Entities with short term perspective will get wiped out

In the Chinese calendar, 2008 is known as the year of Rat. In India, Rat is associated with Lord Ganesha, who is widely revered as the remover of obstacles. If the commodity futures market needs anything - it is the removal of obstacles of growth. This year will probably witness a large number of removals of structural impediments by the existing sectoral order and overall structural business adjustments rather than any drastic policy change by the govt.

Demand for commodities from emerging economies is incredibly strong and incredibly resilient, given the high prices. Given the limited growth in supply across most markets crude, gold and grains prices will still have to increase substantially from the current levels to slow down the healthy demand growth from emerging countries.

On the corporate side, commodities price momentum will spur mergers and acquisitions, like the one seen in case of BHP-Rio Tinto. The logic is to focus output in fewer hands to instill market discipline and protect prices.

The trend is fuelled also by the rise of new competitors form previously unknown geographies. Their ambition, cash flow and concentrated ownership means consolidation is unlikely to happen cheaply. There is a saying “Bulls will make money, Bears will make money but Pigs will get killed”. Entities with short term perspective and without backward and forward integration will get wiped out from this market.

International commodity exchanges during the last two years had witnessed a large number of mergers. While domestically we can not rule out similar mergers in years to come, it is important that the focus shifts form hype to the issues of exchange governance. It is also hoped that exchanges will come out with the clearing houses which is so prominently missing in the operating structure.

STT will continue to hang like sword of Damocles on Commodity Futures business. Abhijit Sen Committee report may perhaps see the light of the day unlike FCRA Amendments which may not get tabled in 2008 in Parliament.

At the national level the lack of institutional capacity to think coherently about food and energy security will lead to high cost import dependence. The inability to monitor, manage and report the demand effect of the growing economy will keep the economy highly vulnerable to price shocks.

Commodities have historically displayed a low correlation with other types of assets. While sectoral diversification is a plus, commodities remain...

Published in The Financial Express on 30 Dec, 2007

Beat the burnout blues

Amit Mukherjee (C) Business Today


December 12, 2007

Raghav Jutshi, 31, a collection and recovery executive in a leading mobile service provider, was catching up on the day’s events with his wife around midnight. He had had a long day at work that ended around 10 in the evening.

Just then, the mobile on the side table beeped. “So what’s your target for tomorrow?”—read the message from his boss. A sense of unrest immediately set on him.

He forgot what he was discussing with his wife.

Wide awake, all that he could think of was the number of collections he would execute the next morning and how much he would amass for his firm’s kitty.

Jutshi’s is not an isolated case. Corporate stress in the form of tough deadlines and impossible targets is taking a widespread toll on executives across the industries, especially in the high-growth sectors. 

Psychologists define it as burnout— a chronic condition that happens when the body or the mind can no longer cope with overwhelmingly high demands.

“This growth has resulted in riches; but has brought about psychosomatic disorders and early mental and physiological burnout of individuals, sometimes even before they have touched 40,” says Dr Aruna Broota, well-known clinical psychologist at the Dept. of Psychology, Delhi University.

Most companies, especially those in the fast growing sectors, acknowledge that employees are, indeed, stretched. “Considering that the need to grow to a global scale has struck us late; many of us are working overtime to make up for the lost years,” reasons Manoj Kohli, President & CEO, Bharti Airtel, India’s largest and fastest growing telecom giant.

Many of the present generation of executives who want to see India shine are working really hard despite burnout threats, Kohli adds.

So, how big is the burnout risk for India Inc’s young, restless and stressed workforce? Enormous, if corporate psychologists are to be believed. It’s a vicious circle that the employees are stuck in. “The jobs are paying well but, drain individuals physically or emotionally,” says Dr Broota.

If this situation continues for years, months, or in some cases for weeks, a person may finally reach the breaking point and fall victim to the burnout syndrome. 

To make matters worse, there seems no way of avoiding this stress. “India is in a time zone where we cater to markets both in the East (Singapore and Hong Kong) and in the West (Europe and the US).

That’s why the pressure is high and more work hours are required,” says Shyamal Gupta, Head (Institutional Business), Kotak Commodities.

It’s Catching’em Young

Workplace burnout is increasingly affecting the young workforce. Dr Suman Bhandari, Senior Cardiologist at the Escorts Heart Institute in Delhi, says about 25 to 30 per cent of heart ailments are among executives younger than 40.

“This has clearly to do with excessive stress and inability to cope with the present work culture,” he asserts.

Diseases like spondylosis, abdominal disorders, pain in heels (these are the symptoms of burnout as well. See Burnout alarms on top) are common disorders in the 25-40 age group.

Some companies have already woken up to the enormity of the crisis.

Software major Infosys Technologies has a 24-hour hotline connecting its employees to psychiatrists. But, stress and burnout are not limited to just the IT sector.

Long hours of work and immense pressure to produce results are ubiquitous across industries. Add erratic lifestyles and irregular eating habits; and there is a generation of physiological burnouts facing India Inc.

Work-life ImbalanceThe phenomenon is primarily due to the lack of work-life balance, say psychologists. “Unlike westerners, who work five days a week and relax and enjoy life in various ways on weekends, most of us do not have hobbies such as trekking, hiking or even music,” explains Dr Bhandari. Such activities are great stress-busters.

The problem has acquired a serious dimension as it is not being dealt with appropriately at the HR level, says Dr Broota. “Given the current scenario, interventions to ensure congenial working conditions should actually come from the HR departments of companies,” she says, recalling an instance where an executive of a mobile services company sought her counselling as office stress literally pushed him to his limits. Lifestyle intervention and stress management should be made mandatory for companies in India, says Dr Broota who conducts “three workshops every two days” on burnout-related issues for these companies.

The culprit sectors, according to her, are: IT, telecom, retail, and asset management.

Is There a Choice?

That’s a tough question to answer for both the companies and their executives. For executives, there is personal ambition as well as professional compulsions to meet targets. “If you don’t perform, there are plenty of others wanting to replace you,” says Gupta of Kotak Commodities.

However, Raghu Pillai, President and Chief Executive, Reliance Retail, adds a new dimension to the excessive workload scenario. “Everyone in India really needs to work hard so that the next generations can enjoy the country’s success some years down the line.”

He agrees that some balance between work and relaxation is required but says, India cannot afford to have an easy work culture yet. “The developed nations are way ahead of us. Maybe the next generations can emulate them when things here are better,” he says.

Some, however, insist that burnout can hurt the high growth ambitions that are the very cause of this phenomenon. “Whether it’s the pressure of dealing with tight budgets or preparing for the next board meeting, executive stress does have a negative impact on your performance, decisions and even the company’s finance,” asserts Koustav Dhar, President, MDLR Airlines.

Dr Broota’s remedy: A change in the corporate mindset and work culture. Till that happens, India Inc’s tryst with burnout will continue.

Wanted: Energy managers

India Inc is realising that energy availability and its cost play a significant role in profitability. Hence, the urgent need to manage energy effectively. That’s the reason companies across industries are in hiring mode for energy managers. Explains Malavika Desai, CEO, RCG, a leading recruitment firm: “Take, for instance, the textile industry.

The share of energy cost in the total manufacturing cost in spinning mills works out to around 14 per cent per unit of production. It’s even higher in some other industries and every rupee saved in energy costs will go straight to the bottom line. Therefore, there is a great demand for trained energy managers.” The job of an energy manager involves planning, developing, and managing energy utilitisation programme. This includes assessing the energy use and devising the energy-saving methods.

All that glitters is not gold

Aman Dhall & Dheeraj Tiwari  (c)The Economic Times

4 Nov, 2007

The glitter of gold may not be the same this festive season with prices of the precious metal reaching an all  time high. But amidst this volatility in the international markets, the latest option of investment in gold through futures and exchange traded funds (ETFs) is wooing a new set of investors. Here’s an insight into why you should prefer investment in futures and ETFs over gold. 

Shining Instruments

So how does the mechanism of ETFs works? For starters, these funds are traded on stock exhange much the same as a regular stock does. “ETFs are essentially passively managed funds. If you buy a Gold ETF there is no real fund management involved and your invested money is simply used to buy the underlying commodity,” explains Jayant Manglik, head, commodity business, Religare Commodities, a Ranbaxy promoter group company.

Compared to buying the physical commodity, ETFs allow you to buy ‘units’. So you can invest in small amounts. There is also no entry load (except the brokerage) and zero or minimal fund management charges because it’s a passively managed fund. “Expense ratios are typically lesser. Eventually, investors in India too will benefit once the liquidity improves and more people take to ETFs. Besides, no one is ‘pushing’ the price,” says Manglik.

Precious Metal

Demat delivery (just like in equity) does away with the requirement of keeping the commodity in physical form, thereby making security a non-issue. Compared to the sharp increases in the prices of precious metals in previous years, the cost of demat is minimal.

Experts believe that futures have several advantages over ETFs in terms of leveraged positions and small margins, which effectively allows the investor to ‘buy’ the same amount of gold at a lesser ‘price’. “Rather than being a passive investor, it is better to buy through futures that allow you to take benefits of a fall in market prices as against ETFs, which are ‘long-only’ funds,” feels Shyamal Gupta, head, institutional Business at Kotak Commodity.

Delivery Route

Industry players believe taking delivery through futures is beneficial for people who want to buy to meet social compulsions. “One big advantage is that only the best hallmarked gold bars in the country are given as delivery by the exchanges like MCX and NCDEX and so purity is guaranteed,” says Manglik. But taking demat delivery has its own disadvantages. When the price goes against your position (price falls after you have bought) then you have to give the difference (known as MTM or marked to market) immediately to the broker. So, it’s advisable for those who don’t understand the dynamics of how the commodity market works to avoid buying through futures. There have been many cases in the past where individuals lost huge amount of money because of indulging in sheer speculation.

Diversify to balance

Experts recommend that you should hedge your risk by diversifying the portfolio. “It’s always a good ploy to invest in different financial instruments. So even if you are investing in gold futures or ETFs, it is always recommended to invest some part of your portfolio in other options to mitigate the risk,” says Vikas Vasal, partner, KPMG India, a renowned global consulting firm. Experts feel that gold, as a portfolio and risk diversifier, cannot be replaced. That’s primarily one of the reasons that today also all the major investors worldwide have 3 – 15% of their portfolio in gold.

Gold Talk

An ounce of gold has reached $800 for the first time since 1980. There is a perception among the people that the prices are running up due to festive season, but that’s not true. International factors like a weak US dollar and high crude prices have been the dominant reasons for price increases in recent months. Though experts widely accept that there’s no right time for investing in gold, some feel that as long as US economy is perceived weak and therefore the US$ is weak against other currencies and crude prices are high, gold will be seen as a hedge against crude-led inflation.

“The international geo-political situation remains tense. Asian countries such as India and China have fast increasing demand, and it’s unlikely that the prices will come down in the near term. Apart from demand being more than supply, a combination of above factors will ensure firm prices in the foreseeable future,” believes Manglik.

But Gupta has other thoughts. “Based on the fundamental and technical analysis, in the long run, say over a period of two years, gold prices are likely to come down,” he says.  

FMC lowers penalty for failing to keep delivery vow

Mumbai (c) The Economic Times 
05 Oct, 2007
Commodity market regulator Forward Markets Commission (FMC) has decided to lower the penalty for failing to meet delivery obligation on futures contract.
A high penalty was distorting the trading on the last date when contracts mature. The penalty structure encouraged buyers to remain in position, hoping that delivery will not take place which would would force the seller to sell at a loss.

On the day of maturity, the spot and futures price should ideally converge but this was not happening in some of the commodities.

The penalty has been brought down to half at 2.5%, in addition to the difference between the final settlement price and the spot price prevailing on the last day of the expired contract, if the said spot price was higher than final settlement price, an NCDEX circular said.

NCDEX chief business officer Shrikant Subbarayan said the penalty was distorting the price discovery mechanism and this was pointed out by the hedgers and other participants in the market.

Navneet Damani of Anand Rathi said the buyers will not be willing to hold their position with the revised penalty and this caused liquidation of some of the long positions in the market.

Prices of chilli were impacted the most, hitting a lower circuit. The price should have dropped earlier due to good physical stocks. Other agri commodities that fell on NCDEX were chana, guar seed, pepper, turmeric, mustard while jeera and soy oil were flat and soybean closed higher. On MCX jute, potato and mentha oil slipped.

Even a rising rupee weakened sentiments on some of the commodities, feels research analyst Badruddin from Angel Commodities. "Despite soya oil and crude palm oil prices moving up in the international markets, the prices on NCDEX are subdued because of the strengthening rupee," he said.

He, however, added that soya bean is strong with a good export demand for soya meal, which is still profitable despite appreciating rupee. Out of the commodities traded on the exchanges, India imports pulses and edible oil while exports spices, guar gum, mentha oil. However, Shyamal Gupta from Kotak Commodity Services feels that agri commodities have not been impacted with the rising rupee as they are driven more by fundamentals.

The local currency has further gained to close at 39.49 a dollar against its previous close at 39.58. It’s up 11% since the beginning of the year.

Need to push policy reforms in agriculture

In the last 60 years, India had made sustained progress towards improvement in the quality of life of the people in general. However, it is disappointing to note that the progress on the social front continued to be slack inspite of increased government spending. Hence, there is a greater need to spearhead the policy reforms especially those that will have a greater impact on rural India and upliftment of farming community as they form more than 60 percent of the total workforce.

One of immediate challenges for the country include bringing reforming the agricultural sector to pull it out from the current stagnancy in production and productivity and bring it on to a high growth path and delivering its benefits to the consumers as well. While the input and input delivery side is being effectively reformed on public and public-private participation mode, states will have to speed up reforms of APMC act that would allow electronic spot markets to operate and bring in the much needed transparency and integration of today’s fragmented markets to bring in marketing efficiency. Forward Contracts Regulation Act (FCRA) bill should be passed at the earliest in Parliament to autonomy to the regulatory body (FMC), allow more products and participants on the platform thereby further strengthen the futures trading to effectively perform its twin functions of price discovery and providing a hedging platform. Allowing banks, FII’s and mutual funds is likely to bring-in the required institutional expertise in to the markets that would refine its price discovery process and spread its benefits among masses and simultaneously enable large corporate hedgers to hedge their risk with equally large counterparty with large financial muscle to bear the risk. Further, allowing FIIs to invest in commodity exchanges would help infusion of global best practices besides providing the required financial impetus to accomplish its social goals.

Immediate passing of the amendments to the Warehouse Development and Regulation Bill would more likely bring in sea change in how goods are stored, transacted and monetized in the near future much to the improvement in their marketing efficiency. In all, if the country were to grow further, and shift disguised unemployed, workforce to alternative rural employment opportunity then commodities market have the potential of providing a supply chain which can absorb large rural workforce in their neighborhood. it will also ensure that the benefits of growth shall be equitably delivered to the rural areas and those in the lower income groups, which is by empowering them and providing them with efficient choices in their lives i.e. in what they produce and in what they consume.

Published in The Financial Express 15 Aug, 2007

Celestial Lucre

Celestial Lucre by Amit Mukherjee LINK

When Manoj Jain, a Hyderabad-based bulk bullion dealer, frantically called up Anurag Tripathi, a Mumbai-based commodity analyst on a hot June morning, the question was the usual "Should I buy silver?", as the prices seemed to be showing an upward turn after a flat run. Tripathi warned him not to touch the white metal. "It's likely to show a dip in the next two days. I think you should wait for some more time," he advised. Nothing unusual in that apart from the fact that Tripathi's reasoning was based not on the usual parameters of technical price analysis, global demand and supply, and fluctuations; but on planetary calculations. His advice to Jain: "Venus is sitting in Cancer at the moment. As a result, prices will continue to slip or remain flat. It's worthwhile to wait for a more opportune moment." Yes, believe it or not, investors and traders actually sometimes suspend their faith in fundamental and technical analysis and put their money where the stars dictate. Sceptics and rationalists will frown at this logic, but Jain followed the advice and did not buy the white metal. Tripathi's is the last word for Jain, whose family has been tracking stars for trade-related advice for more than four generations. Explains Tripathi: "Silver is usually under the influence of Venus and has a moon sign of Cancer. Since Venus is a soft and kind planet, when it passes through Cancer, which is the zodiac of silver, it has a soothing effect on the metal. The impact of a tender planet on a metal usually translates into a fall in its price." Tripathi and others of his ilk have a sizeable following among commodity traders. "If Venus cruises through a harsh zodiac like Leo, there will be a bullish effect on the metal and prices will shoot up in the short term. Also, if Venus along with Sun passes through Cancer, it will have the same effect," says Tripathi, who predicts commodity fluctuations on an hourly basis on celestial combinations. Jain says that the planets have seldom let him down. "Predictions based on planetary movements have proved accurate about 80 per cent of the time," he says. And his is not a one-off phenomenon. Says Shyamal Gupta, Head (Institutional Business), Kotak Commodities: "Though most people will not admit it, a large number of market players do refer to astrological calculations and quietly rely on them." Gupta, who was earlier with the Multi Commodity Exchange (MCX) as Senior VP (Product Knowledge Mangement and Institutional Business), asserts his faith in planets saying: "Often, such reports are contrary to mainstream market trends based on technical projections. There have been instances when planetary calculations have helped investors make a fortune when the markets appeared to be in a bear grip." Some institutions also seem to have jumped onto this celestial bandwagon, though not overtly. Tripathi, who is an analyst with the National Spot Exchange, bagged the post primarily on the basis of his ability to gauge the effects of Saturn, Sun, Venus and other stars on commodities. Here's how it works Tripathi calls his methodology "astrological projection theory", which, he claims, enables him to read the future direction of commodity prices. "The market trend indications under this method are based on a series of mathematical calculations, which are integrated with other market principles of analysis in a structured format," he explains. The planetary positions are calculated meticulously and are matched with historical trends. But sceptics also abound. Atul Shah, Head (Commodities), Emkay Commotrade, says most astrological predictions are inaccurate. "It's pure chance when predictions work in someone's favour." Shah analyses commodities based on factors like demand and supply in the US markets, us Federal rates, the manufacturing index and unemployment data, among others, though sometimes, he does rely on nature for his predictions. "For commodities like petro-products, predictions are made after taking into account occurrence of calamities such as hurricanes, which affect production at refineries and transportation." Having said that, Shah, however, qualifies his apparent lack of faith, saying: "Astrological predictions can be scientific in nature but I doubt if today's astrologers are good enough to decipher celestial messages." Ashok Goel, a stocks and commodities advisor and owner of Delhi-based Goel Capital, also hedges his bets. "The immediate movements projected by these astrologers are good, but long positioning moves based on these predictions often fail. Sometimes when the two projections-astrological and technical-show some sort of congruence, I have relied on the astro-projections for a kill." But he is quick to add: "You cannot completely rely on them." Semi-sceptics like Shah and Goel get a riposte from the serene ghats of the Ganga in Benaras. Chanrama Pandey, Head (Astrology Department), Benaras Hindu University, asserts: "Astrology is a vast science that involves physics, mathematics and biochemistry. It's true that very few people have in-depth knowledge of astrology, but that does not make the subject a hoax." Explaining the influence of planets with the theory of resonance, Pandey says: "There are certain basic elements which are present in all commodities, substances, planets and life forms in the universe. All the objects have particular frequencies that cause them to resonate under the magnetic flux and radiation of various planets depending on the planets' positions." This has a beneficial or a malefic effect on all commodities and life forms on earth. "Astrology has always been a guiding force for the Rs 15,000-crore a day commodities market. The panchangs (almanacs) published by a host of small publishing houses have been guiding businesses in India for years," says Gupta. The annual turnover of the panchang market is about Rs 5 crore, according to market players. "Our calendars have been in demand since the 60s and today, across India, we sell almost 10 lakh copies of our calendar, which comes out twice a year," says Anand Agarwal, owner of the Benaras-based publishing group Savitri Thakur, which comes out with the famous Thakur Prasad Panchang and Chinta Haran Jantri. "The calendars are not highly priced but the volumes are reasonably good," says Agarwal. Rationalists, however, dismiss this phenomenon as so much more mumbo jumbo. Says Prabir Ghosh, General Secretary, Science and Rationalists' Association of India: "Astrology and the astrologers are a complete hoax. How can stars alter anything? In the greater interest of society, this profession should be declared illegal." But that is unlikely to shake the deep-rooted belief in the powers of the stars which has been ingrained in the psyche of many Indians over several millennia. By the looks of it, the Indian commodities market will continue to shimmer under the guidance of the heavens. Published in Business Today

https://docs.google.com/fileview?id=0B4ixl5sNnqklYjA1MWJiMTktOTQxMi00ZTc2LTg2MWMtODVjZmE3MjQ0YmNk&hl=en

Weather derivatives could be a reality

Mumbai (C) The Financial Express

It’s that time of year to take out your pani patras and wager on the rain gods. And with commodity exchanges and traders betting on the weather, it is expected that a full-fledged weather derivative market could develop in India in the next few years. Indeed, commodity exchanges MCX and NCDEX have even asked outside agencies to look into formulating a mature, rain-based index.

In 2005-06, NCDEX launched the first rain index on the rationale that it could help fund managers hedge against the weather. The global weather derivative market is estimated at $12 billion, according to Pricewaterhouse Coopers.

While there is no trading on the weather in India yet, the rain index helps organisations understand monsoon trends and patterns. “As far as weather derivatives are concerned, these are at a nascent stage in India,” says Amar Singh, head, Angel Broking.

However, Shyamal Gupta, head of institutional business, Kotak Commodity Services Ltd, feels that a good rain index in India is still five to ten years away. “For a single, country-wide index, a lot of parameters would have to be taken into account. The weather department will also be have to be strategically involved,” added Gupta.

The world’s first exchange-traded weather derivative began on September 22, 1999, at the Chicago Mercantile Exchange

Coffee Launch on MCX Futures Platform

MCX Coffee Futures Launch 29 Jan 2007,
 (R to L) Lamon Rutten (JMD, MCX), GVK Rau IAS  (Chairman Coffee Board), Joseph Massey (DMD, MCX) and  Shyamal Gupta (Senior Vice President  MCX) 

Microsoft Vista Launch at INS Vikrant