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.