Thursday, September 6, 2007

DTS, Bajaj vs TVS

TVS and Bajaj Auto are locked in a battle over the twin spark plug technology. This technology which first debuted in 2005 on the Bajaj Pulsar, has two spark plugs on either side of the engine head rather than the conventional setup of one. An additional spark plug ensures faster burning of petrol, and a quicker combustion cycle and hence better pickup and mileage.

TVS, has designed its own form of the technology, that is using two spark plugs rather than one, and is launching it on the 125cc Flame in October. Bajaj is crying hoarse its an infringement of its patent, while TVS is defending itself. TVS has gone a step ahead and claims it will have Bajaj’s patent revoked.

Bajaj in my opinion is just trying to starve off competition from introducing the twin spark plug technology to maintain its advantage. A cursory glance at the major advancements in automobile technology over the past two decades would list honda’s VTEC and Common Rail Diesel injection developed by Fiat as the biggest inventions. Today, both these technologies are being used by carmakers all over the world.

Other manufacturers, despite both companies holding the patent, have reverse engineered the technology, thereby bypassing the patent. TVS in this current scenario is attempting to do the same with the twin spark plug technology. Bajaj it should be remembered has a patent only for the DTSi technology and not the idea of using two spark plugs. TVS has developed its own version of using two spark plugs and therefore bypassed the patent.

Bajaj is just crying hoarse over this violation in an attempt to starve off competition from using the technology.

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Thursday, August 23, 2007

Been busy over the past week. Was not in town. Will update frequently starting today. Check this space!!

Friday, August 17, 2007

Real Estate Speculation

The real estate market is on fire, and speculators have made money in the market. Over the past few years, speculators have made money by blocking apartments and then transferring the titles. This market now I think has peaked out. With rising interest rates, the possibility of appereciation in flats/apartments is now low.

Right now, speculators have started to look southwards in tamil nadu. The government of TN is now interested in developing Southern Tamil Nadu. The land prices there are right now rock bottom, largely fuelled by high level of urbanisation happening in TN right now. Anyone with good information can make money by speculating on land in TN now.

The information I refer to is on which specific areas of TN the government plans to develop, and this information is necessary before announcements are made. Secondly, the reliability of the information plays utmost information. This poses a huge risk for potential investors. Those willing to undertake such a huge risk are likely to reap huge rewards from this sector. Some likely areas in TN are Madurai-Trichy belt, Kovai region, and my biggest bet is on Yelagiri. 4 hours from both Chennai and Bangalore, with the evolution of the weekend get away culture, land values here are bound to increase. With the growth of the economy, logistics will become more important, and I expect land value in the Thoothukodi and Namakkal to appreciate. The former is Tamil Nadu's second port, while the latter is the hub of trucking business in TN.

Wednesday, August 15, 2007

Morning Brief - 16/August/2007

Markets

Over the past two days, the global indices crashed, this morning the Nikkei reached its 8 month low, the Dow lost over a 1%, the KOPSI (South Korea) lost almost 4%. Expect the Sensex to touch the 14400 levels.

So what exactly is the issue? In the short term lending market, where financial institutions lend money to each other for periods ranging from a day to a few months, the players simply do not trust each others credit record. Those with surplus funds are not sure if those who require the cash are exposed to the US Subprime lending market. The lenders have no way of ascertaining whether the borrowers have exposure to the market or now. This makes lenders reluctant to lend money. Causing a credit crunch. This fear was further accentuated because a leading subprime lender in the US is likely to go bust. Global markets crashed on the back of a worry that there will be an impending credit crunch.

Meanwhile, Indian bankers do not expect a replay of the Sub-prime housing market worries here.

Corporate Watch

M&M is starting operations in Brazil and Egypt. While Tata Motors wants to gain a foothold in Europe, M&M cleverly has decided to focus on markets similar to the Indian market. Its range of rugged UVs (which will run on everything from kerosene to diesel, what ever the quality) will be ideally suited for such markets.

TRAI Vs Mobile Service Operators. Over what else? Price fixing. TRAI should launch an investigation to see if the operators have formed a cartel, rather than trying to hold prices firm.

In TN, all parties have now opposed the Tata project, never before has any industrial project faced such opposition. While Tata insists the project is on track, the Amma of Poes garden, aided by desperate for the limelight Ramdoss is opposing the project.

AI ground staff have once again gone on a flash strike, over payment arrears. Looks the carrier needs more than just handholding.

Chinese manufacturing quality is under cloud, after Nokia recalled batteries, Mattel recalled toys.

Struggling Indian financial institution IFCI is looking for a strategic partner to pick up 26% stake. Hope this ends IFCI’s woes.

Reliance plans to open 500 hypermarts and 1000 fresh stores. And some are planned in the communist bastion of West Bengal.

Economy

Fin Min is desperate for money, they just haven’t resorted to begging yet, soon they will get there I guess.

The plans for regional airlines has hit a roadblock, while more discussions are on regarding the new policy.

Bengal wants STPI extended. Being a latecomer, it needs STPI to attract further investments.

Tourism Ministry is using Youtube to promote India.

Ministry allows Cements without BIS nod. Looks like my earlier post on poor quality housing might come true

FM has mooted a gradual approach to rupee convertibility.


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Monday, August 13, 2007

Google: When it Fails

I’m not a big fan of Google, though I immensely benefit from its services. This blog is run on a Google Service, my email is driven by Google, and the feeds of this blog are delivered by a Google owned service (Feedburner).

Google’s entire revenue is generated from one source, namely online ads. Google maintains its predominant position in the online advertising market based on the promise of the wide range of platforms and reach these platforms have. It promises to deliver ads in people’s inbox, social networking site, third party sites apart from search engines. The key to dominating this market is scale and size. But this also has significant risks, as the entire business model of Google is built on this one source of revenue.

In an attempt to de-risk its business, Google launched Google Video, an online video rental store. Recently, Google decided to close down this business. Wilson Ng writes on Google’s recent failure:

When your company becomes successful, ( or even before), there will always be a pressure to diversify - introduce new models, products, and services. No matter how good you are, you will succeed or fail.

How you respond, and work when the product is not as good, which also hits your other brands, will be as crucial to your company’s continued success.(Link)

And over at the Fool:

Google's once-ambitious plan to sell and rent videos through Google Video, a cornerstone of the monetization plan when it launched Google Video last year, is coming to an end.

In a letter sent to previous Google Video shoppers, the world's leading search engine announced that it would stop supporting its platform that gave indie and major studios a digital outlet to sell movies, documentaries, short films, and television shows. (link)


Google should look to de-risk its business and diversify its income if it is to remain successful. It primarily remains a search driven company, unlike Yahoo which is content driven (Yahoo business, News etc) apart from being search driven. Google's inability to diversify raises the question is it just a online advertising firm?


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Evening Wrap - 13/August/2007

Markets

Sensex crossed the crucial 15,000 mark today, lead by a rally HUL, auto and steel stocks. Asian Markets too are on an upswing after central banks pumped in money. But it still looks like a choppy week ahead for the markets as the fundamental worries about subprime lending still remain. Two Goldman Sachs funds underperformed today, and are on life support. And despite the Fed's hand holding, the Dow did fall today.

Motilal Oswal IPO is to open on August 20th. If markets don’t recover, the IPO price might be revised. This though looks more attractive than Puravankara

Corporate Watch

Reliance Money is eying the rural segment. The rural market though presents a huge market, assessing the credit worthiness of borrowers will remain an uphill task as most borrowers might not have stable incomes or derive their income from the unorganised sector.

Acquisition costs have pushed Novelis to report a loss this quarter. This is the problem with leveraged buy outs, if the company bought out cannot pay for the acquisition cost, it poses a serious financial burden on the acquiring firm too.

In a bid to reassure the Americans over the H1B usage, IT firms have increased their overseas hiring. This could also be due to a lack of talent like Infy is facing.

Reliance Mart, the hypermarket arm of Reliance is lapping up real estate space. In this industry being an early mover is an advantage, or else scale is important.

Economy

Shinde says the power sector needs 10.31 lakh crore in the 11th plan. If I might ask, where is the money going to come from? And the sector still being regulated, private investment is still considered risky.

The four southern states have formed a tourism grid to promote tourism in the state. All the three southern states are trying to piggy back on Kerala’s success.

DoT and Defence ministry have locked horns over spectrum fee. If government bodies themselves cannot agree, its unlikely a clear policy will arise in the short term. 3g services will have to wait in India, despite having 3g compatible handsets in the market.


Sensex crossed the crucial 15,000 mark today, lead by a rally HUL, auto and steel stocks. Asian Markets too are on an upswing after central banks pumped in money. But it still looks like a choppy week ahead for the markets as the fundamental worries about subprime lending still remain.

Motilal Oswal IPO is to open on August 20th. If markets don’t recover, the IPO price might be revised. This though looks more attractive than Puravankara

Corporate Watch

Reliance Money is eyeing the rural segment. The rural market though presents a huge market, assessing the credit worthiness of borrowers will remain an uphill task as most borrowers might not have stable incomes or derive their income from the unorganised sector.

Acquisition costs have pushed Novelis to report a loss this quarter. This is the problem with leveraged buy outs, if the company bought out cannot pay for the acquisition cost, it poses a serious financial burden on the acquiring firm too.

In a bid to reassure the Americans over the H1B usage, IT firms have increased their overseas hiring. This could also be due to a lack of talent like Infy is facing.

Reliance Mart, the hypermarket arm of Reliance is lapping up real estate space. In this industry being an early mover is an advantage, or else scale is important.

Economy

Shinde says the power sector needs 10.31 lakh crore in the 11th plan. If I might ask, where is the money going to come from? And the sector still being regulated, private investment is still considered risky.

The four southern states have formed a tourism grid to promote tourism in the state. All the three southern states are trying to piggy back on Kerala’s success.

DoT and Defence ministry have locked horns over spectrum fee. If government bodies themselves cannot agree, its unlikely a clear policy will arise in the short term. 3g services will have to wait in India, despite having 3g compatible handsets in the market.


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Sub-Prime Worries and Sensex

Today two Goldman Sachs funds underperformed due to the global liquidity crunch. For those wondering what this huge fuss is about which is also affecting our beloved Sensex and shattering the Indian investor’s belief that we are insulated from global trends here is a brief explanation.

Over the past few years since the Dotcom bust, interest rates have been low. This means that globally loans have been easy to obtain, and the return on bonds have been low. In search of higher returns to meet their operating expenses, funds have invested in traditionally higher risk investments. These investments were rated as being secure because of the low interest rates. At low interest rates, it was assumed that the borrower could repay the loan.

Due to the low interest rates, banks and mortgage firms lent money to those who had shaky credit records. This debt was then passed onto funds who took them on as collateralised debt obligations (CSOs). Essentially the banks and mortgage firms passed on the risk of default to funds. When the borrowers defaulted, which is expected because they have a bad credit record, there were no buyers for this debt on the market. Due to a lack of buyers, the funds were faced with a liquidity crises, and therefore went bust. This was further augmented by the lack of faith from banks and other financial institutions in lending money to each other. Over the past week the LIBOR rate rose sharply. Leading to a lack of liquidity and central banks having to pump money into the system.

Since the funds in the US went bust, and they had liquidity issues, they liquidated their assets in other markets like Asia. This has lead to the fall of the Sensex over the past week. Over the last one week FIIs have withdrawn close to Rs 6000 crs from the Indian markets. Now central banks are trying to pump in money into the global system to assuage the liquidity crises, hopefully it will be successful, otherwise it might lead to a global recession.

Retail Investors worried by the volatile Sensex should stay put. The movements in the value of their portfolio does not matter, what matters is the value of the portfolio when it needs to be liquidated. If there are no pressing liquidity pressures, then investors should stay put because in the long term, the market will move only northward.

Further Reading: Financial Times, Business Week Economist TOI and Econbrowser (a more academic and technical piece)


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