site has tells us a different story.

The table shows that that as of March 31, 2009, liquid and money market schemes, equity and
debt-oriented schemes account for 95 per cent of the Assets Under Management (AUM) of all
the mutual funds. Corporate, banks and financial institutions, and High Net-Worth Individuals
(HNIs) accounted for nearly 80 per cent of AUMs, retail accounted for around 20 per cent of
AUMs. In the liquid and money market funds and in the debt-oriented funds, companies and
banks and financial institutions accounted for more than 80 per cent of the AUMs. The number
of such investors is much less, and it is always more economical to service them. So logic
would dictate that the fund houses would be more diligent and attentive to the 80 per cent
group than to the 20 per cent group. But where does that leave AMFI’s ‘common man’?

The proliferation of the folios has another story to tell. The folios are not even a remote
substitute for the exact number of investors, because of duplication. The portfolio numbers
swelled in the last two years because of the multiplicity in the number of new schemes. The
logic for floating more and more new open-ended schemes was simple and not a great work of
innovative financing. Retail investors were advised by the distributors (their agents) that there
was no point in entering an open-ended mutual fund scheme when the Net Asset Value (NAV)
was more than Rs 10. She would be better off waiting till the next scheme was launched. The
fund house was advised that it was relatively easy to sell a new scheme, rather than induce
retail investors to buy existing schemes. So, one fund house or another launched a new
scheme at regular intervals, each semantically different from the old one. For example, a
scheme could be named ‘Strong opportunities fund’ and the other could be called ‘Elevated
and strong opportunities fund’ and one would be a fool to not choose something which was at
once strong and elevated. This churning of funds did not matter to the distributors or the fund
houses because both were digging into the entry load charged by the funds to the investors. In
other words, it was the retail investor who was paying the distributor as well as the fund.
Distribution of Assets Under Management by Mutual Funds
(Rs cr) No. of Folios
Liquid/Money market 90,059 171,565
Debt-oriented 197,453 28,11,097
Equity-oriented 109,513 4,17,04,428
TOTAL 397,024 4,46,87,090
All Schemes total 418,765 4,75,98,163
In Liquid, Equity and debt schemes 95% 94%
Retail share 79,756 (20%) 4,35,94,402(98%)
Corporate share 207,384(52%) 527,892(1%)
Banks/FIs share 19,074(5%) 8,066(1%)
HNIs share 86,082(22%) 556,597(1%)
(Source: AMFI’s web site; all data as of March 31, 2009)

For example, in 2005, new equity schemes (NFOs) brought in an inflow of Rs 25,225 crore,
while the existing schemes had a redemption of Rs 3,274 crore. Similarly, in 2006, NFOs
brought in Rs 36,741 crore while the existing schemes lost around Rs 3,100 crore, taking the
net inflow figure to Rs 33,665 crore. In 2007, new schemes inflows were at Rs 29,287 crore
while the net inflows were far lower at Rs 21,071 crore. Thus it was the equity NFOs which
were bringing in the funds, rather than the inflows into the existing open-ended schemes. More
NFOs meant more business for the distributors. It also accounts for the proliferation in the
portfolios in the equity-oriented schemes for the retail segment (see table). No wonder
everyone but the retail investor was happy. Does that mean that the equity schemes did not do
well? Of course they did well, but often not because of the astuteness of the fund managers,
but more because of the market in general.

The fundamental purpose of regulation is not to prevent fools but to prevent people from being
made fools of. This is where Sebi stepped in, by first abolishing entry loads for all mutual fund
schemes; empowering the investors in deciding the commission paid to distributors in
accordance with the level of service received and then ensuring that there was parity among
all classes of unit holders in terms of charging exit load — that no distinction be made among
unit holders should be made on the basis of the amount of subscription while charging exit
loads. Besides, there would have to be full disclosures about payment of commissions. All that
Sebi did was to bring the focus back on the ‘investor’ — the same ‘common man’ which AMFI
refers to in its web site. But surprisingly, it created such an upheaval. Loss of cozy
arrangements generally evokes such extreme reactions such as whining.

But Sebi has given the mutual funds an opportunity for a game change and the strategy would
lie in using this as an opportunity and breaking existing markets and creating new ones. The
Charles Schwab Corporation showed the way when it adopted a disruptive innovation model to
take advantage of US Securities and Exchange Commission’s deregulation of brokerage fees
on the Wall Street and became the largest discount brokerages in the world.

RBI’s latest Report on Currency and Finance says that the net financial savings of the
household sector in 2008-09 were 10.9 per cent of GDP, lower than 11.5 per cent in 2007-08
and the household investment in shares and debentures fell to Rs 19,349 crore from Rs
89,134 crore. As a percentage of GDP, it fell to 0.4 per cent from 1.9 per cent. This is great
market which the mutual funds in India have not taken advantage of. They can and have to
learn to innovate and usher in a ‘retail revolution’ in mutual funds, instead of whining away over
the loss of cosy and lazy way of making money. To do this, fund houses will have to revitalise
their business model, use technology and reach outside the familiar markets. They must
understand why the investors are comfortable with fixed deposits, post office schemes, NSCs,
KVPs, LICs, precious metals and property in the second- and third- tiered cities and rural
areas. They have to tap these markets, integrate innovation into the mainstream of their
business strategy, and manage risks and create new markets and customers. Whoever said
that becoming a leader in sustainable innovation was easy? But anyone who has the will to do
so will surely find fortune at the bottom of the pyramid.

(The author is associated with the IFC’s Global Corporate Governance Forum and the World
Bank; he was formerly the Executive Director of SEBI. Views expressed are personal.
pratipkar21@gmail.com)
(3) Surjit S Bhalla: Can RBI's forecasts be trusted?

Fiscal policy is forced to be expansionary as monetary policy is failing to perform

Surjit S Bhalla / New Delhi August 1, 2009, 0:45 IST

The RBI governor, Dr Subbarao, recently announced that he was seeking discussion and
perhaps even criticism from within his organisation. This is definitely newsworthy and Dr
Subbarao should be applauded for taking this initiative. The RBI is perhaps the last of the
feudal organisations in India (along with all the political parties) and this attempt at an entry
into the 20th century is laudable. I wish Dr Subbarao luck; having worked on two RBI
committees a decade apart (in 1997 and 2006, under the chairmanship of former Deputy
Governor and a true-blue RBI man Mr Tarapore) I can say with some experience that the RBI
does not take lightly to anti-feudal forces.

No sooner had Dr Subbarao made his plea for dissension than the empire struck back. In its
quarterly review on Tuesday, July 21, the RBI viewed the economy in a dour manner (why so
serious?). It kept tight monetary policy tight (highest real interest rates in the world if one uses
the GDP deflator) and warned of impending inflationary dangers. Believing full throttle in this
gloomy stagflation outlook, the RBI lowered the forecast for GDP growth for 2009/10 from 7.5-
8 per cent (made in January 2009) to 6 per cent. Correspondingly, it raised its forecast for WPI
inflation in March next year from 3 per cent to 5 per cent. These pronouncements are put into
focus by noting three facts. First, internationally, India is the only economy that is lowering its
GDP forecast, while most are debating not that GDP will be higher in 2009, but how much
higher. Second, while all expect inflation to be higher than zero inflation, there is no central
banker of a non-banana republic (that I know) who is forecasting this high inflation.

The third fact is perhaps the most damning. The table shows the past forecasts and the errors
on both. Note that it is nobody’s contention that the forecast errors should be zero. That would
be like forecasting the past. What is desirable is that the forecasts have randomness to them
such that over time the errors add up to zero. Unfortunately, nothing of the sort occurs with RBI
forecasts. Very consistently, the RBI under-estimates GDP growth by about 1 to 1.5 per cent
— it gloriously missed the entire growth acceleration between 2004 and 2007. In May 2004,
the growth forecast for 2004/5 was 8.1 per cent, but in October it got lowered by 2 percentage
points, which means that the RBI was expecting GDP growth (in October 2004) to average
only 4 per cent for the next two quarters. It turned out to be twice that rate.

In 2008, perhaps the RBI noted its erroneous ways and started forecasting higher GDP growth
for the great crisis year of 2008/9. At the peak of the crisis (July 2008), it forecast GDP growth
of 8 per cent. A month later, year-on-year industrial production was reported to be negative —
the very first negative number in the developing world, suggesting that the great Indian
slowdown of 2008 was almost entirely a home-grown affair (note that the world collapsed a full
three months after the Indian collapse and after Lehman in September).

The inflation forecasts are no better, and in many respects shockingly worse. (That this might
have something to do with the deeply flawed quantity theory of money model that the RBI uses
has been commented upon ad nauseum in these columns.) The data are from quarterly
reports of the RBI. In end January 2009, which is two months before the target of the forecast
(March 2009), the RBI’s considered assessment was that year-on-year WPI inflation would be
3 per cent. At that time, the WPI index was 229.6 and the March 2008 WPI figure was 225.5. A
3 per cent year-on-year increase would mean an index level of 232.3 in March 2009, which
means that in just two months the RBI was expecting the index to rise by 1.2 per cent or close
to 7 per cent at an annual rate. (If seasonal factors are incorporated into the exercise, which
they should, but which the RBI adamantly refuses to incorporate into its thinking, the
“performance” would be worse.) This when the world was rightfully talking of the genuine
possibility of a second great depression worldwide.

RBI: GDP AND INFLATION, FORECASTS AND ERRORS, 2004-09 (in %)

RBI forecast GDP Growth WPI Inflation
in: Forecast Actual Error Forecast Actual Error
May-04 8.1 8.3 -0.2 5.4
October 2004 6.0-6.5 8.3 -2.1 6.5 5.4 1.1
April 2005 7.0 9.2 -2.2 3.9
October 2005 7.0-7.5 9.2 -2.0 5.0-5.5 3.9 1.4
April 2006 7.5-8.0 9.7 -2.0 5.0-5.5 6.6 -1.4
October 2006 8.0 9.7 -1.7 5.0-5.5 6.6 -1.4
April 2007 8.5 9.0 -0.5 5.0 7.5 -2.5
October 2007 8.5 9.0 -0.5 5.0 7.5 -2.5
January 2008 8.5 9.0 -0.5 5.0 7.5 -2.5
April 2008 8.0-8.5 6.7 1.6 5.5 0.7 4.8
July 2008 8.0 6.7 1.3 5.0 0.7 4.3
October 2008 7.5-8.0 6.7 1.1 5.0 0.7 4.3
January 2009 7.5-8.0 6.7 1.1 3.0 0.7 2.3
April 2009 7.0 4.0
July 2009 6.0 5.0
Note: The forecasts are for March of the year after the date of the quarterly assessment; the error is
the difference between the forecast and the actual reported in March. Source: Press Notes, RBI

Maybe the RBI will be right this time; and maybe only the RBI will be right and the rest of the
world wrong. Maybe. It is equally possible that we need to assess the RBI forecasts by a
different yardstick, namely not research but ideology. Consider for a moment that the RBI
belongs to a strict monetarist school and only looks at the quantity of money supply. Consider
also that as a central banker it believes in always erring with tightness. Consider also that its
ideology prevents it from being open-minded about different explanations for economic
phenomena. If so, then the RBI will act exactly as it has acted.

Unfortunately for India, this is not a defunct economists’ debate. Monetary policy should not be
a domain for idle researchers/policymakers/commentators to have “fun”, or for some feudals to
dictate policy. What the RBI does affects policy on interest rates, and interest rates affect the
nation’s economy and even the poor. Dr Subbarao complained about bad fiscal policy in his
policy statement (ironically, until a year ago, he was making the same fiscal policy). It is hoped
that as part of dissension (which he is unlikely to receive from within) Dr Subbarao will accept
the following — the reason that fiscal policy is expansionary in India, more than it needs to be,
is precisely because he and the RBI cannot be trusted to do a good job on monetary policy.
Fiscal policy has to masquerade as monetary policy; very easily, monetary policy can be less
tight and fiscal policy more. But that is hoping for Godot — or for dissension within the RBI.
(4) Use Basics to Get Better

Yajuvender Singh / June 25, 2009, 18:10 IST

Basic Investor relations techniques, when pursed effectively hold the key to bring investors
back to capital markets. Clear, timely and easy to understand communication has always
helped investors to make informed decisions and will continue to do so.

Timings have been very uncertain recent past. All

spheres of economy were hit by recession, which
has now started showing some signs of revival.
One thing which has remained definite all along is
uncertainty; booming economy, sudden recession
and now fresh signs of revival. There hasn’t been
any race among listed companies to be the first to
release the annual results, as we just passed
through peak financial reporting season of the
year in India. A strange silence had descended
directly from ‘Silence of the Lambs’ to the Dalal
Street. And as far as Analyst briefing goes, RSVP
list of analysts and fund managers went shorter
and shorter this time.

Financial markets worldwide have changed dramatically over last year and trickling effects on
Indian listed companies are clearly visible, as the companies are showcasing their
performance of the last financial year.

Bear phase at capital bourses worldwide since the very beginning and economic recession has
done the job very well to shake the confidence of retail investor in stock market. The effect is
so grave that investors are still shaken and prefer to keep safe distance from stock market.
Companies on the other hand also cursed the economic recession and then absorbed to the
situation. And this ‘status quo’ has constantly and continuously added to the gap between
investor and companies and further added at least to the perceived recession.

Is there something, which can change or improve this situation? Yes, there are basic
covenants of investors relations, which definitely hold the key to the situation. If your company
is in an industry that is currently plagued by recession, help investors clearly see what
differentiates your company from its close competitors. If your company stock is performing
low vis-à-vis competitors, carefully understand the bear case scenario. And then intelligently
address these concerns in all your investor communications. Be consistent in your
communications. In case your company stock has been hit hard by bear phase, use the
opportunity to build a more suitable investor base. Not every company is a "growth" phase
forever, similarly not every company needs a base of "growth investors” forever.

Nothing surprises investors more than the sudden and unexpected unfolding of events and
information. By definition per se corporate business is dynamic world and only thing that is
certain there is uncertainty. It is this uncertainty that adds premium to risk taken by investors
by virtue of their investments. Using effective and pro-active investor communication
approaches, companies can neutralize this uncertainty to a large extent, if can’t mitigate it
completely and reduces surprise events for investors.

The basic elements of investor relations are information and communication. Both should be
right. Information should be right information and it should be communicated at right time.
Financial communication is the cornerstone of the relationship with market players and key to
market transparency and its quality is essential to the relationship of trust between issuers and
investors.

Capital market discounts everything including events, information and disclosure made by
each company Time comes and market suddenly discovers that the product developed by a
company is innovative, customers find the quality second to none and analysts find future
projections too attractive. And all of sudden, company becomes successful at street and hogs
all the limelight and results multiplication of its share price by many folds. However, for each
such company, there will be at least 10 other companies, whose product is equally innovative
and quality is even better and posses sound financial health and still not able to click with the
street.

What differentiates one form the rest is investor relations. The underlying basic approaches or
themes of Investor relations are:

• Understand the Investor

• Right Disclosure and
• Communication at the right time.

Understand Your Investor:

Every investor is a customer. Each and every investor is either a buyer or seller of a stock. The
role of investor relations is to persuade and convince the investor (read customer) that a rupee
invested in his/her company will appreciate faster than a rupee invested in any other company
despite the recessionary times. Persuasion should use fundamental facts intelligently.

Relationship has always built upon the trust and to gain trust of investors, companies need to
go extra mile to make investor feel that they are important to company and they are not
ignored be the tough times or easy sailing.

Clear and Complete Disclosure

All public companies are sailing in the same boat these days as they are faced with question of
expanding and improving communication with their investors, sell-side analysts, the financial
media and others.

Disclosure has always been the core of all investor relations practice and even the reason of
existence of Investor Relations Function. Disclosure also should be at the core of marketing
approach of investor relations and definitely during recessionary times, when credibility and
trust are at stake. In absolute terms, disclosure implies transparency. Being transparent,
disclosure will equally help all investors to know facts, business environment, performance,
and practically all what’s needed. Thus, all investors will at par and will have equal knowledge
to make their investment decisions.
Right Communication:

Good investor communication is all about clear, true and transparent information.

One of major expectation of investors is good dividend percentage. This expectation causes lot
of problem to companies and particularly investor relation professionals. Use pragmatic
explanation in investor communication to make investors understand the balance between
profits to be distributed as dividends and the need for profits to be reinvested precisely in
recessionary times. Same approach should be used for forecast of future earnings, if any.

The expectations of the market during recession are very low. Extra ordinary projections may
get perceived negatively. And also there may be strong reward to simply meet the
expectations. So, make achievable projections. These would need lot of persuasive marketing
and make investor relations function more compelling than ever before.

Investor communication subscribe to the philosophy that good communication increases trust.
It is a good philosophy because, ultimately, the better informed the investors are, the greater
the likelihood for trust in the company’s integrity, and, therefore, the greater support for the
stock even during recession.

The writer is Director – Financial Data Services, Impetus InfoTech (India) Pvt. Ltd.
 (5) A V Rajwade: Getting interest rates right

Apart from reviewing the PLR mechanism, the LAF facility also needs to be looked into
again. A V Rajwade / New Delhi April 27, 2009, 0:48 IST

As last Tuesday’s policy statement acknowledges, the transmission of changes in the policy
rates in the deposit and loan-pricing of commercial banks is not as effective as it should be. In
recent months, policy rates have dropped much more than the fall in the deposit or lending
rates of banks. In the US, in contrast, the correlation between the policy and prime rates is
very strong.

In general, the greater the uncertainty in terms of the price or availability of money, the larger
would be the cushion market participants (banks in this case) would structure into the interest
rates. Is the operation of the liquidity adjustment facility (LAF) itself contributing to the
uncertainty? For one thing, there are two policy rates (the Bank Rate itself has become
irrelevant for most practical purposes), while most central banks have a single one — like, for
example, the federal funds rate in the US which the Federal Reserve targets through open
market operations. At one time, the gap between the two rates was as wide as 3 per cent; it
has now come down to 1.5 per cent, but is still not insignificant. Often, the interbank or CBLO
rates have ruled below or above the policy rates, defeating the very purpose of the corridor.
Overall, there does seem to be a case for reviewing the operation of the LAF, also including
the system of bidding by banks, which leads to uncertainty about the acceptance or otherwise
of the bids. Incidentally, the policy itself has given, probably unwittingly, contrary signals: While
both the administered rates have been dropped by a quarter per cent, the revision in the
calculation of interest on savings bank account, which form a significant proportion of bank
deposits, effectively means an increase in the rate!

TRANSMISSION MECHANISM
(decline in basis points, bps)
INDIA
Instrument Mid-Sept 2008 Early March 2009
Repo Rate 900 500
Reverse Repo Rate 600 350
CRR 900 500
Oct 2008-April 2009 Deposit rates Lending rates
PSU banks 125-250 125-225
Private sector banks 75-200 100-125
Top 5 foreign banks 100-200 0-100
UNITED STATES
30 April 2008 16 December 2008
Fed Funds Target Rate 200 0-25
WSJ Prime Rate 500 325
* A basis point is one- hundredth of one per cent
The policy statement also gives various reasons advanced by bankers, which are coming in
the way of a drop in the market rates for deposits and loans. Bankers have claimed that, under
the current practice, in a rising rate scenario, depositors take premature encashment of an
existing deposit, and re-deploy it at a higher rate; on the other hand, when rates are falling, the
banks are stuck with the existing high rate deposits. There is a simple, and logical, solution to
the problem: The price of the premature encashment should really be determined by the cost
of replacing the deposit in the current market rate structure. This would imply that when rates
are rising, the cost of premature withdrawal could even mean a negative interest rate; in the
contrary scenario, the depositor could get more than the contracted interest rate.

The other reason advanced by bankers for the stickiness of the prime rate is the linkages to
agricultural and export credit. The solution is simple: If subsidized rates are to be maintained,
the formula needs to be revised so as to de-link it from the prime rate.

As for monetary aggregates, I have always been puzzled by the announcements made by
central banks of targeted growth in M3, and linking it to the banking systems’ deposit growth.
First, the policy objectives of the two are different: In the case of M3, to limit the growth; in the
case of bank deposits, it is to increase the level in the pursuit of “financial inclusion”. Second,
surely the cause and effect relationship is not so much from M3 to deposits as it is the other
way round — deposit growth leading to M3 growth, with the central bank adjusting the reserve
requirements if it is too high? Another puzzle of course is why we still stick to M3 when most
other countries seem to be looking at interest rate as the target variable, ignoring the monetary
aggregates: This too, when in each of the three years preceding the last (i.e. 2005-06, 2006-
07, 2007-08), both the targeted aggregates have been exceeded by significant margins. (The
last fiscal was an exception to this — but then it was hardly a “normal” year.)

It is a good thing that the central bank is appointing a committee to review the operation of the
benchmark prime lending rate system. (As argued above, there is a case to review the
operation of the LAF system.) I have often felt that one of the reforms of the PLR system
should be to eliminate the uncertainty about the timing of a change, by making PLR changes
only on specified dates — say, the first day of each quarter. To my mind, this would have two
benefits:
• This would help in improved asset:liability management from the interest rate
perspective;
• Banks will be forced to review their entire pricing structure at quarterly intervals.
avrajwade@gmail.com
(6) Abheek Barua: Preparing for recovery

The RBI may be concerned about inflation but it is unlikely to put an abrupt end to
monetary accommodation- Abheek Barua / New Delhi September 14, 2009, 0:25 IST

The RBI may be concerned about inflation but it is unlikely to put an abrupt end to monetary
accommodation, says Abheek Barua

The revival of the monsoon in north India over the last few weeks certainly seems to have
cheered the stock markets. The assumption seems to be that while the damage to the summer
crop is difficult to undo, delayed rain will help the winter or rabi crop. A consensus also seems
to be emerging in the analyst community that while poor agricultural output might have a
simple arithmetical impact on growth, the second-round effect on industry and services is likely
to be fairly muted. As a result, the impact on company profits could be much less than what
initial predictions suggested.

International news has also been positive. US labor market data for August was better than
expected for the fourth month in a row. Manufacturing indices both in Europe and the US have
been fairly strong confirming that a recovery (even if temporary) is under way. Risk appetite
has improved as result — equity prices, for example, are up across a range of markets as are
other high-yielding asset markets.

I am not entirely convinced that this will sustain. For one, there is a fairly large section of
market analysts and academic economists who seem to believe that the industrialized
economies are headed for another sharp dip in the business cycle. Their argument is now well
known — the current recovery is being driven by inventory restocking and stimulus that will
peter out by the year-end. The structural changes that the US economy is going through
(households rebuilding their balance sheets by pushing up their savings, for instance) restrain
demand not augment it. The net result is likely to be another contraction in growth in the
developed economies that will affect the emerging economies as well. If this happens, it could
trigger a massive flight of capital from risky assets to the safety of US treasury bonds. The
dollar could appreciate as a result and other currencies like the rupee could come under
pressure.

The “double-dip” scenario is a contingency we must be prepared for from the policy
perspective. Thus it would be foolhardy at this stage to extrapolate the future path of growth
from current data, however encouraging they may seem. The finance ministry has clearly
decided to wait and watch before withdrawing some of the fiscal stimuli and that seems
eminently sensible. The RBI may be extremely concerned about inflation but it is unlikely to put
an end to monetary accommodation abruptly. As I have argued before, the first round of
monetary tightening is likely only in January. By that time we will hopefully have a better sense
on where the global economy and the domestic economy are headed.

We must also prepare for a scenario in which the current recovery in the global economy and
markets sustains and ramps up risk appetite further. Were that to happen, there is every
chance that global capital will flood economies like India that are growing much faster than the
rest of the world. This has implications both for the rupee and money supply and we perhaps
need to think out a clear strategy to handle this.

For one, I think it is time we jettisoned the debate on whether the RBI should or should not
intervene to prevent excess appreciation of the rupee. We cannot afford overvaluation of the
currency. While domestic markets might fetch us the base rate of 6-7 per cent, the ability to
grow faster will depend on how effectively we can participate in the global recovery through
exports of goods and services. Unfortunately, every other economy in the world is likely to
think on the same lines. Our success then will depend on how effectively we can prevent the
rupee from appreciating against both our trading partners and our competitors.

This calls for both market intervention by the RBI and a longer-term strategy for the current
account. One must remember that appreciation of the rupee is not just the result of strong
capital flows. It is also the result of an inability to utilize these capital flows to feed growth. If
capital flows were to pick up and show signs of sustaining, it is imperative to run a larger
current account deficit in the long term to avoid prolonged overvaluation. This in turn could be
linked to the import needs of the sectors that are likely to lead the next phase of high growth —
infrastructure, for instance. In short, we must (at least analytically) link the need to step up
project implementation in infrastructure with the objective of preventing excessive appreciation
of the currency.

If the RBI does need to intervene more aggressively in the market, how does it deal with the
monetary consequence? There are two “comforts” on this front. First, the government is likely
to be a fairly large bond issuer in the medium term given the size of the fiscal deficit. This
would lead to automatic “sterilization”. Second, the recent financial crisis has shown that the
monetary stabilization scheme (MSS) has worked rather well. The stock of sequestered
liquidity built up during the phase of excess capital flows has come in handy in dealing with
both the liquidity crisis that came in the wake of the Lehman collapse as well in funding some
of the fiscal stimulus.

The benefits of sterilization and the use of MSS bonds certainly outweigh the static accounting
“quasi-fiscal” costs of sterilized intervention. If capital flows become difficult to handle we
should not hesitate to issue another large tranche of bonds designed to suck out liquidity.

Both the prospects of sustained recovery and downturn are equally challenging for
policymakers. The right formula might be to stick to what has worked best in the past and let
prudence, not dogma, guide policy.

The author is chief economist, HDFC Bank. The views here are personal
(7) How India survived the tsunami

BS Reporter / Mumbai September 15, 2009, 0:40 IST

A year after Lehman Brothers, the 158-year-old Wall Street investment bank, filed for
bankruptcy — signalling the global financial system’s descent into Great Depression II — the
Bombay Stock Exchange (BSE) Sensitive Index has risen 16 per cent, after having hit a low of
8,160 in early March.

Signs of stability are visible not only in the stock markets but also in money and foreign
exchange markets as prospects of faster economic growth have improved in recent weeks
despite a poor monsoon.

While the International Monetary Fund has predicted that the global economy will contract in
2009, there are signs of normalcy with Japan, Germany and France coming out of recession.

In India, which grew 6.7 per cent last year, the rise in industrial output in the recent months and
revival in the services sector is expected to more than make up for the deficient rainfall, though
the country could fail to meet the 7 per cent growth target set by the government. Led by
manufacturing, industrial output rose 6.8 per cent in July. Although the Reserve Bank of India
(RBI) has warned about the lagged impact on the services sector, indications from most of the
services segments point to healthy growth.

Citi’s India economist Rohini Malkani has maintained the gross domestic product (GDP)
growth forecast for the year at 5.8 per cent, closer to RBI’s 6 per cent, with an upward bias,
adding that, “At this point, it appears that the government’s stimulus measures are offsetting
the impact of drought. Thus, the strong IIP (index for industrial production) numbers in June
and July (June figure was revised from 7.8 per cent to 8.2 per cent), coupled with the base
effect kicking in from October, could result in industrial growth surprising on the upside.”

“The main drivers of GDP will be services and industry, which are responding to the stimulus,
and not so much agriculture. In a certain way, there is delinking of agriculture and industry as
the share of agriculture in GDP is much lower and also because the rural folk are not solely
dependent on the sector, especially with schemes like the National Rural Employment
Guarantee Scheme in place,” said Crisil Principal Economist DK Joshi, who has predicted a
growth of close to 6 per cent during the financial year.

“The situation is slightly different today. While lending rates have softened in the current
financial year, there other supports in place in the form of government spending and fiscal
stimulus, inflationary pressures have clearly gathered pace and appear to be a major risk to
growth in the months ahead,” said HDFC Bank Chief Economist Abheek Barua.

A year ago, on September 15, 2008, things looked different. As foreign institutional investors
(FIIs) withdrew money, the Sensex fell 850 points in intra-day trade. This also put pressure on
the rupee, which fell to a two-year low of 46 against the US dollar, taking the overall decline
since April to nearly 15 per cent. Overnight call money rates hit 12.5 per cent, the highest in
almost two-and-a-half years.
Over the next few weeks, the stock markets fell to four-digit levels, the rupee started hitting
fresh lows on a daily basis and weakened to an all-time low of 52.13 in early March, and the
call rate touched a peak of 21 per cent.

As FIIs withdrew $6.42 billion (around Rs 33,000 crore) from the Indian stock markets between
September 2008 and March 2009, RBI sold $29 billion (Rs 149,706 crore) to check the rupee’s
free fall and ensured that over Rs 6,00,000 crore primary liquidity was pumped into the system.
In addition, the government stepped up spending and cut tax rates to spur demand.

FIIs invested over $10 billion (around Rs 49,000 crore) into the stock markets this year, there
are expectations of the rupee appreciating, and call rates have eased to around 3 per cent.
Banks do not have to access short-term funds at double-digit rates and investors do not have
to worry about the fate of the debt funds that they invest in.

While government borrowings have increased, interest rates seem to be stable given the large
liquidity in the banking system, which can be seen with banks regularly parking around over Rs
1,00,000 crore through the reverse repo window, which is used to suck out liquidity. One of the
worries for policymakers is the low credit off-take with companies deferring capital expenditure
due to availability of adequate capacity. For the year up to August 2009, bank credit grew
14.09 per cent, the slowest in five years. The corporate performance is expected to improve in
the second quarter. But the dilemma for policymakers is the exit strategy, especially in the
wake of the recent rise in commodity and food prices, which are stoking inflationary
expectations. “Food inflation is going to be the biggest challenge on the inflation front, unless
the economy picks up,” said Crisil’s Joshi.

For financial sector players in India, largely left unscathed by the global turmoil, a big worry is
how the regulation will pan out. The RBI Annual Report, released last month, has already
announced its intention to lay down a risk management and capital adequacy framework for
bank-sponsored private pools of capital such as private equity and venture capital funds. But,
unlike the United States, there is little worry on regulation of compensation packages since the
existing laws empower banking and insurance regulators to intervene in such cases.

According to Suman K Bery, director general, National Council for Applied Economic
Research, “Recent experience shows that theory is a poor guide to how financial systems
work. India has now been given a seat in the G-20 in discussing the future architecture....
China's global engagement has been more committed than that of India’s and we have seen
that it has given spectacular results. But it all seemed successful until the global crisis came
along.

India’s slightly more cautious approach seemed to have protected it......After the crisis, the
contours of the financial system have been redefined and India and China are now being
asked to assume responsibility. Our salvation will be to become active supporters of
globalisation, particularly at a time when traditional supporters like the Anglo-Saxon countries
seems to be retreating. There has to be a shift in the perception to see globalistion as a friend
rather than a foe.”
(8) Circuit breakers cannot stop market manipulation

Joydeep Ghosh & Palak Shah / June 04, 2009, 0:15 IST

(The problem is the lack of depth in Indian stock markets because of large holdings by
promoters and institutions.)

Indian stock markets have stopped trading four times in the last five years because benchmark
indices hit the lower or upper circuit filters. The latest was on May 18 when stock exchanges
pulled down shutters within a minute of the opening bell.

Compare this with other global markets. The last time that the Dow Jones Industrial Average,
which has a circuit filter mechanism on the index, halted trading was 12 years back on October
27, 1997.

The irony was evident on May 18 itself when trading was stopped on the NSE after the CNX
Nifty gained 17.74 per cent, or 651 points. No such problem was faced by the SGX Nifty, the
futures trading index listed on the Singapore stock exchange. The index continued trading
even after rising 20.75 per cent, or 765 points. The index circuit breakers kick in when there is
a rise/fall of 10 per cent, 15 per cent and 20 per cent.

The London Stock Exchange (LSE) has no filters on overall indices although it follows a price
monitoring system which is similar to filters on individual stocks. In the LSE, there is automatic
suspension of trading in a particular scrip for around five minutes if it is found that the stock
price would move beyond its tolerance threshold (for example, more than five per cent from the
price at the last trade) when the buy-sell orders are matched during automated trading.
According to an LSE spokesman this allows the market time to review the situation and, if
necessary, remove erroneous orders.

Some like the Australian, Hong Kong and Taiwan exchanges do not have any such
mechanism.

One of the major reasons why circuit breakers (introduced in 2000) have become a common
occurrence in India on individual scrips is the lack of depth in the equity market. “The Indian
stock markets lack depth in terms of investors and free float,” says Deven Choksey, managing
director, K R Choksey Shares and Securities. That is, the promoter holding in most companies
is as high 40 to 50 per cent or even more. And even the existing free float is largely cornered
by institutions. So, it is quite easy to push prices up or down.

Among the CNX Nifty stocks (based on the value of holdings of the 50 NSE scrips), 55.09 per
cent of holdings are with promoters, institutions have 26.23 per cent and retail investors have
barely 15.42 per cent. And there are 26 companies, where promoter holdings are more than 55
per cent.

Added to this, the large volumes in the futures and options (F&O) market make matters worse.
At present, there are 233 stocks in the futures and options (F&O) market. And all the Nifty and
Sensex stocks are traded there.
Since the F&O stocks do not have any circuit filters and only margin payments are required,
traders can aggressively take long or short positions. As a result, volumes in the F&O segment
are five to ten times higher than the cash market. However, settlements have to be done in
cash and not by delivering shares. Traders, therefore, have to come to the market to buy or
sell to raise this cash and square their positions.

This act of buying and selling automatically impacts the prices in the spot market. In other
words, higher positions in the F&O market leads to abnormal price movement in the spot
market. This, coupled with the low float, creates a situation of high volatility and, consequently,
circuits are broken quite often.

Analysts point out that circuit breakers have not been successful in arresting either the steep
slides or gains. In many cases, operators resume their antics with a vengeance as soon as the
stipulated time is over.

THE ROAD AHEAD: Experts are of the view that halting trading completely is not the best
option even on days when circuit breakers are hit. R H Patil, former managing director of NSE,
says one possible solution is to restrict further long trades for the day rather than shutting
down the markets.

Others like M R Mayya, former executive director of BSE, suggest that markets should be
closed for sometime, but not the entire day, since providing an entry and exit is important. He
recalls the Harshad Mehta days when markets would rise and fall abnormally every day from
June 1991 to February 1992. “But we did not shut the market for a single day. Instead we
imposed tighter margins,” says Mayya.

One way out is for exchanges to stop trading for 15-30 minutes when circuits are broken,.
When trading is resumed, higher margins could be imposed on buyers (if the market hits the
upper circuit) or sellers (if the markets hit the lower circuit). And depending on the gravity of the
situation, margins could be as high as even 100 per cent. The idea is to stifle the rate of
growth.

Ajay Shah, senior fellow, National Institute of Public Finance and Policy (NIPFP), has another
formula: “It would be a better option to let the trades continue. I would advise something called
‘call option’ which was used earlier as a pre-opening option.” In this system brokers were
allowed to put in bids before the market opened. In a situation when trading is halted because
of a circuit filter, the market was allowed to move into the ‘call option’ mode for 10-15 minutes.
Traders could place buy and sell orders, but no actual trade would take place. This helped
market participants to understand the trend when the market reopened.

The simplest way, many feel, is to get rid of filters on indices completely. In its place circuit
filters should be imposed on individual scrips in the F&O segment. This would allow the cash
to be deployed elsewhere when an index stock stops trading.

Another suggestion is to follow the Nasdaq way: Trading in a company scrip halts
automatically to allow it to announce important news or when there is a significant order
imbalance between buyers and sellers in a security. A trading delay (or ‘delayed opening’) is
called if either of these situations occurs at the beginning of the trading day.
(9) A uniform face value needed

M R Mayya / June 8, 2009, 0:52 IST

SEBI should mandate a common face value for shares and end the confusion in the minds of
investors. However, the debate on uniform face value of shares has been going on for over
eight years now. The debate gained momentum in June 1999 when Sebi amended the
guidelines relating to denomination of equity shares and allowed companies to choose the par
value or face value of their stocks.

The recent circular issued by Securities and Exchange Board of India (SEBI) relating to the
amendment to the Equity Listing Agreement mandates, inter alia, that “listed companies shall
declare their dividend on as per share basis only”, as it “is expected to bring uniformity in the
manner of declaring dividend amongst the listed companies”. The circular issued under
Section 11 (1) of the SEBI Act “to protect the interest of investors in securities and to promote
the development of, and to regulate the securities market” has, viewed against the prevalent
position relating to the face value of shares, only added to the confusion already prevalent with
regard to the dividends that companies are declaring.

According to the recommendations, which were put on the regulator's website today, the
multiple face value system creates confusion among investors. It has been noticed that
investors tend to look at the market price of a particular stock without knowing its face value,
and the confusion is compounded when companies declare dividend as a percentage of the
face value.

It was argued that the practice of declaring a percentage dividend based on a low face value
was misleading, especially when the company has raised money at a hefty premium or when
its stock was trading at a high price in the secondary market.

Recalling history

It needs to be recalled that a large number of companies used to have varying face values. For
example, a number of companies based in Ahmedabad used to have a face value of Rs 125
while the face value of Tata Steel used to be Rs 75. The Ministry of Finance, therefore issued
in February 1981 a guideline that denomination of equity shares be fixed uniformly at Rs 10
and that the denomination of the then existing shares other than Rs 10 be converted into
denomination of Rs 10. In January 1983, it was, however, clarified that denomination of shares
of Rs 100 need not be changed to denomination of Rs 10. In other words, shares of all
companies were required to be in denominations of Rs 10 or Rs 100 only. Ever so, several
companies converted the denomination of shares of Rs 100 into that of Rs 10 on the ground
that it generated better liquidity, as also a higher value for the shares.

Confusion amplified

In 1999, SEBI was contemplating the question of doing away completely with the denomination
of shares. Instead, a company would have at any point of time the notified number of shares,
which would be altered only in relation to issue of bonus or right shares; ESOPs and
conversion of debentures or warrants, as is the practice followed in the United States. Instead,
in a strange decision, SEBI decided “with the objective of broadening the investors’ base” to
dispense with the requirement of standard denomination of Rs 100 or Rs 10 and give freedom
to companies to issue shares of any denomination but not below Re 1. Companies which have
issued shares of the face of Rs 10 or Rs 100 were also permitted to avail of this facility by
consolidation or splitting their existing shares.

As a result of the above decision, not only a number of companies coming out with IPOs
issued shares in denominations other Rs 10 and Re 1, mainly in denominations of Rs 2, Rs 4
and Rs 5, but a number of existing listed companies having denomination of Rs 10 have split
their shares mainly into denominations of Re 1, Rs 2 or Rs 5, and those with a denomination of
Rs 5 into Re 1, for no rhyme or reason. One appreciates this if the price of the share is above
say Rs 1,000 and not otherwise. Merchant bankers, who had a heyday, were mainly
responsible for this.

Such splitting has only added to the confusion of investors. One could hear several investors
lamenting that the prices of their shares have fallen, while in actuality prices have reason due
to splitting of shares arising out of a reduction in the face value of shares.

Need of the hour

Declaring dividend on per share basis as mandated by SEBI will add to the existing confusion
of investors, many of whom do not understand fully the complexities of stock market
operations. Companies with their shares in denominations of say Re 1, Rs 2, Rs 3, Rs 4 and
Rs 5 and Rs 10 declaring dividend of say Re 1 per share would actually be declaring dividend
of 100 per cent, 50 per cent, 33.33 per cent, 25 per cent, 20 per cent and 10 per cent,
respectively. One wonders how many investors would actually readily know the percentage of
dividend declared if it is in terms of per share only. In fact, several of the brokers would also
not be able to give a ready answer, as it is just not possible to keep a track of the face value of
thousands of share traded day in and day out.

A joint meeting of the Primary and Secondary Market Advisory Committees of SEBI held about
a year ago recommended that all companies, present and future, should have shares in
denomination of Re 1 only. SEBI has yet to issue a circular in this behalf. With the amendment
requiring companies to declare dividends on per share basis only, SEBI should also issue a
circular mandating denomination of shares to be only in Re 1 and end this bedlam haunting the
investors for nearly a decade.(The author is former executive director, Bombay Stock
Exchange)
(10) The Satyam effect
Pooja Thakur / Mumbai January 12, 2009, 0:56 IST
The Satyam episode drags down indices as investors get into the sell mode.
The Sensex fell for a second day, as Satyam Computer Services extended declines on
concern it may have insufficient funds after chairman Ramalinga Raju said he falsified
accounts. Satyam dropped 41 percent to Rs 23.75, taking its losses to 87 percent since
Raju on January 7 said he inflated earnings and assets by $1 billion. Larsen & Toubro,
which owns a 3.95 percent stake in Satyam, dropped 7 percent, the most in almost three
months, as the value of its investment in the software developer fell.

“The Satyam incident is very negative and will be viewed as such by foreign institutional
investors,” said Ajay Bodke, who helps manage the equivalent of $870 million in stocks at
IDFC Assets Management Co. in Mumbai. “This puts a question-mark on the financials of
many other companies.”

The Sensex fell 1.9 percent to 9,406.47. The index dropped 5.5 percent for the week. The S&P
CNX Nifty Index on the National Stock Exchange slid 1.6 percent to 2,873. The BSE 200 Index
declined 2.1 percent to 1,124.65. Nifty futures for January delivery fell 1.8 percent to 2,861.05.

Aberdeen Asset Managers and its units sold blocks of Satyam Computer on January 7, data
from exchanges showed. Fidelity Management & Research Co., Swiss Finance Corp.
(Mauritius) Ltd. and Morgan Stanley Mauritius Co. also sold shares, exchange data showed.
Aberdeen was Satyam’s largest institutional investor as of Sept. 30, according Satyam’s
exchange filings.

‘Not very encouraging’

Interim CEO Ram Mynampati said that the fourth largest Indian software services provider may
have to restate earnings and he couldn’t be sure the company had enough cash for this month.
“Our liquidity position is not very encouraging,” Mynampati said.

Larsen, India’s largest engineering company, declined 7 percent to 720.85 rupees, the lowest
since December 3. Larsen has no plans to sell its holding in Satyam, CNBC TV-18 reported,
citing chairman A M Naik.

Credit Suisse Group and other brokerages are still advising investors to buy Indian stocks.
Credit Suisse maintained its “overweight” recommendation on the Indian market today, while
Macquarie Group raised it to “overweight” from “neutral.”

The market’s rating was also raised to “neutral” from “underweight” yesterday at JPMorgan
Chase & Co., which said the drop in share prices provided an “attractive buying opportunity.”

Corporate governance

Tata Consultancy Services, India’s largest software-services provider, gained today on

expectation it will gain market share as clients desert Satyam after its chairman falsified
earnings.
“Companies with high corporate governance standards will stand to benefit from the Satyam
episode,” said Bodke at IDFC. “Satyam’s rivals will win orders at its expense.”

Tata Consultancy added 6.4 percent to Rs 536.95. Rival Wipro climbed 2.6 percent to Rs
250.95. Infosys Technologies, India’s second-largest provider of software services, gained 1.3
percent to Rs 1,203.4. The stock is among those recommended by Credit Suisse analysts
Nilesh Jasani and Arya Sen, who said investors should own shares of Indian companies with
“good corporate governance.”

“If Satyam turns out to be an isolated incident, it will be forgotten by investors after a few
weeks,” the analysts said. “Investors should focus less on sector allocation or standard
quantitative parameters for stock selection and more on management quality.”

Reliance, Tata Steel

Stocks that recorded the biggest declines on the Sensex today include Reliance
Communications, India’s second-largest phone-service provider, and Tata Steel, the nation’s
biggest maker of the alloy. Sterlite Industries, India’s largest copper producer, fell 10 per cent
to Rs 271.9 the most since November 11.

Reliance Communications fell 9.5 per cent to Rs 186.85, the lowest since November 20. Tata
Steel dropped 8 per cent to Rs 215, the most since November 11. DLF declined 7.5 per cent to
Rs 216.35. Reliance Industries slid 4 per cent to Rs 1,153.25, while Jaiprakash lost 4.2 per
cent to Rs 68.50.

Overseas funds bought a net Rs 4.45 billion ($91 million) of Indian stocks on January 6, the
nation’s market regulator said.

The following were among the most active shares traded on the Bombay and National stock
exchanges. Punj Lloyd dropped Rs 23 or 17 per cent, to Rs 115.35, its lowest since July 2006.
The Indian engineering company fell after saying its UK unit began court proceedings against
SABIC Petrochemicals UK seeking 28.5 million pounds ($43 million) compensation.

With the compensation dispute now into the adjudication process, the entire amount is less
likely to be recovered and Punj Lloyd could be hit by as much as Rs 3.2 per share, J.P.
Morgan Securities said.

Tata Motors fell Rs 8.4, or 4.8 per cent, to Rs 165.75. India’s biggest truckmaker will stop
production at a commercial-vehicle factory for six days as higher borrowing costs stymie
demand. The Jamshedpur plant in eastern India will close from January 12 to January 17,
Debasis Ray, a company spokesman said.

The author is a Bloomberg News columnist. The opinions expressed are her own