Tuesday, June 23, 2009

Sensex, Rains and a Little Boy

The Sensex has begun showing signs of recovery but a news item warns of a relapse due to “weakening of the monsoon”. A discussion in one of the sections revealed a fairly decent insight into how the summer monsoon affects both the farming community as well as the business community in India. Yet few issues needing further clarification did rise.


Q1. Is the Agriculture Sector Still That Important?

The question was based on the fact that the last time a failed monsoon brought the economy to its knees was in the early 50s. At that time the contribution of agriculture to the GDP was about 60% which fell to 30% in mid 90s and is hovering around the 20% mark. Yet the success of agriculture in India remains important as 70% of the population is still directly and indirectly dependent on it.

Consider this; In 2002 the rains failed and the agricultural output fell by around 8% and the GDP growth rate dropped from 5.8% to 4%. It is very simple; failed rains = failed crops = lower than expected income for 70% population = reduction in disposable income and therefore reduction in demand for almost all kinds of products and services. Of course some products are hit more than the others. For example, two wheelers and to an extent the four wheeler market will be hit hard.

It is only common sense that if demand drops at the grassroots level, the domino effect will cause slowdown across the board.


Q2. But How Does Rain or a Lack of it Affect the Sensex?

The previous answer would have made it amply clear that how monsoons behave has a definite effect on the demand patterns in India. It is only a fair assumption that a lower demand all over the country would eventually lead to an overall economic slowdown and since the sensex is barometer of the national economic activity it should reflect the downturn.

More than anything, the market is predominantly “sentiment” based. An overall slowdown means an overall slump in sentiment and this slump will be reflected on the bourses. So less rain = less demand = lower performance = lower expectations from the market = overall slowdown.

Remember the indices are bound to react to announcements especially the quarterly figures. So consider what can be the effect on few companies whose stocks are a part of the sensex:

·         ACC: lower rain, failed crops, lesser income, and postponement of new projects there fore a dip in demand for cement. Similarly Reliance Infra, TATA Steel, Larsen & Toubro, Jaiprakash Associates and Hindalco will be negatively affected.

·         TATA Motors: Similar to the ACC example, lesser disposable income means lesser demand for the consumer products like Indica and Indigo. Lowered economic activity and tighter purses mean lesser demand for commercial vehicles too. Similarly Mahindra and Mahindra and Maruti Udyog Ltd will be affected negatively.


In these two cases we have covered about one third of the sensex. So is it not obvious that if the majority of the companies in the sensex experience a downfall, the sensex may go down?


Q3. Ok Agriculture is Important. But Why are Rains Still Important?

Israel has been able to grow fruits in the Negev desert and farmers in India still depend on rains for watering their fields. Welcome to the concept of “Rainfed Agriculture”.

Lets go back in history. At the time of independence, the newly formed government was faced with running a country where a very large part of the humanity lived on the edge of sustainability. It was only natural that the government was concerned about what we might call growth at the grassroots level. One of the ways in which this growth was driven was through massive public investments in irrigation, agricultural research and extension, rural infrastructure, farm credit and rural development programs.

And even though we have miles to go, we have transformed from the “food insecurity” of the 60s to surpluses of today.

It is however very important to understand that almost all of the growth, research and development in agriculture has been in “irrigated agriculture”. Irrigated agriculture is agriculture carried out using man made irrigation facilities like canals and tube wells whereas rainfed agriculture depends solely on the seasonal rain for irrigation needs.

According to government statistics, rainfed agriculture accounts for about two-thirds of total cropped area nearly half of the total value of agricultural output. Nearly half of all food grains are grown under rainfed conditions, and hundreds of millions of poor rural people depend on rainfed agriculture as the primary source of their livelihoods.

Again it is a simple deduction that if 2/3rd of the agriculture sector in India millions of the rural folk depends on timely well distributed rains during monsoon, any abnormality or weakening of the monsoon will adversely impact the whole nation.


Q4. Ok. So Rains are Important, But is it Only the Amount of rain that Matters?

No. Amount of rain is one of the variables, the other critical variable is the distribution of rainfall.  In simple words it is not only how much it rains that matters, even when and for how long matters. For example let us say that the normal rainfall for the month of July for a particular place is 200 mm. If it rains on and off but the final figure indicates only 100 mm in July, it is obviously a problem. But in another situation, let us say there is very heavy rainfall and 200 mm comes down in just a couple of days, it actually means that even though the monthly targets have been met, it is still a problem. Ideally 200 mm rain in July at this place should be well distributed throughout July.

It is also important to point out that abnormal monsoon can be because of deficient as well as excessive rainfall. Even more rain than normal can cause problems. In countries like India and our south Asian neighbors, the primary crop during the monsoon season is Paddy (Rice and Paddy are different, find out how..) which needs a lot of standing water at all times. So excessive rainfall does not have that detrimental an effect, especially if the excessive rains were not accompanied by strong winds (winds can damage crop by logging).


Q5. They Say That the Monsoons are Failing This Year Because of the El Nino Affect. What is it?

El Nino stands for “The Little Boy” in Spanish. El Nino is what we call a weather phenomenon. Technically, it is called ENSO (El Nino Southern Oscillation). It is a very complicated cycle of temperature changes in the Pacific Ocean off the coast of South America that causes changes in the normal weather patterns. Warm ocean currents heat up the ocean and all sorts of changes to the wind patterns take place. Places that normally remain dry, gets plenty of rain like Peru and places where it is supposed to rain may see a reduction as is the case in India.  

Oh!! By the way there is another weather phenomenon which causes the exact opposite to what El Nino does. It is called “La Nina” or the little girl in Spanish!!


So we can see that the performance of the indices and monsoons are inextricably linked. But does it mean that every time El Nino strikes, we will have a drought and the sensex will crash? No!!! Weather systems and phenomenon like the El Nino are very unpredictable and so is their impact on India. But general indications are that El Nino means less rain and it is already happening is it not?

As far as the sensex goes, the logical link between El Nino and the sensex is undeniable but so many other forces are at play this year that the sensex is probably more unpredictable than the weather!!

Thursday, June 11, 2009

How Fit Are You?

Another long one I am afraid!!

An ad for a B School claimed that their mission was to “produce managers fit for the society”. This statement demands an examination of what we consider is “fitness” for the society. 

I am sure most of you will agree that "fitness for the industry" would be an easier construct to define. Considering all what would be expected from an MBA, an ability to deliver results on what your organization considers are your key result areas will be the primary determinant of “fitness” in the industry. The ability to deliver numerical results are however only one part of the equation. The long term success of an MBA in the industry will be determined to a very great extent by what can at best be described as a mosaic of abilities. I am sure that the list of abilities to feature in that mosaic would be highly subjective and every one will have one based on their learning, perceptions, experiences, beliefs and value systems. I too have such a list:

·         Emotional intelligence

·         Internal locus of control

·         Ability to network

·         Self Effacing

·         An ability to keep the long term and the immediate separate.

Among noticeable omissions in the above give list are the commonly touted “communication skills”, “interpersonal skills”, “leadership” etc. As the list is based on my experiences howsoever insignificant they might be, I have come across enough successful managers and entrepreneurs who were not great orators, with enough interpersonal problems and conflicts. I did not include leadership as it is a very dynamic variable and tends to assume changing values in different situations. Even though it is undeniable that the ability to lead is perhaps a single most cherished trait, I have not yet come across a satisfactory answer to the very simple question, “What is Leadership?” Maybe one of you can enlighten me on that.

Coming back to the point, the concept of fitness for the industry is easy to describe even though the contents of the description still remains subject to debate. The concept of “fitness for the society” will be a harder nut to crack. The difficulty in doing so arises from the conflicts between what can be considered to determine fitness of an individual. Is the ability to generate wealth not good enough? Or would you be the more spiritually inclined who would consider abstract terms like honesty and spirituality? Or may be you are the “practical” being who would probably smirk at this question and say “What the hell!!”

Following is what I consider the components of fitness for the society. I will not impose lengthy explanations of each one.

1.       Physical Fitness

2.       Mental Fitness

3.       Emotional Fitness

4.       Spiritual Fitness

Physical Fitness

We are physical beings and being physically fit in my opinion is a primary concern. A healthy body as a prerequisite for a healthy mind is not new and I totally subscribe to the concept. Till yesterday evening this was an opinion based on my gut feeling and advice by many learned individuals. A program on obesity among people who have been athletes was an eye opener. Of course we all know the hypertension, cholesterol, heart ailments etc. but what shocked me was that the moment you start to gain wait and become unfit in any way, the hormonal balances in your body goes for a six and of all things the first to deteriorate is your mental make up!! They had a horde of evidence and explanations. But the bottom line was, “If you are unfit physically, you are unfit mentally too”!! Even if we leave that, how difficult is it to understand that your physical fitness is one of the few things you can control to a very great extent and if you are not doing so, serious doubts about your ability to control anything can be raised.

Mental Fitness

My cousin sister developed a habit of solving puzzles as a kid and when I was buying guns as toys, she was well into solving mathematical puzzles. Not only did she do fabulously well in her school, she also aced all the entrance exams she chose to appear in. Even after her studies, she is considered to be a valuable “solution” person in a huge financial MNC. And that ladies and gentlemen is getting her a salary which is ten times mine! It is very common knowledge that what is not used for long will rust and our mind is no exception. Try solving jumbled words, Sudoku or whatever you can lay you r hands on for a month regularly and you will see that not only will you get better at that but you will actually start “seeing patterns” in almost any problem you come across and if patterns begin to emerge, you have developed the great ability to “visualize” problems, mathematical or not! No problem is too difficult if you can visualize it.

Emotional Fitness

Emotional fitness of an individual according to me is the ability of an individual to exert control over her emotions and minimize deviations from the mean. In other words emotional intelligence will allow you to control the amplitude of your reactions to external emotional stimuli. How high are you highs and how low are your lows? Emotional highs and lows make good fodder for stories, poems and songs but when it comes to get the job done, calmer and the “in control’ are far more valuable.

Spiritual Fitness

Spirituality is at best confusing to most and surprising embarrassing to many. Many actually make a mistake of consider being spiritual same as being religious. Of course there are people who can be both but I most definitely would like to consider the two different. For me spiritual fitness would amount t two things; having faith in the higher power and the ability to let go. The term “higher power” is very vague. In fact it is this vagueness that motivates the quest many undertake. He quest may or may not clarify the identity of the higher power but it most certainly reveals you to yourself. The result would be a common man living in the real world, pursuing his worldly responsibilities but all the while and in the middle of al the chaos they would remain calm. This higher state of consciousness reveals the ephemeral and temporary nature of all things and makes it very easy to let go of anything. And if you can let go, can anything ever make you sad, or angry or excited or upset or can the fear of loosing something make you scared, or tense?

Of course the spiritual aspect of fitness for society sounds philosophical ramblings of an over imaginative teacher but I am sure deep inside all of you know that this is as true as say and night!!


Our actions are influenced by the society and its pressures. It is also however true that our actions determine what that society is and what kind of pressures exist because of it. You see. . . . . it is an open system and all the players are influenced by the environment and the environment affects the players.


I sincerely hope that the business school actually aims to do what it claimed and I do believe that as academicians it is the humble duty of people like me and my dear colleagues to consider whether our actions in our workplaces are based on a consideration for the end result or not.