INDIA BUSINESS THIS WEEK (Aug 19 -25, 2012)

SUMMARY

The prime minister is hopeful of doing better than last year ( when it clocked the growth of 6.5%) on the economic front . According to him, India has among the highest savings & investment rates in the world.

There are concerns in the cases of other countries too; there is a contraction in China’s GDP, Eurozone in a state of siege, & unemployment in the US high at 8%.

Allocation of coal blocks for captive mining without any competitive bidding process resulted in financial gains of Rs 1.86 lac cr to private parties.. The real scam is in mining happening only in 28 out of 86 coal blocks since the allotment is made several cases only to ostensible end-users.

Over the long weekend, ministers have accused the Comptroller Auditor General  (CAG) of India of 'sensationalism', 'adding zeroes' to notional loss figures and 'crossing its constitutional mandate' after three separate audit reports accused the UPA of giving away national assets at a loss of Rs 3.8 lakh crore.While industry captains admit that the audit findings will further dent an already waning investor confidence about the Indian growth story, they believe the government could use the reports to push through necessary reforms like creating independent regulators and using transparent processes.

INDIA BUSINESS THIS WEEK (Aug 12 -18,2012)

SUMMARY

The performance of India Inc for the quarter ended June is not too encouraging, but for certain sectors such as FMCG.  Issues such as lack of clarity in government policies & poor monsoon, together with global conditions & cyclical factors, have weakened the outlook for the corporate sector.While there is a need for big ticket reforms the industry clamors for resolution of issues at the consumer side ( such as interest rates) urgently. However, a major section of the economists feel that the fall in inflation is a mirage. RBI also is not likely to take much comfort from the transient fall in WPI inflation & cause any cut in rates.

The slow growth in manufacturing base cause concern about the much needed job creation for the young population of the country

While there is a need for big ticket reforms ,issues at the consumer side ( such as interest rates) are to be urgently resolved.

India has done well in the London Olympic Games with six medals & some heartening performances. The wish is now for 25 medals ,if not more, in 2020. This may not be a distant dream considering the level of participation of Indian athletes meeting world standards in many disciplines; the achievements at the London Games can certainly give fillip for working harder & aiming higher. However, the achievements of the Indian sportsmen in the Olympics in track & field events as well as team games are rather dismal. The systemic deficiencies are to be addressed when the country looks forward to Rio for a still better performance.

The latest report from CAG showing undue gains of Rs 3 lac cr. to private players will be another set-back for the scam-battered UPA government

INTERESTING ARTICLES OF THE WEEK (click Read More)

INDIA BUSINESS THIS WEEK (Aug 5 -11,2012 )

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.

OTHER NEWS

Ø  Cabinet fixes Rs 14,000 crore as base price foe spectrum auctionTHE HINDU BUSINESS LINE Aug4,’12

Mobile companies disappointed, say high price will lead to increase in tariffs

Bidding Rules

·        Auction in blocks of 1.25 Mhz each

·        8 blocks in 1800 Mhz to be put on block & 3 blocks of 800 Mhz

·        Incumbent players will be allowed to buy only 2 blocks in 1800 Mhz & 1 block in 800 Mhz

·        Base price for GSM spectrum in 1800 Mhz band at Rs 14,000 cr for 5 Mhz

·        Base price for CDMA spectrum in 800 Mhz band at Rs 18,200 cr for 5 Mhz

·        No change in spectrum usage charge; slab system to continue

Sundaram Fasteners bets on US markets for growth

With the domestic market slowing, components maker Sundaram Fasteners is fastening its grip on the US market.  The decline in rupee & the growth ( 2 to 3%) in the US are helping exports to the US.

China, where Sundaram Fasteners, set up manufacturing plant six years ago, is also in recession mode.

The investments in China have been done in phases:

1.       By diverting production from India, to start with

2.       Supplying to global manufacturers with presence in China

3.       Attempting now, in the 3^rd & most difficult phase, to supply to Chinese car makers

 The company is now  investing China with a long term objective , looking 25 to 30 years from now.

source THE HINDU BUSINESS LINE Aug4,’12

Weak IPO market forces issue managers to look for alternatives

The dry-up in the IPo market is not only forcing merchant bankers to downsize their teams but look at other revenue generation options such as buybacks, CDRs, PEs and mergers & acquisitions (M&A).

Recently Deutsche Bank cut 1900 jobs after its second quarter profit fell 46%. The job cuts will come from the investment banking division. Morgan Stanley, Goldman sachs and JP Morgan have globally announced plans to cut jobs or, trim compensation to minimize expenses

  source THE HINDU BUSINESS LINE Aug4,’12

CHANGING HUES OF FINANCIAL MARKETS

       The period between 2006 and 2012 can broadly be classified into the following rapid-fire economic cycles

   with corresponding features of financial markets:

    1.       Boom: during the boom period 2006-12, risk capital or equity funding was in demand. Funds were raised

     thro’ Initial Public Offers  (IPOs), follow on public offers (FPOs), Qualified Institutional Placements (QIPs)

     and Private Equity (PE). The enterprise values (EV) were very high

     2.       Recession: post Lehman crisis, the equity markets- both primary and secondary- have lost their euphoria

     from 2009 onwards. As raising funds at high EVs became difficult, debt-funding became more common.

     Concerned over high inflation, RBI raised key interest rates ( 13 times since March 10), putting the

     borrowers into difficulty, leading to Corporate debt restructuring (CDR) in many cases. CDR exercises

     involve reducing the debt burdens of the company by methods such as reduction in interest rates, longer

     repayments, conversion of debt into equity etyc. Creditors are to be convinced about the viability of the

     company with such reduced debt burden

     3.       Stimulus driven : Concessions etc. can improve the viability; turn-arounds can happen with adequate

     concessions, stimuli etc.

     4.       Stagflation

    

    source THE HINDU BUSINESS LINE Aug4,’12

RURAL INDIA- AN EMERGING POWERHOUSE

1.       Introduction
         It is said that there are two Indias –Bharat ( existing in the villages) & India ( thriving in the urban areas). If the country has to make progress & make its mark on the global stage, these two India’s have to converged.

        Millions of people in the rural India live below the poverty line. There are a number of issues relating to health, education & sanitation which need urgent attention. All stakeholders – government, NGOs, civil society & corporate- have a role in enabling a collaborative model of development

2.       Progress in Rural India

         Two out of there Indians live in her villages.  Major transformation has taken place in the last 60 years mainly thanks to the Green Revolution.  As much as 40% of India’s consumption is accounted for by rural India.

         The key drivers for transformation is India’s consumption-led growth, significant improvement in infrastructure & communication, and increased government spending on programs for rural development. Rural incomes, which were dependent mostly on farm income, are now boosted by trading, agro-processing & ancillary industries.  Therein lies the opportunity for unleashing a much higher level of aspiration among 800 million people living in rural India.  This is India’s biggest opportunity

3.       The Challenges of Transforming Rural India
The biggest challenges are in
        a.       Agriculture: agriculture productivity levels among the lowest in the world; the reasons are small land holdings with limited mechanisation & the limited access to capital
        b.      Rural Employment & Employability: The share of agriculture in GDP has fallen from 30% in 1990-91 to 14.5% in 2011-12, while the number of people employed in agriculture has not come down, thanks to inadequate opportunities for employment beyond agriculture & lack of employability.
        c.       Human Development: The Human Development Index is lower than that of many developing countries
        d.      The Opportunity: The population of rural India is about 12% of the world population, which   makes it bigger than the size of Europe. The growth in rural economy can have a significant cascading impact on the national economy that can transform the growth rate of the country
        e.      Sustainable Growth: Growth in our villages can put pressure on natural resources ( like water & energy). The challenge is to decouple growth from environmental footprint. We should ensure sustainable growth with a positive social impact in a manner that is economically & environmentally  sustainable
4.       Enablers of Rural Transformation
          If rural India is to achieve consistent & sustainable growth, we need to harness the power of agriculture. We need to break various bottlenecks that stifle growth. Market based approaches are needed. We also have to go beyond agriculture for leveraging the power of people to realize the full potential of rural India. For making rural India more self reliant , we need to look into what the villages lack , viz. Infrastructure, information, capital at reasonable rates of interest and education & skills.           
          Enablers which can build an ecosystem that can harness the power of rural India:
                                          a.       Access to Urban India
                                          b.      Technology Adoption
                                          c.       Financial Inclusion
                                          d.      Education & Health
                                          e.      Skill Buildin
5.       HUL’s Association with Rural India
HUL has a strong association with rural India with 40% of its products consumed in the rural markets; its distribution network reaches 1.3 lac villages. The company is bringing alive the spirit of Sustainable Living Plan to holistically contribute to the social, economic & environmental agenda with a significant impact on rural India
            o   Sustainable Sourcing
            o   Enhancing Livelihoods
            o   Health & Well-Being
6.       Conclusion
HUL is excited with opportunity to continue to serve 800 million consumers in rural India 7 be a part of a great journey

source :  THE HINDU BUSINESS LINE July24,’12 (Extracts from the speech by Harish Manwani, Chairman, HUL in the company’s AGM on the 23^rd July)