Month: January 2020

Oil prices post biggest yearly rise since 2016

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil prices fell 1 percent on Tuesday, the last trading day of the decade, but notched the biggest annual gain in three years, supported by a thaw in the prolonged US-China trade war and ongoing supply cuts from major oil producers.

Brent gained about 23 percent in 2019 and WTI rose 34 percent, their biggest yearly gains in three years, backed by the recent breakthrough in the trade talks and output cuts pledged by the Organization of the Petroleum Exporting Countries (OPEC) and its allies.

Forecasters do not expect oil prices to move sharply in either direction next year. Brent crude is expected to hover around $63 a barrel, a Reuters poll showed on Tuesday, down modestly from current levels, as OPEC production cuts offset weaker demand.

Over the past year, increased US oil output offset the supply reductions undertaken by OPEC, led by Saudi Arabia and stemming from US sanctions on Venezuela and Iran. Lacklustre demand, including in developed economies, remains a primary concern headed into 2020.

“Oil prices, though largely expected to trade positive, will face headwinds from subdued global growth momentum and robust US shale output levels in the first quarter (of 2020),” said Benjamin Lu, an analyst at Phillip Futures.

US crude oil production in October rose to a record of 12.66 million barrels per day (bpd) from a revised 12.48 million bpd in September, the US government said in a monthly report. The pace of growth is expected to slow in 2020.

Brent crude fell 67 cents, or 1 percent, to settle at $66.00 a barrel. US West Texas Intermediate (WTI) crude fell 62 cents, or 1 percent, to settle at $61.06 a barrel.

On Tuesday, trade volumes were low with many market participants away for year-end holidays, amplifying the market’s moves.

US President Donald Trump said the Phase 1 trade deal with China would be signed on Jan. 15 at the White House. Signs of progress on the deal had boosted China’s factory output and manufacturing activity in the country expanded for a second straight month.

China’s Purchasing Managers’ Index (PMI), which tracks economic trends in the manufacturing and service sectors, was unchanged at 50.2 in December from November, just above the 50-point mark separating growth from contraction.

Investors were nervous about the Middle East, where thousands of protesters and militia fighters gathered outside the US embassy in Baghdad to condemn US airstrikes against Iraqi militias.

Security guards inside the US embassy fired stun grenades at protesters. The US ambassador and staff were evacuated due to security concerns.

“Considering that Iraq is the second-largest OPEC producer with production around 4.6 million barrels per day, market participants may add a risk premium to oil tension if tensions last for longer,” UBS oil analyst Giovanni Staunovo said.

“That said, we need to see if the latest protests spread also in the south of the country, where most of the crude is exported.”

On Tuesday, data from industry group the American Petroleum Institute showed US crude oil stocks fell by 7.8 million barrels in the week to Dec. 27, compared with analysts’ expectations for a draw of 3.2 million barrels.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The Product-Market Fit Code: Why many companies fail to crack and what startups need to learn

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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If you ask anyone, a founder, an investor or any stakeholder attached to a business, what would be the “heart” of any business, very few would differ from the answer that it is the “product.” It doesn’t matter how good the company is, how instrumental its processes are, how motivated its sales team is or how impeccable the finance team is, if the company product is mediocre or way far away from the market’s need.

A product, by definition, encompasses anything tangible or intangible which in most cases a consumer is willing to pay money for. Most businesses, be it a start-up or an established organisation, pay utmost importance in creating the product. While most companies try to solve a problem with their product or service, there have been examples where companies have gone in creating something that a customer demands or by identifying gaps and finding opportunities in the market.

While creating a product requires a great deal of resources and bandwidth, most companies especially start-ups get fixated to them beyond required and tend to move a little away from what actually the market needs. In some cases, the companies have gone to the extent that they have introduced products which actually made no sense with the current market dynamics.

If you ask product managers and corporate innovators and their boardroom bosses or likewise startup founders, each one of them would give a kind of checklist of the things they take care of while identifying, creating and launching a product which may look very familiar to the following-

1. Target Segment: Who would be interested in buying the product or service?
2. Reach: How do you reach the people in the identified target market?
3. Problem: What is the problem that the product or service is solving?
4. Approach: How can the product help businesses convert the target market into paying customers?  
5. Price and Cost: What much does it cost the business to make the product and how much is the customer ready to pay.
6. Time: The most less spoken but the most important component of any product is whether it’s the right time to launch the product?

Even with the kind of near perfect checklist there have been numerous instances among startups and corporations alike where the product has miserably failed to attract customers or be at a right place at a right time. Some of them could be

Not communicating differentiation

While innovating a product is good and creating a better differentiated variant of an existing top selling product is even better but failing to communicate the differentiator to the customer has often killed the product.

• Satisfries by Burger King

To match with the mood of the times, In 2013, Burger King thought of introducing something healthier on its high calorific menu, a healthier substitute to its traditional French fires. Burger King started using a less porous batter, to make Satisfires, which caused the fry to absorb less oil than regular fries during cooking. While Satisfries were made with a healthier recipe, Burger King couldn’t do enough to convey the difference to customers. The fries were also more expensive than Burger King’s regular french fries and people didn’t even know why they were shelling out these extra bucks. Left with a tougher outer coating and a drier texture, the consumers rejected these high price snacks ultimately forcing burger king to shelf it.

Faulting on products while rushing to catch competition

Often it is noticed that to grab market share and to catch up with great exciting products, competing companies introduce pretty similar products. This rush to not fall back too far forces companies to hurry up with their products often resulting in bad quality, not much useful innovation and loose ends to a lot of crucial aspects that often become the factor to decide the success or the failure of the product.

• Microsoft Zune and HP Touchpad

The first decade of 21^st century all belonged to Apple. The company launched revolutionary products that changed the dynamics of music and the hand-held devices industry and did send tremors to its competitors. This forced competitors to come up with competing products in similar segments, but the scare of losing market share forced them to “hurry up”

In an attempt to compete with Apple’s dominant iPod MP3 player, Microsoft released the Zune in 2006. While the device seemed to have been a reasonable choice for consumers especially the Microsoft fans, a number of reported bugs did not help sales – like on December 31, 2008 nearly all 30GB Zunes stopped functioning simply because the underlying code had failed to account for the extra day in leap years. This clearly showed Microsoft had hurried up with its product and the sales never took off really. In the fourth quarter of fiscal 2009, Microsoft recorded a 42 percent decline in revenue in its non-gaming devices segment — a decline largely attributable to the Zune’s poor performance. With the failure to get numbers Microsoft lost focus on Zunes ultimately discontinuing all streaming, downloading, and other music services for the Zune in 2015

Similar was the fate of HP Touchpad which was launched to counter the Apple iPad. Hewlett Packard launched the device in the middle of 2011 with an extremely costly advertising campaign which numerous celebrity contracts. But the product never took off as it took shortcuts while developing the WebOS operating system in just 9 months which was built over an open-source software engine not really ready for the market . By late summer box stores such as Best Buy were sitting on excess inventory, and HP began offering steep discounts ultimately ringing the death knell for the product.

Fixing a problem that never existed

Often innovation managers and product teams go too far with their innovative thought process and tend to create products which are solutions to problems that are not actually problems for the customer. In some cases, the product innovated turns out to be as cumbersome as the original product creating absolutely no demand for them

Maxwell House Brewed Coffee

=Well, here is the story of coffee gone wrong. Maxwell House introduced a brewed coffee which was ready to drink in early 1990s way ahead of its competition with a vision to create a new, easy and convenient way for consumers to enjoy their own cup coffee instantly, without having to actually make themselves at home.  All that the customer needed was to purchase the product, bring it home, microwave it and have it. While the idea was genius, the execution was bad. Maxwell House pioneered selling consumers pre-brewed coffee in a cardboard carton. Instead of asking consumers to have an iced coffee which would have been the obvious choice, Maxwell House chose to advertise the beverage to be enjoyed hot.

For a customer, the convenience actually never came in as they had to take the extra step of pouring a mug of coffee, then heating it up (equal effort of actually brewing the coffee). And the once who thought of microwaving the whole carton, well they couldn’t do it as the carton was foil-lined.

With more than 80 percent coffee is already fast and easy to brew, Maxwell had to ultimately shelf the product.

Delay in launches and product falls short of claims

Usually, a follow up of a successful product or a variant is much anticipated. And if the product fails to live up to those expectations it usually leads to failure seeing a drop in sales. This keeps a continuous pressure on the product team to not to delay the product much from the announced dates so the expectations can seep in.

Microsoft Windows Vista

 Following the success of Windows XP, there was a high expectation from Microsoft to deliver yet another strong successor. The media and public had really high expectations when in 2007 Microsoft decided to launch Windows Vista. To meet up to the demand and expectation the company did allot $500 million for marketing and predicted that 50 percent of users would run the premium edition within two years. But hell broke when the newer version of the operating system had so many compatibility and performance problems that even Microsoft’s most loyal customers were appalled. Vista flopped and couldn’t make a mark giving Apple a chance to ridicule it in an ad campaign (“I’m a Mac”), causing many consumers to believe that Vista had even more problems than it did.

Recipe of death: A combination of many reasons

While there could be many reasons built around why products fail, there have been products that have crossed these boundaries and had so many wrong ingredients in their failure sometimes becomes inevitable.  Multiple errors in the product, market identification and promotion are something not even the best of the product can survive.

Segway

The Segway PT is a two-wheeled, self-balancing battery electric vehicle invented by Dean Kamen. It was launched in 2001 with a lot of expectations and a blizzard of publicity. Yet the market acceptance was not there. With a brilliant product, savvy company, tremendous funding and resources, the company did commit errors that never let the product take off. This included:

It was a product, not a solution. The product worked well but it lacked a support context and left the user with a thousand questions — Where can they park it? How do they charge it? Will one use it on roads or sidewalks? The current day cities are designed for pedestrians or speedy vehicles and this was neither so it had no proper infrastructure to support it.

Where is the target market? With the product in place, it failed to answer who was the target market and which segment really needed this? It was an appealing novelty but there was no compelling need for anyone to buy it – and it was very expensive.

No market research and testing: According to what’s available in open sources, The Segway was patented and kept under wraps until its launch. The founders did not market-test it and there was no user feedback or iteration in the process. After its official launch, the inventors were pretty surprised when people criticised or ridiculed the design for being ‘dorky’ rather than cool. This could have been easily eliminated if markets were tested

These reasons contributed to very dismal Segway sales. Instead of selling 10,000 machines a week, as Kamen had predicted, the Segway sold about 24,000 in its first five years. While the product is still available, now it sells for far less to police forces, urban tour guides, and warehouse companies, not the general public.

While these product failures do leave behind a lot of lessons to learn, it’s in the hands of managers to educate and engage with all the teams including the ones that take care of the brand, marketing, sales, advertising, public relations, and web professionals early on. This would help the teams gain valuable feedback which can help in steering a launch or, if necessary, abort it. Hearing from a devil’s advocate who has opposing opinions can be painful—but the pain would be far less than launching a product that’s not right for the market or has no market at all.

A lesson to learn for both established companies and startups alike.

Nilesh Maurya is Director-Investment Banking at Omega Capital Consultants.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Year-ahead forecasts: What may not work in 2020 and how to separate the wheat from the chaff

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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This is the time to change calendars and diaries and get used to writing 2020 instead of 2019 at the end of dates. For those people who are in some way connected with the financial markets, this is also the time to read and hear what the top investors, analysts, economists, bankers, investment strategists, fund managers, brokers, journalists, financial news presenters on business TV channels around are forecasting about the market behaviour in the next twelve months.

I have been noticing these ‘Year Ahead’ forecasts for almost three decades now. Initially, there used to be a few such reports and presentations which were keenly awaited and religiously followed. However, in recent years this ritual of forecasting the next twelve month market behaviour has acquired epidemic proportions, inasmuch as in past one month or so, I have received average seven reports every day, highlighting what theme and stocks may do well in the 2020th year of the Christ. Each report painstakingly presents the outlook for markets and the preferable investment strategy for the investors and traders to follow in the forthcoming twelve months. Most of the reports also present the actionable investment ideas, like stocks, commodities, bonds and currencies that may be bought by the investors and traders to benefit from the respective strategies.

The writers and presenters give exotic titles to their reports and presentations; and use differentiated formats to attract the fancy of the users. However, given the information technology evolution; and growing automation in the process of financial analysis, the scope for a differentiated opinion has narrowed considerably. Any materially differentiated opinion, therefore, is more likely to be subjective and speculative.

Taking forecasts with a pinch of salt 

Obviously, there is a noticeable overlap in the views of the experts, leading to certain degree of contempt in the attitude of the readers and listeners. I observe that these days most of these forecasts are charitably received, notwithstanding the accuracy or otherwise of previous such forecasts, only to be discarded with contempt within a few days just like the old calendar and diaries.

I personally believe that the investment, like any other business, is a continuous process. Breaking the process of investment into some discreet periods of time like calendar year, financial year, Samvat, etc. may not be appropriate. It is like telling an industrialist that he should close his factory on December 31 each year and make a new business plan for the next twelve month. Nonetheless, for financial investors these discreet points of time in the ad infinitum, could be useful, as these provide an opportunity to pause, reflect back, review and revise investment strategy.

Insofar as the year 2020 is concerned, I have deciphered two majority views from the numerous reports I could manage to read.

The global experts are forecasting 2020 to be a year full of uncertainty and volatility. Driven by their commercial compulsions, most experts have presented their views as ‘Glass half full’, which incidentally has been the case in most of the past 10 years since the global financial crisis.

Most of the reports relating to India are circumspect about the economic recovery, both domestic and global. Notwithstanding, most of them appear strongly arguing for an equity rally in the broader markets. In this sense, a fair degree of incongruence is visible in the experts’ views.

In my view, one or more of the following three factors could be driving the analysts’ forecast of mid and small-cap stock outperformance.

(i)    The expectation of a mean reversion in mid and small-cap stocks that have underperformed massively in the past two years.

(ii)   The hope of hitting a jackpot; and

(iii)  Fear of mean reversion in the large-cap stocks that have outperformed massively in 2019.

Another thing that is conspicuous by its absence from a large majority of these ‘Year Ahead’ prophecies is what may not do well in the year 2020. To be fair, a few report from large brokerages do mention the sector ‘underweight’, but none highlights the sectors, category and stocks to be avoided; which in my view is more important under the current circumstances.

An investment strategy 

As a tiny investor, who has closely observed the Indian stock markets for three decades, I believe that my fellow small investors would do better to consider the following in their investment strategy:

(a)   Historically, in each market cycle, about 2-3 percent small and midcap stocks migrate to the higher orbit both in terms of business size and market capitalisation. The rest who gain only in terms of market capitalisation but not in terms of business size, usually give up all their stock price gains towards the end of the market cycle. None of these laggards is likely to do well in the subsequent market cycles. However, pure commodity stocks like metals and sugar etc. could be exception to this.

So, the mutual funds and PMS which are sticking with boom-bust stories of 2016-2019 market cycle are least likely to perform in the next few years at least. If you are looking for multibaggers, focus on new kids on the block.

(b)   My interaction with many bureaucrats and government contractors and suppliers in the past three months suggests that there is huge payment backlog for these contractors and suppliers, which is not likely to ease in the next 12-15 months at least. Many of these contractors and suppliers have in fact stopped bidding in government tenders. The balance sheets position and growth of such contractors and suppliers shall remain stressed for FY21 at least. These companies may be totally avoidable, irrespective of their present market capitalization and order book size.

(c)   More than half the economy is witnessing severe stagflationary conditions. While their wages are stagnant or falling, their cost of living continues to rise. Many local bodies have reported a delay of 1-4 months in payment of salaries. This shall continue to impact the discretionary consumption over the next one year at least. The growth in staple consumption may also be materially restricted. Consumption, including consumer finance, may not be a great space to invest in 2020. However, a few companies may gain from market consolidation as lots of smaller and unorganised businesses become unviable and shut down.

(d)   Stressed balance sheets may continue to remain so. The debt resolution through IBC etc., may help the lenders realise a part of their dues, but the equity value in a large majority of such businesses shall remain nil to negative. Buying these businesses must be understood as buying lottery tickets with one in 10 million chance of a prize.

Vijay Kumar Gaba explores the treasure you know as India, and shares his experiences and observations about social, economic and cultural events and conditions. He contributes his pennies to the society as Director, Equal India Foundation. The views are personal. 

Read his columns here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Here are some financial lessons to learn from celebrities

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

A lot of us keep hearing about the lives of celebrities, and the amount of wealth they create. At the same time, there are many celebrities who have lost their wealth as well, and some who have gained it back after losing it. There are lessons to learn from all those stories. Here, I am going to share three interesting stories to learn from.

Boris Becker (Rise and Fall)

Boris Becker was a top tennis player with a reported net worth of $167 million at one point in time. However, by 2017, he had declared bankruptcy, being forced to auction his trophies and souvenirs to get money.

Amitabh Bachchan (Rise, Fall, and Rise)

Amitabh Bachchan is one of the richest Bollywood celebrities. However, do you know that there was a time when, at the age of 57, his company ran out of money? There were no savings, and there were loans which he could not repay. One of the biggest superstars of Indian cinema had become virtually bankrupt. However, eventually, he reinvented himself as an actor and earned back all that money and even more. As of 2019, his net worth is estimated to be $400 million.

Shah Rukh Khan (Rise and Rise)

Shah Rukh Khan has an estimated net worth of $600 million. This number makes him one of the richest actors in the world. He has multiple ventures, right from his own production company to ownership of an IPL team, which removes his dependence on income from films.

Lessons to learn 

1. Spending beyond your means can only lead to financial trouble, irrespective of the amount you earn.
2. Delaying repayment of loans is not advisable. The interest keeps building up.
3. Never dip into your retirement savings.
4. Avoid setting up a business and spending money on it without research or a proper plan.
5. Diversify your investments and portfolio to mitigate any risks through market volatility or changes in industry conditions.

Rishabh Parakh is a personal finance strategist and Chief Gardener of Money Plant Consultancy, an established firm providing tax and wealth management services across Maharashtra, Singapore and the UK.

Read his columns here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow