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)
INTERESTING ARTICLES OF THE WEEK (click Read More)
Ø India Inc’s Revenue Grows at Slowest Pace in 3 Yrs on High Input Costs
THE ECONOMIC TIMES Aug 13, 2012
Revenues of India’s top companies grew at the slowest pace in three years & the net profit margin by a meager 0.5% in the quarter to June as rising interest & input costs and a slowdown in investments, mainly because of policy inertia, squeezed profitability.
An analysis of over 1400 companies, excluding banking, finance & petroleum, shows the revenues expand by 14.3%, which was the lowest in nine quarters. Net profits rose by just 0.5% in the first quarter of FY13 from a year ago as higher financing costs started to bite.
What is worrying is that at a time of weak top line of revenue expansion, interest and input costs continue to spiral affecting the ability of the companies to pass the cost burden to the users
Ø Multi-Phased Sell-off to Raise Rs 30k Cr
THE ECONOMIC TIMES Aug 13, 2012The government could resume its stalled privatization program by selling stakes in two leading PSUs, BHEL & SAIL, as well as launching an initial public offer (IPO) for RINL, the Vizag-based steel maker. The exercise could underway early next month.
Issues in the offing where divestments have been approved:
Equity (in %)
|
Possible mobilization at current price Rs cr
| |
SAIL
|
10.82
|
3800
|
RINL(unlisted)
|
10
|
2500
|
NALCO
|
10
|
1400
|
Hindustan Zinc
|
29.54
|
15500
|
BALCO
|
49
|
Unlisted
|
Others likely: Oil India, NMDC, Hindustan Copper, Power Finance, Power Grid, Cochin Shipyard
Ø It is Not So Difficult to Fire Up the Animal Spirits
KVKamath THE ECONOMIC TIMES Aug 13, 2012
We need to look now at what is slowing down growth currently and what are the fundamental drivers for long term growth and if they have really dissipated or are they same.
Four drivers of growth in the last 10 years & the current scenario for each are
1. Investment by both Indian & global companies: the slowdown in capital investment now is primarily in infrastructure and is related to certain specific challenges, possibly related to environmental clearances, land acquisition & mineral rights etc. These are areas where policies & procedures are not in place
2. Strong momentum in domestic consumption; the increase in interest rates has now affected the affordability of the consumers
3. Sustained high growth in the services sector: this sector continues to maintain the growth momentum
4. Growing momentum in the rural economy; several initiatives in rural road development, supply chain management, communication technology & financial services and the national rural employment guarantee scheme have redefined nature of rural economy, leading to growing diversification & reduced dependence on agriculture.
It, therefore, appears that it is not the underlying fundamentals in the economy impacting the moods but the uncertainty & lack of clarity in certain key areas, including government policies & issues of access to fuel, land etc. This, together with global conditions & cyclical factors, has weakened the outlook for the corporate sector.
While there is a need for big ticket reforms, issues at the consumer side (such as interest rates) are to be urgently resolved.
Ø What it takes to win
THE HINDE BUISINESS LINE Aug 13, 2012
-India’s low medal tally in London reflects limited opportunities to participate in sports & much else
What does Olympic success or lack of it say about the state of your country? Rather a lot, if the reactions of many of the nations competing in the Games are a gauge.
In Britain, news programs were full of ‘historic’ achievements and ‘Olympic glory’ of their hugely successful team. At the other end of the spectrum, commentators in Australia ( which had been aiming at 46 medals) & Germany ( aiming 86 medals & 26 Gold) have been lambasting & bemoaning the performances of their teams, seemingly well off the levels they’d grown accustomed to..
Nations continue to see Olympic performance as a proxy for something beyond their sporting prowess.
Research has shown links between Olympic success & a nations’ economic well-being, as well as its social structures.
Ahead of the recent Games, two economists at Goldman Sachs analysed past performances of nations against a number of variables, concluding a strong link between per capita income & performance, as well as a number of institutional & structural factors- a combination that tended to favour developed nations. They concluded that ‘Gold does go where growth & growth environment are the best’. The bank also noted that more than half of the Olympic medals are won by emerging markets, reflecting their rising performance, dominating sports such as weightlifting, boxing & wrestling, while rising up the ranks less obvious sports such as diving & gymnastics.
Other factors
o Britain’s decision to begin pumping large money into sports after disappointing performance in the 1996 Atlanta Games ( 14 medals with 1 Gold)paid off immediately
o China’s well-ordered system of identifying talent from the rural & neighborhood levels, followed by rigorous training schemes too paid off well
Another factor skewing the strong GDP/population correlation is the political system with Communist countries systematically doing far better than their GDP would suggest. There is also a distinction between former Soviet bloc nations that have clearly embraced the Western European model (such as Poland) & those that haven’t (such as Kazakhstan, Belarus, or even Ukraine).
While it may not be appropriate to see Olympic greatness as a mark of a great, wealthy, egalitarian, democratic nation, it is the reverse situation that may tell us a lot more.
Also it is not the size of population of a country that matters, but the size of the effective participating population that matters, with countries where opportunity is far less widely distributed having far lower rates of such participation. Giving the population appropriate opportunities to participate–and public information about these opportunities to participate- is essential for bringing a larger fraction of a country’s talent pool to light.
The stubbornly low position of India on the medals table reflects the limited opportunities for participation.
Ø Asset quality of banks a serious cause of concern
THE HINDE Aug 13, 2012
-For public sector banks, the situation appears to have taken a particularly dire turn since the quarter ended June 2011.
The current economic downturn is proving to be a testing time for banks, with asset quality concerns coming sharply to the fore again. The gross non-performing asset (GNPAs) of the bank was 2.9% as at the end of March 2012. Critically restructured assets and NPAa, which have surged sharply in the past year & a half, will rise further in 2012-13 and aggravate asset quality concerns in the banking system. The worries are more for public sector banks which account for 90% of the banking credit. During 20111-12, the GNPAs of PSBs grew by Rs 39,000 cr compared to only Rs 500 cr. For private banks
Ø Poor Rains, slowdown effect Two-wheeler makers gear up for production cuts
THE HINDU BUSINESSLINE Aug 14, 2012
Demand dip has caught up with the two-wheeler industry too. Hero Motor Corp, Bajaj Auto and TVS are expected to go in for major production cuts soon. This is because demand is slowing and inventories with dealers piling up over the last few months. The biggest threat to two-wheeler sales is the delayed & deficient monsoon. The inventories have piled up upto an unprecedented level of 40 days in some cases
Ø IT firms pick math, stats grads for number crunching
THE HINDU BUSINESSLINE Aug 14, 2012
Requirements for analyzing new data including from social networking sites and also for analytics & cloud need skills sets that are departures from traditional IT where the companies looked for programming skills
Ø Corruption in India In Vinod we trust
THE ECONOMIST Aug 11-17,2012
The office of Comptroller & Auditor General of India (CAG) has become a source of hope at a time of growing despair over India’s rotten governance. Under Mr Rai’s ( ie Mr.Vonod Rai, the Comptroller & Auditor General of India)tutelage since 2008, the office has evolved into a scourge of graft & wasteful use of public resources. It has issued a series of explosive investigative reports
Ø Manufacturing in India The Masala Mittelstand
ECONOMIST Aug 11-17,2012
If India is to become ‘the next China’- a manufacturing powerhouse- it is taking its time about it. Despite the vision of the country’s founding fathers to industrialise the country as rapidly as possible, India seems to prefer growing crops & selling services. Manufacturing is still 15% of the output, far below the Asian norms. No major country has grown rich without a manufacturing base and nothing else is likely to absorb the 250 mill youngsters to reach working age in the next 15 years.
Yet not all is farce & tragedy. India has industrial hotspots such as Pune, Chennai & the state of Gujarat. India’s share of global merchandise exports has doubled to 1.5% since 2000 ( but is still far below China’s 11%). The advantages of relatively cheap labour, weak Rupee etc. are partly offset by scarce land, red tape, poor education & infrastructure, and onerous labour laws.
Despite the great leaps some Indian firms & the entrepreneurs have made, the consequences of another decade in which the country is struggling to create jobs is worrying
Ø Weak demand in Europe pulls Tata Steel net down 89%
THE HINDU BUSINESSLINE Aug 14, 2012
Tata Steel’s consolidated net profit was down 89% at Rs 517 cr. In June quarter due to lower production and weak demand in Europe. Net sales grew two percent to Rs 33,548 cr The turnover of Tata Steel Europe during the quarter was Rs 20,406 cr ( Rs 20,535 cr. Same period last year).
Ø Tight money policy to continue
THE HINDE Aug 14, 2012
RBI Governor D Subbarao stated that the bank could ease pressure on the break pedal of tight monetary controls only in a calibrated manner, given the prevailing macro economic situation.
He said there were there were three dilemmas before the policy makers:
1. Managing growth-inflation dynamics; Inflation has come down (from 11%) to 7%; this level also is above tolerance limit. Growth has come down; inflation has yet to come down
2. External sector problems: growing current account deficits & decelerating capital flows
3. Political compulsions making that make fiscal consolidation exercise a sluggish one
India has to cut spending rather than rely on tax increases for sustainable fiscal consolidation
Ø FMCG companies shrug off slow down
THE HINDU BUSINESSLINE Aug 17, 2012
Slowdown blues are not plaguing fast-moving consumer goods companies. Sales and profits for FMCG companies clocked yet another quarter of growth.
Performance for the quarter ended Jun 30, 2012 ( Q1FY13) based on operations of 11 companies:
Growth (%)
|
Q1FY13
|
Q4FY12
|
Sales
|
17.4
|
18.1
|
Operating Profit
|
27.0
|
25.5
|
Net profit
|
30.2
|
24.5
|
While product prices would have helped, increase in sales volumes ( HUL-24%, Marico -14%,Godrej Consumer Products-24%), better controls on costs ( thro’ more efficient operations & inventory management) ( with drop in material costs as a proportion of sales for all FMCG makers) were the main contributory factors. These cost savings were channeled into advertising & promotion.
However, the companies are not gung-ho about the next few quarters thanks to the uncertainty in monsoon (which can affect consumer demand and also agree-commodity input costs) &weakness in rupee
Ø FDI inflows to China dip
THE HINDU BUSINESSLINE Aug 17, 2012
FDI to China: US $ bill
Period
|
FDI
|
Remarks
|
July 2012
|
7.58
|
-8.7% compared to July 2011
|
Upto July ’12 ( 7 mnths)
|
66.67
|
-3.6% year-on-year
|
Ø Coal, power, airport deals: CAG says undue gains for private players, may total Rs 3 lac cr.
THE HINDU BUSINESSLINE Aug 18, 2012
The report of the Comptroller and Auditor General points out delay in introduction of competitive bidding for allocation of coal blocks leading to financial gains of Rs 1.86 lac cr to 57 mine owners.
On Delhi International Airport Ltd.(DIAL), the CAG said that with equity contribution of Rs 2,450 cr, of which the private consortium share was Rs 1813 cr, DIAL got a brown-field airport for sixt years. The commercial rights of land valued at Rs 24,000 cr has an earning capacity of Rs 1,63,557 cr.
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