"The Worst Predictions About 2008"

"Just about everybody got wrong-footed by 2008, but some people's mistakes were truly spectacular. Here are some of the worst predictions that were made about 2008. Savor them—a crop like this doesn't come along every year.

1. "A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!" —Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008
At the time of the prediction, the Dow Jones industrial average was at 12,300. By late December it was at 8,500.

2. AIG (AIG) "could have huge gains in the second quarter." —Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008
AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.

3. "I think this is a case where Freddie Mac (FRE) and Fannie Mae (FNM) are fundamentally sound. They're not in danger of going under…I think they are in good shape going forward." —Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008
Two months later, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion in each.

4. "The market is in the process of correcting itself." —President George W. Bush, in a Mar. 14, 2008 speech
For the rest of the year, the market kept correcting…and correcting…and correcting.

5. "No! No! No! Bear Stearns is not in trouble." —Jim Cramer, CNBC commentator, Mar. 11, 2008
Five days later, JPMorgan Chase (JPM) took over Bear Stearns with government help, nearly wiping out shareholders.

6. "Existing-Home Sales to Trend Up in 2008" —Headline of a National Association of Realtors press release, Dec. 9, 2007
On Dec. 23, 2008, the group said November sales were running at an annual rate of 4.5 million—down 11% from a year earlier—in the worst housing slump since the Depression.

7. "I think you'll see [oil prices at] $150 a barrel by the end of the year" —T. Boone Pickens, June 20, 2008
Oil was then around $135 a barrel. By late December it was below $40.

8. "I expect there will be some failures. … I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." —Ben Bernanke, Federal Reserve chairman, Feb. 28, 2008
In September, Washington Mutual became the largest financial institution in U.S. history to fail. Citigroup (C) needed an even bigger rescue in November.

9. "In today's regulatory environment, it's virtually impossible to violate rules." —Bernard Madoff, money manager, Oct. 20, 2007
About a year later, Madoff—who once headed the Nasdaq Stock Market—told investigators he had cost his investors $50 billion in an alleged Ponzi scheme.

10. A Bound Man: Why We Are Excited About Obama and Why He Can't Win, the title of a book by conservative commentator Shelby Steele, published on Dec. 4, 2007.
Mr. Steele, meet President-elect Barack Obama.

A good compilation for Forecasters."

India to Become an Important Market for Security Equipment Firms

With terrorism reaching a never before levels in the country and with mass transport systems acting as soft targets for criminal and terrorist activities, India is poised to become an important international spender in the global security market as per the latest report by Frost& Sullivan.

As per the report, the country’s homeland security spending is expected to total around $9.7 bn by 2016, with security of airports contributing to around $3.2 bn at a compound annual growth rate (CAGR) of 5%t. New analysis by the research firm on Indian Homeland Security Market, finds that the market earned revenues of $800 mn in 2007 and estimates this to reach over $1 bn in 2016.

Among other things, the latest Mumbai terror attacks has led to urgent call for formulation of more developed security measures to protect areas where there is a high level of civilian mobility. Mass transport systems are especially being seen as 'soft' targets for both criminal and terrorist activities. Intelligent and durable surveillance systems within 'rolling stock' are among the key revenue generators in this sector. Other technologies that will increase investment included low TCO, self-diagnosing CCTV systems, automatic wireless image downloads and innovative passenger screening technologies.

The increasing importance of air traffic couple with increase in small- to medium-size airports is also expected to enhance the demand for airport security measures. Key technologies include biometric electronic access control, passenger screening portals and explosive detection systems for baggage, as well as cutting-edge passenger processing systems.

However the report also says that foreign security firms that don’t have JV with a local partner in the country could face slow procurement trends, as an emphasis on developing the indigenous security industry and the prevalent dependence on manpower-intensive security measures could hamper security investment.

Reliance Money Plans to Start Stock Exchange with FTIL

Anil Dhirubhai Ambani Group firm Reliance Money has set its eyes on giving competition to the two premier stock exchanges in the country, viz. Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Reliance Money in collaboration with Financial Technologies India Ltd (FTIL) plans to start its own stock exchange.

Reliance Money has the monetary backing of R-ADAG group; it is also a prominent player in commodity market after picking 10% stake in the National Multi Commodity Exchange (NMCE). The company wants to increase its holding to 26% in near future. Reliance Money’s spot exchange for agriculture commodities is also expected to early 2009. The FTIL group has interests in a currency futures exchange, commodity futures, power exchange and spot exchange for agricultural commodities and plans to set up an exchange for SMEs. It has also set up exchanges overseas.

There is tremendous scope for equity stock exchange in the country that has only 5% of its households investing in equities compared to the global average of around 50%. The equity derivative segment has the biggest scope, with the NSE enjoying a virtual monopoly in the segment with an average daily volume of around Rs 40,000 cr. The spot equity market average turnover doesn’t even match up to half of the NSE derivate average, with the BSE having a daily average volume of Rs 4,000 cr and the NSE having daily average volumes at Rs 10,000 crore in the spot segment.

Any aspirant in the stock exchange segment will however need approval from the Reserve Bank of India (RBI). For FTIL, the equity exchange would be an extension of MCX-SX, its currency trading exchange, which was launched under a subsidiary. Reliance Money will have to set up a new company. Another issue could be equity holding, SEBI has recently decided to allow a single shareholder to hold a maximum of 15% in stock exchanges, but has not notified this yet. The aspirant companies’ track record will also be key factor in getting regulatory approval. If approved, this will be the first stock exchange after 1994, when the NSE was set up

Even though both sources have not confirmed the development, both are eyeing the possibility of an exchange for small and medium-sized (SME) enterprises, an area which is beleaguered with several failed attempts. Earlier ventures such as the Indo Next under the BSE trading platform, Over the Counter Exchange of India (OTCEI) and Inter-Connected Stock Exchange of India had failed to take off.

Worldwide SME exchanges are flourishing. LSE's Alternative Investment Market (AIM) was established in 1995 to nourish young entrepreneurial British firms. AIM is home to over 1,500 firms of which close to 250 are listings of firms based outside Britain. Obviously, one of the attractions for overseas firms is the laidback regulatory regime.

Telecommunications Post Highest Growth in Service Sector: FICCI Survey

The new FICCI Survey on service sector paints resilient picture of service sector in India. Telecommunication sector topped the survey as the three segments with biggest growth were wireless subscribers, internet subscribers and broadband subscribers; they witnessed growth of 50%, 26% and 87% (y-o-y) respectively. Railways, IT/software services and Entertainment & media were other major sectors that witnessed growth between 15% and 25% (y-o-y).

Organised retail and Housing finance are the two biggest surprises in the survey. Both these segments grew at 12% and 15% respectively thwarting the general assumption that these segments were doomed in the current economic scenario. Both these segments suffered heavily in stock markets citing demand constrains. News that players in Organised Retail have started restructuring their businesses also added to this perception.

Growth in earnings from Foreign Tourists during Apr-Nov period is another surprising revelation of the survey. Earning from foreign tourist grew at 16.5% (y-o-y) despite numerous terrorist attacks that took place in the same period of time, indicating foreign tourists were undeterred by terrorists. The survey covered 31 service sector segments and gauged their performances during Apr-Nov 2008 period over corresponding period of time.

US Worrying Indian Auto Components Manufacturers

Indian auto component manufacturing is going through tough times. Domestic demand has fallen and exports have dried up, manufacturers are finding it hard to stay afloat. As per a new estimate by Federation of Indian Micro, Small & Medium Enterprise (FISME), some 4,000 ancillary units are on verge of closure making 200,000 jobs redundant.

With the big three American automotive giants in dock, things are looking bleak for auto component exporters. If two of the big three file for the bankruptcy then many of Indian OEM players would be left in lurch without any payment for their exports. General Motors, biggest export destination for Indian auto components account for USD 500 mn worth of exports. If it goes down, it won’t just hit the small players it will hit big players of the Indian auto components market.

ECGC( Export Credit Guarantee Corp) has already frozen credit risk insurance cover to all auto component manufacturers who supply components to big three in US. This has aggravated the problems of component manufacturers specially the small manufacturers who can’t take risks like large firms and are at inevitable loss of business. According to FISME, almost 25% of SMEs in auto component manufacturing have NPAs and this is expected to increase to 50% in near future. The fact that these SMEs account for almost 50% of India’s total auto components exports speaks about the troubled times ahead for the industry.

Government to Relax ECB Norms

At a time when funding has become increasingly difficult for corporates across the globe for expanding capacity and growing businesses, since global economic slowdown made the lenders apprehensive of funding projects. The government is expected to relax norms, as early as next week, to make it easier for domestic companies to raise money through External Commercial Borrowings (ECBs), in a bid to boost a slowing economy,

Among measures recommended by the committee of secretaries include, permitting realty firms to tap ECBs, relaxing borrowing norms for non-banking finance companies (NBFCs), increasing the ECB limit 50 per cent to $750 mn under the automatic route (without RBI’s approval and raising the price ceiling at which overseas loans can be raised.

At present, real estate firms are not allowed to tap the ECB route and NBFCs are allowed to borrow within guidelines specified by the Reserve Bank of India (RBI). For the real estate sector, norms could be relaxed only for integrated township projects, realty firms were demanding infrastructure status for real estate apart from using ECB proceeds without restriction.

Earlier in the year in October, the government had permitted companies to use the ECB route up to $500 mn per financial year for rupee expenditure under the automatic route (see table). In addition, the India Infrastructure Finance Company Ltd (IIFCL) was allowed to raise Rs 10,000 cr of tax-free bonds and function as a refinancer for the sector.

Project awards by authorities such as the National Highways Authority of India have come to a virtual standstill because of, among other things, concerns over the viability of projects and high interest rates. Meanwhile, the government has decided to revise upwards cost estimates of 60 highway projects worth Rs 70,000 cr by up to 20%, to help road developers borrow more funds and boost road building activity across the country

The government is also expected to relax the pricing allowed for borrowing foreign exchange loans by raising the spread or premium charged over the international interest rate benchmark, the London Interbank offered rate (Libor). At present, a company cannot pay more than 300 bps over Libor on loans for three to five years and not more than 500 bps over Libor for loans above five years.

FICCI demands additional stimulus, fiscal package, criticizes US move for duty cuts

The Federation of Indian Chambers of Commerce and Industry (FICCI) asked the central government for more fiscal measures to tackle the current economic downturn, along with demanding more rate cuts from the Reserve Bank of India (RBI) to ease liquidity crisis and reduce cost of borrowing. The fiscal relief asked include, cutting the Cash Reserve Ratio (CRR) further to 4.5%, Repo Rate to 5%, Reverse Repo Rate to 4% and Statutory Liquidity Ratio (SLR) to 22% along with the all important reduction in bank interest rate by 100 bps.

Growth stimulus is now very important according to the industry body, especially with the slow down happening in the domestic economy, and inflation worries subsiding. The industry body has also asked for further rate cuts in home loans, re-imposition of countervailing duty and higher import levies.

For the housing sector the association has sought to raise the upper limit of loans to Rs 50 lakh in the existing Rs 5-20 lakh slab lower rates of interest of 9.25%, besides cutting the rates to 6-7% from 8.5% for home loans below Rs 5 lakh.
For the domestic steel industry, the association has asked for restoration of countervailing duty on imported steel items along with raising import duty to 15 % from the existing 5% to "prevent dumping" of cheaper products in India.

For the textile sector, the chamber asked for deferment of 8th quarterly installments of principal amounts on loans taken by the industry, besides asking for restoration of drawback rates that prevailed before reduction in September 2008.

Earlier this week, FICCI had sharply criticized the US’s move to seek zero duty commitments on sectors such as chemicals from India and other developing countries. The association further said that US-based National Association of Manufacturers (NAM), which has been consistently pressing for sectorals, has recently stated that WTO Ministerial Meeting must await consensus on sectoral agreements.

Sectoral talks relate to complete slashing of import duties in 14 identified industrial sectors. These cuts are additional to the proposed formula-based import duty cuts that every country will have to undertake, if the Doha deal is inked. Indian industry is wary of pressure by the US to make sectoral talks mandatory, as it could mean slashing of import duty on key sectors, including chemicals, industrial machinery as well as electrical and electronic goods. This would mean that cheap goods from abroad could flood the domestic market, causing problem to the Indian industry.

PSB hail Home Loan Package, Industry Disagree & Consumers Wait-n-Watch!!

After weeks of speculation and months of wait, a hint of hope has emerged for borrowers. In a coordinated effort, public sector banks (PSBs) put a cap on interest rate charged on fresh home loans of up to Rs.5,00,000 at 8.50% from December 16 and announce a slew of measures to stimulate credit delivery to housing and micro, small and medium enterprises sector. PSBs expect to give loans worth around Rs15,000-20,000 cr under this package. Among major other measures initiated:

· Time Frame - The special home loan package would be applicable for new loans sanctioned up to June 30, 2009
· Switch Facility - Loans up to Rs.5,00,000 will be offered at a fixed rate of 8.50% for five years after which the borrower can switch to a floating rate without paying any charge
· Loan size between Rs 5-20 lakhs - PSBs will also not charge more than 9.25% on home loans of Rs.5 lakh-20 lakh having tenure of up to 20 years
· Processing fee - Banks will not to charge any processing fees and pre-payment charges for loans up to Rs.20 lakh, and would also provide free insurance cover
· Industrial rate cuts - for micro industries, PSBs have reduced loan rates by 100 bps, while for small industries, they have reduced loan rates by 50 bps, and set up cells to redress grievances regarding these loans

The Indian Banks Association (IBA) has justified the threshold of Rs.20 lakh for interest rate relief announced for home loan borrowers, saying that the package will take care of housing requirements of the common man. However industry body Assocham has termed the home loans package by PSBs as highly inadequate, demanding that the government peg the interest rate on housing loans up to Rs.30 lakh at 6% and at 8.5% for loans above this amount. Among other negatives for the measure is that, that existing borrowers from private sector banks will not be able to transfer their loans to PSBs.

After the move from PSBs, all eyes are also on private sector banks, especially the larger ones such as HDFC, Axis and ICICI to follow suit. Until that time, its wait and watch for consumers.

Domestic India automobile sales plummet, Exports provide some relief

India’s automobile sales plummeted in November, seeing one of the biggest falls, even as exports spiked by 62% during the month. According to the latest figures released by the Society of Indian Automobile Manufacturers (SIAM), tighter lending by banks and slowing economy have led to auto sales plunging by 18% in the domestic market in the month of November as against the figures in the same month last year.

Category wise, commercial vehicle sales almost halved (50%) in November to 20,637 units from 40,879 units in the same month last year, while passenger car sales dropped comparatively less (20%) to 83,059 units from 1,03,031 units in the same month last year. Demand for passenger cars in India has fell in four of the past five months.
In the two-wheeler segment, two-wheeler sales fell 15% to 5,67,502 units from 6,65,181 units in the same period last year while motorcycle sales fell 20% to 4,31,171 units as against 5,40,553 units in the corresponding month a year ago.

Exports have however been the saving grace this month, total vehicles exports rising by 62% to 146,337 units in November against 90,398 units in the same month last year, led by passenger vehicles, motorcycles, scooters and three-wheelers. Break up among the export figures show that, passenger car exports rose almost twice at 34,607 units compared with 15,464 units in the year-ago period. Two-wheeler exports jumped 52% in November to 89,245 units compared with 59,041 units in the year-ago period. And motorcycle exports rose a similar 51% to 85,549 units from 56,739 units in the corresponding month 2007.

However experts feel that this is not the right period to gauge the automobile sector’s performance. The picture would be clear only by February- March, as by then some impact of the excise duty cut would have been felt and if financing situation improves, sales could pick up.

The fall in sales in India came as a blow to carmakers who were hoping that emerging markets like India, China, Russia and South America would make up for falling demand in developed markets.

Sales have plunged hugely this year across developed markets like the United States, Japan and Europe, as well as emerging economies like China and Russia, forcing automakers to revisit their plans for developing markets.

“Service Sector To Push India’s Economic growth to 7.5-8% this Fiscal”

Chief Economic Advisor (CEA)of India expect the service sector to act as a stabilizer to the country’s economy, helping it grow by 7.5-8% in the current financial year. His views come amidst fear that even the service sector which has till now been relatively immune to drastic slowdown, will get negatively affected in a major way in the remaining months of 2008-09.

The CEA however admitted that even the services sectors like the other sectors has seen slow down in the growth momentum this year. He however believes that the cyclical decline for the services sector would be comparatively much less than the manufacturing sector.

Service sector is a major part of the Indian economy, with it dominating the economic scene especially in recent times. IT and IT enabled services (ITES) have been the cynosure of the country’s development, putting in on the world map. Such positive forecasts would do a world of good for the sector, even as the country tries to defend itself from the pains of global recession. But this has to be seen in perspective with global economic growth especially from US that has gone into recession, and which accounts for around 50% of the IT and ITES portfolio.

LIC to bolster Indian Equity Market with its Investment Plan

India’s largest life insurer and also the largest domestic investment institution, Life Insurance Corporation of India (LIC) plans to invest Rs 31,000 cr in equities and corporate bonds in the next four months. Out of the total amount, LIC would invest Rs 11,000 cr in stocks and Rs 20,000 cr in non-convertible debentures. LIC could bolster the equity markets, especially at a time when FIIs are selling off causing huge declines in the market. Even the insurer has been affected by the slump in the equity markets, with it seeing a fall in unit-linked policies, even though traditional policies such as endowment policies appear to be staging a comeback. LIC may invest a total of Rs 40,000 cr in equities during the current fiscal, although it is still awaiting a reply from IRDA on its request to hike the cap on investment in an individual company.

The company plans to use mobilisation from its new scheme, Jeevan Aastha, which guarantees benefits on maturity and death, to invest in debt instruments as returns are guaranteed. Of the Rs 25,000 cr it has targeted from the new scheme, 50% will be invested in government bonds while the balance will be invested in other debt instruments. The company this year has seen a definite increase in the number of corporates approaching it for investment especially in NCDs and rated papers.

Until, November this year, LIC has invested Rs 1,02,476 cr compared with Rs 97,738 cr a year ago. This break-up includes Rs 36,311 cr in government bonds, Rs 23,190 cr in debentures and bonds, Rs 12,372 cr in infrastructure, Rs 1,342 cr as project loans, Rs 164 cr in IPOs ( a relatively small amount reflection the mood of the IPO market in the country) and Rs 29,000 cr in equities (secondary market).

What’s Wrong with Tata’s Global Footprint Strategy

Tata aggressive stance of acquiring companies globally and developing global presence has gone wrong. Tatas are now painfully recognizing the fact that they in for more trouble for their overleveraged acquisitions of giant steel and niche automotive player. Tata’s Jaguar & LandRover (JLR) unit has already asked for the £1 Bn of loan from the government, there were also news of Tatas picking up money from the market at higher interest rates to keep its JLR unit afloat. Tata Corus is already on cost cutting spree and has asked Dutch government for its staff realization program.

So, what went wrong with Tata’s strategy of developing Global presence and become a world player in almost every spree of its business?

Tata’s core strategy was evading regional and nation business cycles, to implement this strategy Tatas needed to generate revenue from world over and setup manufacturing units to ratonalise the cost. Tatas made assumption that if business cycle in a country/region goes through trough then its companies can survive on demand and revenue from other regions. Tata never thought what would happen if different regions go into recession simultaneously. The thought of global recession never concurred to Tatas as “decoupling theory” was very popular at that point of time.

The other major mistake that Tatas did was it has been unable to accrue production cost benefit from its takeover. It invested in highly niche automotive companies like JLR, which can’t be produced world over thus production cost are difficult to rationalise. The other acquisition, Corus, runs on thin margin and high costs; Corus hasn’t been able to cut costs yet, though it may be able to do it successfully in future but it is taking toll of Tatas.

Mumbai Terror Attack Reveal New Strategy of Terrorists

With new terror strike in Mumbai terrorist have unveiled their new strategy of taking seize of economic hubs, random killing and fighting pitch battles with police force rather than blowing up locations in quick succession.

The strategy seems to be clearly aimed at denting the normal business life by taking seize of economic hub and preventing it functioning, thus causing enormous damage. These prolonged pitch battles are aimed at ruining the economic life and order as they did it in J&K. This has been extremely successful in long run, when frequent terrorist strikes have killed the economy. By taking aim at major business hotels they have already signaled that Mumbai is not going to remain safe place to do business.

Another aspect of their economic terrorism is taking tourists hostage and attacking tourist hotspots like Colaba. India has already entered in bad map of foreign tourist with one after another city becoming unsafe for them. This will have larger impact on tourism and hospitality industry both in Mumbai and rest of the country.

Further, random targeting of civilians at all possible public place is going to play havoc in the minds of citizens will change the mobility pattern of urban population in India. Any future replication of this Mumbai terror attack in other cities is going create major trouble for economic growth of the country.

India to Amend its Trade Mark Laws to Facilitate Technology Transfers

The government has approved amendments to the Indian trademark through Trade Mark (Amendments) Bill 2007. The bill will be introduced in Parliament for its approval. According to the government the amendment will encourage technology transfer through trademark licensing and franchising.

The Trade Mark Amendments Bill is India’s gateway to the Madrid Protocol, once approved the Bill will facilitate India’s joining of Madrid Protocol of trade marks as amendments to the bill make their case stronger in India’s intellectual property rights. India’s entry into the Madrid Protocol will facilitate Indian companies to register their trade marks in the member countries through a single application.

Avoiding Unemployment as Poll Issue

Employment has suddenly emerged as the issue that is jolting the confidence of both politicians and businessmen alike. The government once again caught off-guard, is in mood of denial as it did in case of credit crisis and economic slowdown. The government seems to not woken up to the reality or it’s the Prime Minister Manmohan Singh, who wants to divert the attention by making claims about the economic growth. Mr Singh once again in a summit last week said that India would achieve next year’s growth target of 8%, when a few weeks back they were claiming it would be 7%.

Rising unemployment rate during elections are major embarrassment to any government, UPA recognises this fact and thus avoid any talk on the issue to prevent its escalation in media. The government and PM has kept on making statements about India’s miraculous future growth despite global slowdown. Finance Minister has severely criticized reports on layoff by industry and suggested industry could manage downturn without downsizing. The government has been trying to hush-up the matter. It want to keep the issue of unemployment under carpet to avoid any further jolt to its chances of winning election.

Almost every sector in the industry be it retailing, technology, automotive, textiles and exports are under pressure to shed labour and bring down production to avoid any closure. Government has no business in directly supporting industries in this business cycle, it should have taken steps to boost economic growth but it has even failed on this count.

Textile, Jewellery & Auto-components- Unemployment rises amongst India’s Forex Earners

The global economic slowdown has impacted different sectors with varied degree of severity. Textiles and Gems & Jewellery sector, which are one of the biggest contributor’s of India’s exports earnings, are in shambles. Both the sectors are tied with discretionary consumption of global clientele for their produce thus heavily dependent on global market. With discretionary consumption taking nose dive with economic uncertainty all over the world, consumptions of products likes jewellery and garments have fallen dramatically.

This has direct impact on the economic viability of business units related to these two sectors. As a large number of units in these sectors are small and medium size units and most of the workforce belong to unorganised sector. As the new orders have dried out, a large number of these SME units have shut shops leaving workers in lurch. Around 50,000 works have lost jobs in gems & jewellery industry, which expects job losses to go further. Textile industry also expects to cut 5 lakh employees in next five months. Adding to the woe is auto components industry, which in last few years had become darling of global automotive giants, as automobile industry faces question of declining demand the small components manufactures are already showing door to the contact labourers.

Sovereign Wealth Funds to Invest in India’s Oil Exploration Sector

E&Y report also lists China’s SWF as possible investor in India

Ernst & Young has come out with a new report that forecasts India will receive up to USD10 bn of investment in oil exploration and production sector. Interestingly, report also suggests that Sovereign Wealth Fund (SWFs) of Mid-east, Singapore and China would be making such future investments in India’s oil and gas exploration. Also, exploring there chances would be much reluctant Japanese Banking institutions, which so far don’t have a bigger presence in India.

SWFs are surprise entrant to the Indian exploration market. SWFs have been making huge investments in energy sector focused around Mid-east and Africa region but India was never on its target as most of the investment is directed towards securing it energy needs. E&Y has unexpectedly included SWFs from China, which have been in forefront of securing China’s growing energy need and have been competing with India on foreign acquisitions.

India opened its oil and gas exploration sector for private players through New Exploration and Licensing Policy in 1998, so far seven rounds have taken place and 207 blocks have been awarded to the participating companies. This has brought down the average unexplored acreage in India’s total sedimentary area to 15% in FY07 from 41% in FY '99.

DLF enters Asset Management Business

DLF Pramerica, a JV between India’s largest realty firm DLF and Prudential Financial Inc (PFI) of the US, that got an in-principle approval to set up an asset management company (AMC) from the SEBI, expects to break even within three to five years in the business.

PFI is the majority shareholder in the JV with 61%, while DLF will own the remaining 39.5%. Pramerica is the brand name used by PFI in India and other select countries. The asset management business will have a capital base of $45 mn and will be based in Mumbai. DLF Pramerica Mutual Fund is a sub-brand under the umbrella brand of DLF Pramerica. The fund venture, DLF Pramerica Asset Managers Pvt Ltd, is headed by Vijay Mantri, who joined in April from the Indian fund unit of Deutsche Bank.

The AMC will provide full range of mutual fund and investment products, including domestic and international mutual funds to customers. Prudential Financial has assets under management of around $602 bn as on 30 September, 2008 and has operations in US, Asia, Europe and Latin America.

DLF Pramerica joins more than 20 firms looking to break into the Indian fund industry, which saw its assets grow more than four-fold to Rs 5.5 trillion rupees in five year ending 2007. According to a recent McKinsey report, the total AUM of the Indian mutual fund industry could grow to $350-440 bn by 2012, expanding 33% annually. While the revenue and profit (PAT) pools of Indian AMCs are pegged at $542 mn and $220 mn respectively, it is at par with fund houses in developed economies. Operating profits for AMCs in India, as a percentage of average assets under management, were at 32 basis points in 2006-07, while the number was 12 bps in UK, 17 bps in Germany and 18 bps in the US, in the same time frame, the McKinsey report said.

Even though many players are entering the mutual fund space, the space itself is seeing lots of turmoil. Assets have shrunk 28% to Rs 3.9 trillion this year due to a stunning 51.5% slump in India's benchmark index and outflows from fixed income funds. The mutual fund industry in India, in recent times, has seen a wave of redemptions especially in the debt schemes.

The sector is also seeing consolidation, recently Religare-Aegon AMC, which had recently started operations, acquired Lotus India AMC. The latter has begun operations in 2005. Even DLF Pramerica, has made its intentions clears, saying that it would also look at the inorganic growth route also in addition to the organic route, especially when there there were AMCs for sale available in the market.

OVL & Cairn boost India’s Energy Security

OVL acquires oil block in Columbia; Cairn hikes crude production in Mangala

India’s energy security got a boost last week when ONGC’s overseas arm OVL succeeded in bagging an oil block in latin American country of Columbia. The oil block is located in north-western Columbia near La Creciente natural gas field. The oil block has been awarded as equal joint venture between Columbia and OVL, which will remain property of Columbian government. The awarded block is 550km long and has total area of 2.7 Lac hectares. The OVL consortium will initially invest USD 23mn in first phase of the exploration.

In another development, the Cairn India announced that it will increase the production capacity of its Mangala oilfields to 175,000 barrels per day from present 65,000 bpd. This would increase Mangala oilfields contribution to 25% of the present domestic production capacity. Increase in production capacity will help India in reducing its oil import bill and further securing in energy needs.

Indian Mobile Subscription all Boom in Gloom & Doom Economic Situation

Notwithstanding the gloom in the economy, growth in mobile subscriber base continues to increase by leaps and bounds, buoyed further by festive-season sales. It has now become the fastest growing mobile market of the world, where telecom companies are offering services at quite low rates.

Global System for Mobile communications (GSM)-based networks added 3.3% or 7.7 mn subscribers (excluding Reliance Telecom) in October. The country has a total 241.4 mn users in October as compared to 233.7 mn users in September, as per the data of nine telecom companies maintained by Cellular Operators’ Association of India (COAI). At the current growth rate, the GSM segment is expected to cross the historic 250 mn part by December 2008.

Among the top five in the segment, top operator Bharti Airtel Ltd added 2.72 mn new users in October, taking its total base to 80.2 mn, while Vodafone Essar added its highest ever number of new users at 2.1 mn to take its base to 56.7 mn. Public sector operator and fourth ranked Bharat Sanchar Nigam Ltd (BSNL) added 669,551 new users to have a base of 39.8 mn users, while fifth ranked Idea Cellular Ltd signed up 1.2 mn users in October to have a total of 31.6 mn.

Inflation falls to Single digit at 8.9%

In an unexpected happening, WPI inflation fell to single digit numbers for the first time in 5 months, falling by 174 bps from the previous week to 8.98% for the week ended November 1, 2008. The point-to-point inflation rate also fell the most in at least 18 years. The reading was way below average estimate of economists, which ranged between 10.2-10.5%. This comes as welcome signal for the economy, reeling from low growth numbers, tight liquidity and worries of global economic recession. The fall in inflation has also given the Reserve Bank of India, more headroom to cut rates, bringing out another positive aspect of the fall in inflation, fall in rates could be a big boost for the domestic economy reeling from slowing growth.

What aided the sharpest-ever fall in WPI inflation in over five months was the slump in the prices of various petroleum-based fuels such as naphtha, aviation turbine fuel (ATF), furnace oil and light diesel oil as global crude prices plummeted from $145 a barrel in July to $56-60 a barrel. The energy index that comprises of around 15% of the total index dropped 9.22%, compared with 14.09% in the previous week, after Indian oil marketing companies cut the price of jet fuel by 17%. The index of manufactured products that includes cooking oil and steel products, with a 63.7% weighting in the inflation basket, dropped to 8.06% compared with 9.09% a week ago.

Apart from others who had voiced similar views in the recent past, it was only earlier this week that the Prime Minister’s Economic Advisory Council (PMEAC) Chairman, Suresh Tendulkar, said: “Inflation seems to be on the decline as international commodity prices are coming down and the domestic harvest is good. Early next year, inflation would be in single digit.”

Automotive goes out of gear with drastic sales decline

Until recently, India's market had been racing ahead, posting double-digit growth, spurred by a fast-growing economy that had created a new, affluent group, Butt high borrowing costs and new tough loan conditions as a result of the global credit crunch has hit the economy growth, with the latest sector to face the brunt is the auto industry.

India's domestic car sales fell by 6.6% in October, the fastest drop in more than three years, as consumer loans dried up amid a global credit crunch, even as a festive season failed to revive the auto industry. according to the Society of Indian Automobile Manufacturers (SIAM). Cumulative vehicle sales growth for the seven months to October stood at 5.64% from 10.07% growth in the April-September period. Earlier this year, SIAM had forecast overall vehicle sales growth of 12-15% for the financial year to March 2009.

Close introspection of the figures released show that, car sales in the domestic market plunged in October with a 6.59% fall to 98,900 cars against 1.05 lakh in the same month last year. Motorcycles sales were down 18.17% to 5.38 lakh against 6.57 lakh last year. Similarly, trucks and buses sales fell 50% to 11,786 vehicles from 23,352 during the same period. Scooters and passenger three-wheelers were the only two segments that posted positive growth of 4.4% and 16%, respectively. Exports also grew 41.16% to 1.44 lakh in October against 1.02 lakh the same month last year.

SIAM will review its sales forecast for the year ending March 31 after the November figures are announced next month. SIAM has already cut its full-year growth forecast to between 8-10% from an earlier estimate of 12-13%.

Automotive Industry in India - India's automotive industry, produces 1.5 mn vehicles annually, and is worth $34 bn a year, contributing 5% of the country's GDP.

Who Will Save Large US Banks?

The US banking giant, Citibank, is once again toying with the ideas of acquiring banks though it’s domestic regional banks now. But with large number of banks still on the FDIC’s list of bank with riskier assets and monthly new additions to the failed banks list (Security Pacific and Franklin Bank, this month), consolidation in the US banking sector has become a needless exercise.

As the US economy scenario is expected to deteriorate further, the number of banks going bust is likely go to higher. A large number of these failed banks are likely to be acquired by big US banks, some of the directive of treasury. This is bound to add more trouble to the large banks, which are already facing credit crisis. The imminent question is- what would happen when these large banks would be on brink of bankruptcy? Will government let them fall?

No. the government already has minor stake in several leading banking firms but this would not their reason for the survival. The US government has put some legislation that almost guarantees the survival of such large firms and puts the “onus” of safeguarding and protecting such organizations on the government. In 1999, Gramm-Leach-Billey (GLB) Act aka Financial Services Modernisation Act was passed that repealed key parts of Glass-Steagall Act. Section 108 of GLB Act states that “Use of subordinated debt to protect the financial system and deposit funds from ‘Too big to fail’ institutions.”

At this moment it is not clear if federal government is pushing large banks to acquire smaller ones knowing that ultimately they would have to save them, or it is these large banks which interested in creating “too big to fail” institutions.

DTH services to open up for Interportability

Government is finally waking up to allow real competition into the DTH market. Till now, there is no portability amongst the DTH player which gives players upper hand in pricing ones the subscriber chooses a particular service as the subscriber can no longer switch to other service without incurring huge cost.

Lack of regulation on the technology front has resulted into lack of uniformity amongst the DTH players, though the two biggest players, Tatasky and Dishtv, use MPEG 2 technology the new entrants into the market are using MPEG 4 technology. The Ministry of Information and Broadcasting has asked the Bureau of Indian Standards (BIS) to draft a norm on DTH setup box technology, which will enable Interportability of services.

This decision will benefit the present subscribers which are estimated at around 6.4 million. But, this decision will have major impact on the future growth of DTH market as consumers will find it more attractive to have DTH service with Interportability feature. DTH segment has attracted two new players in recent months and is expected to heat up the competition and growth of this segment.

R-ADAG looks to buy AIG’s life insurance business in Asia

R-ADAG has set its eyes on acquiring the life insurance business of AIG in Asia (ex-India); this comes close after Group Company Reliance Money acquiring 15% stake in Hong Kong Mercantile Exchange, which came on the back of a partnership with local firm Goldride Securities, for distributing financial products and services. Rumors have it that Citibank, acting on behalf of AIA, has approached ADAG to buy out AIA. ADAG is likely to be one of several bidders looking to buy these AIG businesses The AIG deal if goes through, could well be the second-largest overseas buyout by an Indian firm pegged at an asking price of around $10 bn, ADAG however is valuing between $5-6 bn. This deal would also make Reliance the largest life insurer in South-East Asia.

AIG has been going through tough times in recent times, last month, the US nationalised AIG, which was on the brink of collapse by acquiring 80% in the insurance giant with an $85 bn loan and restructured its top management. AIG, which had assets in excess of $1 trillion in 2007, has been looking to sell parts of its businesses and assets and focus on the core general insurance business. Globally, AIG operates majorly as AIA while in some markets like Australia and New Zealand, it functions as AIG. AIG’s move to sell AIA is at variance with its earlier statement to retain a continuing ownership interest in its foreign life insurance operations. Life insurance and retirement services business is the largest revenue generator for AIG. Out of the total revenues of $110 b in 2007, life insurance generated $53.6 bon and general insurance $51.7 bn. Asset management and other financial services are comparatively smaller business areas of AIG globally.

Meanwhile R-ADAG already has a life insurance company venture in India, viz Reliance Life Insurance. It is an associate company of Reliance Capital, the flagship financial services firm of the group, which has interests in asset management, stock broking, insurance, proprietary investments, private equity and other activities in financial services. In India, AIG has a 24:76 life insurance JV. This business is unlikely to be part of the proposed deal with Reliance-ADAG, as the Tatas may have a right of first refusal in any sale by AIG.

Nokia to Manufacture Telecommunications Equipment in Chennai

Nokia Siemens Network is also heading for Chennai to manufacture and distribute mobile communication infrastructure equipment. Earlier, another Telecom giant Motorola had chosen Chennai to set up it manufacturing base for mobile phones in India. The present investment by Nokia is not for mobile phones, but for the base station equipment.

Nokia would be investing USD 70mn in its Chennai facility to manufacture Base Station Controllers, Flexi EDGE BTS, Microwave Radio, Access line-card products and other telecom equipment. The company is also planning to increase the production of units to 4,000 per month in span of next six to nine months.

India is increasingly attracted electronics and telecommunications equipment manufacturers for several reasons including engineering design capabilities and also to cater the growing telecommunications market more efficiently.

Domestic automobile sales grows marginally in September

Half yearly (Apr-Sep) Sales also rise

Domestic vehicle sales show marginal increase in sales in both September as well as half year ended September. The pre-festival season sales for the automobile industry showed that most segments recording a marginal increase due to increased marketing initiatives, coupled with inventory push. As per the figures released by the Society of Indian Automobile Manufacturers (SIAM), domestic passenger car sales in the country increased by 2.8% to 108,823 units during September 2008, as compared to 1,05,822 units in the year-ago month, while motorcycle sales rose by 15.2% to 632,369 units, as against 548,816 units in the corresponding month a year ago. Total two-wheeler sales in September also soared by 14.5% at 7,78,424 units, compared with 6,79,766 units in the same month last year. Commercial vehicle sales, however, decreased marginally in last month to 42,698 units from 43,091 units in the year-ago period.

A company wise breakup of the sales figures show that companies such as Hyundai, Mahindra & Mahindra (M&M) and Hero Honda posted impressive growth in wholesale dispatches to dealers as they tried to push inventory for the Diwali and Navaratri festivals. Boosted by a healthy demand for its i10 model, Hyundai Motor India (HMIL) reported 23% growth for September, selling 22,311 units in the domestic market. M&M also reported an upswing in sales, registering 31% growth by selling more than 16,000 units of Scorpio, Bolero and other models. Demand for Logan, a product jointly manufactured by M&M and Renault, however, faltered as sales slipped by nearly 20% compared with those in the same period last year. Skoda Auto sold 1,213 units, recording growth of 34% against sales of 900 units in September 2007. Sales were generally helped by the Fabia hatchback. Maruti-Suzuki, the country’s biggest car-maker, however posted dismal growth of 2.5% for the month, selling 64,682 units in the domestic market.

Among companies with decline in sales, Tata Motors, posted a decline of almost 9% in domestic sales as a ramp-up in production of its new Indica Vista marred growth. The company sold 16,586 units of passenger vehicles during the month as against 18,216 units in the same period last year. General Motors posted a decline of 10% for the month under review, selling 5,154 units as against 5,751 units in the year-ago period. Honda Siel Cars India also saw a 45% drop in sales at 3,104 units compared with 5,674 units, mainly owing to a halt in production of the outgoing City model, which was replaced by a new model that was launched in the last week of September.

In the two-wheeler segment, market leader Hero Honda extended its lead over rival Bajaj Auto, recording a 22% rise in sales at 3.85 lakh units compared with 3.14 lakh units in the corresponding month last year. Second placed Bajaj Auto sold 2.18 lakh units, reported 6% growth. Meanwhile, TVS Motors, reported rise of 16% in the domestic market, selling 1.19 lakh units last month as against 1.02 lakh units in the same month last year.

For the half year to September, domestic passenger vehicles sales remained marginally high; car sales in April-September recorded a 5.39% increase at over six lakhs units despite the increase in interest rates on auto loans and commodity prices which kept many consumers away from buying vehicles. The sales of commercial vehicles during April-September remained challenging as medium and heavy commercial vehicle declined marginally 1.57% at 1.15 lakh units. As banks remained cautious in lending and credit became difficult to obtain, the demand of heavy commercial vehicles reduced. In contrast, light commercial vehicles recorded a robust 10% growth at 1.06 lakh units. Taking advantage of last year’s low volume base, two wheeler sales remained on a healthy track. Scooters sales grew 7.24% at 5.6 lakh units, motorcycles were up 12% at 30.63 lakh units, Mopeds grew by 6.05% and electric two-wheelers segment grew by 56.14%. Half yearly data ended September also showed production growth of 12.70% over similar period last year, which is higher than last year's growth in this period.

Kingfisher-Jet Collaboration ends Liberalisation with Cartelisation

The Kingfisher-Jet Air deal is cruel reminder how corporates can masquerade collaboration for cartelisation. Though there is nothing wrong in the cost rationalization objective of the deal. But, as pointed out by the two owners of the airlines that the deal will directed towards route rationalization. In other words two airlines will effectively kill competition on smaller routes, where only either of the airlines will fly at certain point of time. This will reduce the option available to the customers and will eventually kill the price difference available to customers.

The new alliance will have the quasi power in deciding the ticket pricing. The impact will be on airline service cost for ‘B & C class’ cities, where fare may rise more steeply than those in four metros. The fare reduction mantra which both these companies is mere public posturing in the current environment and is more aimed at diverting attention from negative response on some of the deal aspects. These heavily loss incurring airlines wouldn’t reduce fares, if they had to, they would have done it when government had announced tariff reduction on ATF.

Montek and Chidambaram mock India’s Economic Scenario

Montek Singh and Mr. Chidambaram for past few days have been giving some really exaggerating statements about the economy. They continue to assert that Indian economy will grow at 8%. Now, how that suppose to happen. The global credit lending is expected to come down drastically during next year and India desperately needs it to continue its infrastructure and capex. Indian companies were already raising debt for international market as credit rates in India were high. How are Indian companies expected to grow at same rate in this inconducive economic environment? Plus they were quick to add how fundamentally strong Indian economy is.

How come economy be fundamentally strong where commodities are playing havoc to the economy, crude prices have endangered the aviation sector and is pushing inflation, housing boom is about to go bust with high credit rates and our exports are threatened due to global slowdown. They were not done yet, they made another comment on liquidity situation.

Yes there is liquidity problem, there are not many ready to lend to consumers and corporates are finding it hard to credit at lower rate (which is next to impossible). There is credit problem in the economy, but what about the money that FIIs have brought into the market by selling share and converting them into dollars! The problem, we don’t think is of liquidity in the capital markets but of leveraging and speculation on cheaply borrowed money. Now that it is difficult to leverage and get cheap credit there aren’t many players to do so in the stock markets. So, we have more and more selling and less numbers of buyers.

Is P-Notes revision aimed at Realty stocks and Politico’s investment confidence?

P-Notes are back. After government cracked down on P-Notes last year to tame the bull-run, now government has revised it guidelines to enable foreign institutional investors to issue Participatory Notes where underlying asset is derivative. SEBI has also struck down the rule which limited the FIIs capacity to issue P-Notes only up to 40% of the value of assets held by a foreign fund.

Is the present move by government to remove restrictions on P-Notes aimed largely at Realty companies? Realty stock index on BSE has declined by 77% since the beginning of the year. It is the biggest decline amongst the sectoral indices on BSE. Last year’s favourite sectors i.e. Realty, Banks and Metals and Capital Goods all have been thrashed in the market this year.

Realty stocks gained prominence in last two years when large number of companies came out with IPOs and soon they were reports of politicians and their families having stakes in these real estate companies. Also, a number of politicians parked their money through hawala channels, which entered the market through P-Notes. Ever since the restrictions were imposed on Realty index has continued to slide. Financial crisis in the US took the shine off from FII and Hedge Funds, which had invested heavily in the real estate companies. P-Notes restriction took the toll of real estate stocks and they started falling like house of cards.

As the politicians lost most of their investments in stock market and the value of their real estate stocks came down to one-third of the investments, the government suddenly felt the need to bring back P-Notes, which it had describes as ‘Hot Money’ that created volatility in the markets. The much despised instrument, which was blamed for the skewed investment trend, is now the rescue measure to resurrect the market in same old way that had led to irrational exuberance in the market. Every one in the government is gung-ho that it will restore the “investors’ confidence”, it is really matter of concern for the individual investors that which ‘Investor’s’ confidence government wants to restore now.

Fox Star Inks deal with ‘Singh is King’ producer for India foray

Even though there is global financial and credit turmoil going on, Hollywood production studios entry into Indian film industry continues unabated. The latest to join the bandwagon includes Fox Star Studios, a JV between Twentieth Century Fox and Star, who have entered into a multiple-film deal with producer and director of the latest blockbuster film ‘Singh is King’ Vipul Amrutlal Shah. 'Singh Is King' released in August, starring the current most bankable star ‘Akshay Kumar’ went on to cast its magic all over India as well as in foreign countries, including neighboring Pakistan. The movie also is considered to have got the biggest opening ever for a Hindi movie with a global box office figure of $16.1mn. Shah has also directed hit films earlier which include Namastey London, Ankhein and Waqt.

The deal includes the development and production of an action movie and a romantic comedy and a first look deal on Shah’s future projects. The visual film effects event film will be supported by a team of top visual effects directors from Hollywood and supervised by Fox’s multiple award-winning in-house visual effects team. Vipul Shah said that these kinds of associations are the future of Indian cinema and the Indian film makers should team up with the best technical and creative talent from around the globe while yet keeping the Indian soul in the films. The director is now working on Salman Khan and Ajay Devgan starrer 'London Dreams,' again one of the biggest films in the line up for 2009.

The deal follows similar deals by leading Hollywood production houses viz. Walt Disney and Sony Pictures Entertainment that have struck similar production deals in India. Disney is producing a Bollywood version of its High School Musical film while Sony recently released Saawariya, its first stab at a three-hour Bollywood epic. With growth slowing in the US film industry, Hollywood studios are looking to new markets such as India, South Korea and Russia. The main reason for more companies looking towards the Indian film Industries is due to the expectation that Indian film industry will double in size over next five years, that is from $2.4 bin in 2007 to $4.4 bn in 2012.

An exception to this trend has been Anil Ambani, which recently was covered by Indiabusinessbazaar last month, he has gone westwards, inking a $1.5 bn deal with Steven Spielberg’s Dreamwork’s.

Reliance Big Entertainment hits it BIG

Axon accepts HCL’s higher bid over Infosys

Axon has opted to go for the higher bid of India’s fifth largest IT services firm HCL Technologies as against the earlier bid by the India’s second largest IT firm Infosys. This was communicated by Axon to the London Stock exchange, which said that, “The Board is pleased that HCL has recognised the quality of the Axon business and has announced its intention to make an offer. Accordingly, the Board has withdrawn its recommendation of the Infosys Offer and intends unanimously to recommend the HCL Offer when it is made.”

Axon also said that it gave Infosys a period of 60 hours to mull over the bid made by HCL. During the 60 hour period Axon is prevented from varying or amending its recommendation has now elapsed. In August this year, Infosys had announced a cash offer of 600 pence per share of Axon Group or GBP407 mn. But in September HCL rivaled the offer for 650 pence, 8.3% higher than Infosys bid and valuing Axon for GBP 441 mn.

Infosys however has said it is keeping its options open on making a counter-bid for Axon. Speculations are rife that the revised bid by Infosys may moderately increase in the range of 7-8% over the HCL offer; this counter offer can be expected when Infosys unveils its quarterly results on October 3.

Both the bidders are targeting European companies as they want to reduce their dependence on America, especially with the prospects of recession looming large in the US, and to increase our revenues from Europe and the rest of the world. SAP implementation and its importance has also been an important factor in this deal as Axon specialises in serving software developed by the German firm SAP and advise clients such as Vodafone and Barclays on implementation. If HCL is successful in acquiring Axon, it will be catapulted to the 12th position in terms of SAP implementation globally, while Infosys’ successful bid will make it the 10th largest SAP player. Among other things, the proposed purchase would be the biggest overseas acquisition ever by an Indian IT company.

India to sign FTA with European Union and ASEAN

Indian government will be signing two trade agreements with two major trade blocks in next six months. India will free trade agreements with European Union (EU) and Association of South East Asian Nations (ASEAN). India will formalize India-EU Trade and Investment agreement by beginning of next year. The agreement is expected to double the Indo-EU trade to Euro100 Bn in next five years.

Similarly, India is also expected to sign free trade agreement with ASEAN for trade in goods. This agreement will be signed during India-ASEAN summit and it will also base for commencing talks on agreement in investments and services. India already had a FTA with one of the ASEAN member, Thailand. India already has trade imbalance with ASEAN block. India’s exports to ASEAN for last financial year stood at USD16 Bn, while’s India’s imports from ASEAN nations stood at USD24 Bn.

India already has trade imbalance with ASEAN and post FTA regime is expected to widen this gap. But, India expects boost its position through the trade agreement as it is facing stiff competition from countries like China.

Indian Techies storm the global IT design and development scene

Desi Techies aren’t just doing the low-end jobs for technology giants these days. Now, they are increasingly moving upwards for design and development role of information technology related products. Techies in India at Intel have fully designed Intel’s Xeon 7400 series microprocessor. This feat was achieved in just two years by Intel’s India development team of 300 engineers.

Yahoo India’s development centre created glue pages for yahoo search and have incorporated the product on yahoo India’s site. They plan to take this glue pages search option to the global after some amendments. Indians are now taking greater interest in product development after proving their skills in basic computing related work. This trend in not limited to some big MNC companies in technology sector.

Indian techies are also setting up small firms for product development. Their enthusiasm can be seen with Nokia Forum, which is developer community of telecom giant Nokia. Indians constitute largest number of registered developers with this community; in fact 140,000 Indian developers are registered on the site to create applications for telecom products.

The Companies Bill 2008 manes CEO, CFO & C.S as ‘office in default’

CEO, CFOs and Company Secretary are now will face the default onus in any case pertaining to offence committed by a company. The new Companies Bill, 2008 has made these executives responsible for acts of company. Earlier, there was no clear cut definition of “officer in default” and it resulted in numerous court room debates over who should be held accountable. The bill also asks for such information to be provided in annual reports of the company.

The new changes have been made with view to bring more accountability to corporate governance. The demand for greater transparency and accountability in corporate world has been the major driving force for this change. The Companies Bill, 2008 carries another major amendment for removing the provision for a managing director of an Indian company to be resident in India.

Indian Govt relaxes ECB norms for Infrastructure Companies

India’s Finance Ministry has raised the External Commercial Borrowings (ECB) limit to USD 500mn from present level of USD 100mn for companies engaged in building roads, ports, power plants, telecommunications and other infrastructure related activities. Government has also raised the minimum average maturity to seven years for all such borrowing above USD 100mn, which will have to be spend in India.

This is the second instance of special revision of ECB norms for infrastructure sector. Earlier, in May government allowed infrastructure companies to borrow USD 100mn for rupee expenditure. This has been done in urgent to help the infrastructure companies in raising capital for the project.

Last year, USD 22bn was raised through ECB and foreign convertible bonds and this fiscal year it is expected to fall to USD 16bn. In first quarter inflows through this route fell by 42% to USD 4.1bn. this has given jitters to the government, which is worried that such drastic decline will take toll of infrastructure related projects in the country.

UNCTAD ranks India as the 2nd most preferred FDI destination

The United Nations Conference on Trade and Development (UNCTAD) in its ‘World Investment Report 2008’ has ranked India as the second most-favored location for foreign investment in 2008, behind China but ahead of Russia and Brazil. China and India are the two top preferred destinations not only for the current year but for the next three years (2008-2010) as per the report.

Growth in FDI has been on the back of robust economic growth, improved investment environment and further opening up of telecommunication, retail and other sectors. More than a quarter of 300 international retailers told UNCTAD that they have either opened their first store in India during 2007 or are planning to do so in the near future. Large scale investment transnational corporations like Oracle, Holcim and Matsushita has further bolstered the FDI inflow.

India received the fourth largest amount of FDI inflows in 2007 in Asia (after China, Hong Kong and Singapore), at $23 bn, growing by around 17% over $ 20 billion in 2006. Significantly, India is fast giving tough competition to the Singapore that ranked third in Asia in the amount of FDI inflows. India was also the fourth-largest source of FDI in Asia, as Indian companies invested $13.64 bn abroad in 2007, up more than 6% compared with $12.84 bn in the previous year.

The country has improved its ranking in the inward FDI performance index (which measures the flow of foreign investment into a country relative to its GDP) from 110 in 2006 to 106 in 2007, which is above Germany and Taiwan, but below that of Hong Kong and Indonesia. The report also talks about a survey by the Japan Bank for International Cooperation (JBIC), in which Japanese transnational manufacturing companies have rated India higher than China for establishing business operations.

Though the report appeared bullish on India due to the interest shown by the likes of Wal-Mart, and expansion by auto giants, it also warned of possible hurdles which would make it tough for India to reach the annual inflow target of $50 bn by 2010, of which poor infrastructure emerged as the biggest roadblock. Other experts also believe that the global liquidity crunch may impact FDI inflows into the country.

Indian Pharma Companies prescribe Contract Manufacturing for Growth

India’s contract manufacturing market is set to explode with a 41% growth in next three years to clock USD 2.6 bn by 2010 as per a study conducted by KPMG. This year India’s contract manufacturing industry is expected to reach turnover of USD 1.2 bn, up from USD 869 mn.

The report mentions the manufacturing activities in which Indian companies involved for contract manufacturing. It includes simple vaccines, solid & liquid dosage forms, active pharmaceutical ingredients and intermediates. Foreign acquisitions have helped Indian pharma companies in gaining global prominence and getting contract manufacturing deals.

Worldwide Contract manufacturing industry is expected to reach USD 50bn in 2009 and contract manufacturing of OTC and nutritionals is also expected to reach USD 110bn. The biggest players in this contract manufacturing market are expected to be India and China. India so far has been largely targeting US pharma companies for exploring contract manufacturing but regulatory changes in Europe would make it easier for the Indian companies to bag such contracts

Goldman Sachs, Macquarie Research rule out rate hike by RBI, expects interest rates to ease in early 2009

Goldman Sachs in its latest report has ruled out any hike in interest rate by the RBI, considering the current tightness in liquidity condition and expected decline in the inflation by early 2009. As per the report, the current tight liquidity and slow growth, suggests that the RBI may use the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR) to ease liquidity, hence any further hike by CRR is also ruled out. Further the investment major expects the RBI to have a rate cut in the January-March quarter of 2009, to spruce up growth, as the macro concern shifts from high inflation to falling growth. As per the report inflation is expected to drop considerably in early-2009, due to slowing demand and drop in commodity prices.

Macquarie research too expects the RBI to hold interest rate steady at present level at its next policy review on October 24. Macquarie also expects the RBI to cut interest rates in 2009 and the CRR for banks by around 200 bps. Earlier, Macquarie had earlier forecasted a 25 bps hike in the repo rate to 9.25%, but it had revised its forecast due to the global financial problems.

Reliance Big Entertainment hits it BIG

R-ADAG's Reliance Big Entertainment has clinched a $1.2 bn deal with Hollywood’s leading director Steven Spielberg, to finance the director’s future projects. Reliance will invest $500 mn and provide another $700 mn in debt through JPMorgan Chase & Co. Thirty films are likely to emanate from Reliance's co-financing and 10 will go into production soon. The deal will split the long standing tie-up between DreamWorks and Paramount Pictures, which bought the production house for $1.6 bn in 2006.

DreamWorks SKG was founded in 1994 by Spielberg, Jeffrey Katzenberg and David Geffen. Spielberg retains the rights to the name DreamWorks and is expected to affix it to the new entity. Some hit movies produced while DreamWorks was housed at Paramount including the Will Ferrell comedy "Blades of Glory," "Transformers" and "Sweeney Todd: The Demon Barber of Fleet Street." The deal is expected to save Paramount overhead costs by cutting loose the high-priced director. Frictions emerged due to the cost of keeping between Paramount and DreamWorks. Paramount could however still be involved in distributing films made by the group, including jointly produced movies such as the upcoming sequel "Transformers: Revenge of the Fallen." Meanwhile Spielberg is expected to continue to direct "Indiana Jones" sequels with Paramount and Lucasfilm as production companies.

Earlier in the year, Reliance Big Entertainment had announced during the Cannes Film Festival in May, that it would invest $1 bn to develop and co-produce movies with Hollywood stars George Clooney, Brad Pitt, Tom Hanks and Nicholas Cage and filmmaker Chris Columbus' 1492 Pictures. Reliance Entertainment has as many as 100 films in production and development in India, and Reliance Big Entertainment, a subsidiary, is focused on striking cross-border collaborations involving gaming, movies, online, animation and music.

Plebiscite to solve farmer’s plight and land acquisition for industrialisation?

Maharashtra’s decision to hold plebiscite for MahaSEZ is radically different from WBengal’s decision on land allotment for Tata. This is evolutionary attempt in land acquisition policy for industrialisation. The news of plebiscite is bound to give sleepless nights for corporate, who will find it difficult to deal with the new situation. The new arrangement brings in a new party into the process.

The process gives farmers/land owners right to decide whether they would like to part of an industrial project or not. This is a good step in reducing the backlash over industrialisation in rural areas. It would also give farmers better say in rejecting any proposal to acquire land without a good and sustainable package.

However, there are also chances of manipulation of farmer’s interest as any misinformation would jeopardise interest of both stakeholders. Also unclear is what would happen when a minority of farmers oppose the project. The present policy provides that government will buy only 30% of total land for the project. Will government buy that small portion of land in case of opposition by farmers? This would add more uncertainty.

Government needs to bring in more clarity to the acquisition process, it should take notice of the new experiments and concepts, but until and unless government brings in new measures and rationalise the land acquisition, it will remain contentious issue.

Will commodities cool-off as Indian markets go bottom fishing?

The Indian markets are again in the mode of bottom-fishing, FIIs, predominantly i-banks and hedge funds are in process of liquidating their portfolios to keep themselves alive with cash flows. This new round of sell-off is more likely to impact the companies which makeup the portfolio of those US firms which are now in trouble with their financial exposure.

The present eruption of year long financial crisis has casted a bigger shadow not only on the Indian markets but also on the companies. The fresh bout is expected to impact US investment banks’ investments in corporate India, which sooner or later will be liquidated. Though people are expect such liquidation from Merrill Lynch and Lehman but the fact remains that Citigroup for long (since last year) has been contemplating selling its stake in HDFC. It implies that India will see more stake sale by big US banks, though most of it may not come to the market, but will definitely impact the markets.

But, the good new may come from the commodity side, which since last year has risen tremendously on back of speculation. Now that interest rates are high, credit is further going to be squeezed out of the market and economic cycle on downhill is going to reduce the demand, speculators would prefer booking their profits and leave the markets for sometime. Commodities, especially the energy related, will see some cool-off now. This may come as good news for India, which is fighting high crude and steel prices.

Business of waste in India

As the penchant for low cost services has grown, some country’s habit of getting things done at low cost has also risen. Now its not just local people who are after raddiwala/bhangarwala it is municipal corporations in UK which are interested in washing off their dirt in India. It costs upto £148 to recycle a ton of rubbish but in India its costs only £40 almost a third. So, now British subcontractors are dumping waste in cost effective India as part of green and clean UK. The news has infuriated the country, which finds it difficult to get rid of its own waste, but not the businessmen.

India, like most of the developing country, has always been good dumping ground of waste, especially industrial waste. India for long has been hub of ship breaking industry. Most of this industry is located in Gujarat followed by some work in Mumbai and kolkatta; and together these places accounted of almost 90% of all ship breaking in the world till some years ago. There are around 170 yards in Alang, Gujarat, the nerve centre of ship breaking industry in India and it employs around 50,000 people. The ship scrapping activity contributes more than 200,000 tones of scrap every year to the re-rolling mills and thus accounting for 60% of domestic production of metal bars. This is the primary reason why government hasn’t banned the ship scrapping industry in India despite environmental concerns.

The Indian government is yet to ratify Basel Convention, but if it does than it will help a lot controlling unwarranted industrial waste into India and will also help in making this industry more organized.

India ranked 122 in 'Doing Business Report 2009’

India slips two places in new report

Even though India has grown at a scorching pace of over 9% in the recent years, and is expected to grow at around 8% in the current year, doing business in India is still tough. According to the 'Doing Business Report 2009' prepared jointly by the International Finance Corporation and the World Bank, India has slipped two places to 122nd rank.

Another important thing to notice is that even though, India has considerable economic clout against its neighbors, still Pakistan, Bangladesh and even Nepal rank higher than India in doing business. Pakistan ranks 77th place, Bangladesh 110th and Nepal is at 121st position. In terms of number of days to set up an enterprise, however India has an advantage over Bangladesh and Sri Lanka. According to the report, it takes 30 days to set up a business in India, 73 in Bangladesh and 38 in Sri Lanka. Interestingly, the report added that an entrepreneur can start a business in 9 days in Afghanistan and Maldives, and in 24 days in Pakistan. Closing a business enterprise in India also proves to be tough task, as per the report, insolvency procedure in India may take 10 years as compared to 5 in Nepal and 2.8 in Pakistan.

Among other parameters, it takes about fours years to enforce a contract in India as compared to less than six months in Singapore. The cost of enforcing a contract in India could be as high as 40% as against 24% in Pakistan and 23% in Sri Lanka. Procedures to enforce a contract, the report said, are equally cumbersome in Pakistan, Bhutan and Bangladesh. However at trade policy India beats its neighbors. According to the report, it takes 17 days to export as compared to 24 in Pakistan, 41 in Nepal and 74 in Afghanistan. Similarly, it takes 20 days to import goods into India as against 32 in Bangladesh and 35 in Nepal. It may take 77 days to import goods in Afghanistan.

On the international front, Singapore continued to garner 1st place in the ranking, which covered 181 countries of the world that provides quantitative measure of regulation for starting a business, getting credit, paying taxes, enforcing contracts and closing a business.

This report also states the importance of India as a country, and a market in the global economy, even though doing business in India is tough, still the country is able to grow at above 8% per annum as business are fighting this tough task to initiate and grow the business in the country.

India’s CAPEX to drop significantly in 2008-09

In early ominous signs of things to come, a Reserve Bank of India (RBI) study has estimated that the capital expenditure (capex) in India by corporates may slow down by more than 30% in 2008-09. This expected drop in capex comes after four consecutive years of growth at more than 40%. As per the report, capex figures are expected to touch Rs 173,173 cr in 2008-09, drastically lower than the Rs 245,107 cr raised by companies in 2007-08.

In the last financial year, one of the key drivers of growth in capex was the Rs 442,000 cr worth of capital inflows of which 37% was in foreign debt, 27% was equity market-related inflows, 14% was net FDI and the balance 22% in other hybrid inflows. Major reasons for the drop is obvious the difficult of companies in raising fund overseas in the last six months, due to the global credit turmoil, following the sub-prime credit crisis in the US. The other major contributor viz. the local equity market has also been in doldrums in the past six months, with IPOs either not getting the required response or being postponed due to fear of under subscription. High inflation and a spate of interest rates hikes, has also led to slowdown in investment plans announced by industries?

Over the last three years, investments were made primarily in the automobile, cement, oil and gas, power, steel and telecom sectors. However, most of these sectors are unlikely to go for fresh expansion in the coming years on account of ongoing recession and price freeze by the government to control inflation. The cement, steel and sugar sectors are chief examples of industries that have been caught between rising input costs and disproportionate increase in realisation on account of price controls. The projected downside risk to growth in 2008-2009 has increased due to uncertain global conditions, primarily because of volatility in oil prices and capital markets.

However with India getting the waiver at the NSG, the future looks bright for the capital goods industries, which could prop up the capex figure with their investments. Even telecom sector could provide a boost with the advent of 3G services in India and the additional requirement of infrastructure for the services.

Will Indian govt able to attract 10mn foreign tourists by 2010?

Indian government is giving fresh impetus to tourism industry to attract more foreign tourists. Though India is geographically large and more diverse than many countries but it still attracted only 5.08 mn foreign tourists compared to Paris, which saw 15.6 mn people visiting the city in 2007. Even a small place like Hong-Kong attracted 13 mn foreign visitors. It would be a big challenge for India to attract large number of visitors and snatch market share from even Asian countries.

Infrastructure remains the major hurdle in India. Most of the UNESCO sites don’t have quality hotels and there has hardly been any investment in such places. Even there are bottlenecks for first footfall, airports and docks for cruiseliners. Government has been trying hard to remove these hurdles by setting up additional airport terminals in places like Goa, Kochi, Chennai and Mumbai, which may improve visitors’ experience upon arrival but same can’t be said about their forward journey. Developing dock for cruiseliners will definitely boost both international and domestic tourism. Kochi’s experience with cruiseliners needs to be replicated in other parts of the country. It would give big boost to the tourism as we are peninsular country and cruiseline experience is very well limited.

At present, tourism contributes 6.4% of country’s GDP and accounts for 10% of the country’s employment. Government aims that an increase in the arrival of tourists will bring in additional revenue of USD10 bn by 2010 and would also generate 15 mn jobs for the country. This would definitely require proactive approach rather than mere policy announcements, which government is good at rather than execution.

M&A deal Activity reaches $23 bn; India lags behind China and Hong-Kong

The Merger and Acquisition activity in Asia this year has remain a bit subdued. This year between Jan and Aug, $23.8 bn worth of M&A deals has taken place in India. This is not good for India as during last year and in the same period, deals worth $40 bn had taken place. The number of deals has remained more or less same which implies that the average deal size has fallen, which is not good for the country.

Last year two countries had M&A deals over $40 bn between Jan and Aug and India was one of these two countries. This year only one country has crossed $40 bn mark during the same period and it’s China, with $63.3 bn worth of M&A deals. What’s more intriguing that second place in M&A deal activity in Asia has been taken over by Hong- Kong with deals worth $33.7 bn, in all it is china which has gained in the M&A activity in Asian region.

Amongst the biggest M&A deals which took place in August as per Businessworld, the $113 mn acquisition of Indu projects by Credit Suisse Group was the sole Indian deal amongst all top deals in Asia.

Indian Govt claims record Rice Procurement, Mulls Rice Exports. Is it another Blunder?

Just a few months back several state governments had announced to provide rice at Rs2-4 a kg citing soaring prices of food grains and shortage as a reason populist measure to make this staple food available. Government had also banned the export of rice and India subsequently vanished from the list of rice exporting nations. Now comes the announcement from the government agency Food Corp of India (FCI) that India will be able to export rice this year. Unbelievable it may sound but, the FCI says that it has already bought 28 Mn tones of rice from farmers, much higher than the target, thus will be in position to export it.

Ironic it may sound but India as few months back government was pleading helplessness over controlling food prices now the government has indicated that it may lift the ban on non-basmati rice exports after October. Food management program in India is not only incoherent and inconsistent but also lacks vision. No one knows the possible reason for government’s enthusiasm for rice exports (probably except exporters) when future food security is on question mark.

Just few months back, government put advertisements on every tv channel claiming bumper harvest but it failed to procure wheat and had to import wheat at twice the rate which it was unwilling pay to the domestic farmers. Now government claims that its wheat inventory stood at 23.5 Mn tones, much above 13.5 Mn tones last year but, it has no answers why it couldn’t get wheat for poor. The political apathy with food security is to such intolerable extent that India is probably the only country where bumper foodgrain gets spoiled in poor storage facilities and worse it buys spoiled foodgrain for its people, yet it never stops at taking hasty decision and looks short-term benefits overlooking the long term concerns.

Consumer Durable Industry top line to grow at 10% in FY09

Confederation of Indian Industry’s (CII) recent report has thrown a surprising as well as heartening result, wherein even after the Consumer Durable industry grew marginally in the recent past, the industry expects to grow at 10% in FY09. A snap poll conducted by CII on non-automobile based consumer durables sector showed that 92% of the CEOs expected 10% top line growth in FY09. On further dissection of the 92% positive CEOs, 31% of them expect top line growth to be in the range of 15-20% and another 31% of the CEOs expect the top line growth to be more than 20%.

On the profit aspect, the poll showed that. 69% of the CEOs expected profits to increase during FY09 and of these, 33% of the CEOs expected profits to increase by more than 20%. While on the export front, 90% of the interviewed CEOs expect exports to increase during the year 2008-09. Among those, 50% of the CEOs expected it to increase by 10% and another 20% of the CEOs expected an increase in exports by 10-20%.

The optimism of the CEOs may also stem from the fact that even though the sector grew marginally, it has seen progressive growth; the sector grew 3.8% in first three months of FY09, as compared with growth of 0.7% in the first quarter of FY08.

The poll also gave out impediments that the interviewed CEOs thought were plaguing the industry. Among the barriers to higher growth decked out in descending order were, infrastructure bottlenecks, rising raw material costs, high interest rates, regulatory burden due to multiple compliance formalities and frequent inspections.

However the snap poll is a positive sign for the industry as well as the economy, this confidence is further augmented by the recent ‘Mahabachat’ sale organized by leading retail chain company Big Bazaar, which saw record sales during the period.

Government to add a strategic investor to UTI MF, SUUTI to offload its state in corporate majors after March 2009

In a move to spruce up the country’s fourth largest mutual fund by assets under management, UTI MF, government is planning to include a strategic investor to the MF, but this will be done without diluting the nature of existing promoters of the fund house. Accordingly, the strategic investor could hold up to 26% stake in the mutual fund.
This move of the government was indicated by the Finance Minister in a recent meeting with the board of UTI MF.

Presently LIC, State Bank of India, Punjab National Bank and Bank of Baroda are the promoters of the mutual fund house. This move is expected add enormous value and strength the flagging mutual fund house. On the possibility of the kind of strategic partner, UK Sinha, the chairman and managing director of the fund housed, said that it could be a very big distributor or a very big investor in India from abroad or a large group.

The fund house has also deferred its proposed and much awaited IPO, and therefore also its pre-IPO placement. In March 2008, market regulator SEBI had given its approval to UTI MF for its IPO, but the fund housed had to put its IPO plans on hold due to extreme volatility in the markets then.

Among other developments, the Finance Minister said that the residual stake held by the Specified Undertaking of UTI (SUUTI) in corporate majors L&T and ITC will be transferred to the government after March 2009 when the undertaking is scheduled to be wound up. SUUTI was formed well over four years ago after the erstwhile UTI Mutual Fund was bifurcated into two in 2003-04, following a major crisis.

All assured return schemes and other assets and liabilities were transferred to the new entity SUUTI with objective that once all liabilities to the unit holders were finished, the undertaking could be wound up. While many schemes have been redeemed, some of the assets in the form of the shareholding in L&T and ITC are yet to be sold mainly because of the resistance from the entrenched managements. Meanwhile, the board of SUUTI has appointed ICICI Securities, JP morgan and Citigroup as the bankers to sell a part of the 27% equity holdings it controls in Axis Bank, the third-largest private bank in India.

Venture Capital Investment Grows Two-fold during Q2-2008 in India

India still far behind China

Venture Capital (VC) funds continued to show confidence in the economy and companies in India as VC investment doubled during the second quarter of 2008. The latest Quarterly India Venture Capital Report by Dow Jones VentureSource puts VC investments in Indian economy during the second quarter at $238 mn across 17 deals compared with $108 mn across 12 deals during the same period last year. The VC investments rose 120% y-o-y.

Category wise breakup of the investments showed that advertising start-ups got the biggest share of VC funds in the second quarter at $89 mn, and it accounted for nearly 37% of the total investments in the period. Second in terms of investment was the IT industry, which recorded three deals worth $33 mn during the second quarter, it was however a 55% decline from the $73 mn invested during the same period last year.

In terms of development stage, companies with active revenue streams attracted the most capital in the second quarter of 2008, as nearly $151 mn went to 10 deals for companies that were shipping products and another $4 mn went toward a deal for a profitable company. Just six deals, worth $83 mn, were for companies presently developing products. Another important aspect of the report is that the confidence shown by these VC funds in re-investing, there were as many as seven second-round investments out of the total deals. Among the companies invested, Laqshya Media, a Mumbai-based provider of out-of-home media advertising services attracted the largest VC investment of $70 mn during the quarter.

The VC investment in India looks paltry if compared with China, where the second quarter of 2008 saw venture investment in Mainland China surge to its highest level in five years at $1.37 bn into 71 deals, more than double the $662 mn invested in 69 deals during the same period last year. However one deal, an investment of $430 mn in Beijing-based Oak Pacific Interactive, which provides an Internet platform for Web 2.0 communities accounted for 31% of the country's investment total.

S&P launches India specific Index for global investors

Though India’s stock markets have been underperforming in recent months but, the Sensex as well as the Nifty has given more than 40% annualized returns in the past five years to 2007. Similarly, since 1998, net foreign investment into India has quadrupled. Gauging by the above parameters, the country continues to be one of the most attractive markets in the world. To give global investors better and comprehensive information to make investments decision in India, global rating major Standard & Poor has launched S&P India Select Index. The index will give global investor with tradable exposure information and exposure to the largest and most liquid companies listed on the National Stock Exchange (NSE).

The index includes 60 major Indian companies that meet its parameters which includes size, liquidity and tradability requirements. Also, there is no single stock representing a weight of more than 10% in the index. On a whole the index is float-adjusted and stock weights are determined by what is legally and practically available to foreign investors.

Telecommunications, consumer staples, utilities, financials, energy, materials, industrials, information technology and healthcare are among the sectors included in the index. The top ten holdings by percentage of index weight are Infosys, Bharti Airtel, ONGC, Reliance Communications, HDFC, RIL, ICICI Bank, HUL, BHEL, and L&T. For inclusion in the index, the companies must already be a constituent of the S&P/IFCI India Index with a float-adjusted market capitalization above $500 mn at each annual rebalancing and a six-month average daily trading value above $1 mn. The index uses an evolutionary algorithm-driven optimization to maximize index basket liquidity at each rebalancing which occurs annually in January.

This is the third such move in the past one year by global financial companies to launch indices based on India, last August, Dow Jones had launched Dow Jones India Titans, a stock index tracking 30 most liquid stocks on the BSE and the NSE, while in February, finance firm Atherstone Capital Markets launched two indices dedicated to Indian primary markets.

Automotive Engineering Offshore activity gaining ground in India

India is steadily gaining ground in almost all kind of outsourcing and offshoring services. Automotive engineering offshore activity is also gaining ground. Currently automotive offshoring has been a small component of engineering offshoring activity in India. As per one of the estimation global engineering offshoring activity amounts to $10-15 bn and India accounts for just around 12% of this market. The global offshore engineering spend is expected to grow to anything between USD150-225 Bn by 2020 and India could have around 20-25% share of this industry. Automotive offshoring is expected to contribute a big chunk of this engineering offshore pie.

As per another recent survey by Frost & Sullivan, Indian automotive engineering service outsourcing industry is expected to clock a 32% growth by 2012-13 and is likely to generate USD 2.2 bn in revenues for the country in next two years. The report also emphasized on spin-off of automotive engineering services from IT sector to realize better growth opportunities.

Leading global automakers like Toyota, Daimler-Chrysler, Fiat, Ford etc source components from India. Both Toyota and Volvo source gear box for the automobile range from India. Daimler-Chrysler not just sources components but also uses IT services for integrating electronic gadgets in their cars. In fact Daimler-Chrysler sourced USD125 Mn worth of such components and software from India.

Power Sector Tops Investment in H1 2008

Realty surprisingly makes it to the second spot

A study conducted by the Associated Chambers of Commerce and Industry of India (Assocham) has put the power sector in the country in the numero-uno position in terms of investments received in the January-June 2008. The power sector received investments worth Rs 1,959,13 cr in the stipulated period, accounting for almost 31% of the overall investments in the corporate sector. Power majors like Tata Power, Sterlite Industries, Jindal India Thermal Power and Lanco Group are among the corporates that have lined up big investments in the sector.

Second in line in investments was the realty sector, a surprising fact, even after interest rates have spiraled high, and there are reports of slowdown in demand for real estate. The sector attracted investments worth, Rs151,000 cr for the next two to five years. Omaxe, Uppal Group Developers and Mahindra World City, were among the major companies unveiling their investments in the sector.

Others in top five in descending order were the steel sector with investments of Rs 1,086, 09 cr, retail sector with Rs 8,92,00 cr, and followed closely by the telecom sector with Rs 8,91,00 cr. Steel sector saw investments majors like Vedanta Resources, Tata Steel, Bhushan Steel and JSW Steel, the retail sector growing at an estimated 25%, saw investments by corporate retailers and real estate developers like Reliance Retail, Parsvanath Developers and Videocon Industries, while aggressive marketing and falling tariffs by major telecom players like Reliance Communication, Aircel and Quippo Telecom Infrastructure contributed to the boom in the sector.

Oil & Gas, Automobile, IT, Construction and Manufacturing and Ports & Shipping were the remaining sectors that made it to the list of top ten with investment figures ranging from Rs 30,000cr to Rs 90,000cr.

IRDA Committee to set new norms for IPO and diversifying risk

The Insurance Regulatory Development Authority (IRDA) has set up a committee for working out guidelines for valuation of insurer companies and the likely initial public offer (IPO) price. The committee will look at four major aspects viz, mechanism to value the surplus that will be generated over time; the acquisition costs that consists of the commission expenses and the initial expenses for a product; will the IPO will take into account the initial expenses, the investment income, the future mortality risk, claims ratio, lapsation experience of the insurance company and, accordingly, work out the surplus or the deficit and the discount it to the present value of the business.

The formation of the committee has been staged at the right time, with major life insurance companies planning to list next year. According to the present regulations, an insurance company has to list within 10 years of operations. SBI Life and HDFC Standard Life have made their plans clear, while the largest private player ICICI Prudential, may list in 2010-11.

IRDA also notified major changes in the investment norms for insurers that will help companies diversify risks and lower the strain on capital. For policy holders, it would also mean higher yield on investments. Insurers investing in IPOs of private sector companies will enjoy more freedom that could help policy holders garner higher returns from equities post-listing. They can also invest in fixed-income instruments such as mortgage-backed securities (MBS) and bonds floated by developers of SEZs. Insurers will get greater leeway in their investments in mutual funds and venture funds as well.

IRDA also made changes in the quantum of investments that insurers can in IPOs. At present, insurers can invest in an IPO of a private sector company if the minimum issue size is Rs 500 cr, while the amount is significantly lower at Rs 100 cr for investment in IPOs of public sector companies. The regulator has now fixed a uniform minimum issue size of Rs 200 cr.

Among other changes made by IRDA, it has created a level playing field between private players and Life Insurance Corporation (LIC). The biggest impact of these guidelines will be on LIC. Earlier LIC was allowed to hold up to 30% of stake in any company but now it may be able hold only up to 10%. It may have to dilute stake in companies where holding is more than 10%. LIC currently holds more than 10% in companies such as Ranbaxy, Mahindra, L&T.