GalaTime

Morgan Stanley: SOE Divestment Policy: Missing the Big Picture?

Our very broad estimate indicates that the total market value of government companies (including unlisted companies) is US$406 billion. The market value of 55 listed public sector companies is US$281 billion. The average government stake in these companies (listed) is 80%, and hence the government’s stake in these listed companies is worth US$224 billion.

We expect the government to collect proceeds of about US$4-5 billion by March 2010, which will be much larger than the amount collected in recent years.

The total workforce employed in quasi-government entities (including public sector undertakings) of the central government (excluding those working directly in administrative machinery) is 5.9 million, just 1.4% of the total workforce.We believe that the key policymakers in the new government appreciate the urgent need for investment in infrastructure but are strapped for funds, with the current national fiscal deficit of about 11.8% of GDP as of F2009. We believe that the government could easily provide for additional infrastructure funding of at least US$15-20 billion (1.2-1.6% of GDP) per annum for the next three to four years through divestment. Indeed, we believe that the private sector (including foreign investors) would be likely to invest a matching amount in manufacturing in response to these infrastructure investments.

The median age of the Indian population is currently 23.7 years, one of the lowest among large nations. India is likely to add 141 million to its current working age population of 750 million by 2018, according to estimates by the United Nations.

Themis Trading: Toxic Equity Trading Order Flow on Wall Street

What Is The Effect of All This Toxic Trading?

1. Volume has exploded, particularly in NYSE stocks. But you can’t look at NYSE volume on the NYSE. The NYSE only executes 25% of the volume in NYSE stocks … traders Magazine estimates high frequency traders may account for more than half the volume on all U.S. market centers.

2. The number of quote changes has exploded. The reason is high frequency traders searching for hidden liquidity … this has significantly raised the bar for all firms on Wall Street to invest in the computers, storage and routing to handle all the message traffic.

3. NYSE specialists no longer provide price stability. With the advent NYSE Hybrid, specialist market share has dropped from 80% to 25%.

4. Volatility has skyrocketed. The markets’ average daily price swing year to date is about 4% versus 1% last year.

5. High frequency trading strategies have become a stealth tax on retail and institutional investors. While stock prices will probably go where they would have gone anyway, toxic trading takes money from real investors and gives it to the high frequency trader who has the best computer. The exchanges, ECNs and high frequency traders are slowly bleeding investors, causing their transaction costs to rise, and the investors don’t even know it.

Excellent read. And the controversy around intellectual property related to quant funds continues: The Cold War in high frequency trading turns hot

Many Niches: The VC Model, The Funded, and The Problem With Associates

The trouble isn’t so much that the associates don’t know what actually constitutes a good business, it’s that they believe that they are uniquely qualified to make that determination.  Further, they actually believe that their few years of business school entitles them to an opinion as to whether or not a leadership team is going to get the job done.  This is particularly pronounced and troubling when the management team has 20+ years of experience, but the associate doesn’t think is “cool.”  If the associate doesn’t like you, you don’t get through them as a gate keeper.

 

When working to raise venture money, your path to meeting with the partnership must and will run through the associates.  They are primarily concerned with their ability to remain employed, which means minimizing their risk.  They are not going to push hard for anything, for that would entail taking on risk.  They don’t score points for being risky, and they certainly don’t score points for pushing for a deal which doesn’t get done.  They score points by not wasting the partners’ time, and showing the partner what the partner thinks they want to see.  As such, they are even more risk averse than the partners will seem.

Sad but very true. Beware the rookie associate who asks for your b-plan!

As for their future:

There will be a great number of unskilled (except in the art of “doing deals”) blue shirt and khaki pant wearing MBAs walking around Silicon Valley looking for biz dev jobs.

MediaNama: Rediff CEO Ajit Balakrishnan On 3G Licensing, VCs In India, Indic Languages, Broadband, E-Commerce

“At around 50 million users you’ll come across the language barriers. What do we need to do? We need some policy initiatives, we need linguisting tools, voice to text needs to be funded by someone. These things take money. A grant of 4-5 crores (from the government).The present view is - let Google do it, Yahoo do it, Rediff do it, but it’s the wrong approach. Tech and tools need to be freely available. If one or two people do it, it doesnt become an industry. The Ministry of IT has an Annual Budget of Rs. 1000 crores.”

The increasing popularity of Quillpad, Lipikaar, Google Transliterator, etc. should help.

“With mobile commerce, the challenge is margins. If the operator keeps 50%, no point. We need a payment system where the margin is no more than 1-3%.”

Not likely to happen until the big operators stop growing (in terms of subscriber / ARPU) at a double-digit pace and start looking for other revenue streams.

“When the IAMAI had initially approach the government for assistance related to broadband, they found they had shot themselves in the foot. Balakrishnan explained: “A part of the reason why the Government support did not happen is that the IAMAI focused on stating bigger and bigger user numbers. They quoted 50 million, when the base was 10. Most of members of IAMAI committee were youngsters looking to raise capital, so larger numbers helped them. When we went to the government, they said - what’s the problem? (i.e. you have a large base anyway).”

Ah yes, the need to show a large and fast growing market (the J curve / hockey stick) while pitching to VCs. Been there, done that. :)

“What we miss are the Angel investors, who will come and give you 10-20 lakhs. I know there are some who do that, but you need some 5,000-10,000 from them. What’s missing is a provision in Indian Income Tax act, which allows you to write off angel investments.”

Amen! Couldn’t have said it better.

Early-stage (seed) funding is where the biggest gap - and opportunity - is. At Venture Center, we are doing something about this. But unless the GoI pushes reforms in this space (eg. favorable tax treatment for angels/VCs setup as LLPs), the 10L-1crore funding scene will remain stagnant.

Via Alea, Small Lessons from a Big Crisis, Andrew G Haldane, BofE

During the golden era, competition simultaneously drove down returns on assets and drove up target returns on equity. Caught in this cross-fire, higher leverage became banks’ only means of keeping up with the Jones’s. Management resorted to the roulette wheel.

. . . when evaluating banks and their management, there is a need for greater focus on returns on assets rather than on equity. Good luck and good management need to be better distinguished. Put differently, returns to investors and managers need to be more accurately risk-adjusted if the right balance between risk and return is to be struck for individual firms and for the financial system as a whole. Second, there is a need to place much stricter system-wide limits on leverage.

Via Paul Kedrosky, Aguanomics: How Drought Promotes Entrepreneurship

… it is unmistakable that the most drought prone states, like Rajasthan and Gujarat, produce by far the most Capitalists while the well watered states like Kerala and West Bengal produce the most Communists. [Kerala and West Bengal have regularly voted Communist for at least the last 20 years and are the only states in India to have done so.] What is even more remarkable is that it is the rainfall/drought variable that appears to dominate regardless of variation in religion, ethnic group, or differential exposure to foreign trade or colonialism.

… ethnic Chinese arriving in tropical rainforests from colder, drier, more seasonally affected regions of China had a cultural advantage over their tropical counterparts when it came to saving, investing and other entrepreneurial activities. If “every cloud has a silver lining”, maybe occasional droughts have a silver lining as well.

Interesting take. Not quite tested on a statistical basis. But it’s easy to relate to, especially for me - I’m from Kutch, the driest part of Gujarat, and growing up it was obvious that entrepreneurship was a the way of life in the community, and getting a job meant something was wrong with you!

Mauldin @ Investors Insight:  A Tale of Two Depressions

… globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimise this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.

That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline. We therefore turn to the policy response.