iPhone 3Gs Makes a Late Entry

Indian telecom service providers don't subsidise IPhone, with fickle Indian consumer merrily switching between service providers and using multiple SIMs at the same time.  Number of subscribers in Delhi now exceeds its population and Samsung is aggressively advertising its dual-SIM phone.

Last week, both Airtel and Vodafone launched iPhone 3Gs in India - months after global launch and few months ahead of new version from Apple.  That made me wonder if Apple is on the right track in its India strategy. IPhone is no where close to a cult phone in India and Samsung, LG and Nokia are pushing their touch-phones at significantly lower price points.  Apple probably needs to rethink its India strategy.  Otherwise it may be the case of too little too late.  Market skimming strategy works only if there is a large segment of early adopters.  Besides that Apple needs to add India focused free downloadable content - Ringtones, caller tunes, themes, local language songs.  How about a content partnership with IPL and bollywood?  Following Google (YouTube tie up with IPL) is not bad if its good for business. Pre-install of Google Maps, Gmail/Rediff/Hotmail/Yahoo mail will help along with support for dual-SIM and extended battery life.

Side note - For a change, Apple is advertising Macs. I saw two full page ads in national newspaper - though only in the magazine section and that too in the end. Compare this with 1 minute prime time TV ad slots used by HP when it launched "HP Vectra" in India in the late 80s.  Long way to go.  The main hindrance is of course, price, distribution and support - at Rs 56,990, Mac is almost 2.5 times more expensive than a PC.

Look Before You Leap !!

Jobs are back and if you are working for one of the companies who went through challenging times, you may have the urge to take the first job offer that comes your way.  Here are some of my thoughts which you may want to consider.

• Economy is back to growth path again and job scenario will most likely remain good for at least next 12-18 months.  There is no hurry - you can wait for the best offer to come your way. 
• Companies are realizing their mistakes - reinstating promotions, bonuses and moving back to employee friendly HR practices. Give your existing employer a chance.  No one wants to lose a good performer, it is likely that your existing employer will agree to addressing your concerns.
• Changing jobs for minor salary increments hurts long term career plan.  Changing often is not considered good.  A career change which does not give more responsibility is probably going to hurt down the line.  In my personal view, money should be the last reason for making a career move.
• Cost of re-establishing in the new organization and building trust in relationships can easily take between 3-6 months.  If the move involves a change in location, cost of shifting with family may outweigh the benefits.

Change if you must.  Think carefully about the possible results or consequences. Make a considered choice.

Maximum NAV does not Guarantee Maximum Returns

"Maximum NAV Guaranteed" is now the buzzword for insurance companies trying to outsell each other and lure the gullible investor.  Almost everyone has jumped to the bandwagon and this includes ICICI Prudential, Bajaj Allianz, Tata AIG, and LIC.  Here is my humble view -

• If the fund is investing in equities, it is very likely to go up and down with the stock market (Indian or international) and no fund can guarantee that it will give the highest index level over next xyz years.  The only way a guarantee product can work is that the fund will buy capital protection by selling futures (which caps the upside) or buying options (which comes at a cost).  The cost of buying options will be charged to the NAV of the fund and hence, the appreciation in the NAV of the fund will be less than the appreciation in the stock market.
• Alternatively, the fund will invest a part of the fund in debt and use the interest income from that portion to buy put options for the remaining part which is invested in equities.  Hence, the return will be lower than a pure equity fund if the stock market is a net positive over the investment period.
• The fund management company (or insurance company) will charge an additional fee for managing this fund and will further reduce the net earnings.  In addition, investment in these funds have a lock-in and one loses the guarantee promised if the investment is redeemed earlier.

An insurance company needs to protect itself from this risk and cost of this risk is eventually borne by the policyholder.  Any insurance product needs approval of IRDA and IRDA will not allow insurance companies to take this risk on their balance sheet since it will jeoparadize the entire industry.

Recovery : Will it sustain?

Global economy is on a recovery path, led by emerging countries with China and India at the forefront.  This recession was different and so has been the recovery.  Emerging countries like India and China were relatively underleveraged heading into the recession and managed to avoid slipping in negative growth territory.  Last month, India reported IIP (Industrial Production) growth of 16%+, GDP estimates have been revised up to 7.5%+ and jobs are growing in high teens.  Now, the question is if the recovery will sustain. 

• Central banks lag behind the inflation curve - With inflation at 9%+ and food prices up by 20%+, Indian central bank is under strong pressure to increase interest rate.  Markets have already taken that into account, with 10yr Govt Bond yield crossing 8%+ (still implying negative real interest rates).  Monetary policy action is around the corner.  However, central banks are known to be slow in ramping up interest rates as political opposition and recent memories of economic slowdown creates obstacles in decisive action.  We can expect a gradual ramp up in interest rates and with economic growth momentum continuing to build up, we have at least a couple of good years ahead of us.
• Savings rate continue to hover close to 35% - Domestic savings rate in India touched 35%+ a few year ago which was cumulative effect of increase in efficiency of capital deployed by the Government and the private corporate sector.  Increased privatisation of services like telecom, airlines, airports, roads, education and healthcare meant increase in capacity for these services without the Government adding its own inefficiency in capital allocation and implementation.  Historically, India has a incremental capital output ratio of close to 4:1, that is, for 35% savings rate, India can expect to grow at close to 9% over the medium term.
• Increased productivity - Better telecom services, increase in use of IT, penetration of banking services in smaller towns and cities, private investment in road and power and increase in availability of the skilled workforce has resulted in significant increase in productivity across the Indian economy.  Some of the benefits will flow in over the next decade or so, Indian economy will continue to reap the dividend of increased productivity for sometime.
• Diversified economy - India is not dependent on any one sector or industry, even though IT services continue to be an important wealth creator with strong multiplier effect. 

I am therefore not unduly concerned with prospect of increase in interest rates over the next 18 months or so. What's your view, do share in your comments.