Why Mrs Watanabe can now drive the Sensex higher

Shinzo Abe, the new Prime Minister of Japan, has promised to end Japan’s more than two-decades-old recession through some old-fashioned economics now being dubbed Abenomics by experts.

For lesser mortals, Abenomics is nothing but money printing. Abe plans to go in for ‘unlimited’ printing on yen which will be used to increase government spending on public works.

So far so good. But what’s the idea here? In the process of printing and stuffing the financial system with an unlimited amount of yen, Abe hopes to increase money supply. As an increased amount of money chases the same amount of goods and services, he hopes to create some inflation.

The target is to create inflation of 2 percent. And how does that help? In December 2012, Japan had an inflation rate of -0.1 percent. For 2012 as a whole inflation was zero, which meant that prices did not rise at all. In fact, for each of the years in the period 2009-2011, prices have fallen in Japan on the whole.
In a scenario where prices are flat or are falling or are expected to fall, consumers generally tend to postpone consumption (i.e. buying goods and services) in the hope that they will get a better deal in the future. This impacts businesses as their earnings either remain flat or fall. This in turn slows down economic growth.

On the flip side, if people see prices going up or expect prices to go up, they generally tend to start purchasing things. Hence, Abe’s idea is to flood yen into the financial system in the hope of creating some inflation, or at least get consumers to start thinking that inflation is coming and ensure that they go out and make some purchases.
In case of a scenario where prices are falling, people tend to wait to buy stuff at lower prices. In the reverse case, they are expected to start buying because otherwise they may have to pay more for the same goods. Either way, human beings like a good deal.
When people buy stuff, businesses see an increase in incomes and profits, which in turn spurs economic growth. So that is the theory behind Abenomics.
Now whether this economic theory translates into practice as well with prices rising and the Japanese buying and thus helping create economic growth remains to be seen.
But there is another angle to this. As explained earlier in the article, Abe’s plan is to flood the financial system with an unlimited amount of yen. As and when this starts to happen, there will be more yen in the market than before. And this will lead to a fall in the value of the yen against other currencies.
But the market does not wait for things to happen, it starts to react to things it expects to happen. Given this, the Japanese yen has been losing value against the dollar. Three months back, one dollar was worth around 80 yen. Now its worth around 94 yen. What is interesting is that between 29 January 2012 and today, the exchange rate has fallen from 90 yen to a dollar to 94 yen.
The depreciating Japanese yen makes the situation just right for the comeback of the yen carry trade.
So what is the yen carry trade? Let’s go back more than 20 years to understand where it all started. In the late 1980s Japan was in the midst of both a real estate and stock market bubble. The Bank of Japan managed to burst the stock market bubble very rapidly and the real estate bubble very slowly, by raising interest rates.
After bursting the bubble, the central bank started cutting interest rates and soon the rates were close to zero. This meant that anyone looking to save money by investing in fixed income investments (i.e. bonds or bank deposits) in Japan would have made next to nothing. This led to the Japanese money looking for returns outside Japan.
Some housewives started staying  up at night to trade in the European and North American markets. They borrowed money in yen at very low interest rates, converted it into foreign currencies and invested in bonds and other fixed income instruments giving higher rates of returns than what was available in Japan. Over a period of time these housewives came to be known as Mrs Watanabes, and at their peak accounted for around 30 percent of the foreign exchange market in Tokyo.
The trading strategy of Mrs Watanabes came to be known as the yen-carry trade and was soon being adopted by some of the biggest financial institutions in the world. A lot of the money that came into America during the dotcom bubble came through the yen carry trade. It was called the carry trade because investors made the carry – i.e. the difference between the returns they made on their investment (in bonds or even in stocks for that matter) and the interest they paid on their borrowings in yen.
The strategy worked as long as the yen did not rise in value against other currencies, primarily the US dollar. Let us try and understand this in some detail. In January 1995, one dollar was worth around 100 yen. At this point of time one Mrs Watanabe decided to invest one million yen in a dollar-denominated asset paying a fixed interest rate of 5 percent per year.
She borrowed this money in yen at the rate of 1 percent per year. The first thing she needed to do was convert her yen into dollars. At $1=100 yen, she got $10,000 for her million yen, assuming there were no costs of conversion.
This was invested at the rate of 5 percent interest. At the end of one year, in January 1996, $10,000 had grown to $10,500. Mrs Watanabe decided to convert this money back into yen. At that point, one dollar was worth 106 yen. She got around 1.11 million yen ($10,500 x 106), or a return of 11 percent. She also needed to pay the interest of 1 percent on the borrowed money. Hence her overall return was 10 percent.
Her 5 percent return in dollar terms had been converted into a 10 percent return in yen terms because the yen had lost value against the dollar. So this was a double gain for her. The depreciating yen added to the overall return.
But let us say instead of depreciating against the dollar, as  the yen actually did, it had appreciated. And let us further assume that in January 1996, one dollar was worth 95.5 yen. At this rate $10,500 that Mrs Watanabe got at the end of the year would be worth 1 million yen ($10,500 x 95.5) when converted back to yen. Hence Mrs Watanabe would end up with a loss, given that she had to pay an interest of 1 percent on the money she had borrowed in yen.
The point is that for the yen carry trade to be profitable the yen would have to be either stagnant against the dollar or lose value. The moment it started to appreciate against the dollar, the returns in yen terms started to come down.
The yen carry trade worked in most years since it started in the mid-1990s, up to mid-2007. In June 2007, one dollar was worth 122.6 yen on an average. After this the value of the yen against the dollar started to go up, and fell to around 80 yen to a dollar. This has meant the death of the yen carry trade.
But with the yen losing value against the dollar again it makes the idea of the yen carry trade viable again. Between 2004 and 2008, stock markets across the emerging market rose as money through the yen carry trade route came in. This included India as well.
Things now look ideal for the yen carry trade to start again. What helps is the fact that interest rates in Japan are very low, almost close to zero. Hence, money can be borrowed very cheaply.
As the yen carry trade picks up, investors borrow in yen, and sell those yen to buy dollars. This ensures that there is a surfeit of yen in the market, leading to a further fall in its value against the dollar. This in turn makes the yen carry trade even more attractive.
Reports in the international media seem to suggest that it has already started happening. India now remains an ideal candidate for money to come through the yen carry trade route given that the Indian rupee has been gaining value against the dollar, which would make the yen carry trade even more profitable.
While the Indian economy falters, the BSE Sensex, India’s premier stock market index, might be getting ready for another rally. This time due to the blessings of Mrs Watanabe(s) from Japan. In fact when I had asked Professor Aswath Damodaran, investment guru, how strong is the link between economic growth and stock markets, in a recent interview, he replied “It’s getting weaker and weaker every year.”

Japan India Partnership

The Japan India partnership is the most strategically important development for the two nations in the light of the growing threat of China. In fact, relationship with Japan is as important to India as with USA for the future economic growth and national security.

The reasons are: Japan and India, are both secular democracies with commitment to human freedom and betterment. Both, are at a critical mass in terms of technology trades, joint ventures and knowledge based industries. This is where India stands to benefit heavily. Japan is the world's leading supplier of machine tools, controllers, instrumentations, automotive products, electronics and integrated systems.

The factory based economies of Korea, Taiwan and large part of China are there today because of Japan. What India can offer to Japan is lower cost production base, large market and common interest in defence against future potential threat from China. Its a win-win proposal.

Spend Money To Make Money

Business is all about taking risks. Smart business people understand that life is a risky business. If you are not moving forward, it means you're standing still, and that is not a healthy competitive position.

When you are planning to expand your business, you are risking your time and probably a part of your profits or capital. You are gambling that you will make enough profit to cover your money and your effort. Your business plan shows you that your investment should pay off. The important word in the previous sentence is “should“. You are taking a risk, but it’s a calculated risk.

No matter what your business, you have at least one thing in common with every successful entrepreneur. You both have exactly 168 hours every week to sleep, work, and have a life. My observations, over the last few years of business, have shown me that the successful entrepreneur usually accomplishes a lot more in their work week than the average business person. They tend to work smarter, not harder.

A good business consultant helps you identify new markets by performing analysis on your product. Your product may a big hit in your country but will it accepted in a different country in their market? There where your business consultant come into picture to find out answers to such questions. A consultant takes a micro view of your business and provides solutions for the macro outlook which helps you to focus on the future success of your business in a new market.

Hence to summarize my views a business consultant can be a huge asset to your business, they can help you increase your business with new strategies and can guide you with its pros and cons while entering any new market.

Tips to Overcome Fear while Presenting Presentati​ons

Presentations are one of the most important aspects in business as it helps you showcase what your company does or how you contribute to the company’s success. I know that one tends to get nervous while presenting their presentation in front of an audience or within a small group of colleagues in the office. I remember while graduating in BMS we were taught presentation skills by our professors. Presentation skills are something that you either have or you don’t have, however it can certainly be learnt.

When you are about to being your presentation, keep a focus and energy on your presentation instead of focusing on how nervous you are. Follow a golden rule of taking few deep breaths to help you rid yourself of your tensions.

It is important to prepare your presentation in a format that makes things easier for you. Try to use pictures in presentations, it not only makes the presentation entertaining but also helps you present things more effectively.
One must always keep the presentation short and simple. No one really complains if the presentation is too short, what kills a presentation is the length of the presentation. It tends to become boring if it is too long.

Before presenting to a large audience or to a client or your colleagues, it is important to rehearse your presentation. Practice surely makes for a perfect performance, hence the more you practice the more you will reach perfection. Make eye contact with one person at a time as if you are speaking directly with them.

While presenting your presentation, try and come up with short stories. Tell stories and anecdotes to help illustrate points. It helps you make your presentation more effective and memorable. Always keep a positive attitude when asked questions. If incase you don’t have an answer to a particular question don’t try to fake your knowledge, instead just say that you don’t have an answer to this question and offer to find out more information and respond back once the presentation is completed.

Becoming an effective presenter doesn’t need to be a stressful job. I am sure that by following the above mentioned tips it will help you overcome your fear and also give you an opportunity to improve your presentation skills.

Experience at Sushi and more

(Sorry folks for not updating my blog since a long time as I was caught up with important business commitments.)

I was delighted when I found out that there was a small Japanese restaurant running for a little over a year now in Mumbai playing very quietly. This restaurant located at Breach Candy opposite Muchard Panwala (A very famous beetle leaf selling shop). Sushi and more is styled more as  a take away joint where they deliver the customer’s food orders within a certain radius. The frontage is not even on  the main road. It is a very small joint of not more than 200sq ft. (60m2). Despite all this it is doing pretty well serving authenticate Japanese food like sushi, tempura, etc. They even have a small counter selling RTE foods from Japan like Japanese soup, sauces, etc. They have  counter seating only for 2 people (I guess they don’t seem to be  aiming at too many walk-ins hence promoting take away option). However they have utilized their space very well having approx. 4 - 5 employees at any given point. Though they don’t have any Japanese employee as such but the chef (a female) is well versed with the names of Japanese dishes. She handled my order personally. I had the privilege to click photographs with the team present and tasted 3 types of sushi. The fish in the sushi was soft, however I don’t think the rice they were using was  of Japanese origin. However overall it was a nice experience.

Having said that I now am very optimistic of other Japanese restaurants or food joints opening branches in India. Till now only the big restaurants like Wasabi at TAJ or Spices at Marriott’s or Tetsuma etc. were well known and anyone who wanted to eat Japanese food would go to places like these. However now taking the lead from Sushi and More I expect many more smaller players serving Japanese food to come into the Indian market as the Indian Public has started to accept and appreciate the Japanese cuisine. In this aspect I believe food joints like Ramen Joints, Crepe Joints, Yakitori Joints, etc. should do well.

Mumbai: India's local city with an international lifestyle

Mumbai city is one city which never sleeps, it buzzes with activities all through the 24 hours, 7 days a week. Even at 3.00am or 4.00am you will find people on the road either taking a walk or driving around the streets. Whenever I come here for a short business visit or to meet my family I end up seeing a different city which is growing rapidly year by year.

I have observed that Mumbaites are foodies, they love different types of cuisines. One thing amazing about this city is that you end up finding a wide range of food items depending on your budget. In the  restaurnats of Mumbai we can observe  how in a small room maximum number of tables can be accommodated for the benefit of the customers. You end up getting all sorts of food cuisines such as Indian, Chinese, Thai, Japanese, Italian, etc. In Indian food itself there are different types of cuisines available such as North Indian (Muglai), Hyderabadi, South Indian, Rajasthani, Gujarati, Kashmiri etc.

There are food courts offering various cuisines in malls which gives you a chance to taste and experience food as per your taste without having to worry about the tastebuds of your family, friends and loved ones. Infact I felt that the way to a Mumbaiites Heart is through their stomach as eating out is a lively thing here.

In Mumbai shopping itself has its own experiences, There are innumerable number of markets around Railway stations which provide different shopping experiences altogether. Besides that there are various malls offering various international and local brands which give consumers a wide variety along with a different shopping experience. It helps people make the right choice within their budget. Shopping Malls have helped people get closer to their favorite brands.

I remember telling my aunt to get me few latest playstation games from America whenever she visited us but now we have many malls offering all new playstation games that were only made available in the abroad market. I remember a friend of mine telling me that on most of his weekends he would take his family to a nearby mall where they would get a chance to check the latest offerings by their favorite brands and then they would end up munching their favorite cuisine for dinner and come home at night after a lovely experience.
I forgot to mention that there are certain malls even offering various gaming experiences, so while you are busy shopping with your wife or husband your kids can entertain themselves with an amazing gaming experience.

Apart from malls and restaurants Mumbai also provides you an amazing night life, It has various lounges offering you the best of cuisines and wide variety of drinks both alcoholic and non- alcoholic along with music which goes on till wee hours of 1.00am or at times even 2.00am
Places like Royalty, Not just Jazz by the Bay, Hard Rock cafe, Vie Lounge, Aurus, Blue Frog etc are one of the best places in mumbai offering you great international music.

Hence Mumbai has now become a foreign destination for Indians where an Indian can live without the requirement of a visa. 

In short Mumbai today is India's local city with an international lifestyle.

Growth of Middle Class Consumers in India

India is growing at a tremendous pace and the 350 million-strong middle class has buying power unmatched by any other growing nation. A huge shift is underway from spending on necessities such as food and clothing to choice-based spending on categories such as household appliances and restaurants.

Now-a-days value-conscious Indians are willing to spend big bucks on newer devices and wheels. I remember few years back when we used to see a Mercedes Benz or BMW in Mumbai Street we used to say wow because it was not commonly visible unlike now where BMW, Mercedes and AUDI have become very common on road. The buying power of an individual has increased tremendously in the Indian market in last few years. All top luxury brands are looking for business opportunities in India due to the increase of purchasing power amongst the Middle Class people. Apart from BMW, Audi and Mercedes having their own showrooms; Jaguar, Harley-Davidson, Land Rover, Kawasaki, Rolls Royce and Porsche have also opened their showrooms in Mumbai in last 2 – 3 years.

India's mobile market is currently growing even faster than China's, and we expect overall communications spending to continue to grow at a very rapid pace over the next two decades. During my college days an average student used to spend about Rs 2000 – 3000 on a cell phone however this has changed to Rs 8000 – 10,000 as an average in recent times. Blackberry and Apple handsets were rarely available in India hence were not common amongst individuals however the trend has changed, Blackberry and Apple are very common amongst individuals in India. Indians are willing to spend 25,000 – 35,000 on a good branded handset.

People in India love to make their weekends special and don’t mind spending big bucks on food and liquor. According to Forbes, 40% of Indians spend about 2000 on a meal for 2. Indians did their daily shopping at fresh-food markets and regarded packaged foods as "stale." However, our new generation of busy urban Indians have started to appreciate the convenience and choice offered by packaged foods.

The nature of the spending shows that the biggest driver of the economy is the youth. Young people are earning money, spending on their daily chores and are still left with enough disposable incomes. All that money is going, or will go, into buying vehicles, TVs, mobiles, FMCG products, clothes and a decent education for the next generation.