India and NATO?

Ivo Daalder and James Goldgeier have an article titled Global NATO in Foreign Affairs, September/October 2006 where they point to a growing role for NATO in complex problems like Afghanistan which are far removed from the original cold-war role of NATO, in locations which are far removed from the North Atlantic. In this, they say:

Clearly, NATO is changing. But is it changing enough? If the point of the alliance is no longer territorial defense but bringing together countries with similar values and interests to combat global problems, then NATO no longer needs to have an exclusively transatlantic character. Other democratic countries share NATO's values and many common interests -- including Australia, Brazil, Japan, India, New Zealand, South Africa, and South Korea -- and all of them can greatly contribute to NATO's efforts by providing additional military forces or logistical support to respond to global threats and needs. NATO operations in the Balkans and Afghanistan have benefited greatly from contributions made by non-NATO members. Australia, Japan, and South Korea have sent substantial numbers of troops to Iraq in support of efforts by NATO members to stabilize the country. Together with other non-NATO democracies, such as Brazil, India, and South Africa, they have also contributed significantly to peacekeeping operations around the globe.

It's something to ponder. The nuclear deal, where India has been accepted into the nuclear club, was once considered unthinkable. Is there a symbiotic relationship between India and NATO?

The class of SEBI actions which can be appealed at the Securities Appellate Tribunal

Somasekhar Sundaresan has an article in Business Standard on an important development on the class of SEBI actions which can be appealed at SAT:

The Securities Appellate Tribunal (SAT) has recently passed a landmark order having far-reaching consequences for appellate oversight in the capital markets. The order is about the sweep of appellate scrutiny over decisions and actions of the Securities and Exchange Board of India (Sebi).

Disposing of an appeal by the National Securities Depository Ltd challenging a Sebi circular, SAT has ruled that its appellate jurisdiction covers all Sebi decisions.

The term “order” has finally been dealt with exhaustively. Section 15T of the Act enables any person aggrieved by an “order” passed by the Sebi to appeal.

Sebi strenuously argued that SAT could sit in judgment only over its quasi-judicial orders. Since the challenge before SAT related to a circular directing depositories not to charge demat account holders in a specific situation, Sebi argued that the circular was a policy decision, and at best a legislative action. It did not partake the characteristics of an appealable “order.”

While the appeal itself was not upheld on merits, SAT has given an unexceptionable and well-reasoned judgment on what constitutes a Sebi “order.” SAT noted that the term “order” had been defined by law dictionaries to include “rules” and “regulations.”

“The right of appeal is a statutory right and it has necessarily to be governed by the provisions of the statute which creates it,” SAT said, adding that it was “open to the legislature to restrict that right.” It noted that the Act did not entail any such restriction.

Noting that Parliament had consciously conferred on Sebi executive, legislative and judicial/quasi-judicial powers, SAT said the provision for appeal under Section 15T of the Act did not limit that right only to orders passed by the board or its officers in exercise of judicial/quasi-judicial powers. “The language used in Section 15T is of widest amplitude and makes every order passed by the board appealable, whether it be in exercise of its administrative, legislative or judicial/quasi judicial powers,” SAT noted.

It also pointed out where Parliament desired to limit the right of appeal under the Act, it had done so. For example, Section 15Z of the Act, which provides for an appeal from SAT to the Supreme Court, clearly restricts such appeals to only questions of law, and excludes questions of fact. Sebi circulars are but general orders that are passed in lieu of multiple specific orders. Merely because the order is in the form of a circular, thereby becoming a policy decision or legislation, the right of persons by such decisions or legislation to pursue a challenge under Section 15T of the Act would not get frustrated.

SAT has reiterated the import of a constitutional Bench order of the Supreme Court to emphasise that even subordinate legislation in the form of regulations made under an Act of Parliament can be challenged before a tribunal if they are in conflict with the Act. The only restriction imposed by Parliament on such oversight by tribunals was on constitutional challenge to the very Act of Parliament that created the tribunal.

This decision finally puts to rest, at least at the SAT level, one of the most common objections to appeals under the Act.

Often “acknowledgement cards” given to enable initial public offerings to go ahead under the Sebi (Disclosure and Investor Protection) Guidelines and “letters of observations” given to acquirers making open offers under the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations are challenged since they partake the character of an order. Such appeals are strenuously objected to on the ground that these documents can never constitute an appealable “order.”

The true test would be to check whether the contents and import of a document create any binding obligation on any person. If such obligations cannot be ignored without incurring adverse consequences under the Act, regardless of purported disclaimers or the nomenclature of the document prescribing the obligations, an appealable order would come into being.

The charm here is not in having a forum in SAT to challenge every decision of Sebi, but in the consciousness that the SAT’s decision would drill into the author of every such circular, policy decision or regulation, to ensure that the decision in question has to be reasonable, fair, non-arbitrary, and most importantly, in consonance with law.

Here is the full text of Section 15T of the SEBI Act:

15T. APPEAL TO THE SECURITIES APPELLATE TRIBUNAL.

(1) Save as provided in subsection (2), any person aggrieved, (a) by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, under this Act, or the rules or regulations made thereunder; or (b) by an order made by an adjudicating officer under this Act, may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter.

(2) No appeal shall lie to the Securities Appellate Tribunal from an order made (a) by the Board on and after the commencement of the Securities Laws (Second Amendment) Act, 1999; (b) by an adjudicating officer, with the consent of the parties.

(3) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order made by the Board or the adjudicating officer, as the case may be, is received by him and it shall be in such form and be accompanied by such fee as may be prescribed:

Provided that the Securities Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.

(4) On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

(5) The Securities Appellate Tribunal shall send a copy of every order made by it to the Board, the parties to the appeal and to the concerned Adjudicating Officer.

(6) The appeal filed before the Securities Appellate Tribunal under sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six months from the date of receipt of the appeal.

Why are elephants attacking people?

In 1997, I was at Mudumalai National Park which was teeming with elephants. The ground rules at the place when walking in the forest were: "If you see an elephant, run away". There were endless local stories about vicious elephants going after people. This wasn't just forest rangers engaging in risk-averse overkill to save themselves the trouble of stupid tourists who get hurt. Elephants attacking humans seemed to be regularly happening. Elephants kill vastly more people than tigers in India.

It always felt strange to me. When one read older stories in the forests, like the books by Jim Corbett, it didn't feel that the elephants were dangerous. And domesticated elephants are the loveliest, friendliest and charming animals. So why were wild elephants so dangerous?

I read a great article in New York Times today about this question. Their main argument is that elephants normally have a complex nurturing childhood in a social setting where they are brought up by a mother and other elders. When elephants grow up without such an upbringing, they are unsocialised. Too often, young elephants are exposed to violence by humans. This seems to set the stage for violence against humans. The NYT article has a fascinating interplay between the problems of young elephants in Africa who grow up as orphans surrounded by violence and young humans in Africa who also suffer the same. Both sides seem to grow up poorly socialised and violent.

It reminded me of the violent young people growing up in inner city Los Angeles, where many children do not have an opportunity to grow up with a nurturing mother and family. I know, this is anthropomorphisation run amuck. But the NYT article seems to suggest that elephants are highly intelligent and highly social, so the analogies with human behaviour actually have scientific merit.

Understanding the amazing GDP growth

What an amazing period of high economic growth this has been in India! I have never seen such a set of 3 years (12 quarters) of GDP growth:

Quarter	GDP growth (%)
Jun-Sep 2003 (Q2)	8.88
Sep-Dec 2003 (Q3)	11.33
Jan-Mar 2004 (Q4)	7.90
Apr-Jun 2004 (Q1)	7.87
Jun-Sep 2004 (Q2)	6.65
Sep-Dec 2004 (Q3)	6.97
Jan-Mar 2005 (Q4)	8.55
Apr-Jun 2005 (Q1)	8.54
Jun-Sep 2005 (Q2)	8.38
Sep-Dec 2005 (Q3)	7.48
Jan-Mar 2006 (Q4)	9.30
Apr-Jun 2006 (Q1)	8.90

In this period, the mean and median of growth is roughly 8.4%. Three years at 8.4% has never happened before. The interquartile range of these 12 numbers is just 1.11 percentage points. See details on the CMIE website.

On 4 October, I wrote a column in Business Standard titled Understanding the amazing GDP growth where I argue that a lot of what is going on is owing to procyclical (i.e. destabilising) macro policy. I emphasise the distinction between the long-term trend and the business cycle. What we have seen for three years is the high of the business cycle, exacerbated by poor policies, and should not be mistaken for an acceleration of Indian trend GDP growth.

Update: Andy Mukherjee writes about this and mentions Chetan Ahya on pro-cyclical fiscal policy. Ila Patnaik writes about pro-cyclical fiscal policy, advocating a fiscal stance which achieves FRBM targets in the down of the business cycle while achieving surpluses in goods years like these.

High GDP growth should give a happy citizenry and should make it possible to do economic reforms that hurt a few people and hurt in the short run. Tasting the fruits of success by doing rational things in economic policy should embolden politicians to go further with rational thinking on economic policy. But in India that has not been happening - we are very focused on subsidy programs and an interventionist State, and structural reforms are endangered in the present political climate. Mr. Chidambaram recently pleaded for more `political space' for economic reforms, particularly in finance and pensions.

It sounds paradoxical - can you inflict pain when a lot of people are hurting, when asset prices are inducing a negative wealth effect? The answer seems to be Yes: India made more progress in the down part of the business cycle than it is making today.

Analysts and future stock market returns - some Indian evidence

Ashok Desai has an interesting column titled Unsolicited exhortations in the latest Business World about the performance of stock market analysts in India:

...

I came across a recent book written by Rajesh Chakrabarti (The Financial Sector in India: Emerging Issues, Oxford). There he takes 2,190 recommendations on 310 companies by analysts from 25 firms and a newspaper between January 1998 and July 2003. Of them, 46 per cent were strong buy, 21 per cent weak buy and 4 per cent neutral/buy; thus, three-quarters were buy recommendations of one sort or another. Only 9 per cent were sell recommendations. My suspicion that analysts give biased recommendations is fulfilled. Chakra-barti does not use such a strong word; he just calls it broker optimism.

Who were the worst optimists? Some gave only a handful of recommendations. Amongst those who gave over a hundred recommendations, Motilal Oswal was the most optimistic, with 89 buy recommendations out of 106. Pioneer (83/107), LKP (158/191) and SMIFS (130/164) were not far behind.

Who were the least optimistic? Business Line (136/283) was the leader. But it was not a pessimist. Rather, it enjoyed sitting on the fence; 108 of its recommendations were neutral. Rooshnil was similar; although 24 of its 54 recommendations were strong buy, another 18 were neutral. HDFC Securities was a cautious optimist: 54 of its 82 recommendations were to buy, but they were all weak buy. Although 158 of LKP Securities' recommendations were to buy, they also made 25 recommendations to sell. Moneypore had the largest proportion of recommendations to sell - 19 out of 125.

But maybe the optimists were right? Chakrabarti shows that they were on the average. Over the 80 days after strong buy recommendations, the stocks outperformed sensex. Not by much; the average rise in their prices at the end of 80 days was about 3 per cent, against 1.5 per cent in sensex. But the difference was statistically significant. Similarly, over the 80 days after strong sell recommendations, the fall in the stocks was greater than in sensex. Sensex fell about 3 per cent, and the stocks about 4 per cent; but again, the difference was significant, though not always over the entire period of 80 days. It may be noted that sensex generally rose on the average after buy recommendations and fell after sell recommendations; the recommendations were thus partly based on a forecast of the market trend.

Did the analysts lead investors to buy or unload shares, influence the price and thereby fulfil the analysts' forecasts? To test whether they did, Chakrabarti compared the average price in the five days preceding the forecast to it in the five days after the forecast, and similarly for 20 days, and found a definite correspondence between the direction of the forecast and of the price change - more in the case of sell than of buy recommendations. Thus, herd behaviour of those investors who follow analysts helped the latter prove right.

Volatility of the Indian equity market

The mass media often has a conspiracy theory view of stock market volatility. E.g. see this piece by Sucheta Dalal. The empirical evidence supports more prosaic interpretations. I did a talk at ICRIER on the subject of Indian stock market volatility. The PDF file of the slideshow might interest you.

Some suggestions for the guys building RSS feeds and feedreaders

I have been a happy user of RSS from two points of view: as a consumer of (97) RSS feeds through bloglines.com, and as the writer of a blog. I think this is the biggest advance in the idea of the World Wide Web after NCSA Mosaic. In this post, I have a few ideas for the guys building this stuff.

The only feedreader that I have used is bloglines.com, so please pardon a lack of knowledge of what other authors of feedreaders have been upto.

Scanning an RSS feed is a great advance when compared with scanning a list of websites. It saves time for the user because the feedreader tracks what I have seen versus what I've not seen. This is efficient when compared with landing up (say) at a newspaper web page and diffing against the last memory of what was on that page in the human mind. So RSS was a step forward in protecting the human mind from information overload and reducing the amount of information processing that the user has to do. But this mentality needs to be carried further.

The `no news' mentality

In the good old days, before the web, there was net news. The framework of newsreading was one where one would subscribe to a newsgroup like sci.math.stat (think of it as an RSS feed) and scan whatever entries appeared there. In the 1990-1995 period, I used a great newsreader called `nn' (for "no news" (is good news)) which was focused on reducing the material that got shown to you, in order to save your time.

My main point in this post is that I think it is time to apply that same mentality in RSS feedreading. Users are inundated with information overload, with too many feeds. The name of the game now should be to reduce the amount of information that's given to the human brain for processing. I have a few tangible suggestions of this nature, in order of importance.

1. Kill files

With nn, it was possible to write down regular expressions describing the entries one did not want to read.

I think that would fit nicely in an RSS feedreader. It would be great if there was a convenient way to make a big table of regular expressions about the entries that I do not want to be shown. There would need to be two cases: apply this regex to this RSS feed (where I don't want to hear from one particular RSS feed on one particular subject) or apply this regex to all feeds (where I don't want to hear anything about this subject from any source).

2. Deletion of dupes

Many newspaper websites exhibit multiple RSS feeds. Many times a given story appears in multiple feeds. The feedreader should prune these.

In the event that the two entries are identical, an implementation based on hashing is easy. But ideally one needs to go beyond an identical match to some kind of approximate matching: please compare many a New York Times story which shows up on the International Herald Tribune RSS feed. I don't have a grip on exactly how to go about it. I believe some hashing algorithms are robust to small differences in the input - e.g. the stuff that's going into the problem of music recognition.

Update: I just noticed that bloglines has a new feature. Entries are normally blue, but if you've clicked on a particular entry, other occurences of this entry are shown in black. I'd say this is nice, but why do you want to burden my mind with having to even parse these dupes and remember to ignore them if the colour is black?

3. Search to RSS service

Google has embarked on something interesting by letting you take any search on news.google.com and view it as an RSS feed. That's nice, but they have not carried this through, because every time that URL is accessed, I get the full list of matches afresh. This throws up a lot of repetitive entries (which I've seen already) across multiple interactions with the feedreader within a day. What is needed is a way to keep track of me, know when I last ran the google search, remove the material which matched on that search, and pack up the new material that's come up for the search into RSS format. Maybe this is done if you use google's feedreader?

4. Flow control (a sanity check)

Sometimes, people put a megabyte file into an RSS file. This is a huge pain. The RSS feedreader needs to have a sanity check of blocking entries in an RSS file bigger than (say) 65,536 bytes.

5. Detecting and deleting defunct feeds

Quite a few entries in the long list of feeds that I think I am reading are actually defunct. Someone thought an RSS feed would be published at this URL but never quite followed up in producing the feed. The feedreader should provide a service where I am alerted to feeds where no content shows up in the last (say) 90 days. That would help me to delete feeds and endup with a smaller .opml file. It would also reduce the psychological discomfort that I suffer when I think that I'm reading 97 feeds.