Third-party and Comprehensive Insurance

Third Party Insurance indemnifies vehicle owners and drivers who are legally liable for personal injury to any other road user in the event of a motor vehicle accident. Your TPI insurance will cover you for personal injury claims made against you by other road users such as drivers, passengers, pedestrians, cyclists, motorcyclists and pillion passengers. It is a compulsory form of insurance.

Comprehensive Insurance is a first party coverage. That means it also pays for damage to your vehicle that is caused by things such as a collision with an animal, theft, flood, glass damage. The other coverage that pays for damage to your car is called Collision Insurance. This pays for when you strike another object (a car, tree, pot hole). In order for your car to be properly covered, you should have both Collision and Comprehensive Insurances. But in general, both these coverages are treated as one. The state does not require either of these coverages - but if your car is financed, your finance company will require both.

Performance Review Revisited

This was forwarded to me a few days back. It is very interesting and thoughtful. I would reserve my comments for the end.

Employee "A" in a company walked up to his manager and asked what my job is for the day? The manager took "A" to the bank of a river and asked him to cross the river and reach the other side of the bank. "A" completed this task successfully and reported back to the manager about the completion of the task assigned. The manager smiled and said "GOOD JOB"

Next day Employee "B" reported to the same manager and asked him the job for the day. The manager assigned the same task as above to this person also. The Employee "B' before starting the task saw Employee "C" struggling in the river to reach the other side of the bank. He realized "C" has the same task. Now "B" not only crossed the river but also helped "C" to cross the river. "B" reported back to the manager and the manager smiled and said "VERY GOOD JOB"

The following day Employee "Q" reported to the same manager and asked him the job for the day. The manager assigned the same task again. Employee "Q" before starting the work did some home work and realized "A", "B" & "C" all has done this task before. He met them and understood how they performed. He realized that there is a need for a guide and training for doing this task. He sat first and wrote down the procedure for crossing the river, he documented the common mistakes people made, and tricks to do the task efficiently and effortlessly. Using the methodology he had written down he crossed the river and reported back to the manager along with documented procedure and training material. The manger said "Q" you have done an "EXCELLENT JOB".

The following day Employee "O' reported to the manager and asked him the job for the day. The manager assigned the same task again. "O" studied the procedure written down by "Q" and sat and thought about the whole task. He realized company is spending lot of money in getting this task completed. He decided not to cross the river, but sat and designed and implemented a bridge across the river and went back to his manager and said, "You no longer need to assign this task to any one". The manager smiled and said "Outstanding job 'O'. I am very proud of you."

What is the difference between A, B, Q & O????????

Many a times in life we get tasks to be done at home, at office, at play. Most of us end up doing what is expected out of us. Do we feel happy? Most probably yes. We would be often disappointed when the recognition is not meeting our expectation.

Let us compare ourselves with "B". Helping some one else the problem often improves our own skills. There is an old proverb (I do not know the author) "learn to teach and teach to learn". From a company point of view "B" has demonstrated much better skills than "A" since one more task for the company is completed.

"Q" created knowledge base for the team. More often than not, we do the task assigned to us without checking history. Learning from other's mistake is the best way to improve efficiency. This knowledge creation for the team is of immense help. Re-usability reduces cost there by increases productivity of the team. "Q" demonstrated good "team-player" skills,

Now to the outstanding person, "O" made the task irrelevant; he created a Permanent Asset to the team. If you notice B, Q and O all have demonstrated "team performance" over an above individual performance; they have also demonstrated a very invaluable characteristic known as "INITIATIVE".

Initiative pays of everywhere whether at work or at personal life. If you have initiative you will succeed. Initiative is a continual process and it never ends. This is because this year's achievement is next year's task. You cannot use the same success story every year. The story provides an instance of performance, where as measurement needs to be spread across at least 6-12 months. Consequently performance should be consistent and evenly spread. Out-of-Box thinkers are always premium and that is what every one constantly looks out for. Initiative, Out-of-Box thinking and commitment are the stepping stone to success. Initiative should be life long. Think of out of the box.

It is a wonderful essay on the levels of thinking of an employee, or a person in general. But I feel it lacks a bit in subjectivity. A person can become 'O', only if he has been a successful 'A','B' and 'Q'. So, all are worthful and are doing a good job, some better than others, but until and unless 'B' is made to believe that 'O' has a higher prospect of success in life, he is not going to take the first step. That realization for B should not come in monetary terms, but rather in motivational terms. This is where the challenge for both employees and managers lie. Quite often in life, failure begets success, but here success should beget even more success. This is a very hard motivation to attain or give. But as said above too, this is what separates 'O' from 'B'.

Microcredit-a credit in itself

A few days back, I read a wonderful article on ‘Microcredit’. I just had a little idea of this concept and that too, was known after Mohammed Younis of Bangladesh got Nobel Prize for this revolutionary idea in 2006. As the name suggests, it is lending a small loan to the people, but the catch-point is that the borrowers are generally poor people deemed unfit for loan-credit by the established money-lenders, viz commercial banks, institutions etc. Furthermore, the borrowers don’t have to deposit any collateral or securities.

Well, there is nothing like free-lunch in this world. And, unless you are doing charity, there is no point or motive in giving money with a great doubt over it ever coming back. Microcredit institutions were/are brave enough to fight this skepticism and in the end, have largely been successful. Small loans, some as low as $10, are given to people to start a new business or enterprise to generate income for them. The people in want of money generally know what money is like, and so, more often than not, with the help of credit institutions, have been successful in not only starting and running their small businesses, but also repaying in time. The peer pressure of the borrowers also helps in utilizing the money properly and returning it on time. The credit institutions have been smart enough to select women only as the borrowers since they are more money-savvy and diligent.

The above is not such a grandiose and novel idea, but it is just a reaffirmation of the theory that output can only occur if there is an input. Most of the people in our country and other poor countries suffer because they don’t have enough money to start with. Even if they have and invest it somewhere, they don’t have any guard against failure. Then the vicious cycle of debt, high interest money-borrowing, further debt, pressure, suicide etc gets built up. ‘Microcredit’ theory has tried to break this.

It has gained more credence and popularity in the last few years. In fact, I found one site too, Kiva, which does this type of micro-financing. There is another one called ‘Microplace’. People have been so fascinated by this idea that they consider it the most potent way to alleviate poverty. Add me to the list too.

The current food crisis

I would start off with a famous quote by Mahatma Gandhi, “ There is enough in this world to feed everyone” We have always stood by its truism, but struggled to make this a reality.

The current food crisis highlights our indifferent and lost approach to it for a long time. As per various reports, the current increase in prices is attributed to the rising living standards of people in the developing countries, use of more bio-fuels and lack of concomitant investment done in agricultural sector. Each has its contribution, but the third reason is more important for me. Whenever there was a need, we pushed for newer and ingenious ways to produce more crops, viz Green Revolution in India during late 1960s. But in relatively happier times, there has not been a similar approach adopted.

Taking India’s case specifically, it is quite glaring that amounts given in subsidy are almost thrice than those put in investment. Subsidies on fertilisers, water supplies, pesticides etc and minimum support price on crops, are quick-fix sops which if overdone prove detrimental in the long run. Imagine if India would have invested the subsidy amounts more pragmatically.

Similar cases of imprudent methods adopted by other countries are galore. The nations are nevertheless sitting at the HeadQuarters of FAO (Food and Agricultural Association), Rome this week to discuss the crisis. The emphasis is going to be the ways to increase investment, and reduce the disparity in the restrictions imposed on agricultural trade in the developed and developing nations. Let’s hope they come out with decisive decisions.

How is the Sensex calculated?

Courtesy: www.rediff.com

For the premier Bombay Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called The Stock Exchange, Mumbai by paying a princely amount of Re 1.

Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.

Sensex is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, Sensex is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies.

The base year of Sensex is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.

The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float Market Capitalization" methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology. (See below: Explanation with an example)

Due to is wide acceptance amongst the Indian investors; Sensex is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the Sensex has over the years become one of the most prominent brands in the country.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The Sensex captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through Sensex.

Sensex Calculation Methodology:-

Sensex is calculated using the "Free-float Market Capitalization" methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of Sensex is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of Sensex involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor.

The Divisor is the only link to the original base period value of the Sensex. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate Sensex every 15 seconds and disseminated in real time.

Dollex-30 :-

BSE also calculates a dollar-linked version of Sensex and historical values of this index are available since its inception.

Understanding Free-float Methodology :-

Free-float Methodology refers to an index construction methodology that takes into consideration only the free-float market capitalisation of a company for the purpose of index calculation and assigning weight to stocks in Index. Free-float market capitalization is defined as that proportion of total shares issued by the company that are readily available for trading in the market.

It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the market.

In India, BSE pioneered the concept of Free-float by launching BSE TECk in July 2001 and Bankex in June 2003. While BSE TECk Index is a TMT benchmark, Bankex is positioned as a benchmark for the banking sector stocks. Sensex becomes the third index in India to be based on the globally accepted Free-float Methodology.

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Example:-

Suppose the Index consists of only 2 stocks: Stock A and Stock B.

Suppose company A has 1,000 shares in total, of which 200 are held by the promoters, so that only 800 shares are available for trading to the general public. These 800 shares are the so-called 'free-floating' shares.

Similarly, company B has 2,000 shares in total, of which 1,000 are held by the promoters and the rest 1,000 are free-floating.

Now suppose the current market price of stock A is Rs 120. Thus, the 'total' market capitalisation of company A is Rs 120,000 (1,000 x 120), but its free-float market capitalisation is Rs 96,000 (800 x 120).

Similarly, suppose the current market price of stock B is Rs 200. The total market capitalisation of company B will thus be Rs 400,000 (2,000 x 200), but its free-float market cap is only Rs 200,000 (1,000 x 200).

So as of today the market capitalisation of the index (i.e. stocks A and B) is Rs 520,000 (Rs 120,000 + Rs 400,000); while the free-float market capitalisation of the index is Rs 296,000. (Rs 96,000 + Rs 200,000).

The year 1978-79 is considered the base year of the index with a value set to 100. What this means is that suppose at that time the market capitalisation of the stocks that comprised the index then was, say, 60,000 (remember at that time there may have been some other stocks in the index, not A and B, but that does not matter), then we assume that an index market cap of 60,000 is equal to an index-value of 100.

Thus the value of the index today is = 296,000 x 100/60,000 = 493.33

This is how the Sensex is calculated.

The factor 100/60000 is called index divisor.

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The 30 Sensex stocks are:

ACC, Ambuja Cements, Bajaj Auto, BHEL, Bharti Airtel , Cipla, DLF, Grasim Industries , HDFC , HDFC Bank, Hindalco Industries , Hindustan Lever , ICICI Bank , Infosys ITC, Larsen & Toubro, Mahindra & Mahindra, Maruti Udyog , NTPC, ONGC , Ranbaxy Laboratories , Reliance Communications , Reliance Energy , Reliance Industries , Satyam Computer Services , State Bank of India , Tata Consultancy Services , Tata Motors , Tata Steel , and Wipro .