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All over the world, performance of the automobile industry, especially the passenger car segment, is considered as an index of economic development. In terms of importance it is next only to housing sector. This is mainly due to the fact that these two products are the highest value purchases a typical middle income household and above prefer to own. India is no exception to this, since the middle income population is one of the largest in the world. Further, automobile industry has strong linkages, both forward and backward, to other major industries, such as, iron and steel, aluminium, tyre, etc.

Thanks to the favourable economic policies of the Indian Government, almost all the global players in the automobile industry have set up/are in the process of setting up their facilities in India: Ford, General Motors, Peugeot, Daewoo, Mercedes-Benz, Honda, Hyundai, Mitsubishi, Toyota, Audi, BMW, etc. This has resulted in the market being witnessing not only more choice of models with increased production capacities, but also more competition.

One major question pertaining to the Indian automobile industry is that, whether it will be possible for India to absorb the huge jump in capacity in a short span of time without considering several factors such as road net work and socio-economic aspects.

According to Business Today-CRISIL study, the car segment is expected to grow at a compounded annual rate of growth rate of 20 per cent till the end of this century. The demand for economy and medium segment is estimated at 510000 cars and this will be comfortably met without resulting idle capacity. However, in the luxury car segment, an over supply position is estimated. Contradicting these estimates, the growth rate has declined to about 7 per cent during 1996-97.

Thus, initial estimates on the Indian passenger car market size was between 8 to 10 lakh cars per annum. However, in reality it is estimated around 4.5 lakh cars per annum, working out to only about 10 per cent growth rate compared to the forecasted growth rate of 20 per cent.

Indian automobile sector is an example for the great Say's Law : 'Supply creates its own demand'. Maruti has vindicated this. Further, at the entry level, the demand for passenger cars will keep increasing due to several factors such as increasing income levels and easy availability of car finance.

Currently there are around 3 million car owners in India. Since many of these existing car owners should have risen in the social strata, demand for medium and premium range of vehicles is also expected to grow significantly. The future entry-level demand for cars in India will arise from Rs 2 lakh and above income category which is estimated to be around 2.6 million by the turn of the century. Further, there are about 21 million two wheeler population in India, the owners of which predominantly belong to the middle income group. A major portion of them is likely to graduate themselves into car owners.

Car finance also plays a vital role in augmenting demand. At present, more than two-thirds of cars are sold through this route. Car finance companies are on the rise. Most of the auto manufacturers have set up car financing companies and some of them in collaboration with global car finance players. Major Indian public sector banks have also started financing cars in a big way, making the car finace market more attractive to the borrowers. This has resulted in reduction of interest rates. At present, there are multiple finance options available for a car buyer. The interest rates vary from 10 per cent to 19 per cent. In some cases, car manufacturers offer interest-free loan, if the installments are paid within a shorter period, say, less than a year. In future car finance companies have to shift their focus from metros to small towns and cities where there is a sizeable pent-up demand. Thus, with increasing car finace facilities, the purchase decision of Indian buyer is executed earlier, which helps to boost the car demand in the country.

Thus, the potential of Indian automobile sector can not be dismissed as ghost potential.

The car segment is sub-divided into economy, medium, premium and super premium. In India, the economy models alone constitute dominant 66 per cent (during 1996-97), with medium segment emerging as a distant second with 19.5 per cent. Premium segment is 14 per cent and the super premium segment is a paltry 0.5 per cent. Realising the scope for economy models, major players are planning to focus on this segment in the coming years.

Moreover, automobile players can use India as a manufacturing base not only to meet Indian demand, but also as a sourcing point for their global operations. This will enable them to enjoy cost advantages owing to comparatively cheaper Indian labour and a range of infrastructural facilities offered by various state governments in order to industrialise their states quicker. Further, the government also no longer views automobiles as a luxury product. This is reflected in the continuous reduction of excise and customs duties for passenger cars, particularly, the economy models.

Also, there is purchasing power, in the rural markets. But, the need has not been felt and/or created. Players in the industry can infact design exclusive models for the rural Indian market, parallel to the urban-based small car models.

Thus, there can be found great scope in the Indian market for passenger cars, both in the urban and rural markets. With prudent product selection and marketing-cum-communication strategy an automobile manufacturer will not only be able to reach his goals, but also expand the market. 

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Performance of the banking sector is considered as a proxy for the economy as a whole, due to banks' wide spectrum of exposure across industries.

Unfortunately for India, the banking sector has historically remained under the impact of non-competitiveness, poor technology integration, high NPAs and grossly under productive manpower.

Earlier profitability gained only secondary importance, since banks lived in the comfort of a controlled environment. However, today banks cannot survive only

set targets and evolve strategies to reach them.

There is certainly a paradigm shift in banking in India in the recent past. At present profitability, capital restructuring and transparency are considered important

and significant for banks. Also, banks in India have started realising the need to be `customer focussed' that in turn leads to `customer appreciation' which is

imperative for survival and growth.

The first change along this line was brought in by the foreign banks with their emphasis on high quality and efficient service combined with the technological advantages like sattelite banking and tele-banking manned by skeletal staff and lesser number of branches.

Further, development of special manpower, innovative products, technology exploitation and personalised services play a crucial role in the banking industry today, since the customer has more options in choosing a bank. Thus leading to consumerism in the banking sector. Also, since customers are becoming more sophisticated and educated, their expectations from the neighbourhood bank are increasing .

The private banks wisely chose to use this opportunity to prepare for the future rather than scramble for current business. Many of them refocused their activities, seeking clearly defined identities in terms of services and customer segments.

To sum, the new private sector banks are poised to redefine banking in India. Though they do not pose a threat to the existing private banks they will certainly force them to gear up their strategies to remain in the field. This will lead to intense competition among the new banks, that would also serve as a challenge to the foreign banks.

Strategies : Changing Scenario

The last five years saw a sea-change in banking strategies, with more focus on quality.

The adoption of a specialised customer-oriented focus is fast getting wider acceptability. In a market that keeps growing in depth and diversity, niche banking is the new mantra adopted by all. Thus, instead of targeting an entire market segment, banks have adopted

a specific business focus to clearly reach their target audience.

The best banks' strategies:

(1) Increase volumes to compensate for declining interest rate spreads;

(2) Trim expenditure on provisions and contingencies, thus narrowing the gap between operating profits and net profits;

(3) Pare down operating expenses through organisational restructuring; and

(4) Adopt a clearly focused communication plan.

Some specific instances where banks have re-focused on their strategies :

Indusind Bank is trying to reduce its overseas dependence for deposits and expand its domestic branch base dramatically over the next three years. And, it will offer both niche and integrated services.

ICICI Bank believes that, in India niche banking can not be a winner.

The essence of Citibank's corporate banking strategy is to go for big ticket business only : big corporate clients, big bucks. The result is low NPAs.

Oriental Bank's (of Commerce) real strength is its profitable rural and semi-urban business base.

Times Bank has positioned itself for exploiting opportunities in all areas. Times Bank's corporate plan involves the pursuit of an aggressive strategy of equal thrust in both corporate and personal banking.

Bank of America intends to continue its dual focus on wholesale and retail banking.

Corporation Bank is targeting the burgeoning middle class through volumes.

ANZ Grindlays is increasingly focussing on bringing its services to the customers' doorstep like `Home Loanz' etc.

Thus, today focus is more important than size in achieving success in the banking industry. The latest in technology, innovative retail products and personalised services are vital to carve out a niche in banking sector.

Over the last few years, the communication style too has changed with respect to the banking industry.

Communication has shifted from branding the bank to branding banking products, highlighting service commitment, convenience, etc. Further, branding of banking products, such as home loans, consumer durable loans, tele banking, ATM's, net banking, etc. have started taking place, especially after the entry of foreign banks and private sector banks which had the advantage of the latest technology.

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During second week of August 1999, I had sent a urgent message through my staff to a near by place. On his way back, near Arun Hotel at the corner of Nelson Manikkam Road City Traffic Police stopped him and asked for his driving license which he produced. After which, they asked him to produce other documents (R.C. Book, insurance, etc.) which he did not have at that moment. Thus, the City Police issued him a charge sheet asking to produce the documents. The staff telephoned me and I was there on the spot with all documents in five minutes. However, even after producing all the documents in original the police refused to release the vehicle and insisted on a penalty. I requested them that I will pay the fine in the court. They did not agree. Finally, after wasting more than two hours, not able to convince the Officer I paid the fee for no mistake of mine.

I have the following complaints-cum-observation:

1. Why should I pay fine when I have not made any mistakes?

2. The Police Notice or the charge sheet mentions that 'only if the documents are not produced, the offender is liable for prosecuting in a court of law'. Then, why did the Police charged a fine even after producing all the documents in original within five minutes.

3. The Police Notice bears the seal of K-3 (Aminjikarai) Police Station. But, the cash receipt issued by the Officer bears the seal of K-4 (Anna Nagar) Police Station.

4. The Inspector of Police on the spot was not wearing his Tamil Nadu Police Number badge on his uniform. However, he was wearing a name badge which indicates his name to be Mr K. Jegathesan. He was also using a red colour TVS Susuki bearing registration number TN02F0804.

5. In just two hours, in daylight (around 12.00 noon) the spot team received bribe from the vehicle owners (offenders), which would have amounted to more than Rs 3000. This means more than Rs 8000 loss for the Tamil Nadu Government, because the team issued no receipts for them. (In two hours they would have issued only about three cash receipts.)

6. If Police behave without any logic and without loyalty like this, the looser will not only be the public, but also the ruling party. I am sure that the present ruling party will loose at least 200 to 300 votes due to the behaviour of City Traffic Police on that day. This figure on a aggregate may be even much higher.

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One of the most potent problems confronting the uban planners of Chennai city is its vehicular traffic problem. A problem that has been neglected over the years, has today become a potential hazard to anyone using the roads. Be it on a two-wheeler, four-wheeler or any other mode of tansport. Even the casual walker is not spared what with danger lurking in every step. If it is not a cyclist or autorickshaw banging you, it could be a bersek bus or lorry driver ploughing his vehicle into you. You might ask, what then is the safest way to travel ? If you ask me, none ! Then arises the question, what then is the responsibility of the elected corporators or is it the traffic police against whom ones ire has to be directed.

The fact in reality is all officials, right from the corporators, civic officials right down to the traffic constable manning the junction is responsible for this debacle. Examining each ones role closer would clearly state where the problem lies.

First to start with the corporators and civic officials are to be blamed for the unplanned and ill conceived development taking place. New nagars and townships are created with much fanfare and named after their political mentors to please them, but no other aspect of development is given a thought. No proper approach roads planned, no prior intimation and co-ordination given to metrowater, telephones and other need based service providers. As a result land is alloted flouting all conventions, licenses granted to set up roadside stalls and shops and whenever the need is felt , one of the statutory service providers like metrowater dig up the entire road to give a new connection. Flyovers and bridges built without taking into consideration the strength or future vehicular space needed.

At the second level come the RTO's and transport authorities who renew or give fresh licenses to vehicles without ascertaining the conditions of the vehicles or its drivers with a result that more vehicles ply off the road than on the road nowadays. Included here are the government transport drivers who take every citizens life for granted and believe in exhibiting their ownership over the city's roads every now and then.

And, yes how can we forget ourselves, the owners and drivers of numerous cycles, autos, two wheelers, cars (both foreign and local) etc. Surely, we can't be absolved entirely of the blame of contributing towards this mess . Because we always believe the guy or gal (increasingly the girls who advocate equal opportunity in creating accidents too) in front is a moron and dosen't know to drive his vehicle, the yellow lines or the centre medians in the middle of the roads are for decorative purpose and not for maintaining our lane, the head lights on our vehicles are for brightening up the world around us (even though the street lights accomplish that) and the horns to check if the populace is able to hear or is turning deaf.

Last, but not least, the role our famed men in uniform play towards the above mentioned mess. In the day if it is the hot sun that numbs the senses and handicaps the constable from managing traffic forcing him to be a roadside spectator who, when the need arises, pounces on an unsuspecting two wheeler rider then in the night it is the pollution and sheer flow of traffic that forces our poor constable to take refuge behind the traffic signal only to make the customary pounce when the need arises.

How can we be denied our fundamental right to jump the signal even before it turns green and continue even after it has turned red. Who can stop us from proving the manufacturers right by exhibiting for all to see the basic feature of our vehicle " 0 to 60 miles per hour in 10 seconds", flat. Who can stop us from exhibiting our primitive qualities of crossing the road in front of a speeding vehicle or make a sudden u-turn to teach would be Schumachers the art of cutting corners. In my opinion the manufacturers of technologically advanced vehicles are the biggest fools. Because they spend a lot of valuable R&D and money to provide additional features like turning indicators, safety belts etc. when our primitive nature just dosen't allow us to use these gizmos.

...to be continued

Next week we shall examine in detail the traffic problems and possible solutions. Netizens are requested to send in their views and queries on the above.

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 The term 'efficiency', in a broader sense, means organisational or administrative efficiency of the stock market. However, it is used in this work with reference to information efficiency, that is, how prudent and successful the market is in articulating stock prices by incorporating all new information in a fast and unbiased manner, such that abnormal profits are impossible.

Three types or forms of efficiency - weak, semi-strong and strong - are found in the literature, each level pertaining to specific set of information which is more comprehensive than the earlier.

The market is efficient in the weak sense if share prices fully reflect the information implied by all prior price movements. Price movements in effect are, totally, independent of previous movements, implying the absence of any price patterns with prophetic significance. Thus, at this level, it is unlikely to reap huge abnormal returns by the investors by employing past price data, ruling out the validity of trading rules. On the other hand, in the conventional view, if the market is inefficient in the weak form, it implies that by using technical analysis - on the assumption of 'history tends to repeat itself' - the chartists attempt to predict future price movements by interpreting past patterns.

The market is efficient in the semi-strong sense, if share prices respond instantaneously and without bias to newly published information. Since stock prices adjust so rapidly to new information, it would be impossible for investors to gain above-average returns by analysing published information.

The market is efficient in the strong sense if share prices fully reflect not only published information but all relevant information including data not yet publicly available. Thus, if the market is efficient in its strong form, even the inside trader cannot crown his profits with his privileged information.

Most of the research works before 1980s supported the existence of weak form of efficient market hypothesis (EMH) in India, Rao, K.N. and Mukherjee, K. (1971) and Sharma, J.L. and Kennedy, E.R. (1977), to name a few. Mixed results were found during early 1980s. However, many studies employing data pertaining to late 1980s rejected the EMH in its weak form, Ramachandran, G. (1989), for example. Contrast to this, again, the most recent works like Mittal, R.K. (1994) and Belgaumi, M.S. (1995) using early 1990s data accepted the weak form of EMH, under Indian conditions.

Thus, Indian stock market data yielded, in general, different results during different time periods. This point has been clearly vindicated by the poor performance of the FIIs and foreign (as well as Indian) mutual funds, inspite of their proclaimed expertise in research and fund management.

One of the reasons for this varying results may be due to the fact that the Indian share market witnessed a phenomenal growth during the decade of 1980s bringing more number of players into the market, which, in turn, would have led to informational inefficiencies linked with organisational inefficiencies, such as inadequate number of brokers. The net result of these deficiencies led to the multi-crore scam. During early 1990s, many players leaving the market or remaining idle after the scam coupled with many new regulations introduced by regulatory agencies such as SEBI would have made the Indian stock market somewhat efficient.

In short, Indian stock markets cannot be equated with that of the well developed markets abroad. Thus, the analytical tools applied in well developed markets, if imported, may not yield the same results.

ortfolio selection is an art as well as a science. To obtain maximum returns while minimising risks, a fusion between theory and practice has to be brought out. Thus, in a market like India where there is no concrete research evidence regarding the usage of tools of portfolio choice, a methodology which involves scientific reasoning coupled with practical skills may yield higher returns with minimal risks.

Presented below is a strategy for portfolio managers under Indian conditions where the efficiency of the market keeps changing from time to time:

Individual company analysis comprises (a) technical analysis and (b) fundamental analysis. Technically a scrip can be Weak, clearly depicting a downward movement, or, Strong, indicating a confirmed upward movement. Similarly, a stock can be fundamentally Weak or Strong.

Thus, four outcomes are possible at the first stage: (1) WW - Both fundamentally as well as technically weak; (2) WS - Fundamentally weak but technically strong; (3) SW - Fundamentally strong but technically weak; and (4) SS - Both fundamentally and technically strong.

Those scrips which are both technically as well as fundamentally strong only are considered for further analysis.

However, few more outcomes are also possible other than the above mentioned ones, a company's price movement depicting an uncertain pattern (band), for example. This kind of outcomes can be comfortably ignored till certainty is found in the graph - an upward or downward outbreak.

A company may have good prospects. But, its industry prospects may be weak. However, while looking at industry prospects, one can consider time factor too. That is, the industry prospects may not be good in the near future. But, it may be attractive in the long run. Thus, someone building a portfolio with long term growth as investment objective, may consider time and portfolio objective and act accordingly.

In the Second Stage, it is advisable to select only those companies whose individual as well as industry prospects are good, after giving weightage to investment objectives.

As an alternative, mainly to save time, industry analysis can precede company analysis. That is, the growth industries can be identified first, afterwhich through company analysis, scrips may be narrowed down. Thus, stages I and II can be interchangeably executed.

In sum, at the end of the first two stages, we have done nothing but combining technical and fundamental analysis, by which a sincere attempt has been made to reduce the portfolio risk element while providing adequate weightage to the returns.

Now, we will be having a list of companies, which are technically and fundamentally strong; and whose industry prospects are good. These scrips, though worth investing theoritically, may not be a sound investment decision, since market may have a different opinion. After all, the stock prices too depend on future expectations of the market. Thus, the list may be further shortlisted after taking the market realities into consideration.

Now, the final list can be classified according to industry-wise and an appropriate portfolio may be selected, taking industry diversification into account, so that the risk of the portfolio is minimised, as suggested by Markowitz. However, practice demands certain other things too. Thus, a portfolio may be constructed in such a way that: (a) Not more than 10 per cent of the funds are blocked in a solo scrip; (b) Not more than 20 per cent of the funds are invested in a single industry; (c) In a rising market, it is advisable to choose volatile scrips to maximise returns and in a declining market non-volatile shares may be picked-up to minimise losses; and (d) In order to monitor the portfolio in an efficient manner, the size of the portfolio [that is, the number of scrips in a portfolio] may be decided according to the amount invested. In practice, a portfolio can be comfortably managed if the number of scrips in that portfolio are between 10 to 20. However, in the case of fund managers who manage huge funds [mutual funds, for example] may sub-divide their portfolios in any specialised manner (for example: Portfolio A = Primary Market Investments; Portfolio B = Sensex Investments; Portfolio C = Basic Goods Industry Investments; etc.].

Finally, all these can be efficiently done only with a strong-authentic data base and a team of dedicated research personnel.

Hence, a well carved portfolio - based on scientific reasoning blended with common sence - which is altered from time to time depending upon changing market realities will yield superior portfolio returns, with minimum risk-factor involvement.

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