Technology, Venture Capital, Private Equity

Perspectives from an Indian VC

Archive for September, 2008

Short equities, long commodities

Posted by Arun Uday on September 22, 2008

Like everyone else in the finance world (and actually elsewhere as well), I have been watching with obvious interest, the unfolding of events in the past few weeks. And needless to say, they have been quite discomforting. While I don’t have anything particularly positive or negative to say about the actions that the US Fed or other central bankers have been undertaking to mitigate the crisis (most of them were actually Hobson’s choices), I do however feel that this may be a case of postponing rather than solving the issues unless we are favored with some generous doses of luck.
Ever since the financial crisis began to unfurl, a few things have been happening. To begin with, there has been a flight of capital to safe assets, which has squeezed out all liquidity and credit in the system. This has led to a bizzare situation where from the threat of inflation a few weeks ago, the US is now staring at a sudden deflation in the economy. So, what has the fed done? – it has started pumping up money supply and inflating the economy to maintain the liquidity and keep the economic wheels turning. But there are a few things which will really work against this strategy in the long run.
First is the overhang of credit that the US carries from the past. The credit expansion in the recent past has been unprecedented and the total estimated debt in the US, which includes national and private debt is $53 trillion (thats nearly four times its GDP). With all the bad debts that the financial institutions are burdened with and with economic prospects looking dimmer and not brighter (which in turn will affect the repayment capacity of borrowers), banks and financial institutions are not going to start lending in a hurry. So, the credit unwinding process would be a long and gradual one and its not clear how the central banks can continue to shore up liquidity till then.
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Media content industry – bleak future ahead

Posted by Arun Uday on September 8, 2008

Some time back, I had posted about the shift in power in the media industry from content generators to content aggergators. That trend seems to be picking up steam and the content generation part of the value chain seems to be dying a death through thousand cuts. Nowhere else is this starker than the newspaper industry in the US, which is quickly sliding down the path to obscurity as it registered the supposedly sharpest ever fall in history during the first half of this year. I believe that other content industries such as the movie industry will also face some serious challenges going ahead on account of the following:
a. Surfeit of supply: According to this recent article just reported on WSJ, Hollywood has been hit by a glut of movies this year. In India as well, while there has been widespread welcoming of the institutionalization of the movie industry, one of the “negative” fallouts of this has been the huge quantums of capital being planned towards movie production including those by such large corporate houses as M&M and Reliance. One only hopes that the money and efforts will be judiciously utilized as much for better quality as an increased quantity of content and not just for the latter. Else, we could very well see supply far outstripping demand. Increased participation (in content production) of individuals/indie producers/ smaller media houses has also been another important factor in adding to the supply of content.
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