Monday, October 31, 2011

Say What? In 30-Year Race, Bonds Beat Stocks

The biggest bond gains in almost a decade have pushed returns on Treasuries above stocks over the past 30 years, the first time that’s happened since before the Civil War.
Fixed-income investments advanced 6.25 percent this year, almost triple the 2.18 percent rise in the Standard & Poor’s 500 Index through last week, according to Bank of America Merrill Lynch indexes. Debt markets are on track to return 7.63 percent this year, the most since 2002, the data show. Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in theS&P 500, said Jim Bianco, president of Bianco Research inChicago.
The combination of a core U.S. inflation rate that has averaged 1.5 percent this year, the Federal Reserve’s decision to keep its target interest rate for overnight loans between banks near zero through 2013, slower economic growth and the highest savings rate since the global credit crisis have made bonds the best assets to own this year. Not only have bonds knocked stocks from their perch as the dominant long-term investment, their returns proved everyone from Bill Gross to Meredith Whitney and Nassim Nicholas Taleb wrong.
“The generation-long outperformance of bonds over stocks has been the biggest investment theme that everyone has just gotten plain wrong,” Bianco said in an Oct. 26 telephone interview. “It’s such an ingrained idea in everyone’s head that such low yields should be shunned in favor of stocks, that no one wants to disrupt the idea, never mind the fact that it has been off.”

Market Returns

Stocks had risen more than bonds over every 30-year period from 1861, according to Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia, until the period ending in Sept 30.
U.S. government debt is up 7.23 percent this year, according to Bank of America Merrill Lynch’s U.S Master Treasury index. Municipal securities have returned 8.17 percent, corporate notes have gained 6.24 percent and mortgage bonds have risen 5.11 percent. The S&P GSCI index of 24 commodities has returned 0.25 percent.

Falling Yields

While 10-year Treasury yields rose 10 basis points, or 0.10 percentage point, last week to 2.32 percent, they are down from this year’s high of 3.77 percent on Feb. 9. The price of the benchmark 2.125 percent note due August 2021 fell 27/32, or $8.44 per $1,000 face value, in the five days ended Oct. 28 to 98 10/32, according to Bloomberg Bond Trader data.
The yield dropped 11 basis points today to 2.21 percent at 10:21 a.m. in New York.
The shift to debt wasn’t anticipated by Gross, who as co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co. runs the world’s biggest bond fund. His $242 billion Total Return Fund, which unloaded Treasuries in February before the rally, has gained 2.55 percent this year, putting it in the bottom 18th percentile of similar funds, according to data compiled by Bloomberg.
Whitney, a banking analyst who correctly turned bearish on Citigroup Inc. in 2007, predicted in December “hundreds of billions of dollars” of municipal defaults that haven’t happened. Taleb, author of “The Black Swan” and a principal at Universa Investments LP, said at a conference in Moscow on Feb. 3 that the “first thing” investors should avoid is Treasuries.

What Went Wrong

The reluctance to purchase debt continues. Leon Cooperman, chairman of $3.5 billion hedge fund Omega Advisors Inc., said in a presentation at the Value Investing Congress in New York on Oct. 18 that he “wouldn’t be caught dead owning a U.S. government bond.”
What the bears failed to anticipate was that Americans would continue to pare debt and boost savings. Much of that money found its way into the fixed-income markets as banks and investors sought high-quality debt as unemployment held at or above 9 percent every month except for two since May 2009,Europe’s fiscal crisis threatened to push the global economy back into recession and stock markets fell.
“It’s hard to envision a scenario where we see significantly better than two percent growth, with increased fiscal austerity and headwinds from the leverage bubble and persistent unemployment,” said Rick Rieder, who oversees $620 billion as chief investment officer of fundamental fixed income at New York-based Blackrock Inc. The firm is the world’s largest money manager, investing $3.45 trillion.

Higher Savings

The U.S. savings rate has tripled to 3.6 percent since 2005 and has averaged 5.1 percent since the depth of the financial crisis in December 2008, compared with 3.1 percent for the previous 10 years, according to government data. Debt mutual funds have attracted $789.4 billion since 2008, compared with a $341 billion drop in equity funds, according to data compiled by Bloomberg and the Washington-based Investment Company Institute.
Banks, still trying to rebuild their balance sheets after taking more than $2 trillion in writedowns and losses since the start of 2007, have boosted holdings of Treasuries and government-backed mortgage securities to $1.68 trillion from $1.62 trillion in December, according to the Fed. Foreign investors increased their stake in Treasuries to $4.57 trillion in August from $4.44 trillion at the end of 2010, according to the latest Treasury Department data.
The bond market posted its first 30-year gain over the stock market in more than a century during the period ended Sept. 30. The last time was in 1861, leading into the Civil War, when the U.S was moving from farm to factory, according to Siegel, author of the 1994 book “Stocks for the Long Run,” in a telephone interview Oct. 25.

‘Millennium Event’

“The rally in bonds is a once in a millennium event, but it’s absolutely mathematically impossible for bonds to get any kind of returns like this going forward whereas stock returns can repeat themselves, and are likely to outperform,” he said.“If you missed the rally in bonds, well, then that’s it.”
Gross eliminated Treasuries from the Total Return Fund in February and owned derivative bets against the debt in March. He moved 16 percent of its assets into U.S. government securities as of September, saying earlier this month in a note to clients that he misjudged the extent of the economic slowdown and called his performance this year “a stinker.”
Local government bonds are set for the biggest gains since 2009 as defaults fell last quarter. Cities and states are reducing expenses instead of forgoing payments on debt even as they confront fiscal strains in the wake of falling revenue.

One Miss

Whitney said on the CBS’s “60 Minutes” in December that there would be “hundreds of billions of dollars” of municipal defaults this year. Brighton, Alabama, a city of 2,945 near Birmingham, was the only U.S. municipality to miss a general-obligation debt payment in 2011. Defaults are about 25 percent of 2010’s $4.3 billion tally, according to Bank of America Corp.
Money has poured into Treasuries even as U.S. budget deficits totaled $1.4 trillion in fiscal 2009 ended Sept. 30, $1.29 trillion in 2010 and $1.3 trillion in 2011.
Rising deficits and debt led Taleb, the distinguished professor of risk engineering at New York University, to tell investors in February that the “first thing” they should do is avoid Treasuries, and the second shun the dollar. At the same conference a year earlier he said “every single human being”should bet against U.S. government debt.

Tame Inflation

Since February Treasuries have rallied 7.99 percent and the currency has gained 3.2 percent, beating 14 of its 16 most actively traded peers, according to Bank of America Merrill Lynch indexes and data compiled by Bloomberg.
Concerns about inflation have also abated. Consumer prices, excluding food and energy, rose 0.05 percent in September, the smallest gain since October 2010, the Labor Department said Oct. 19 in Washington. Yields on bonds that protect investors from rising consumer prices suggest the fixed-income market anticipates inflation will average to 2.15 percent over the next decade, down from expectations of 2.67 percent in April.
“The Fed is legally obligated to do everything in their power to keep unemployment low, and they have and will continue to do so,” said Chris Low, chief economist at FTN Financial in New York. “As long as inflation isn’t a concern the Fed is going to keep firing until something happens,” Low said in a telephone interview Oct. 21.
Low was one of three economists in a Bloomberg survey of 72 forecasters in January to predict that 10-year Treasury yields would trade below 3 percent this quarter.

Fed Signals

Fed policy makers, who meet this week, have signaled that they are considering more measures to boost the economy, after holding the target rate for overnight loans between banks at zero to 0.25 percent since December 2008 and expanding its balance sheet to a record $2.88 trillion.
Vice Chairman Janet Yellen said Oct. 21 that a third round of large-scale securities purchases might become warranted. Last month, policy makers said they would replace $400 billion of short-term debt with longer-term Treasuries in an effort to contain borrowing costs.
“The Fed’s hope is that by pushing down Treasury rates, all other rates will follow,” Jay Mueller, who manages about $3 billion of bonds at Wells Fargo Capital Management in Milwaukee, said in a telephone interview Oct. 26.
“As a portfolio manager who has been in the business 30 years, it’s hard to come to terms where interest rates are, but you have to come to terms with it,” Mark MacQueen, who oversees bond investments at Austin, Texas-based Sage Advisory Services Ltd., which manages $9.5 billion, said in an Oct. 26 telephone interview. “And when you look at what stocks have done this decade it becomes much easier.”
(Source: Bloomberg)

Global giants plan thousands of job cuts to save costs

As companies battle the economic slowdown, the employees at large companies in the US and Europe seem to be facing the axe in a major way.
More than 135,000 job cuts have been announced by just about a dozen multi-national companies in past few months in their efforts to slash costs and those from the financial services space are among the worst hit.
However, the employees in India have largely been spared of these layoffs, although most of these companies have significant presence in the country.

Those having announced massive job cuts, running into thousands at each of these companies, include financial service giants like HSBC, Bank of America, Barclays, Credit Suisse and Lloyds Banking Group, as also consumer goods majors such as Whirlpool and Royal Philips Electronics.

Besides, mobile handset giant Nokia, BlackBerry maker Research In Motion, drugmaker Merck & Co, aircraft and defense giant Boeing and networking technology major Cisco have also announced large-scale job cuts in their operations.

Together, these companies have announced job cuts totalling more than 1,35,000 in their operations across the world, but the impact on India is estimated to be for less than 1,000 employees.

Individually, home appliance maker Whirlpool last week said it plans to reduce its workforce by more than 5,000 people in North America as part of its efforts to save annually $400 million by the end of 2013.

Consumer electronics giant Royal Philips Electronics, which has reported a slump in third quarter earnings as a result of loss at its TV division, has said it would cut 4,500 jobs globally as part of a cost saving programme.

Announcing the job cuts earlier this month, it did not rule out the possibility of this exercise affecting employees in India.

Philips, which employed about 120,582 people globally at the end of September including about 9,000 in India, said job cuts are part of a plan to save $1.1 billion.

Earlier in August, UK-based HSBC said it would trim its workforce by 30,000 people globally. Although, it had already cut 5,000 jobs following restructuring of operations in Latin America, the US, Britain, France and West Asia and that it would cut another 25,000 between now and 2013.

However, the bank ruled out job cuts in India, saying the country is a strategic market and one of the key profit centres and that it is in fact finding it difficult to offset the high attrition rates.
(Source: Business Standard)

For infrastructure companies, Africa’s a land of opportunities

Indian infrastructure companies are increasingly taking up projects in Africa to offset the impact of slowdown in domestic orders because of delayed decision-making by the government, hurdles in land acquisition and environmental clearances.

Robust order prospects in the areas of roads, urban infrastructure, mining and affordable housing, coupled with lower entry barriers in the African region are making the continent attractive for Indian companies, business executives said.

While most Indian companies have concentrated on developing roads in countries such as Ghana, Nigeria, Gabon and Tanzania, opportunities could spill over to 24 countries of the total 54 nations in the African continent as these 24 nations together account for 85% of the gross domestic product, population and infrastructure grants of Sub-Saharan Africa.

"Africa appears to be a market of untapped opportunities," said M Goutham Reddy, executive director of the Hyderabad-based Ramky Infra, which is building Gabon Special Economic Zone, an industrial park, in capital Libreville.

A World Bank survey conducted in 2010 to assess Africa's infrastructure deficiency says only one in three rural Africans has access to an allseason road and more than 20% of the population in countries such as Cameroon, Ghana and Tanzania must trek more than two kilometre to their primary water supply.

At the same time, the vast and varied continent with a population of slightly over a billion people is rapidly building out its infrastructure and is expected to grow its economy by 5.5-6 % in 2012, a growth rate higher than the United States and Europe.

The World Bank survey has projected this growth for Africa as the global economy recovers and the outlook improves for oil producers such as Nigeria and Angola. Companies such as Larsen & Toubro have ventured in to the power sector in Africa and are laying transmission lines as Africa's largest infrastructure deficit is in the power sector.

K Venkataramanan, L&T's president, engineering and construction projects, says the company has an encouraging order pipeline in Africa, particularly in the power transmission and distribution space. Last year, L&T signed an agreement with South Africa-based Befula Investments for a joint venture to develop power transmission and distribution (T&D) projects in South Africa.

The company, while assessing the business potential in South Africa in the power segment, then said, the South African government is likely to invest $10-12 billion in the next five years in augmenting T&D network in the next five years. The country has a current peak demand shortage of 3,000 MW and this is expected to grow by 6% every year.

Indian firms operating in Africa say clearances are reasonable and fast and, therefore, a well structured project in a stable country is easy to implement. MS Unnikrishnan, managing director of Thermax, which manufactures boilers and other energy engineering equipment, said that while it is not easy to enter a new overseas market because of high entry barriers, Africa is a good option.

"Regulatory standards are not as high as in other markets. We are already operating in markets like Kenya and Nigeria." Thermax plans to increase operations in Africa as domestic markets are showing signs of slowdown. Its current offerings to clients include heating equipment, waste heat recovery systems, water treatment plants, absorption chillers and performance chemicals.
(Source: Economic Times)

Property rates to go up; Delhi cabinet hikes circle rates

Buying a house in the city will now cost you more as Delhi Government on Monday hiked the circle rates by up to 250 per cent for sale and purchase of property mainly to stop "flow of black money" in such transactions.

This is the second such hike in circle rates in the city in the last nine months as it was increased by over 100 per cent in February.

As per the revised rates approved by Delhi Cabinet, Rs 2.15 lakh per square metre has been fixed as new circle rate for category A colonies like Defence Colony, Greater Kailash, Gulmohar Park, Panchsheel Enclave, Anandlok, Green Park, Golf Links and Hauz Khas.

This means nobody would be allowed to buy land and property in these colonies for less than Rs 2.15 lakh per square metre. The existing rate in these colonies was Rs 86,000 per sq metre and the hike effected by the government is 250 per cent.

"We have decided to hike the circle rates in the range of 15 per cent to 250 per cent so that the property transactions reflect the real value," Chief Minister Sheila Dikshit said after the Cabinet meeting.

She said government would be able to generate an additional revenue of Rs 800 crore annually due to hike in circle rates as it will spur collection from stamp duty and registration fees.

Revenue department officials said government hiked the rates as in most cases, actual rates of properties are not shown on paper due to which the government suffers loss in revenue in stamp duty and registration fees.

"We wanted to stop flow of black money in the property transaction and enhance revenue generation," they said.
(Source: Economic Times)

Freeing up of saving rates by RBI to cut bank profits: Moody's

Global ratings agency Moody's today said that RBI's recent move to deregulate savings interest rates will reduce banks' profitability.

"Banks are now free to set their own interest rates ... a direct consequence of this policy is that banks can, and will, offer higher interest rates to compete for savings deposits, thereby, undermining the role these deposits play as a relatively stable and low-cost funding source.

"We expect the move to exacerbate already increasing pressure on net interest margins and asset quality," Moody's said in its 'Weekly Credit Outlook'.

In a major policy decision announced during its second quarterly monetary policy review last week, the Reserve Bank deregulated saving bank deposits rates. The step is expected to fetch better returns for depositors as competition will intensify.

Moody's said the step to deregulate savings bank deposit rates, along with the hike of 25 basis points in its key policy rates announced during the review will "hurt banks' profitability and thus, are credit negative."

"Savings deposits now account for almost a quarter of the system deposits. For decades, RBI has been setting interest rates on savings accounts and, starting last May and right up until this move, the rate was 4 per cent," it said.

On the other hand, time deposits generally carry much higher nominal interest rates of 8.5-9.5 per cent.

"Amid the current inflation of nearly 10 per cent, this implies that savers have substantial negative real return on their savings deposits... We expect public-sector banks to be the ones most negatively affected by this development," Moody's said.

It further said that with the deregulation, public sector banks will need to pay significantly higher interest to maintain their deposit base, notwithstanding their distribution advantage in the rural areas.

"Conversely, private banks, which are perceived to offer superior customer service and more advanced information technology, will use this pricing freedom as a new tool to gain market share. This is especially true for the newer and smaller players that are especially keen to develop stable funding bases," Moody's said.

Following the RBI's announcement, Yes Bank and Kotak Bank had raised interest rates on savings deposits in their banks up to 6 per cent.

Today, another private sector lender IndusInd Bank also hiked interest rates on savings accounts by up to 200 basis points, offering clients a return of 6 per cent on their deposits.
(Source: Economic Times)

Sunday, October 30, 2011

Changes to the model portfolio

The following changes were made to the model portfolio on the Muhurat day:


HPCL - Full
Bharti - 4%
Titan - 1%
Nestle - 1%
Akzo - 2%


Hindalco - 2%
TCS - 3%
DLF - 2%
Kotak - 2%
Axis - 3%

Rationale: RBI's indication of probably not increasing the rates in December, are an indication hat the int rates, seem to have peaked. We expect rate sensitives to rally. Metals may not do as well as the rate sensitives due to the global problems, but the current valuations, seem rock bottom. hence, we intend to gradually increase the weights in metals.


Saturday, October 29, 2011

The future of flight: Changes in the air

ON THE evening of July 23rd 1983, Air Canada Flight 143 ran out of fuel after a series of human errors. The new Boeing 767, lightly loaded with 61 passengers and eight crew, became a glider with only 8,686 metres (28,500 feet) of altitude to reach the nearest airport at Winnipeg, around 120km (75 miles) away. Ten minutes later it became clear that the plane was losing altitude too fast to make it.
The pilots changed course, hoping to reach a former air-force base near the town of Gimli. They were unaware that its runways had been converted into a drag-racing track. Spectators scattered when they saw the silent approach of the aircraft. As the aircraft’s wheels hit the racetrack, the front landing gear collapsed and the nose slammed into the tarmac, sending sparks flying. Scraping against a guard rail that divided the track in two, the aircraft skidded to a stop. No one was killed.
Had the pilots been flying one of today’s more aerodynamic airliners, they could easily have reached Winnipeg’s airport, says Carl Holden, a recreational-glider instructor and head of Holden Dynamics, a consultancy based in Sydney that advises Australia’s Civil Aviation Safety Authority. Today’s airliners would glide about 25% farther, he says, and the next generation promises additional gains.
Gliding distance is an imperfect measure of an airliner’s aerodynamic efficiency, since it is not designed for gliding. But the Gimli Glider incident, as it became known, helps illustrate the magnitude of advances in aviation technology. Improved efficiency means that Boeing’s new 787 airliner consumes about 40% less fuel per passenger than its 1970s aircraft. Airbus and other manufacturers have achieved similar results.
Not all improvements in aircraft technology are incremental. As myriad technologies mature, new sorts of aircraft become possible. Unmanned aircraft have flown at more than five times the speed of sound. Last year a lightweight, piloted Swiss aircraft, Solar Impulse, captured enough solar energy during the day to fly throughout the night. Small drones are being developed with highly efficient wing-bottom infra-red cells that scavenge radiation energy reflected up from the ground. Boeing is developing unmanned spy aircraft capable of staying aloft using hydrogen power for five years without refuelling. Drew Mallow, the project’s leader, calls Phantom Eye, a prototype with a 46-metre wingspan, a “poor man’s satellite”. The future of flight will involve gradual changes in the near term, with the prospect of more radical shifts in the decades to come.
Much research has been driven by efforts to save jet fuel. Having more than doubled in price in recent years, it now accounts for about half of airlines’ operating costs. Even slight gains in efficiency quickly pay off—as a rule of thumb, a 1% improvement knocks more than $1m off a airliner’s fuel bill over its lifetime of roughly 20 years, says Ihssane Mounir, Boeing’s vice-president of sales for China. These savings snowball. Fuel-sipping planes are more profitable, so banks will finance them at lower interest rates.
Time to lose weight
In the push to improve efficiency, wing flaps are now operated with lightweight electrical systems instead of hydraulics. At least one airline, Australia’s Jetstar Airways, is replacing in-flight entertainment kit with Apple iPads, which are much lighter. Flight Sciences International, a consultancy based in Santa Barbara, California, has found that fuselage-insulation blanketing costs airlines unnecessarily: it absorbs humidity and becomes heavier over the years. This is typical of the zeal with which savings are being sought. The only area where technologists have failed to improve efficiency is in reducing the weight of passengers, says John Corl of Flight Sciences. He is only half joking.
Aircraft engineers have for years sought to replace metal components with lightweight plastics reinforced with carbon fibres. Such materials, known as composites, are generally 20-40% lighter according to ATK, an aerospace company based in Utah that makes them for aircraft manufacturers. Composites account for as much as 15% of today’s airliners, but some next-generation aircraft will be more composite than metal, including the Boeing 787 (which enters service this year) and Airbus A350 (due in 2013).
New, lightweight ceramics will further reduce the need for metals in aircraft, says Joy de Lisser, vice-president of ATK Aerospace Structures, the division developing them. Ceramic composites can also withstand hotter temperatures than metal alloys can. Accordingly, they are beginning to replace some metal parts in jet engines developed by Snecma, a French engine-maker, and General Electric, an American manufacturer. GE says it has shaved 136kg, or 3%, off the weight of an engine that propels the Boeing 787 using a ceramic-composites fan case and blade, a world first.
GE has also found a way to lighten metal components, including some for engines, by “printing” rather than forging them. Known as 3D printing or additive manufacturing, the process involves building components by zapping a succession of thin layers of powdered metals with a laser or electron beam which melts and bonds the material. Precision is measured in microns. Designers leave empty spaces inside some components, reducing their weight by a fifth. The process is less expensive than hollowing out forged parts, says Luana Iorio, head of manufacturing technologies at GE Global Research’s lab in Niskayuna, New York. She reckons that GE’s printed, hollow parts will be used in passenger aircraft within about three years.
In 2009 GE, working with NASA, America’s space agency, picked up work it had largely set aside in the 1980s on a radically different sort of engine called an unducted fan. It combines the fuel efficiency of a propeller engine with the greater power and acceleration of a jet by using two rings of short, propeller-like rotors that spin in opposite directions in open air behind the jet housing. GE says the engine consumes almost a third less fuel than other designs. But it is loud, and if a rotor breaks it could smash into the fuselage.
Pratt & Whitney, another American engine-maker, has devised a different design that is far closer to widespread use. Called a “geared turbofan” engine, it uses a gearbox, rather than a shaft, to transmit power from the turbine (which spins as hot gases blast out of the back) to the fan (which sucks in air at the front). This allows the turbine to spin faster than the fan, which is more efficient. Called the PurePower PW1000G, it cuts fuel consumption (and noise) by about 15%, says Paul Finklestein of Pratt & Whitney, saving about $400 per flight hour. More than 1,200 of the engines have been ordered at an estimated $13m each. Deliveries begin in 2013. The firm’s president, David Hess, has said the new engine could double the size of the company, which had sales of nearly $13 billion last year.
On most passenger jets, the wings and fuselage generate about 90% and 10% of the lift respectively. Working with funding from NASA, aerospace engineers at the Massachusetts Institute of Technology (MIT) have designed an aeroplane with a body so fat, and wings so narrow, that the fuselage provides about a fifth of the aircraft’s lift. Its cross-section resembles that of two partially joined bubbles. The “Double Bubble”, as it is called, looks awkward, but the team estimates that its design would reduce fuel consumption by about 70%. This is only partly because it would fly about 10% slower than today’s airliners.
“Changing the shape of an aircraft can be done at a microscopic as well as a macroscopic level.”
Tail wings push the back of an aircraft down, increasing drag, in order to lift its nose up. The Double Bubble sports a wide, downward-sloping nose which airflow pushes up, so its tail wings can be much smaller. Conventional airframes require heavy structural material to transfer the fuselage’s weight laterally to landing gear and wheels under the wings. The MIT team reduced the plane’s weight about 1% by fattening the aircraft’s body—“essentially running the fuselage to the landing gear”, in the words of Mark Drela, the team’s leader. The engines are mounted at the back of the fuselage, rather than under the wings. Air slipping along the fuselage moves slower, so the engines ingest less oxygen and burn less fuel.
Making planes more slippery
Changing the shape of an aircraft can be done at a microscopic as well as a macroscopic level. Aircraft paint, viewed with a microscope, “looks like the Pyrenees”, says Paul Booker, managing director of tripleO, a firm based in Poole, England. His firm has developed a way to reduce drag on aircraft by smoothing the painted surfaces with a very thin layer of acrylic resin that fills in tiny cracks. Britain’s easyJet, the first commercial carrier to use the product, had three airliners coated about 16 months ago. The airline has since coated five more planes and two other airlines have also given it a go. Mr Booker says the extra slipperiness cuts fuel consumption by around 1%, so that the coating treatment pays for itself within a few months.
There may also be a way to cut aircraft drag by making some surfaces less slippery. In research funded by the European Union, Alessandro Bottaro of the University of Genoa in Italy has devised small keratin bristles that mimic the smallest type of bird feathers, known as coverts. Vibrating in the wind, the bristles create some drag. But they also reduce the wing’s slipstream, an area of low-pressure turbulence that pulls back on the wing, and hence reduce drag. A fuzzy tennis ball flies faster than a bald one for the same reason, Mr Bottaro explains.
However perfectly an aircraft is built, its full potential cannot be harnessed without a perfectly calculated trajectory. At most airports, traffic controllers organise the approach and landing order of incoming planes in their last half-hour or so of flight. As a result, pilots waste fuel slowing down and speeding up as they descend in staircase fashion. This and other inefficiencies—such as circling while awaiting a landing slot—will soon be greatly reduced, thanks to a new sort of flight-management software.
Such software crunches data on each aircraft’s performance and other traffic in the air or at airports to determine the optimal flight plan. The software can work out, for example, the exact rate at which a plane should rise into thinner air (to reduce drag) as fuel burn makes it lighter. Aircraft can collect and exchange atmospheric data to help each other fine-tune trajectory and speed. Crucially, the technology harnesses airliners’ ability to glide. With a favourable wind, a new airliner’s engines can be idled more than 150km from an airport for a gliding descent to the runway.
Aerion’s design (top) and the Double Bubble (below)
A single such “green approach”, as it is known, saves about 100kg of fuel, says Torbjorn Henriksen, head of airline negotiations at Avinor, the operator of Norway’s 19 commercial airports. Steve Fulton of Naverus, a subsidiary of GE that designs and installs such systems, likens them to a railway track: aeroplanes do not deviate more than a wingspan from their charted courses and touch down within ten seconds of the predicted time.
The airport at Brisbane, Australia, is the only one that fully uses the system so far. It has reduced delays and cut noise in surrounding neighbourhoods by nearly a third. If adopted across Europe, fuel costs (and pollution) for internal flights would drop by more than 8%, says Mr Fulton. Dozens of airports are adopting the technology, but the process requires a lot of installation and training. Avinor says it will take at least another five years to deploy the technology widely in Norway.
Saving fuel is all very well, you may be thinking, but what can technology do to improve conditions for passengers? In the run-up to this year’s Paris Air Show in June, Airbus released its vision of creature comforts for the airliner of 2050. Cabin walls have been replaced with a skeletal structure and transparent membrane. “Vitalising” swivel seats mould to, and massage, each passenger’s body while harvesting its heat to power individual sound pods, mood lighting and holographic entertainment units. It sounds great, even if Airbus’s vice-president of engineering, Charles Champion, acknowledges that much of the kit cannot be built with today’s technology. He points out that in recent years the industry has placed a far higher priority on making aircraft more efficient and comfortable than it has on making them go faster.
Yet despite the withdrawal from service of Concorde in 2003, the dream of supersonic flight has not died. Dassault Aviation, a French firm, and Aerion and Gulfstream Aerospace, two American companies, are among the firms developing technologies for private supersonic jets. Breaking the sound barrier generates a sonic boom, so supersonic travel is heavily restricted over land. Tests by NASA with a modified fighter jet have shown that novel airframe shapes can reduce the boom. But Aerion reckons that a far better approach is to abandon efforts to reduce the sonic boom and fly supersonic only over water. The company’s 8-to-12-seat Supersonic Business Jet, designed but not yet built, sports thin but broad “knife edge” wings and other aerodynamic features that produce less drag than competing designs, says Douglas Nichols of Aerion. Around 50 potential customers have put down a $250,000 deposit for the $80m jet, which would fly at 1.6 times the speed of sound (Mach 1.6). Aerion does not yet have a manufacturing partner, however.
America’s armed forces see potential in hypersonic aircraft, which fly at Mach 5 or faster using a type of engine known as a scramjet. HTV-2, an unmanned hypersonic aircraft designed to travel at Mach 20, failed during a test flight last month. Another hypersonic craft, the X-51A WaveRider developed by Boeing, has fared little better. Of the two WaveRiders tested, both for short distances over the Pacific, one failed. But Joe Vogel, the project manager at Boeing, says the technology has “crossed over the threshold” into hypersonic flight. He reckons that scramjets might one day power civilian aircraft.
Some military types have enthused that, before then, hypersonic troop carriers could be built. But Robert Mercier, a senior technology official in the Air Force Research Laboratory’s aerospace propulsion division, notes with understatement that parachuting into the trailing vortices of such an aircraft would make for a rough ride. It is more likely, he says, that a hypersonic aircraft would be used as a high-speed cruise missile, to deliver a surprise hammer-blow behind enemy lines. Using a long-range ballistic missile to do the job would be risky, as its launch could be mistaken for an imminent nuclear strike.
Might the idea of near-hypersonic passenger aircraft, which has lain dormant for a few years, be coming back? At this year’s Paris Air Show, EADS, the parent company of Airbus, revealed a concept design for an aircraft called the Zero Emission High Supersonic Transport (ZEHST), devised in conjunction with Japanese researchers. It has three separate kinds of engine: ordinary jet engines (running on biofuels made from seaweed or algae) for take-off, rocket engines to accelerate to Mach 2.5, and ramjets to reach Mach 4. The aircraft would carry 50-100 passengers and would travel from Paris to Tokyo in around 2.5 hours, rather than the 11 hours it takes today.
Even its designers admit that the ZEHST is unlikely to be flying before 2040. But “the future of air travel will look something like the ZEHST,” declared Jean Botti, director-general for technology and innovation at EADS. It sounds fanciful. But so too, not that long ago, did rapid and routine intercontinental air travel. In aviation, what sounds outlandish today may be commonplace tomorrow.
(Source: The Economist)

Boeing’s 787: Can the dream now begin?

ONE of the first passengers to step off All Nippon Airways flight 7871, an American aviation buff, gushed on CBS television that it was a “spectacular experience”. Just the sort of headline that Boeing’s bosses will have been dreaming of, on the day their much-delayed 787 Dreamliner plane finally carried its first fare-paying passengers.
Those travelling from Tokyo to Hong Kong aboard the inaugural flight, on October 26th, will have been the first real travellers to experience what is supposed to make the Dreamliner special: bigger windows, more comfortable seats, softer lighting, higher cabin pressure (and thus a more pleasant atmosphere) and less engine noise. The 787, the world’s first commercial airliner to be built mainly from carbon-fibre composites, is also expected to use about 20% less fuel and cost 30% less to maintain than its forerunners.
The 787 is designed to carry a couple of hundred passengers between long-distance city pairs; its greater efficiency should make more such routes viable. What that means for business travellers is more direct flights, and thus less scurrying to make connections in busy hub airports—something readers of Gulliver, our business-travel blog, will no doubt appreciate.
But the big question is whether Boeing will be able to turn out the planes quickly enough to meet the demand. As the company announced its latest quarterly figures, members of the aviation press were listening carefully for whether its bosses reconfirmed their plan to be turning out ten 787s a month by the end of 2013. FlightBlogger couldn't hear any such reaffirmation. (Update: this blogger has managed to find it, buried deep down in Boeing's "Form 10-Q" filing to the Securities and Exchange Commission.) The company has, however, cut its delivery forecast for this year. Those launch-party-poopers at BernsteinResearch, who have repeatedly been first with the gloomy news about progress on the 787, predicted this week that Boeing will not reach the ten-a-month target until 2015.
Fed up waitingSome airlines have lost patience with the delays. China Eastern cancelled an order for 24 Dreamliners earlier this month, and struggling Air India was today reported to be on the brink of slashing by more than half its order for 27 of them. Meanwhile, Boeing’s archrival Airbus has been drip-feeding news about the progress on its own carbon-composite rival to the Dreamliner, the A350 XWB—although it has had its own share of setbacks and cancellations.
Even after its cancellations Boeing has orders for about 800 Dreamliners, enough to keep its lines busy for years ahead. In a technical accounting move accompanying its quarterly figures, it tacitly acknowledged that it will need to deliver at least 1,100 of the planes to turn a profit on the project. But there seems a fair chance it will, eventually, sell comfortably more than this. The planemaker’s bosses say they expect to be building this plane for the next 30 to 40 years, improving its performance steadily as they go, much as they have with the venerable 747 jumbo. It launched in 1969 and is still in production. What they will be hoping is that, from here on, the public hears more about the comforts of flying in the Dreamliner and less about the struggle to get it in the air.
(Source: The Economist)

Nokia's new phones: Not drowning, but waving

EIGHT months ago Stephen Elop, Nokia’s newish chief executive, told the Finnish phonemaker’s staff that they were “standing on a burning platform” and had no choice but to jump into the “icy waters” below. His plan for fishing the company out of the freezing briny rests largely on making smartphones that use Microsoft’s Windows operating system—and getting them to market quickly. On October 26th Mr Elop unveiled the first of these devices. On a live feed from Salo, in Finland, a proud employee packed a Lumia 800 into its box. It is due to go on sale in six European countries next month. It will have a cheaper sibling, the Lumia 710.
By recent standards, this is fast work. Nokia had been slow to cotton on to the popularity of touch screens. Its own operating system, Symbian, which was not designed for touch, looked clunky. While Nokia dithered, consumers lapped up Apple’s iPhone and the many smartphones based on Google’s Android operating system. All this cost Mr Elop’s predecessor, Olli-Pekka Kallasvuo, his job in September 2010.
The new phones have more going for them than price and cool Nordic design. Operators will surely be glad of an alternative to Apple and Android. Microsoft’s software is a more reliable bet than Nokia’s own. “They’ve had great hardware but the software was a disaster,” says Ben Wood of CCS Insight, another research group. “With this product, they know the software’s going to be rock solid.”
The phones contain applications to distinguish them from rivals, such as a navigation system for drivers that uses Nokia’s maps, by common consent the best in the trade, public-transport information for 450 cities in 44 countries, and streamed free music. Carolina Milanesi of Gartner, another research outfit, expects further differentiation once a new version of Windows appears, probably next year.
That said, Nokia must still work to keep its chin above the waves. Microsoft, though a titan in personal-computer software, is a homunculus in mobile devices. Nokia’s market share in America, where new smartphones are due to go on sale next year, has all but vanished. Operators there may prefer Windows phones under more popular brands. And Windows’ “tiles” require more explaining to the novice than the icons on an iPhone or Android phone. Hence Nokia’s plan to put lots of “seeding” devices into retailers’ hands.
Nokia is still the biggest seller of less sophisticated “feature” phones and shifted 25% more of them in the third quarter than the second. This week it presented four new models, aimed chiefly at aspiring, fun-loving youngsters in emerging markets—though they will be sold everywhere but America and Canada. Mr Elop thinks these products are “blurring the line” between smartphones and feature phones: they even come with “Angry Birds”, an online game to which many smartphone users have become hopelessly addicted, made by Rovio, another Finnish company. Mr Elop does not need people to crave Nokia’s new phones. Merely to buy them.
(Source: Economist)

Hapiness: How's life?

A STIMULATING report released last week by the OECD, a think tank, attempts to measure people’s well-being across 40 developed countries. The report, called “How’s Life?”, looks at some common economic metrics like income, employment, health, education and the environment. But it also includes less familiar measures such as social-network support, victimisation, life satisfaction, leisure time and commuting times.
Among the report’s findings:
  • Having a job is an essential element of well-being. Good jobs provide earnings, but also shape personal identity and opportunities for social relationships. Broadly speaking, employment rates in the OECD are relatively low in southern European countries and high in the Nordic countries and Switzerland.
  • Japanese and Australian workers are most likely to be working part-time, when they’d prefer a full-time job.
  • South Africans and Koreans spend the longest time in daily commutes to and from work; the Irish, Danish and Swedish have the shortest commutes.
  • People in New Zealand and Portugal are among the most social of all nationalities surveyed, with more than 75% reporting at least one social contact with friends or family per week; people in Poland, France and Hungary report the lowest levels of social interaction.
  • Very few Finns, Swedes and Danes complain about the green space in their countries, while more than one in three is unsatisfied with the access to green space in Italy and Turkey.
The report is part of a welcome drive within the economics profession to take the assessment of well-being beyond measurements of gross domestic product per head. (A piece by The Economist covers this argument in detail.) Some of the findings above are in areas that affect well-being and that would not have been identified through traditional economic analysis.
Some may balk at all this touchy-feeliness. Attempts to measure happiness are fraught with problems of subjectivity: different people derive happiness from different activities. But GDP per person is a similarly imperfect measure: a bigger pie does not necessarily mean bigger slices for everyone. And subjectivity is part of conventional economic gauges, too. Purchasing-manager surveys are commonly used to forecast expected demand; economists regularly survey interest-rate expectations. Are economists really better at predicting interest rates than the average person is at rating their own happiness?
(Source: Economist)

Economic focus: The joyless or the jobless

IN 2006 Richard Layard, an economist at the London School of Economics, argued that unhappiness was a bigger social problem in Britain than unemployment. In the “Depression Report”, which he co-wrote, Lord Layard pointed out that more people were claiming incapacity benefits because of depression and other mental disorders than were on the dole.
The subsequent recession fixed that. The jobless now outnumber the joyless—there is nothing like a drop in GDP to remind everyone how much this much-maligned metric matters. But despite the economic gloom, economists and policymakers have not lost their interest in happiness. This month David Cameron, Britain’s prime minister, asked the Office of National Statistics to measure the country’s “general well-being”, as part of his promise to focus on GWB not just GDP.
Lord Layard has long argued that GDP is overrated as a gauge of a country’s well-being. Once an economy reaches an income per person of about $15,000 (measured at purchasing-power parity), economic growth ceases to add to happiness, he says. America, for example, is considerably richer than Denmark, but Americans are no more satisfied with their lives. His claim was echoed in “The Spirit Level”, a recent book by two British academics, Richard Wilkinson and Kate Pickett.
Angus Deaton of Princeton University also doubts the claim. It is based, he points out, on charts similar to the one below (left-hand side), which plots national well-being against absolute levels of per person income. In the chart shown, each increment represents an extra $10,000. Sure enough, well-being rises steeply with income, then levels off, just as Lord Layard contends.
But all the chart really shows is that an extra dollar is worth less to the rich than to the poor. The interesting question is whether the same percentage increase in income means as much to a rich country as to a poor one. Economic growth, after all, is normally expressed in proportional terms: we say GDP grew by 1%, not by $1 billion. The chart on the right-hand side shows the same data plotted on a logarithmic scale, so that each increment represents a 100% increase in income per head. It shows that the relationship between income and well-being remains fairly steady, from the poorest countries to the richest.
This suggests that governments cannot afford to ignore growth, even if they seek the happiness of their citizens, rather than their prosperity. But is happiness, in fact, the right goal for governments? Lord Layard is an unapologetic follower of Jeremy Bentham, a philosopher born in 1748 who thought that enlightened policymakers should seek the greatest happiness of the greatest number of people.
But Ravi Kanbur of Cornell University points out that happiness is not always a good guide to policy. He retells the story of a Brahmin in colonial India who informed a Benthamite official: “I am ten times as capable of happiness as that untouchable over there.” Mr Kanbur contends that governments should “tax the millionaire in favour of the pauper, however great the millionaire’s capacity for happiness relative to the pauper.”
Sleepy but solvent
Happiness, of course, makes an appearance in America’s founding documents. But the Declaration of Independence does not say that government should pursue the happiness of its citizens, only that it should secure its citizens’ unalienable right to pursue it for themselves.
If people do not know what will make them happy (just as if they do not realise that smoking kills or calories fatten) governments could helpfully tell them what might. If people know what is best for them, but lack the self-discipline to choose it, some governments might also be tempted to nudge their citizens in the right direction. Mr Cameron’s party has flirted with the idea of soft paternalism advocated by Richard Thaler and Cass Sunstein in their book “Nudge”. The book suggests lots of ingenious ways to help people choose what they would choose for themselves, if only they had the know-how and the willpower.
But sometimes people have the knowledge and the self-command to choose happiness, and they still fail to do so. That is the surprising finding of a recent study by Daniel Benjamin, Ori Heffetz and Alex Rees-Jones, three economists from Cornell University, and Miles Kimball of the University of Michigan. They persuaded hundreds of people to answer conundrums such as: would you rather earn $80,000 a year and sleep 7.5 hours a night, or $140,000 a year with six hours’ sleep a night?
About 70% of people said they would be happier earning less money and sleeping more. Likewise, almost two-thirds would be happier making less money and living close to their friends, rather than more money in a city of strangers. In response to another question, over 40% said they would be happier paying twice the rent to enjoy a shorter commute of ten minutes, rather than 45.
These findings support the notion that money isn’t everything. But ask people what they would actually choose, as opposed to what would make them happy, and their answers can sometimes surprise: 17% of those who say they would be happier sleeping for longer and earning less also say they would still choose the higher-paying job; 26% of those prizing short commutes over low rents would still take the cheaper home; and 22% of those who value friends over money would still move to where the money is.
Mr Cameron will therefore need to tread carefully. Even if voters believe that his policies will make Britain happier, they may still choose a party offering lower taxes and bigger subsidies. Money may not buy happiness. But why take the chance?
(Source: Economist)

Internet speed: World wide wait

MANY technologically savvy nations lag pitifully when it comes to broadband speeds available to their citizens. The OECD, a club of rich countries, puts the United States and Britain below more recent digital revolutionaries, like Slovenia. But the OECD figures are based on advertised speeds, not measured ones. Pando Networks has, however, been looking into the internet's actual zippiness. Its findings support the OECD's conclusions.
Pando works with content providers around the world to speed up the transfer of large video files for streaming, as well as of the oodles of data associated with modern online (and offline) immersive games. It measures the speed of each byte transferred, and recently produced a report analysing the 35 petabytes (35m gigabytes) of data it shifted for consumers in the first half of 2011.
These data, shipped across 18,000 internet service providers to 20m unique computers, produced some unsurprising results. South Korea's average download rate is nearly 18 megabits per second (Mbps)—or just over 2 megabytes per second (MB/s). South Korea has invested substantially in its national infrastructure, which service providers have duly tapped. Ten Korean cities rank in the top 12 in the world for download speed, with Seocho averaging a whopping 33.5Mbps (4MB/s). Japan (with an average of 11Mbps), Hong King (8Mbps), and Taiwan (7Mbps) have made similar commitments and are near the top of the table.
The surprises come when one examines the rest of Pando's top 15 list. Romania is in second place, with 15 Mbps, followed by Bulgaria, Lithuania and Latvia (13Mbps, 11.5Mbps and 11Mbps). Ukraine and Moldova even score spots on the chart with 9.5Mbps and 7.5Mbps. Scandinavia takes nearly all the other slots (from 10Mbps for Sweden down to 6.5Mbps for Norway). Americans, off that list, trudge along at 5Mbps, on average. And Britain crawls at a fraction below that, with rates as low as 1Mbps in Swithland and Loddington up to a high of 10Mbps in Brighton.
Pando's boss, Robert Levitan, explains that the reasons may be historical. Many ex-communist countries have been wired for broadband more recently, with newer, faster connections than their richer European peers which began their love affair with the web earlier. Moreover, computer ownership rates are typically below the EU average, so those that do own one can afford a snappier connection.
However, the average figures can be misleading. Pando's map of the United States shows a starker picture, for instance, revealing that most states average below 4Mbps, even though many cable providers in those states—as well as some fibre providers—shift data at far higher average rates. The low nationwide average cannot be explained by heavy use of dial-up modems, which have largely become superannuated in America. The Pew Center for Internet Life, a think-tank, put dial-up usage below 5% of American adults at home in 2010—and such modem's transfer rates of 0.05Mbps are too low even to begin to attempt the kinds of downloads in which Pando specialises.
Nearly a quarter of respondents to the Pew study say their internet service is wireless, which provides a better clue as to low speeds. Wireless connections as defined in Pew's work rely either on satellite links or mobile broadband. (A small number rely on independent fixed wireless providers using point-to-point antennas.) Satellite typically averages below 0.5Mbps, whereas mobile can vary from tenths of Mbps to a few Mbps, depending on whether the user is in an urban or rural area.
Not all of America is a high-speed-broadband desert, though. In the Northeast, where Verizon's fibre-to-the-home network competes with Cablevision's cable system, download speeds are much higher, according to Pando. Verizon, at 8.5Mbps, is the fastest among American providers; Cablevision's Optimum Online is a peg below at 6Mbps. Babbage's western state of Washington also ranks highly. Its neighbouring Oregon, however, languishes behind—perhaps because it is more rural.
(Source Economist)

New pharma policy to cap prices of 60% drugs

India’s new pharmaceutical policy seeks to bring at least 400 essential medicines—or 60% of the drugs sold in the country—under the government’s pricing control.
The department of pharmaceuticals on Friday put out a draft policy, pending since 2005, after a committee prepared a list of essential medicines, laying down new rules governing drug pricing.
Currently, the government controls the prices of only 34 essential medicines.
The draft says the policy, to be finalized in a month, will cover nearly all the 348 medicines in the 2005 list. Based on updated data, the list will be expanded to cover about 400 drugs to increase access and availability of essential medicines.
India’s drug price control order, or DPCO, was previously revised in 1994.
The policy seeks to change how prices of essential medicines are regulated by basing the rates on the updated national list of essential medicines, 2011, or NLEM-2011. The present policy regulates prices based on market share.
Under the new policy, drug formulations will be priced by fixing a ceiling on the basis of the weighted average price of the top three brands by value.
NLEM-2011 lists at least 450 drug formulations against a total of 663 medicines being sold in India. Total annual turnover of the drugs likely to come under the control of the proposed policy is about Rs. 29,000 crore, as per data available with pharma market researcher IMS-Health.
“With the implementation of present methodology of price control as stipulated in the new policy, the ceiling prices of formulations will be fixed below the current highest market prices by 0-5% for over 50% of the medicines of the NLEM-2011 and this reduction will be more than 20% for over 30% of such medicines,” the draft policy says. The National Pharmaceuticals Pricing Authority (NPPA) will remain the implementing authority for the new policy and the new drugs (Price Control) order. In due course, DPCO, now mandated under the Essential Commodities Act, will be replaced by specific legislation covering price control.
The pharma industry says the government is sacrificing long-term availability of drugs to promote access.
“We support the twin objectives of ensuring access and availability as long as the mechanism to achieve them adopts a balanced approach,” said Dilip G. Shah, secretary-general of the Indian Pharmaceutical Alliance, an industry lobby representing local drugmakers. “Access needs reasonable prices. Availability requires investment in research and development and manufacturing to augment supply of medicines.
(Source: Mint)

All my start-ups

They give birth to a company and nurture it lovingly only to sell it off and start all over again. Meet the serial entrepreneurs who are in it for the sheer joy of creation.
As a child growing up in Canada, Vinay Gidwaney found the mouse easier to handle than pencils. When boys his age were playing outdoors, he wrote a program that helped fix glitches in computers located far from the PC in his garage.
By 16, along with his brother Veer, he had founded a company called Control F-1 that did support automation for several firms. Within a few years, the brothers sold off Control F-1 to the $3.5 billion biggie Computer Associates.
Gidwaney then started up a few more companies, found time to do some brain research at MIT and, while there, “got injected with artificial intelligence”, as he jokes. Then he bent his powerful mind to developing products for the Web.
“I am now doing another start-up — we are trying to solve big, worldwide problems,” he says in all seriousness, of his new company, Daily Feats — an online social platform where people share and earn rewards for their positive actions.
But Gidwaney is not the only one in this game. Suddenly, at various summits and conferences, one is bumping into a number of young entrepreneurs in their 30s and 40s, who are already into their third and fourth enterprises, but still bubbling with ideas, brimming with fire and passion, and infecting you with their enthusiasm.
Take Singapore-based entrepreneur Anuj Khanna Sohum, who looks as though he lives on a diet of energy drinks, arriving like a whirlwind for our meeting and leaving in equally tempest-like fashion.
He was not much older than Gidwaney when he started his first company. At 20, while still doing his undergraduate programme in computer engineering in Singapore, Khanna, along with his friend Julius, set up Anitus Technologies.
In no time, Anitus, which was into knowledge and document managing, got acquired by Malaysian conglomerate MCSB, which renamed it myMCSB. Now 32, Khanna is into his fourth venture, a mobile applications firm, Affle Technologies, about which he expounds with the starry-eyed passion of a college kid.
Compared to these two early starters, Pune-based computer engineer Shirish Deodhar had a pretty late start in his entrepreneurial journey, and that too by sheer accident. Soon after his return from the US, where he worked a number of years, he saw his opportunity during a chance meeting with the CEO of the firm his wife went to for a job interview.
That led him to set up Frontier Software, an outsourced software product development (OPD) services firm, in 1998. In just over a year, the company was acquired by its billion-dollar US client Veritas, and Deodhar became head of their India office.
But the itch to start again saw him seeding another firm, In-Reality Software, in 2003. “At Frontier, it had taken us 11 years to ramp up to 140 employees. At In-Reality, in just 16 months, we grew to 15 customers and 170 employees,” he says proudly.
Not surprisingly, it soon became a target for acquisition — this time by Bangalore-based Symphony Services, a leader in OPD services. Today, Deodhar is on his fourth company, Innovize Tech Software, a firm that is on the coveted Red Herring 2011 list of Asia's Top 100 technology companies.

Create, perchance to sell

Gidwaney, Khanna and Deodhar are among a growing breed of serial entrepreneurs. Many have made millions selling off their ventures, but there are those like Kallol Borah, Director, LukUp Media, who cheerfully tell you some of their start-ups were before their time. Unfazed by one failure, they have gone on to launch something else.
“In America, such people are celebrated and revered,” says Raman Roy, chairman and managing director, Quattro BPO.
So, what makes these young, restless serial company creators tick? Are they go-getting risk takers who launch companies only with the idea of becoming rich quickly? Or passionate innovators in it for the sheer joy of creation?
Khanna bridles at the question. “I have never started any company with the intention of selling it,” he says emphatically. “We have started and built companies to last — it does not matter who owns it,” he insists.
Gidwaney admits that in the Web 2.0 world, a lot of companies are being started with the sole intention of being acquired by one of the big guys — Facebook, Google, Microsoft, Apple and so on. “Although this might be beneficial for the entrepreneur financially, I think it stifles innovation,” he says.
Possibly a little mellower after recently becoming a father, 30-something Gidwaney is now “looking at a time horizon of 50 years” for Daily Feats.
Deodhar, from his wiser perch of 52 years, and having even written a book on entrepreneurship, has a more mature take on this issue. “Beyond a certain stage, entrepreneurs find it hard to sustain growth. Most are first-generation entrepreneurs who are taking a risk but can only go so far,” he says. “Therefore, a nano-exit, where an entrepreneur makes a few crores, is not a bad idea at this stage in India,” he feels.

No postpartum blues

So, didn't they feel terrible about parting with their babies? Gidwaney, who jokes that “my baby now has a different connotation for me” as he proudly shows a picture of his moppet, does admit to feeling a pang. “But it is far outweighed by seeing it move to greater heights. When we sold our company to Computer Associates, they enabled us to take our technology to thousands of companies, which we would not have ordinarily been able to reach. That enabled us to do amazing things with our technology,” he says.
Khanna echoes this: “I sold because MCSB had 3,000 corporate customers and my product could reach more companies,” he says.
Deodhar gives two analogies. One is to think of an exit as moving from one train to another when on a long-distance trip. The second is, knowing that one day your daughter will get married, but treating that occasion with joy and hope that it will be a good life for her in future.
“We have to think of the long-term wellbeing of the company and its employees,” he says.
All three, incidentally, stayed associated with their first ventures — Gidwaney and his brother worked with CA for two and four years respectively, Khanna was an executive director at MCSB and Deodhar grew Veritas' India subsidiary to 600-plus employees.
“One always has a fondness towards the previous companies. Occasionally, the acquiring company morphs over time and one loses the attachment (for example, Veritas was later acquired by Symantec and now the products and culture are very different)," says Deodhar.
“Sometimes one keeps closer tab because the acquiring company's outcome still has a bearing on your future. For example, many of us have stock in Symphony and look forward to its IPO at some stage,” he says.

Tomorrow's Wealth Creators

The BPO industry's big daddy in India, Raman Roy (he founded Spectramind, which was acquired by Wipro, before launching Quattro), is a firm supporter of serial entrepreneurship.
Having incubated several companies and mentored many entrepreneurs, he gives the nursery analogy, “I put a seedling in sand, and later transfer it to a pot or a bed, only then it will grow. Conversely, it will die if you don't transfer.”
To scale up a company, sometimes selling off is the only route, he says. “In chemistry, the catalyst's role is only to trigger a chemical reaction — then the reaction continues, even without the presence of it. Similarly, the innovator's job is to catalyse a creation — and he is then needed to start another process,” he says.
In India, Roy says there is no shortage of entrepreneurs. “Even my paanwalla is one. Usko monthly income mil gaya (he gets his monthly income), he is happy. He is doing an alternative to a job.” But, says Roy, the serial entrepreneurs are the ones creating wealth. “The risk-taking ability in that environment is different, the highs of that environment are different.”
Having said that, Roy says both models have to co-exist. “We need both. But if one lakh more people got into wealth-creation mode, our economy will change. In India, if you create this trend, our reliance on agri business will diminish,” he says.
The hope, as Deodhar says, is that India will get into the virtuous cycle of more entrepreneurship, more successful exits or IPOs, more wealth, and hence more entrepreneurship.
(Source: Business Line)

Top stainless steel companies like JSL Stainless and Visa Steel may cut output

Two of the country's top stainless steel producers, who together account for more than half of India's market for the alloy, are considering a cut in production due to high prices of the main raw material, chrome ore, bought from the only supplier Orissa Mining Corp.

The costly ore, which is being sold at a 33% premium to the international benchmark, is also used by smaller ferro chrome units who have found it unviable to buy at such a price and have shut shop, say industry executives.

JSL Stainless, the largest stainless steel producer in the country, is operating only three of its five furnaces which are about 50% of its installed capacity. Finance director Arvind Parakh blames the 12% drop in net profits in the previous fiscal quarter on the "unusually high chrome ore prices". Profit fell despite an increase in stainless steel volume, he added.

Similarly, Visa Steel expects production at its 50,000-tonne-per-annum plant to be down by 40-50% this quarter. "We are not asking OMC to subsidise us, but only that it consider the plight of buyers who account for 80% of its volumes and adopt a more fair pricing mechanism," said managing director Vishal Agarwal.

Stainless steel is a widely used consumer goods item and has applications in home appliances and is now also being used in construction and transportation. Ferro chrome is an intermediary that is used in the manufacture of special steel and stainless steel.

Most of the companies operate from Orissa which accounts for 95% of the country's known chrome ore deposits of 213 million tonnes, and accounts for nearly all of the country's production with less than 1% coming from Karnataka. Companies such as Rohit Ferro Tech, Navbharat Ventures and Aarti Steel are also based out of Orissa.

The steep charges are also impacting ferrochrome units. More than 300 out of 350 steel units, which were built at a total investment of Rs 2 lakh crore, have already shut down after the state government did not facilitate making raw materials available at an affordable cost.

The Orissa steel industry will shortly move the Orissa High Court to seek its intervention to direct the state to ensure ore linkage to units struggling to survive. "We are now forced to knock the door of the court as the state government has failed to address our issue for two years.

Lakhs of employees of these units and their family members are now without any livelihood as 90% of the industrial furnace and 70% of the sponge iron units are no more operational. The remaining few units are operating at 20% capacity only and virtually on the verge of closure," said president of the All Orissa Steel Federation P L Kandoi.
Chrome ore sold by OMC to large producers costs Rs 11,500 to Rs 12,000 a tonne. Comparatively, the international price of the ore ranges between Rs 7,000 and Rs 8,000 a tonne.

"Currently a tendering process that is reflective of a fair market price is being practiced. We are looking at quantity based on which, bidding could be done to bring down the cost. But we can't give any differential treatment to state-based units," said steel and mines secretary and OMC chairman Manoj Ahuja.
(Source: Economic Times)

Infosys, TCS, MindTree, Hexaware witness sharp decline in attrition levels

IT companies have been witnessing a sharp decline in the attrition levels over the past couple of quarters. This is similar to what happened during the 2008 recession when attrition declined as job opportunities fell and employees grew cautious about changing jobs due to the uncertain economic environment .

Surabhi Mathur-Gandhi , senior vice-president at Team-Lease , says a similar trend is building up now as people are worried that the economic troubles in Europe could snowball into a global recession. She noted, though, that attrition levels have not yet fallen to the single-digit levels that were witnessed at the height of the previous recession.

The attrition rate at Infosys Technologies dropped to 15.6% from 17% over the past two quarters . At TCS, it fell to 13.7% in the quarter ended September, after having risen for several quarters to reach a high of 14.8% in the quarter ended June. MindTree's attrition rate fell to 21.7% in the latest quarter from 25.6% in the June quarter.

MindTree CEO Krishnakumar Natarajan, however, says the fall in attrition is due to the proactive HR efforts and employee-retention initiatives undertaken by the company. The growth in the sector is strong, and thus it is not the economic climate that is driving attrition down. "Clients continue to spend even on discretionary services (spends beyond what is required for maintaining existing IT infrastructure )," he adds.

R V Ramanan, ED-global delivery at Hexaware Technologies, says that after the global economy began to pick up following the 2008 recession, attrition levels went up quite sharply as people had more job opportunities. What we are witnessing now is a moderation from those highs. Attrition levels at Hexaware fell to 14.7% over the past two quarters from 19.6%.

"Attrition levels are now coming back to more realistic levels of 14-15 %," adds Ramanan.Employment portals and recruitment agencies say hiring activity is slowing down.


With the recovery from the last recession, attrition levels in IT companies soared as the only way for them to increase staffing was to poach from each other. The problem became acute in the absence of any significant fresher hiring during the recession. But over the past year, there's been aggressive fresher hiring, and so some moderation in attrition levels was inevitable. But the sharp decline in the attrition rate in recent quarters indicates that concerns about the future of IT demand in the context of rising global economic uncertainties are weighing on companies. The concerns are not unwarranted. Both companies and employees need to be watchful.


Attrition levels in the IT industry have not yet touched single-digit levels seen during 2008 recession Despite good results, IT companies have begun to factor in the possibility of an economic slowdown Middle and senior levels are showing big slowdown in employee movement.

Attrition low at middle, senior levels

Attrition levels in IT firmss have witnessed a sharp decline in recent times. Amitabh Das, CEO of recruitment process outsourcing (RPO) service provider Vati Consulting , says despite IT companies posting good quarterly results, they have begun factoring in the possibility of an impending slowdown. IT companies are now slowing down on their lateral hires (those with experience of more than about three years).

This indicates that they are expecting a moderation in growth, as lateral hires are typically ramped up in order to drive growth.

In the July-September quarter, the number of lateral hires for Infosys stood at 2,318 employees against its average lateral hiring of 4,246 over the previous four quarters. TCS hired 40% of its total recruits laterally in the September quarter as compared to 65% in the previous quarter.

Analysts say the greatest slowdown in movement of employees is at the middle and senior levels. Employees at this level, typically, lose the most from uncertain conditions.

IT companies continue to recruit steadily at the fresher level, and have stuck to their guidances of fresher recruitments. HR experts say that as the starting dates for these recruits can be deferred - as was the case during the 2008 recession - there is unlikely to be any major change in recruitment plans at this level.
(Source: Economic Times)