Source: E-mail dt. 28.10.2012
Opportunities and Challenges of Contemporary Management Practices in Indian Arena
MBA - Finance
DR. Ambedkar Institute of Technology
A general perspective on contemporary or modern management styles has continually evolved with the dynamism in the micro and macro environment. The management style varies on the basis of intensity of globalization, be in core areas of Marketing, Human Resource, Production and the life blood of business—The Finance. This paper concentrates of financial aspects of Contemporary styles and gives indepth importance to “Investment and Resulting Portfolio Management”, which indeed is the core concept integrating all financial activities making it indispensable in the present world scenario.
The paper discusses on the general rule component in management style and what can be done to nurture creativity through altering the stringent rule component in common management practices.
Portfolio management in finance arena being my central theme in finance in this paper presentation, the current practice of portfolio management process in the country is highlighted, and opportunities embarked by all of us through computerized system of online trading and the mandatory Demat account, has regularized the process and made the portfolio system more authentic and trustworthy along with less corruption possibilities and regularized compulsory tax deductions on profits gained and almost nil tax evasion possibilities.
Challenges in a dynamically process changing India in future due to rise in trend of population and surging entrepreneur capacities due to rise in production and service sector, the listing of companies in SEBI and stock markets across India are to exponentially increase in such a situation. The oligopolistic firms comprising the SENSEX and NIFTY are less commanding in the market of thinning resources across increasing company listings, given the rise in population, job level increase and investment prone to real-estate and such more positive return seeking instruments and less diverted to non-financial securities like Gold, but investment in electronic gold may continue.
So, This paper suggests an idea into managing the challenge of intensely growing number of company share listings in future through a concept of Marginal effect of managing upward trending(rise in) listing numbers.
History is a proof indeed, we have evolved with a change indeed, a change from simple management practices to a more increasingly complex and demanding management styles with the evolution or metamorphism of time. Contemporary management practices are indeed a by- product of time elapsed. We are now modernized in our management methodology through the impacts of increasingly widening platforms across the world through integration of Indian economy withthe Global economy necessitating a more free system to manage human resources effectively and retain them to add efficiency , expertise into our global products and concentrating of welfare of both employees and customers, along with citizens as a social responsibility criterion.
1. “To inquire into the management styles and reduce rule imposition as a general strategy and
2. To suggest a solution to handle to rising trend in number of share listings in future through marginal approach of comparison”
Seeping across the world markets was a gradual evolution to India. Contingency management had an autocratic style in it , it has been dispensed in modern world through it exists in National Army. While Hospitals and Universities have a more participative style, with certain controls on them, while leadership style on organization can be very nurturing for creativity in managing lower and middle management.
With the outdated contingency theory as a practice, systems theory evolved and is still in practice.
But the systems theory could not synchronize all departments with central administration, as each department is specialized, Central administration may not have the necessary specialized structure as in department and often there are conflicting interests and resultingasynchronization in the system. So, currently MNCs have adopted the system of Project Team management style with a Project leaderacross various specializations in management structures.
But , in India Systems concept is widely in practice.
But in systems theory, the Centre has to impose rules on the range of its departments and often this exercise hinders proper conduct of work ,due to heavy imposition of stringent rules thus limiting the employee’s full growth potentiality.
Rules do play an important rule at a basic level in an organization, but more adherent a person is as one goes up the organizational pyramid less the organization is utilizing the full potentiality of its employees. Not following rules doesn’t mean immoral mechanisms to form in an organization, but the flexibility of rules as one goes above in the organizational pyramid makes the organization more innovative, efficient and widely popular amongst job seekers and lesser the employee and labour turnover.
Personal objective and organizational objective often conflicts in many organizations. So by adopting asystem of demarcating between basic and flexi rules can help employees fulfill their growth potential by fully utilizing their capabilities by not adhering to the stringent rules that inhibit their creativity.
“ A Release of Handbook on Rules-flexi and basic” published by the company should be delivered to the employee on the first day of induction to the company.
Finance collated with Economic Situation…..
We can analyze the financial management style of India through the indicators of sparsely populated top companies style in domination of other such similar company.These companies contribute the most to the GDP , not forgoing the amount contributed by other minor players. All their management styles get reflected on the overallGDP , for whose computation, finance is all a necessity.
Indian policies impact on overall gains and business growth….
Financial themes and Management effects
Portfolio management calls for regulation or monitoring the growth and return prospects, whereas in case of Banking Industry, Indian financial system should regulate the interest rates and their stability, to reduce variability in national interest rates, also include risk and assessment management and profitable result is the resultant of proper strategy adopted by leading players in Indian market by hedging and offsetting the impact of loss accrued in the nation. Also the proper management of corporate finance and governance thus decision on tax reduction/ increase depending policy essential at the current period of circumstantial decisions.
Also IFS (Indian Financial System) , also promotes innovation in financing by modulating( arranging for) new instruments with growth potentiality and and following assessment of benefits after implementation to check for and take suitable corrective action for continued development.Its also mandates Rural Economic Development .Thus rural development ultimately will swell the customer based for consumer goods and thus supplementing/additive business sell more consumables and thus increase GDP and resultant financial health and reserve for the country along with economic welfare. Financial Reserve/ Strength can reduce the impact of Recession and move the economy towards Recovery.
Thus by Proper Channelization of resources and competencies ,all at micro levels of the firms can create mastery at National Level’s Contemporary Management Practice.
A Portfolio Manager’s Functionary
In Stage 1, Investment policy embarks upon the horizon ( short/long term perspective) , coupled with funds availability of disposal and borrowed incomes , and the risk associated therewith and ultimately , offsetting the losses( remaining returns).
The tax deducted residual amount of the returns garnered (gathered) from a portfolio of securities is affirmed if is in a positive trend(whether it will raise its price on its movement) .
Stage 2: Involves Investments analytical study, the environment factors, economic indicators, Industry’s future prospects, Companies policies , security and resulting financial health and the present and future growth prospects of the company , in which the investor would invest.
The assessment of the intrinistic value of the future cash flows (Expected Inflows-Expected Outflows), is compared with the current market price of the firm’s stock price.
The evaluation is done from a technical angle, based on cash flows and looking at the above comparables—Intrinistic and Market Values.
Stage 3:Valuation of Security portfolio
Modernized security analysis has to its ambit, security analysis models like Neural Network Solutions, Marcowitz Model, Sharpe Index, Jensen’s Performance Measure, and many such, using computer programming and algorithm approach and result is instantly available with a button click after giving the assumptions fed into.. i.e , the details of a situation say, price quote, quantity units of shares, etc. to facilitate decision-making.
The varying assumptions and the analysis of varied computed scenarios, by simply changing the parameters , is the main advance change in history.
Computer based analysis help the analyst to construct alternatives, to test with data of a range of company portfolios/stocks and compare and induce/suggest appropriate recommendations after analysis and evaluation stage.
The economy of time in a volume of computations, along with perfect accuracy of the calculations, if the data has been accurately induced into the system, gives a massive advantage in a globalized flow management of funds in India( because here Indian companies are also global players and outflows outside India is a natural state).
Stage 4:Construction of Portfolio
After Valuation, selected portfolios are retained, and resources are allocated that shows efficient cost potentiality( in which Cost disadvantage is considerably lesser), risks diversified for hedging/offsetting losses.
Stage 5: Evaluation of performance
It involves evaluation of performance with standards set/expected expectations, along with risk evaluation and revision of the selected Portfolios invested in the investment portfolio account, each individually amounting to National portfolio, return-risk trade off and assessment of negative deviations in the trade off levels, the assessment of total funds deployed in investor portfolios across the country and investors abroad ( mostly major are Foreign Institutional Investors) in Indian companies.
Opportunities we garnered with this present system
Contemporary or Modernized management of portfolio system is of a recent origin. It is aboriginal, we adopted this system from following suit with foreign nations.
Before 1990s , and even few years after these, we did not have a regularized electronic stock exchange market. We paperized the securities, used newspapers for the daily quotes, etc, instant revelation of change in the market price was not known to us then. The paperized securities were negotiated/transferred on selling, companies maintained investors list and buy-sell, calls , allotments were all communicated and informed through letters. Its looks like such a herculean task of maintaining stock holder communications and management of portfolio in a situation of lack of availability of accurate information.
The system lacked overall authenticity and tax evasion on transfer was possible.
The shift from such a formalized herculean work, is now handled by systems whether at stock broking firms or home PCs ( capacities and computational powers of computers have increased over time).The herculean complex work is more than better handled by systems with programmed algorithms , enabled connections(network) .
Each buy or sell of each customer is entered in the database and updated consequently. It has made the unmanageable, manageable and is indeed indispensable in the current scenario.
It has made the portfolio managementà
Accurate computations, if data entered is relied on(i.e input must be accurate for output to be precise)
Better management by portfolio manager due to use-friendly software’s.
Overall efficiency in costs in the long run, as only installation is expensive.
Moreover, the National Stock prices, and investment inflows and outflows as a result of buy-sell can avoid erroneous manual computing’s as regard to the substitution of paperized transactions into electronic mode of management, which is more maintainable with ease due to technological storage backups and memory.
Sensex, Nifty, Gold and Silver Bullions, economic factors and other macro-economic factors are taken accountable for adjustment of a stock price and enable to reflect firm’s positionality against other stocks.
Thus, present portfolio management in an oligopolistic dominated( such as Sensexscrips,etc.) stock market mechanism is indeed secured and slowly the number of bubbling entrepreneurs are on rise.
Challenge of Forthcoming Future
Increasing positive trending in entrepreneurial numbers will make the assessment more and more difficult with the elapse of time making selection of portfolios a complex task with many firms in same financial positions and lowering proportionate power of oligopolistic scrips in SENSEX , NIFTY and such other commanding stocks.
With more and more companies, the share prices and investments in oligopolistic firms are to be thinned down shifting from concentration of holdings to more diffused portfolios away from strong scrips/stocks.
How are we going to regulate the emerging conditions? Computations of Portfolio/evaluation of portfolios, with the increasing strength of similarly lined -financially positioned companies are difficult to correlate on and on a thriving numbers in the same range, and evaluation and prediction of the survival of the fittest among them tends to be a herculean ( difficult) task in future.
So, with globalization and domestic industries , and emerging companies of the future exponentially rising, the future needs a new system of management for the same level portfolio shares and estimation of the most profitable investible security to invest and thus embark on the most opportunistic share in future.
1. K Sasidharan and Alex K Mathews 2011 print, “Security Analysis and Portfolio Management”