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Showing posts from November, 2014

Why Indian Companies Are Smart to be "Short-Sighted" and "Risk Averse"

Extracts from the brilliant article by Dr. Ajay Shah:

Let us start with short-sightedness. The best firms in India are able to borrow five--year money at around 13%. At 13%, a rupee five years from now is worth 54 paisa today. A rupee ten years out is worth 29 paisa today, and a rupee twenty years out is worth 9 paisa today. In contrast, a rupee next year is worth 88 paisa today. With this kind of discounting, it is not surprising that projects that yield returns next year (i.e. 88 paisa today for each rupee of profit) are very attractive when compared with projects that yield returns 10 years from now (i.e. 29 paisa today for each rupee of profit). This difference -- between 88 and 29 paisa -- is striking. In a world with high interest rates, being short-sighted is rational.

...What about risk, and the willingness to undertake risky projects? Modern finance teaches us that when firms are able to issue equity into liquid and efficient capital markets, the risk premium that they fac…

How ICICI Bank's K.V.Kamath learnt from an air hostess and a bellboy

From Charles Assisi's column in Mint:
...why is it a stewardess on Jet Airways greets each passenger who gets on board with a smile? For that matter, why is it if a guest asks for directions at any Ritz-Carlton property, they aren’t directed, but led to where they want to go? Everybody, from the bellboy to the hotel manager, follows the rule.  The stewardess at Jet Airways told Kamath’s colleague their research on passenger behaviour indicated that when greeted with a smile, people lower their guard. For instance, if a flight is delayed or the meal they expect is not on board, as a thumb rule, most people take it in their stride. In the absence of a smile, even minor deficiencies are viewed as offensive, people get boorish, and their behaviour permeates to others on the flight, making it a harrowing experience for the crew. At Ritz-Carlton, the key Kamath observed is empowerment. A bellboy is empowered to take time off from whatever it is he has been assigned to do if a guest wal…

"Trust the hoodie, ditch the suit" and Why "Brahmin's Coffe Bar" aces "Chez Nous"

If you are an entrepreneur who would not have the patience for snooty waiters and difficult to translate/interpret menu cards, you might have some interesting takeaways from this article by Paddy Padmanabhan in Swarajya based on an analysis of the ratings of Bangalore restaurants. Extracts:
Peter Thiel, billionaire founder of PayPal and the first ever outside investor in Facebook, talks about this in his new book Zero to One, and offers some interesting theories. He talks specifically about the spectacular boom-bust of the alternative energy industry in the US, especially solar, which was decimated in the 2009-2010 period by cheap Chinese products that were subsidized heavily by the Chinese government.

He proposes that the solar industry’s woes were brought on by CEOs who were sales guys in suits who had no idea about the technology and even less about the hard questions that needed answering for the business to be viable over the long term. He clinches his point with an interesti…