Play Safe(part-3)

Yet, don't get too bogged down by your family's preferences. There are plenty of father-son combos out there where one deals only in metals and the other only in farm commodities. Basically, you need to remember that those old days of information arbitrage are long over. What with the Net, TV and SMS, everyone knows everything the minute it occurs anywhere in the world. That is both good news and bad. The good news is that there is little likelihood of anyone taking the market for a ride on the back of insider information. The flip side is that there are really very few opportunities left to beat the market and make a quick profit.

Once your list of commodities is ready (I'd suggest keep it to less than 10), you need to get a feel of how volatile they are. Ask your broker. Some, such as guar, pepper, metals and gold, can be highly volatile, with prices moving very sharply and very frequently, others, such as sugar or potatoes are relatively more stable. If you hate a nail-biting finish to every day, then opt for a commodity that is more placid. Of course, even those quiet waters can easily get turbulent. So you can't really afford to relax. Also less, risk means less chance to strike rich. It's a good idea to watch and learn the price behaviour of a market for several weeks or longer before you put on your first trade.

By now your list should have a handful of commodities left. But you need to do one last final check. Make sure there is plenty of liquidity in the commodities of your choice. Otherwise, you will find no buyers when you want to exit the market. That can be quite a quagmire and make profits a distant dream. Again, ask your broker.

The commodity market you wish to trade in should be understandable, affordable, of acceptable risk and popular. As they say, anything that begins badly ends worse. Choosing the right market will keep you safe.

Play Safe(part-2)

Markets vary in affordability. For instance, futures contracts in spices, sugar and grains tend to be relatively affordable, while bullion, energy and metals are more expensive. Generally, two factors make a futures market expensive to trade: the value of the contract and the volatility of the contract. You need to check both.

Find out from your broker what the initial margin requirements are for the commodities you're interested in, as well as the special margin needed to keep your trading position open. Some brokers may require an added cushion as extra insurance. At no point should you stretch your budget to fit in a commodity. Remember Rule Number One? Your budget is cast in stone. You really can't afford to lose any more.

Once you have the list of commodities whose margin requirements you can afford, focus on those that you know or have ways of knowing more. Tap family and friends. If your family has interests in real estate, for instance, then it may be easier for you to track trends in base metals. Similarly, if you know some exporters of spices or grains or coffee, that is your cue. If your cousin works in a tyre company, rubber may be a tad easier to understand.

All these people can alert you to tiny changes in the spot market. Simply focus on the few commodities with which you are confident you have some natural linkage.

Play Safe(part-1)

Play safe: Choose the right commodity market

(Nidhi Nath Sriniwas)

NOW that you have figured out your trading kitty, it's time to decide the market in which you would like to trade. That can be exciting. If someone casually mentions he trades in gold, steel ingots or crude oil and behaves as if he doesn't enjoy watching your eyes widen, he is pretending. The oomph factor is just too much.

But though it is natural to get attracted to commodities you can name drop later, I'd advise caution. A wrong step at this stage may well mean a quick end to your career as a trader. When it comes to finding your favourite commodity markets, choose one that you understand or with which you have some kind of link. That is Rule Number Two.

For some lucky ones the choice is quite easy. Like those irritatingly single-minded kids who knew in class two they would become world-famous heart surgeons or chess wizards, they know exactly which commodities work best for them. Many more consult the family astrologer. Shani has a lot to answer for, as any metal or oil trader would tell you.

But what should you do if "gut feels" and janam patri don't really work for you? Here is the nitty-gritty of making the right choice. First, naturally, is money. Ask your broker to give you a list of the margin money requirements for each of the more than 60 commodities being traded on the online exchanges. Since you know the size of your kitty, you can immediately cross out those which don't fit your budget.

Contrarian Strategy(part-2)

However, a recent study by Citigroup comparing returns from the two strategies – “going with-the-consensus” and “against-the-consensus” - in all Asian markets, excluding Japan, suggests that it pays to go with the latter.

Likening consensus to "a blind guide in a minefield", Citigroup notes that a model portfolio based on consensus in these markets has underperformed the benchmark by 3.9% since June 1995, while the portfolio, which goes against the consensus, has outperformed the benchmark by 21.1%.

Investors in China, Indonesia and Taiwan would have gained from going with the consensus. Countries where investors would have made money by going against consensus include Malaysia, Thailand, Philippines and Singapore.

Indian investors, the report suggests, could have done well, if they had played the contrarian card, which means buy when the general sentiment is weak and vice-versa.

The four-year Bull Run in Indian equities, which has seen some sharp corrections intermittently during the period, has presented some opportunities to go against the consensus. These include the May 2004 crash, when the Sensex fell over 1000 point’s intra-day, after the Left-backed United Progressive Alliance came into the power.

A more recent incident is the sell-off in May 2006, following which the markets rebounded to an all-time high. However, unlike May 2004, the rebound in May 2006 was not broad-based, with the mid-cap segment continuing to lag the blue chips since then.

Contrarian Strategy(part-1)

"Contrarian strategy may not benefit you in current market"

(Nishanth Vasudevan)

History has it those investors who trade against the broad-market consensus - popularly known as contrarian calls have badly their share of fortunes. While perennial optimists maintain that contrarian calls will continue to be in vogue, the broader perception is that this time round it need not hold true.

The confusion is whether the latest fall in the markets presents an opportunity for an investor to take a contrarian call, given that the underlying market conditions have changed. There is consensus that the situation is not as conducive for equity investments as it was earlier, with global interest rates on a rise and the US economy facing a risk of recession and risk appetite of investors dwindling. Indian benchmark indices and broad market indices have fallen roughly 15 % from their peak in February, but still valuations remain at a premium to both emerging market equities and global markets.

Market observers caution investors against adopting the "against the tide" strategy blindly at this stage, especially when there is still some uncertainty over market direction.

Nitin Raheja, Chief Investment Officer of Dawnay Day, feels it would be fool-hardy to adopt the contrarian strategy just for the sake of it, as the market might be sending the correct signals ahead of an event.

Citing an example, he added, "If a particular sector is likely to face margin pressure, the market gets a feel of it much earlier. In this scenario, it would not be wise to go against the market.”

Discount Strategy(part-2)

Mike Watkins, senior manager of retail services at AC Nielsen, says the potential rewards of tempting shoppers with discounting are huge. "Consumers are hooked on promotions”, he says, "On average, about 80% of UK shoppers are looking for price promotions - that's the highest in Europe. Low prices are now expected.”

Retailers across a variety of sectors are becoming more adept at playing within the rules. Some have even employed teams of former Trading Standards officers to advice on the best way to negotiate legislation.

According to one former retail marketer, these teams are intended to help navigate the rules on discounting and build strong relationships with local Trading Standards officers. He also accuses the latter of taking a relaxed approach to enforcement. 'They aren't exactly the most proactive people in the world. If something is outside the strict letter of the law, they won't take much notice,' he says.

One potential problem for retailers is the growing consumer trend to shop around and use aids such as price-comparison sites. Future brand managing director Janice Montgomery says big brands inevitably attract more interest in their business practices, so Tesco's place as one of the UK's most trusted brands will be harder to maintain as customers become savvier. 'If Tesco is (manipulating its prices as claimed), then it needs to be careful' she warns. 'If the press continues to pursue this, it could become an issue.'

The supermarkets may not be able to get away with such practices for much longer, as the Department of Trade and Industry is reviewing the rules. Consumer minister Ian Mc Cartney plans to revamp the pricing code as part of the forthcoming Unfair Commercial Practices Directive, which is due to come into effect at the end of the year.

There are no indications yet as to the changes that could be implemented, nor whether the one-store 28day rule will be altered following the review, which brackets discounting with practices such as prize-draw scams, aggressive door-to-door salesmen and bogus dosing-down sales. However, it is clear that Mc Cartney intends to stamp down on any possible misleading of the public. 'Whether shopping in the high street or online, consumers have a right to be sold to honestly and fairly,' he says. The new protection will make life a lot tougher for the rogues and easier for legitimate businesses to operate’.

Discounting is an essential weapon in any retailer's marketing armoury, appealing to consumers' bargain hunting instinct. But it is not as though super markets are giving anything away -food prices have risen continually over the past two years, according to ACNielsen. As consumers become savvier to the deals they are really getting retailers may be forced to rethink how they lure them in, or risk damaging hard earned trust in their brand.

Discount Strategy(part-1)

Retailers losing trust in cut to fit discount strategy

"The Practice of Raising Prices to Promote Discounts Shortly ¬After Risks Damaging Brand Trust"

(James Quilter)

The old adage about the implausibility of free lunches also applies to supermarket promotions. Shoppers are bombarded with deals from the moment they step into a store but they are unaware of the hidden cost-a situation highlighted last week when retail giant Tesco was accused of doubling the price of fruit before offering it at 50% off for its Fruit & Veg Pledge days later.

On an average shopping trip, discounted goods account for about 25% of purchases, according to AC Nielsen, and on the whole, consumers believe they are receiving a genuine discount.

However, as more exposes run in the mainstream media about the way discounting is achieved; supermarkets run the risk of damaging confidence in their brands as well as their offers.

Tesco denies that it has been artificially raising prices before discounting and insists the majority of the figures quoted in the national press were incorrect. But even if Tesco had been guilty of such misleading practices, it would not have broken any laws. The only legislation on the subject relates to the discounting and sale of non-food, non-perishable goods. And in the case of non-food, retailers such as DFS and Carpet right have to feature the discounted product for 28 days in only one store at the higher price.

The Trading Standards Institute, which polices pricing legislation, says artificial price increases are an integral part of retailing. "If you see a price reduction of 30%, the chances are that it is 30% off the price a store in Edinburgh - and this is done by the bigger, more respectable companies as well as smaller ones, says a spokesman for the body. "The trouble with the current pricing rode is that has not kept pace with new marketing techniques.”

Tesco raised the price of its plums from £1.48 for 500g to £2.99 three days before reducing prices by 50%. However a spokesman insisted the accusation that the store's pricing team worked out its price promotions to keep products at the same price was ‘insulting’. Like rivals Sainsbury's and Asda, it insisted that the same prices run in its main supermarkets across the country.

Simon Hathaway, managing director of retail specialist Saatchi & Saatchi X, says discounting has become part of the business model for many retailers, especially those in the furnishing sector. He believes that much of this is driven by retailers taking advantage of consumers' ignorance of the price of many products. ‘If you asked 20 people the price of a pint of milk, you would get 20 different answers’, he says.

India is both a market & supplier (part-2)

With so many outsourcing partners in India (HCL, Infosys, Xansa and others) do you eventually plan to consolidate or shift it all to a shared service centre?

That is not our choice. We work with whoever our customer wants to work with. Supply side consolidation is an important thing. But I can't imagine that we will ever get to a situation where we have all our eggs in one basket.

Can you tell us about 21CN?

We are investing in 21 Century Network (21 CN). It is a feature-rich software platform that would enable us to build into our proposition. For instance, take data centre consolidation. Lot of our customers want to reduce the number of data centres because they are very expensive. They may have 12 and want to reduce them to two. The company may be headquartered in Texas and the data centres may be in India and Canada.

21 CN network enables them to run their data centres cheaply and effectively but with the same guarantee, resilience, security, backup as they had with 12 data centres. This is all technology-enabled. It is not about being a telecom company but about being an ICT (information, communication, technology) company that leverages our huge investments. From being a dumb pipe, the network becomes an intelligent pipe, facilitating the choices our customers are seeking to make.

Given the mobile explosion, what future do you see for landline phones?

Secure. It is interesting & as we watch the whole digitization revolution, mobile phones will continue to grow in India and China, while in Europe and the US it will be less so as those markets are saturated. We do see a convergence of mobile and fixed line - I am talking about enterprise market. Companies will access information anytime, anywhere on any device that is connected to a landline or a device that is connected to a mobile.

India is both a market & supplier (part-1)

(MAGGY McClellan d)

With over 12,500 staff and about$500 million worth of work off shored, British Telecom is trying to make deeper inroads into India. In November 2006, BT applied/or NLD and ILD licenses, and established 4 JV company, BT Telecom India, with Jubilant Enpro. It recently received a letter of intent from DoT for the services. Shelley Singh met up with Maggy McClellan d, president, strategy & business development, BT Global services, to discuss BT’s strategy in India and the future of the fixed1ine phone. Excerpts of the interview:
What opportunity does BT see in India and what is the strategy to tap it?

The BT Global Services strategy is to become a world leader in the digital networked economy. It means that you can digitize anything. That revolution is being facilitated by convergence around IP technology, the communication protocol for many years. If you add the technology convergence around IP to what is happening around the world in terms of globalisation, customers then seek to exploit those benefits around globalisation. And that's where regions in Asia Pacific, particularly India and China contribute.

In the past, customers have placed their processes and run them from close to where they were located. But now, as organisations seek to relocate more of their processes, their business model potentially becomes fragmented. How do you glue your business model back together so that you can talk to your customers, employees, suppliers and others? That's really what we do. We enable globalisation and we enable our customers to take advantages of g1obalisation.

That has been happening for a while the digital networked economy. At what stage are we on this?

I think we are at a very early stage. I read a research paper and it was talking about how prepared MNCs are in terms of exploiting g1oba1isation and actually it was quite scary that we are probably just beginning to start.

What has been BT’s own experience?

This is where India comes in as a supplier. We actually look at it in two ways- India as both a market and a supplier. We have a substantial track record in utilising Indian capabilities. In total we have 12,500 people in India supporting our business. (BT outsourcing to India is to the tune of $500 million.) We are utilising resources in India. Subsequently, resources in the UK are freed up to work on customer billable tasks. So internally, our IT is increasingly being supported out of India. We have re-purposed (retrained and deployed) in excess of 2,500 internal IT resources in the UK into customer-facing activities and this has helped us reduce the number of contractors.

C2C hits value bang on target (part-2)

Despite brand managers being buoyant about the advent of yet another media for connecting with end consumers, India’s internet numbers may not present a rosy picture for mass market products. According to the Internet and Mobile Association of India (IAMAI), India had nearly 37 million internet users till the latest count, which is still considered a small number for brands to sash in on marketing through the Net. Out of the 37 million a mere 14% of the netizens are active bloggers. Also, in a market like India, being on-line does not necessarily equate with blogging or accessing community websites. The IAMAI says that nearly 45% of the internet users primarily access the internet for using e-mails. While in the macro picture for Asia, 40- 50% of internet time is spent on instant messaging and e-mailing, says an Indiatimes spokesperson.

"The numbers game works both ways. On one hand, such type of online advertising can only release its true potential in India, when the country’s internet population reaches a critical mass. At the same time, blogs and community websites run by brands are a way to attract more internet users and improve the numbers in cyberspace and in turn improve the marketing prospects on such channels.”

While India is still getting its act together for such a move, globally such marketing strategies have already crept into marketing mix of various companies consider this. By the start of 2007, it is estimated that nearly $ 280 million will have been spent on advertising and marketing on social network sites in the US alone. The total marketing spend on social media is forecast to grow at a CAGR OF 106.1% FROM 2005 TO 2010, reaching $ 757 million by 2010, says a research report from PQ Media. Online advertising via blogs and social networking websites has garnered huge support in developed markets. However, not all brand promotions on the web seem to have worked very well for brands like Levis, Harley Davidson and GM, the same may not be true for Wal Mart’s efforts towards driving a community- driven pull. Explains marketing consultant Harish Bijoor: “Such type branding activity works better for single product brands, rather than multi-product brand names.”

C2C hits value bang on target (part-1)

(Ritwik Donde)

In the beginning it was B2B. Then B2C came. Today it's the day and age of C2C branding. Brands now are gradually starting to make a foray into the world-wide web, as blogs and community web sites are catching the attention of Indian marketers.

Be it Cadbury's Meethamoments.com, HLL Sunsi1k's Gangofgirls.com or Pepsi's The Blue Billion. Brand marketers have morphed their efforts to weave branding element in consumers' e-lives. User-generated content is changing the advertising and marketing paradigms. Says Cadbury India director marketing Sanjay Purohit: "The digi-media is clearly evolving as a critical touch point to reach, inform and influence consumers. And it would be a wise long-term e-strategy to optimise such a medium in terms of its direct impact on the actual purchase behaviour.

The target audience is clearly the youth under 30 years: an average age of population generally found at such websites; Although the initial rumblings for such a new kind of marketing are seen mainly in FMCG space, market watchers say that it is only time before there the cascading effect is seen towards other sectors such as automotive, lifestyle products and-may be, even the art markets. However, in the present scenario, brands are looking at web portals for value addition to the traditional means of advertising and marketing than seeking volumes growth from marketing through such alternative means. "Take the Blue Billion community for example, ”explains Pepsi's executive director-marketing Punita Lal, while such sites act to create a consumer pull towards the brand, other media then are used to publicise their existence to the consumers. They would never replace the tradition advertising media but helping getting a large addressable less than one root.”

India among top emerging markets, but fails tech test

India ranks among the best performing market in the universe of emerging markets. But when it comes to the use of technology in active fund management, we are a few notches down.
According to experts in the financial technologies sector, countries in the Asia-Pacific region, other than India, have been more receptive to new technologies in fund management. Wealth management companies in these countries are exposed to newer integrated offerings covering all aspects of client management, ranging from client acquisition and due diligence to customer -relationship management including profiling, portfolio management, performance measurement, threat simulation and risk probability and reporting.

However, asset management companies in India use statistical projections (derived using simple fund models) while deciding on fund allocations and return forecasting. Many AMC's are now adopting simple portfolio- modeling methods to" post 'What-if' queries, pick incremental risk measurements (such as var and beta) and computation of portfolio levels.

In India, the advancement has been clearly in internal analytics, which supports the decision-making process, “said MS Chandrshekhar, global head - mutual fund practice, 31 Infotech.

Developed countries have gone a bit further extending automation on their part to 'finding the right market’ to park their money, he said.

“This can be attributed to the increase and growth in alternate markets, electronic communication networks (ECNs) and so on. Technology has been adapted to route orders generated at buy-side shops to the right market with execution efficiency or price efficiency,” Mr. Chandrashekhar added.

Increased competition among AMCs is forcing firms to be more competitive in the services they offer. "We use a plethora of portfolio analytical tools (also called 'Factsets') while deciding on fund allocations. As far as mutual fund industry is concerned, we are pretty in line with global standards,” said Mihir Vora, senior vice-president, HSBC Asset Management (India). Echoing Mr. Vora's opinion, Bharat Shah, head-portfolio management service, ASK Raymond James, said. "We have our own set of software and tools to help in our wealth management decisions. Data management and analysis takes precedence in all matters pertaining to our use of technology in fund management”.

The' AMCs, however, do not use quantitative models “as they are largely used by hedge funds" quantitative models grind a lot of data as they aim to capture as many signals as possible, substantially from the prices of under-lying funds. They tend to generate portfolios that translate these prices in indication of asset allocation. Therefore, these models operate with a large quantity funds in order to offer a wide diversification. “Indian securities market allocates only a minuscule portion of their earnings on technological upgradation. This allocation is very less when compared to other markets (the US spent about 20% of their revenue on technology upgradation on an annual basis),” said Jignesh Shah, managing director, Financial Technologies.