SUMMARY
India continues to face tough & rather uncertain
economic conditions. With poor monsoon, policy paralysis &
non-encouraging quarterly results ( with increase in topline in most cases, but
with falling margins), the business sentiment is reported to be much worse than
reality. The two powergrid collapses in quick succession last week added
fuel to the fire, severely affecting the perception of India’s investment attractiveness.
With concerns over inflation & risks thanks
to deficient rainfall, high food prices, weaker rupee, suppressed inflation in
fuel, coal & electricity, there has been downward revisions in the growth
projections.With stagnating global equity markets, the investment scenario also
likely to continue to be adverse. However, with change in guards at critical
positions (with new finance minister & chief economic advisor taking
positions), one can look ahead with a note of optimism
It is reported that (THE
ECONOMIS July 21,2012) that the big emerging economies may never grow as fast
as they did after 2003. As per the projections of Goldman Sachs, the average
growth for the rest of the decade for BRICS would be 5.2% for Brazil, 5.4% for
Russia, 6.3% for India & 6.9% for China, with India China being in a
position to dream to fulfill this & Brazil & Russia likely to fall
short.
Ø India’s
infrastructure (Blackout nation THE ECONOMIST Aug 4-10,2012)
For an aspiring economic
superpower, the electric cuts that struck northern & eastern India last
week are truly chastening events. More than 600 million people in the country
faced blackouts for two days. The blackout will badly damage the country’s
reputation, and highlight the state of its infrastructure.
The cause of the
blackouts is murky; an overloading of the national network that links together
regional grids is the most likely explanation.
The generating capacity
has to double every decade to meet the demand. Though a lot of investment has
been happening on the generation side, the rest of the supply chain is in a
mess.
The solution is to cut
graft, tackle vested interests and allow markets to work better. In the case of
the power sector, the coal monopoly needs to be broken up & distribution
firms privatized. The government has , as in the case of tax reforms, cutting
public borrowing & opening retail sector to competition, shirked doing what
is clearly necessary.
Ø Banks funds drying up for power projects (THE HINDU BUSINESSLINE July 29, 2012)
Banks are cutting lending
to the power sector. Credit growth to the power sector dipped to 13.65 period
during May 2011 to May 2012 from 42.43 % during the corresponding previous
period.There are fewer bankable projects, according to the power
industry watchers. Deteriorating finances of SEBs, fuel uncertainties & the
current procurement system are the main reasons due to which banks and
financial institutions are wary of further exposure to power sector
Ø Polarisation in growth of software majors (THE HINDU BUSINESSLINE Aug 5, 2012)
The pecking order of preference
among top-tier IT companies indicated by investors & industry analysts over
the past 12-18 months, clearly segregate the best performers from the others.
TCS, HCLTechnologies(HCLT) & Cognizant Technology Solutions are preferred
over Infosys & Wipro.
Lower volumes of growth,
reduced pace of expansion in key verticals, client-specific issues and
lackadaisical pace of large-customer additions are some important reasons for
segregation in performance. The markets too seem to favour players that deliver
revenue growth ahead of margins, irrespective of whether a company is sitting
on cash piles or enjoy superior margins. Valuations of even global players such
as Accenture & others such as Cognizant which were at discount to Infosys
& Wipro have now gone into premium zone
Ø As wage bills soar,IT sector begins search for talent beyond colleges (THE HINDU BUSINESSLINE Aug 6, 2012)
With slowdown putting
pressure on revenues, the IT industry has recognized the need to dump the
traditional model of human resources. There is a realization that 60 to 70% of
graduates in the country come with ‘unconventional backgrounds’ ( viz.not top notch
engineering colleges & management colleges).The need for deploying visually
challenged for some BPO jobs and rural graduates in posts where high
communication skills are required is being felt. However, there is a need to
develop multi-skilled & flexible workforce than can adopt to variance in
industry demand.
Ø Attrition in IT-BPO sector falls due to slowdown: Assocham (THE HINDU BUSINESSLINE Aug 6, 2012)
Owing to global economic
slowdown, attrition rate has drastically fallen in the IT & ITeS and the
BPO sector to 15 to 20% in the half year ending June as against 55-60 % in the
corresponding period last year. An uncertain global economic environment,
together with crosss-currency fluctuation, has compelled the employees to adopt
a wait & watch policy in the IT-BPO secor which has been grappling with
talent crunch.
Ø Rate-cut top Chidambaram’s plan to revive growth(THE HINDU BUSINESSLINE Aug 7, 2012)
Possible steps by Chidambaram
, the new finance minister,to revive stalled growth & restore investor
confidence:
- Fiscal consolidation
- Cutting expenditure- could mainly be by reducing subsidies in diesel,LPG,kerosene
- Interest Rates
- Clarity in Tax Laws : Dilution in anti-avoidance rules ( GAAR), retrospective tax provisions
- Reassurance on the Investment Climate: Resolution on FDI in multi-brand retail, decision in tweaking norms for FDI in aviation. Amendments in banking, insurance & pension regulations
- Inflation Control: More import of pulses, edible oils; more open market sale of wheat. Likely CRR cut
The occurrence of
negative events in India is so frequent that European media now devotes
prime time and space to stay abreast of calamities.The massive power breakouts
on two successive days that left more than half the country without power in
India were widely reported by European media. Across Europe,media reported this
as the most glaring sign that ,’India is not ready for serious, grand scale
investments’.German newspaper HANDELSBLATT said,’India has difficulty keeping
the lights on from one end of the country to the other’.
It is also pointed out
that while India has triples defence spending in the last 10 years, the country
is grappling with electricity, with pot-holed roads, without a modern
railway system, without good education for the youth.There looks to be a
colossal failure of leadership and governance in the country.
Ø Cognizant beats Infosys to emerge No 2 IT firm (THE HINDU BUSINESSLINE Aug 7, 2012)
Revenue for the quarter
ended June 30,2012:
Company
|
Revenue
$ bill
|
Growth :
% Y-o-Y
|
TCS
|
2.73
|
13.1
|
Cognizant
|
1.79
|
20
|
Infosys
|
1.75
|
4.8
|
Ø Govt to put in place fiscal action plan in 6 weeks(THE HINDU BUSINESSLINE Aug 8, 2012)
The Finance Ministry
intends to present a credible fiscal action plan within next 6 weeks. The
plan may focus on subsidy rationalization, especially on petroleum products.
This may encourage RBI to cut interest rates in the mid-quarter review of
monitory policy on Sep 17th.
The likely action plan:
§ For expenditure management, Govt to focus on
subsidy rationlaisation, especially petro product
§ For revenue mop-up, focus will be on
kick-starting disinvestment process; it may start with PSUs such as SAIL, ONGC,
BHEL, NMDC & MMTC
Ø Causes and cures for India’s current account deficit(THE HINDU BUSINESSLINE Aug 8, 2012)
The current account
deficit (CAD) in India widens when output declines, not just when the aggregate
demand (consumption plus investment) hugely exceeded its aggregate domestic
output or income. In all other emerging markets the CAD is pro-cyclical. A
counter-cyclical CAD in the case of India suggest the dominance of external
supply shocks rather than excess demand factors.
Ø Citi,CLSA trim India’s growth(THE HINDU BUSINESSLINE Aug 9, 2012)
Two more institutions
joined growing list of analysts expecting a sub-6 per cent growth for India
this fiscal, with American brokerage major Citi (scaling down the growth rate
to 5.4% from 6.4) and global brokerage CLSA (to 5.5% from 6%) cutting their
estmates
Ø Slowdown effect: bank credit declines in July(THE HINDU BUSINESSLINE Aug 9, 2012)
Credit appetite in the
economy seems to be waning in sync with the growth slowdown
Ø IIP shocker: June factory output dips 1.8%; all eyes on RBI(THE HINDU BUSINESSLINE Aug 10, 2012)
The index of industrial
production declined 1.8% in June, driven down by a slump in manufacturing. Output
of capital & non-durable goods dipped sharply. This is against the growth
of 9.5% recordrd in June last year
Ø SBI profits more tha doubles to Rs 3752 cr(THE HINDU BUSINESSLINE Aug 11,, 2012)
SBI has reported 137%
jump in net profit during Q1 FY 2013 despite continued challenge on the bad
loans front.
Q1 Performance: Rs cr
FY
13
|
FY12
|
|
Net profit
|
3752
|
1583
|
Net interest income
|
11119
|
9699
|
Other income
|
3499
|
3534
|
Gross NPA
|
47156
|
27768
|
Net int margin %
|
3.57
|
3.62
|
Capital adequacy ratio %
|
13.17
|
11.6
|
The year-on-year profit
growth in the June quarter was driven by mark-to-market gains, lower operating
expenses and strong growth in advances. However, the drop in interest margins
& the huge rise in gross NPA are matters of concern.
Ø Raghuram Rajan appointed Chief Economic Advisor(THE HINDU BUSINESSLINE Aug 11,, 2012)
Raghuram Rajan succeeds
Kaushik Basu who demitted office on July 31.
Raghurak Rajan, a
graduate in electrical engineering from IIT Delhi & post graduate from
IIMA, did his PhD at MIT. He is presently a professor of finance , Graduate
School of Business, University of Chicago. He held the position of Economic
Counsellor and Director of Research at the IMF during Oct 2003 to Dec 2006; he
is the youngest person to hold the position. He is considered to be one of the
first people to see the financial crisis of 2008 coming
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