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Wednesday, March 30, 2011

Analysts Find Value in Long-Discarded Infrastructure Stocks

Most analysts recommend 'pure play' small-cap construction cos with less exposure to BOT assets

Infrastructure stocks, which have been one of the worst hit in the recent market fall, present a good opportunity for long-term investors accumulating them at current levels.
In 2011, many infrastructure stocks declined by 10-23% compared with the 7% fall in the benchmark share index, Sensex. High input cost, rising interest rates, policy delays, low order inflows and slow execution dented these shares over the last few quarters. However,the sector remains one of the key focus areas of Indian policy makers. In the Budget for fiscal year 2011-12, finance minister Pranab Mukherjee allocated over . 2,14,000 crore for the sector, up 23% from a year ago.
"Infra sector stocks have been pricing in the risks, creating more value for longterm investors and some are now going at less than one-time the book value and at single-digit forward PE ratios," said Devendra Neogi, founder and principal partner, Delta Global Partners.
Infrastructure companies saw an average revenue growth of 17% in Oct-Dec FY11, significantly lower than the guidance of 25-35% growth. Profit before tax (PBT) margins, on an average, declined by 140 basis points year on year. Analysts expect interest rates to harden by another 50-100 bps in the next 3-6 months, denting PBT margins further.
For investors in the sector, most analysts have recommended small-cap "pure play" construction companies with limited exposure to build-operate-transfer (BOT) assets. Moderate growth in revenue and order flows could provide significant upside to these companies at current valuations, analysts said. Also, over the last four financial years, smaller construction companies have posted better operating return ratios than their larger peers. "Debt levels for most construction players peaked in December 2010 due to rising working capital requirement and increasing equity contribution towards BOT assets," said Chhavi Agarwal, re
search analyst, Ambit Capital. Companies with lower debt and higher capital employed turnover will perform better than peers going forward, she said.
Analysts suggest investing in companies with low balance sheet leverage, low equity requirements for embedded assets, and sound business management. One such company is Consolidated Construction Consortium Limited (CCCL). Paltry order inflows, muted revenue growth (9%), working capital induced leverage and faltering PBT margins have led to the company's stock price declining by 41% over the past six months. Despite this, the shares are trading at 55% premium to peers and one reason is the lowest leverage of 0.6x against industry average of 1.3x and less equity requirements for asset developments, analysts said. Others like Sadbhav Engineering, Madhucon Projects, and KNR Constructions are well placed than their mid-sized peers. While Sadbhav and Madhucon are quasi-developers (captive projects feeding most construction business), CCCL and KNR are two of the few construction companies with low or manageable asset ambitions. All theses companies have underperformed the benchmark indices by 10-40% in the past year. According to Agarwal, KNR and CCCL have the lowest debt-equity ratio of 0.2x and 0.6x, respectively, in the industry and this gives both enough headroom to grow without having to raise external equity.


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CBI may Chargesheet ADAG, Unitech Execs

Karunanidhi's daughter and wife could be named in second chargesheet to be filed on April 25

The Central Bureau of Investigation is likely to chargesheet three officials of the Anil Dhirubhai Ambani Group (ADAG) and senior executives of real estate firm Unitech, in addition to former telecom minister A Raja, his aide RK Chandolia, former telecom secretary Siddharth Behura and realtor Shahid Balwa, on April 2.
A person familiar with the thinking of the investigators said the chargesheet would claim that ADAG officials colluded with executives of Swan, an ineligible company, to help it obtain mobile permits. A chargesheet is a formal indictment after which those accused of an offence go on trial.
The three officials do not include Anil Ambani, the chairman of ADAG. They belong to the group's secretarial department. Both ADAG and Unitech have consistently denied any wrongdoing.
"Swan was an associate company of ADAG and was funded wholly by them,"
the person quoted earlier said. Swan Telecom, now known as Etisalat DB, is a joint venture between Etisalat, the Gulf's largest telecom company, and DB, a Mumbai-based real estate firm.
The nub of the allegation against the ADAG officials is that they were effectively in charge of Swan Telecom between March and October 2007. This made them complicit in the alleged wrongdoings of Swan, said the person, who was describing the theory underpinning the CBI chargesheet.
The crux of the CBI case is that Swan was funded by ADAG and that it lied when it said no telecom company owned more than 10% in it.
The decision by ADAG to exit Swan in October 2007 did not absolve them of blame either. "They (Anil Ambani group) exited in October 2007. But they handed the reins of the company to Balwa indicating a continuation of the conspiracy," the person familiar with the thinking of the CBI said.
A person close to ADAG rubbished these allegations. They reiterated that RCOM had only 9.9% stake in Swan and the rest of its investment was by way of preference shares that were not convertible. "In any case RCOM exited Swan in October 2007 while the licences were obtained in 2008. So there is no question of ADAG being part of any conspiracy to obtain licences in that year," he said.
ADAG Denies Links with Etisalat DB
An ADA Group official spokesperson said they had no relationship with Etisalat DB. "ADA Group has no shareholding or funding in Etisalat DB (formerly known as Swan Telecom) for the past nearly three-and-a-half years. Our executives are co-operating with the authorities in relation to investigations into the grant of licence to that company, and have stated that at all times they have complied with all applicable laws, rules and guidelines. These matters have no relation to the licences and/or operations of RCOM and/ or any other ADA Group company," the spokesperson said. A spokeswoman for Unitech said the company was not aware of the CBI chargesheet.
"Since the chargesheet has neither been filed in the Hon'ble Supreme Court nor in the special court, we are not aware who all are likely to be chargesheeted on April 2 in connection with the 2G licences/spec
trum because as per the directions of the Hon'ble Supreme Court, several telecom companies, which received the telecom licences and/or spectrum since 2001, are being investigated by the CBI," Tanuja Kehar, the spokeswoman, told ET.
Kehar also said that many 'source-based rumors' were being circulated against Unitech to 'malign' the reputation of the group. The person close to ADAG also said that Indian telecom regulations prohibited one company from owning more than 10% in two companies holding telecom licences, not in companies that had applied for licences. "Swan was an applicant for a licence when RCOM had a stake," the person said.
APRIL 25 CHARGESHEET
An official, familiar with the investigations, confirmed to ET that ADAG and Unitech officials will be chargesheeted on April 2. Members of the family of Tamil Nadu Chief Minister M Karunanidhi
could be named in a second chargesheet on April 25.
The April 25 chargesheet will likely name Kanimozhi and Dayalu Ammal — daughter and wife, respectively, of the Tamil Nadu CM — and Sharad Kumar, the CEO of Kalaignar TV. The CBI is investigating a transaction involving DB Realty, the promoter of Swan Telecom, and Karunanidhi family-owned Kalaignar TV, where Rs 214 crore was given as an unsecured loan by entities owned by the DB Group to Kalaignar TV. Dayalu Ammal owns 60% stake in Kalaignar TV while the rest is held equally by Kanimozhi and Sharad Kumar. On Tuesday, the CBI arrested Shahid Balwa's brother Asif Balwa and Rajiv Agarwal, an employee of DB Realty, in connection with the money trail. ET had reported the transaction in its edition dated February 4.
"Swan and Unitech would be chargesheeted on April 2 while Loop remains of interest to the investigators," the person
aware of the thinking of the CBI said.
Loop, promoted by Dubai-based Khaitan Group, is also being probed by the CBI and the Enforcement Directorate, which are trying to ascertain whether it acted as a 'front' for the BPO-to-steel Essar Group in obtaining pan-India telecom licences.
Loop denied all charges of wrongdoing and said it has always complied with all government regulations. Swan Telecom, Unitech and others were among those awarded new telecom licences in 2008. The process became controversial because the licences were sold at prices set in 2001. Also, on January 10, 2008, the DoT said only those companies that had applied before September 25, 2007, would be eligible as against an earlier date of October 1, 2007. The CBI investigation thus far has largely focused on the change in the cut-off date and the allegation that some applicants were informed about this change before it became public, enabling them to deposit licence fees ahead of others. Telecom licences in India were being issued on a first-come-first-served basis at the time. The CBI then filed an FIR against certain companies and officials of the DoT. The agency alleged in the FIR that the government lost Rs 7,105 crore by way of higher licence fees in just these two transactions. The licences were sold at a nominal rate based on prices fixed in 2001 without any competitive bidding, the agency said.
Corporate lobbyist Niira Radia, whose phones were tapped by the I-T department, may not face charges by the CBI. Radia's conversations with various ministers, journalists and industrialists, were leaked to the media. The Radia tapes, as those conversations are popularly called now, will however be used as evidence by the CBI. The agency has not found much evidence against Radia but will continue to investigate her alleged role in a transaction between Tata Realty and Unitech. Radia was handling corporate communications and public relations for both Unitech and the Tata Group at the time.

Monday, March 28, 2011

Tech Majors Back in the Fast Lane

Cos will return to double-digit growth rates of 18-22% in FY11, say analysts

In a year when top outsourcing customers have resumed spending, India's leading tech firms are preparing to announce their return to double-digit growth rates and are tweaking their business models as they set their sight on crossing the $10-billion revenue mark within 2-3 years.
Senior executives at Tata Consultancy Services, Infosys Technologies, Wipro and HCL Technologies — the country's top four outsourcing firms — are busy preparing plans to outgrow rivals and in some cases, even regain lost ground. As these companies prepare to announce their March quarter earnings next month, a return to double digit growth is among the least of expectations, what lies ahead in coming years is
what's causing a scramble among some of them. At least five brokerage analysts ET spoke with over the past two weeks said TCS, Infosys, Wipro and HCL will report sequential revenue growth anywhere between 4% and 7% for the March quarter. For the year ending March 2011, these analysts said, India's top tech firms will return to double-digit growth rates of 18-22%.
"Unlike the past few years when the focus used to be on next year's growth, this year there were more talks about becoming a $10-billion, and even $20-billion company," said a senior executive at one of the top five Indian tech firms, who is involved with the strategy team. While TCS plans to widen its revenue gap with Infosys and others even more, Infosys has rebranded itself as a consulting-led firm. Wipro, which recently shifted to a single CEO model, has already drafted plans to create a simpler structure with different business units headed by senior leaders managing profit and loss accounts. Cognizant is already causing rethink among the toptier Indian tech firms.
"Earlier it was about Wipro losing its position to Cognizant, now even Infosys and others are look
ing at the multinational rival and wondering how long before they catch up," said an expert tracking these companies.
Some experts and company officials say both TCS and Cognizant are separating themselves from others in the tier-I league on faster revenue growth, higher incremental revenues, profit growth and
even net employee addition. During two of the toughest years Indian IT has ever seen — 2009 and 2010 — the separation between TCS, Cognizant and others became more clear. For instance, during calendar years 2009 and 2010, Cognizant and TCS added $1.77 billion and $1.52 billion in incremental revenues, growing at 27.7% and 11.8%, respectively. In comparison, while Wipro grew at 7.5% and added $672 million in new business, Infosys just managed to achieve 10.7% growth and had incremental revenues of almost $1 billion.
On the employee front, TCS added 56,571 new staff during 2009-
2010, more than double of 24,701 employees hired by Infosys and Wipro's 20,722. "It's a little too early to call who the winners are — the jury is still out," said the CEO of one of the top ten Indian tech firms.
Experts such as John McCarthy, principal analyst at Forrester say despite all debates about who are bigger, customers are not really bothered about the pecking order. "This is a legacy fixation of vendors — the positioning needs to be around domain and transformational expertise," said McCarthy. "The classic proposition for outsourcing is dying, and vendors need to realise that," he added.
While faster growth looks good for investors, customers are more concerned about what a vendor can offer beyond pure cost savings. "It's unlikely that faster growth in the past two years help these companies win a lot of new clients. A 5% or 10% difference in growth rates does not make such a big difference to the client. What a client looks at is the capability, the domain expertise and the pricing," said Amneet Singh, vice-president, global sourcing, Everest Group. For HCL Technologies, the strategy has been about gaining more business by going for total outsourcing contracts —
an area where profitability can get affected, according to analysts. HCL's strategy of focusing on market share gain has yielded good results over the past 18 months as HCL has grown revenues ahead of peers.
"That said, the concomitant deterioration in margins and cash flows has meant that there isn't enough in the plate at the cash profit level for investors. While we do not think having a lower margin is necessarily a bad thing, it needs to be accompanied by solid revenue growth over an extended period of time (which Cognizant has demonstrated," CLSA analysts Nimish Joshi, Bhavtosh Vajpayee and Arati Mishra said in their February report to investors. "Hereon, HCL would need to show more proof points on margin maintenance with revenue growth for us to take a constructive view," CLSA experts added. Even as the top tech firms fight it out, mid-tier firms continue to grapple with their next big landmark. "Till now hitting the billion dollar mark used to be the psychological barrier but now, more companies will hit this mark, but the benchmark will change — it will now start from about $2.5 billion," said Mr Singh of Everest.


With Bharti Foothold, Walmart Looks at Future

Irked by slow pace of current JV, US co in talks to pick up stake in Big Bazaar

At a time when momentum is building to allow foreign players into front-end retail, senior officials of the Future Group and Walmart have met at least five times in the past four months, raising the possibility of an alliance between India's largest retailer and the world's largest retailer. If the alliance fructifies, it could reconfigure organised retail in India.
Four executives from the two camps with knowledge of the talks confirmed that Future Group owner Kishore Biyani visited Walmart's headquarters in Bentonville, US, last December where he met Doug McMillon, president and CEO of the American company. Biyani was accompanied by B Anand,
director of finance, and Damodar Mall, director of integrated food strategy at the Future Group.
Since then, Hong Kong-based Leigh Hopkins, vice-president (M&A Asia) of Walmart, has visited the Future Group's office in South Mumbai at least thrice, the latest being last week, said three of those officials.
Biyani declined comment on the talks with Walmart saying, "There are too many issues". "There is nothing there," he added. Walmart India President Raj Jain denied the talks. "At the moment, we are not in any alliance talks with the Future Group," he said after a long pause, carefully measuring his words. Walmart US did not respond to an email sent last Friday.
The meetings between the two sides could have an impact on their respective partnerships in India — an existing one for Walmart and a prospective one for the Future Group, both of which have been beset by issues. Walmart has had an equal joint venture with the Bharti Group since 2006: Bharti Walmart. However, this partnership is 'non-exclusive' in nature, which
means Walmart can forge other alliances in India.
Bharti Walmart operates in the wholesale and back-end segments — the two areas in retail where foreign players are currently allowed. Walmart, the world's largest company with revenues of $408 billion in 2010, has reportedly been frustrated by the joint venture's slow pace of expansion.
So far, it has opened five wholesale stores under the brand name 'Best Price Modern
Wholesale'. In calendar 2009, according to data from the Registrar of Companies, the JV lost 151 crore on revenues of 198 crore.
"Maybe Bharti is not investing so much as Walmart would like it to do," said Harminder Sahni, founder, Wazir Advisors, a boutique consultancy. "So, there is a possibility of Walmart bringing another equity partner to ramp up."

PRIME NUMBERS
12,000 cr
FUTURE GROUP'S TURNOVER
$ 408 b
WALMART'S REVENUES IN 2010
4,800 cr
FUTURE GROUP'S DEBT
6,000 cr
REVENUES OF BIG BAZAAR & FOOD BAZAAR

    Shopping For a
    Joint Venture
WHAT'S ON THE PLATE
Walmart is looking to pick up stake in Big Bazaar's back-end ops & expand it to front-end biz as and when FDI rules are relaxed
MARRIAGE OF CONVENIENCE
Future has been talking to France's Carrefour for a JV for over 2 years now. Biyani is getting tired of waiting on Carrefour
Walmart is said to be unhappy with its JV with Bharti Group
Future, Walmart Discuss Options
Walmart India, another company, also provides technical support to Bharti Retail, a wholly owned subsidiary of Bharti Enterprises that runs retail stores under the brand name 'Easy Day'. There are 117 Easy Day stores, largely in North India and mostly small, neighbourhood stores.
This is in contrast with Walmart's global strategy - as well as that of the Future Group - to open large stores. "Small-store formats are yet to prove themselves in India as compared to hypermarkets, which are becoming profitable at an operational level," said Kumar Rajagopalan, CEO of Retailers Association of India, an industry body that represents several retailers.
Rajan Mittal, joint MD of Bharti Enterprises, initially declined comment on the Future Group-Walmart talks. Later, he said he had spoken to Jain about the talks. "We (Bharti and Walmart) are happy with each other," he said. "There is a lot of kite-flying on this." Walmart's Jain, who is also the MD and CEO of the JV with Bharti, said their partnership was 'non-exclusive' in nature. The Future Group, meanwhile, has been talking to France's Carrefour, the world's second-largest retailer, for a JV in India for over two years now. Biyani is keen on an equity partnership with a global retailer for the cash and expertise it would bring to his
retail business. While neither side has officially called off the talks, Biyani is reportedly getting tired of waiting on Carrefour. The 12,000-crore Future Group has 4,800 crore of debt on its books, which hampers its ability to expand by itself. Carrefour did not respond to an email sent on Friday. "The Future Group is sitting on huge unbundled valuations," said Sahni. "So, Biyani is just being opportunistic here." According to a person privy to the talks, the Future Group and Walmart have discussed several options for an alliance. Some of these are contingent on regulations in the sector, which currently allow foreign retailers to hold 100% in the wholesale segment, but bars them completely in multi-brand retail. That essentially means foreign retailers can manage supply chains and sell in the wholesale format, but can't have a front-end presence. The government is now looking to relax FDI in front-end. "Discussions are underway to further liberalise the FDI policy," Pranab Mukherjee said in his Budget speech in February. Big Bazaar is the centrepiece in the options being discussed. Earlier, all the Future Group's retail businesses were organised under Pantaloon Retail, a listed company. Subsequently, Biyani spun off Big Bazaar and Food Bazaar, its two hypermarkets accounting for Rs 6,000 crore, or 55%, of the group's retail revenues - into an unlisted entity called Future Value Retail.

Friday, March 25, 2011

Street Revels in Happy Tidings Across Sectors

Sensex jumps 465 points to 18,816 while Nifty zooms 132 points to 2-month high of 5,654

The finance ministry took short-sellers by surprise on Friday as a senior bureaucrat talked up financial markets by announcing a lower-than-expected government borrowing target for the first half of 2011-2012.
Betting on more bad news like debt distress in Europe and spiralling oil prices, operators on Dalal Street had retained their short positions on Thursday. Indeed, they were emboldened after rating agency S&P cut Portugal's debt ratings. But what threw them off gear Friday morning was the borrowing number.
While treasury economists fear higher
oil prices, more subsidy and slower divestment could push up government borrowing later in the year, traders took no chance. As they rushed to cover their positions, benchmark indices rose for the fourth straight day.
Accenture, the world's second-largest technology-consulting company, further improved market sentiment as it raised sales forecast for this quarter, exceeding analysts' estimates. Shares of software exporters, including Infosys Technologies and Tata Consultancy Services, led the rally after Accenture's improved revenue guidance sparked hopes of better earnings forecasts by domestic peers.
Bank stocks, which have a significant weightage in the indices, also rose amid hopes that banks will end March 31 with a lower mark-to-market loss in their portfolio of government and corporate bonds. BSE's 30-share Sensex rose 464.90 points, or 2.53%, to 18,815.64. NSE's 50-share Nifty gained 131.85 points, or 2.39%, to 5,654.25. Gainers outnumbered losers 1,727:1,199 on BSE.

Why did Sensex gain despite rising oil prices
Outlook for software cos, immune to oil prices, brightened with Oracle and Accenture beating revenue, profit estimates. Upward revision of Q4 US GDP growth could boost tech services price

    IT's Good News for Markets
What contributed to gains
Infy alone was responsible for nearly a fifth of Sensex gains. All other sectors gained about 2% when BSE IT rose 4%
How did the rest of the global markets behave
MSCI Emerging Markets Index rose 0.7% and Asian stocks also gained on likely Japan reconstruction demand
How does India stack up now in the region
Sensex still worst performer in Asia as investors cautious that inflation could cripple demand
Are valuations attractive among BRIC nations
Still the most expensive at 17.7 times future year earnings vs 10.7 for Brazil; 7.4 for Russia and 13.98 for China
Will global investors continue to buy
Yes, since cos they are buying into will deliver in long run
Biggest Weekly Gain This Year
Both benchmarks gained 5.2% this week, their biggest weekly gain so far in 2011. The announcement by economic affairs secretary R Gopalan sparked a rally in the bond market, which assumed there will be a lower issuance of government bonds in 2011-12. Gopalan said India will meet 60% of its 2011-12 borrowing target by September end.
Some fund managers said the recent market strength, despite high oil prices, has traders believing that most of the recent pessimism is baked into share prices. "A lot of the negatives have been factored into the market after the recent correction," said Sandip Sabharwal, of Prabhudas Lilladher..

Innovation is Now a Thriving Business

MARKET DEMANDS INNOVATOR-ENTREPRENEURSFor a complete picture, pick up the new Sunday ET tomorrow.

Indian innovators are morphing into entrepreneurs

Imagine a jacket that keeps you cool in the coming summer. Or a roof made of recycled tetrapacks. Or using electricity generated by a micro wind turbine on your rooftop. No, these aren't ideas in the air. These are products in the market by Indian innovators. They are testimony to a trend that has not shown up on any radar yet — that Indian innovators are morphing into entrepreneurs.
"The technology is my baby. I couldn't think of giving it to anyone else," says Kranthi Kiran Vistakula, founder of Dhama Innovations and innovator of ClimaCon, the technology which syncs clothing with body temperature on demand. Wasn't he intimidated by the idea of setting up his own company? "No, I was willing to take the risk. As an M Tech from Massachusetts Institute of Technology, I could have gone back to the US and landed a job. But I am passionate about building a global Indian brand," he says.
The market demands such innovatorentrepreneurs. Consumers want customised solutions for their problems. Products and services that meet their specific needs. But they don't want to pay a premium for these. Despite runaway salaries and households with multiple earning members, India's per capita income is still low at $3,400, compared with the developed world, say the US — $47,400 (annual 2010 estimates). So innovations must offer decent quality at ultra-low prices.
To convert an innovation into a successful business, innovators have to ensure the technology process can be standardised and scaled up. Also, the final product should have a design that appeals to end users.
This is why Parag Kulkarni and Vinayak Manmadkar, innovators of an indigenous micro wind turbine have never stopped their research. They have built seamless blades that withstand high wind velocity and are more energy efficient
than imported turbines. The business is estimated to earn 10 crore in 2011-12. But the duo continuously improves technology to upgrades the turbines.
Increasingly, such innovators can find adequate support from mentors, incubators, and government institutions. In fact, many venture capitalists claim they fund only those companies which offer an innovative product or service. According to Saurabh Srivastava, chairman of CA India, one of India's leading angel investors and venture capitalists: "If the idea is not original, it is unlikely to work in the market. There is no space for mere cheap imitation. We have moved ahead of that stage."
People like Tushar Shah realise this. The Vapi-based entrepreneur was not satisfied with the family business of recycling newsprint. So he spent two years to research about recycling tetrapack cartons of milk and fruit juices. The result: tetrapacks break down into diesel, roofing sheets and paper. There are many more stories of innovators. Several more lessons from their journey.

Tushar Shah recycles tetrapack cartons into diesel, roofing sheets and paper

Thursday, March 24, 2011

S Tel's 953-Cr Loan in Trouble

Mobile operator S Tel may fail to secure a . 953-crore loan from an IDBI-led consortium of eight state-run banks with the telecoms department refusing to sign a tripartite agreement, saying the telco is under probe in the 2G spectrum scam.
The legal wing of the telecoms department advised it against being a party to loans to companies whose mobile permits may be cancelled. The department was asked to wait till the Supreme Court judgment in the 2G case before signing the tripartite agreement. DoT's certification is needed on the loan documents of these companies as the licence is treated as surety.
"Delay in loan disbursal would impact expansion plans," said P Swaminathan, director, S Tel. "The company is now utilising promoters' funds for its capital and other expenses," he said.
Loop Telecom, another firm that acquired telecom licences in
the controversial 2G spectrum sale of 2008, was denied funds earlier by an SBI-led consortium on similar grounds. The group of lenders that include Central Bank and Federal Bank had sanctioned a . 6,500-crore loan to the company.
The six companies that were given mobile permits in January 2008 under controversial circumstances by former telecoms minister A Raja could now find their expansion plans in trouble if oth
er lenders also decide to follow the precedent. Communications minister Kapil Sibal had written to prime minister Manmohan Singh, seeking his intervention to get banks lend to the embattled telecom companies.
S Tel, jointly owned by Bahrain Telecommunications Company with 49% stake and the $3 billion Siva Group (formerly Sterling Infotech Group), has permits to provide telecom services in six of the 22 telecom circles in the
country. The telco had secured a nine-year loan at an interest rate of 12.75% from the IDBI-led consortium, which included State Bank of India, Canara Bank, Punjab National Bank, Central Bank of India, Union Bank of India, Allahabad Bank and Bank of Baroda. S Tel had earlier announced that the consortium was ready to extend . 1,500 crore, but it was only borrowing . 953 crore in a phased manner over 2-3 years. S Tel CEO Shamik Das said the telecoms department had taken a similar approach regarding loans to all companies and added that the telco would approach the DoT again after the 2G cases are settled.
"The normal procedure has got held up because the matter is sub judice - now the disbursement of the loan will only begin after the 2G case is settled," he said.
S Tel is under probe after national auditor Comptroller and Auditor General of India said that as many as 85 of the 122 licences given to six companies --Uninor, Videocon, Loop Tele
com, S Tel, Etisalat and Allianz Infratech - were illegal as these firms did not meet the eligibility criteria.
These six companies had disclosed "incomplete information and submitted fictitious documents and used fraudulent means" for obtaining them, the report had said. Loop Telecom was able to secure only . 1,000 crore against the requirement of . 6,500 crore, an executive aware of the development said. With the DoT refusing to sign the tripartite agreement, the telco has already repaid Rs 500 core to the Central Bank and the remaining . 500 crore will be returned soon, the executive said. A company spokesman declined comment on the development.
Loop recently told the Supreme Court that it was willing to return its mobile permits against a refund of . 1,450 crore. Loop operates in eight circles, but has a negligible subscriber base, except in Mumbai where its subsidiary Loop Mobile has three million customers.

Loan-ly Path to Growth
S TEL S Tel got 9-year loan at
12.75% from an IDBI-led consortium
S Tel says banks ready to
give 1,500 crore, but it was only borrowing 953 cr in a phased manner to be used over a period of 2-3 yrs

LOOP Loop's funding requirement of
6500 cr fell though after 2G controversy broke out
Loop secured only 1,000 cr
from SBI-led consortium
Loop has repaid 500 cr and
will pay beck the remaining 50% soon

Demand for most packaged food products, which account for 70% of FMCG sales, either fell or remained stagnant during 2010

FILLING UP SHOPPING BASKET

FMCG Riding on Price RiseComing amidst rising input costs, many local and regional players found it difficult to compete with established players on the pricing plank. This made several consumers shift from unbranded product to branded ones as the price differential watered down.

The double-digit sales growth in the consumer product may not be purely on account of growing demand, as widely perceived; it's price increase and popularity of premium products that are driving the value growth.
Data from India's largest household research firm IMRB that tracks consumption trends in several sectors reflects that while demand in most categories remained stagnant in 2010, sales growth was mainly on account of price hikes and the launch of premium products by most companies, which bring in higher revenues to marketers.
In the current inflationary market, this trend is likely to continue even in 2011.
"Coupled with price hikes, we are also seeing grammage reduction in several product categories now, which will negatively impact volume," says IMRB Insights Director Shweta Kulkarni.
Here, sales imply revenues realised, or value, and demand reflects the volume or number of units sold.
"However, there will be a reversal trend in foods, especially branded commodities as most companies have started to drop product prices," says Kulkarni.
Demand for most packaged food products, which account for 70% of FMCG sales, either fell or remained stagnant during 2010 due to inflation in basic items
such as wheat and edible oil.
In the case of personal care products, volume growth was average but sales shot up because most companies increased prices and launched top-end products.
"We see consumers shifting to higher priced products, which helped companies increase sales by value," says Godrej Consumer Products MD A Mahendran. "There were also uptrading from local and regional brands to established brands in the personal care segment, which helped increase the consumer base
in 2010."
Shampoos and skin-care products grew double digit in value terms despite stagnant volume growth.
All this helped companies report good revenue growth even though volume growth was much higher in 2009.
In 2010, total sales of the top eight consumer product companies in the BSE FMCG index grew 12% over 2009 to Rs 36,085 crore. The net profit growth was 12%.
Only home care segment reported higher sales and increased consumption. Companies including Hindustan Unilever, Reckitt Benckiser and Dabur launched more than a dozen new products in the segment.
"Innovation in product development, resurgence of modern trade and a boom in modern homes have been the key drivers of growth in the home care products market," Dabur's home care category head Rohit Prakash Gupta says.
However, established categories such as washing powder had higher volume than value growth due to price discounting as multinationals Hindustan Unilever and Procter & Gamble went for a price war.


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‘Reversal in Core Inflation Biggest Concern Now’

India's central bank has been under pressure over the past year or so, with trying to strike a fine balance between taming inflation and maintaining the growth momentum. Subir Gokarn, deputy governor of RBI in charge of monetary policy, discusses the dilemma the regulator faces as well as other challenges with Aniruddha Ghosh, Gayatri Nayak & Ruchira Roy, on the sidelines of an event organised by ICICI Securities

SUBIR GOKARN DEPUTY GOVERNOR, RBI

The central bank has just raised rates for the eighth time in quick succession. How difficult is the task of managing the growth-inflation trade-off now, especially with food inflation starting to come down?
Let us look at the supply-side factors first. Food inflation is coming down, but is still quite high. Oil prices have been firming up. But that process seems to have intensified given the global developments. What we are most concerned about is the fact that non-food manufacturing inflation, which is the segment of the index we have been using to reflect demand pressures, has seen a rever
sal which also implies that input costs are being passed through to the final goods or final products. Thus, the non-food manufacturing inflation that was 4.8% in January went back to 6.1% in February. It was a number we saw in the middle of 2010. It suggested the ability of producers to pass on pricing power was still strong, and from the inflation-management viewpoint that was not particularly a positive sign. So our interest rate actions were guided by these considerations and the likelihood the pass-through pressures were still persistent. 'Oil Spike to Hit Not Inflation Alone, but Global Growth Too' Gokarn expects India to grow at 8.6% but says recent reversal in inflation figures a big worry
With the crisis in West Asia showing no signs of abating, there are expectations crude prices could even cross $150 per barrel. What kind of an impact do you expect this to have on domestic inflation and subsequently on policy formulation?
We obviously are engaged in conversation with people who are tracking the global economy and the sense we get is as the price of oil crosses a particular threshold, it will not only have an inflation risk, but also a growth risk for the global economy. What that number will be is something the forecasters will start to converge on. From our viewpoint, we have to be aware of these risks. We have pointed out in our mid-quarter statement while growth drivers are relatively stable, we see risks emerging for 2011-12 and one of them certainly is the likelihood of this kind of oil price rise.
RBI also said in its recent policy review the nuclear crisis in Japan might force it as well as other nations to move to other conventional energy sources, thereby pressurising oil prices further. How will this complicate things?
That clearly is another factor which may push oil prices higher, both in terms of Japan's rebuilding on the basis of incremental shift to thermal energy rather than nuclear energy, and perhaps in other countries also where nuclear facilities will be subject to tests. So at least the short-term impact will be that the growth in demand for power would be met out of thermal capacity rather than nuclear. So that's another factor that will have an impact on the oil-price dynamics.
Is there a concern in RBI over private investment slowing down on account of the uncertainty over interest rate outlook and high commodity prices?
That has been a concern in our assessments right from the time we began our anti-inflationary policy trajectory. The concern was always to balance the forces that keep growth going and sustain growth in the future with the need to control inflation. So an aggressive action against inflation, by raising rates much higher than we did, clearly might have had the fallout. It could have slowed down growth and it could have within that, a stronger, more adverse impact on investment. So the balancing act we have tried to do, essentially looks at ensuring that the inflation objective is addressed without creating too much of an adverse impact on the incentives to invest. Of course, interest rates is just one factor that drags investment, there are other factors as well that may impact it. But at least in terms of what we could control, the objective was to make sure that we were not putting too much of a barrier in the way of investment through higher interest rates.
Are you concerned about growth being impacted?
I think we will end the year as per the advanced
estimates with 8.6% growth. I suggest that the balancing act in terms of at least not disrupting growth has been reasonably successful. Inflation was as per our expectation, performing on track in the second half of 2010, particularly non-food manufacturing inflation, which peaked around April and then started to come down. But the recent reversal also has been a bit of concern. So in the sense the question to ask is had we not taken the actions that we did, where would the number have been. I think it is reasonable to say that the number would have been quite higher than what it is now. The fact that it has turned around suggests that these pressures still persist. That capacity utilisation is high, growth is gaining momentum and that means return of pricing power, i.e., producers can pass on input costs, and therefore, the need to be watchful on monetary stance is still there. Having said that, we can't be insensitive to the risks to growth, both global and domestic.
The recent Mohanty panel report on monetary policy formulation suggests RBI should use the repo rate as the single policy rate to signal its stance. is this what RBI is progressively moving to?
There is a huge amount of technical analysis that has gone into the report and it is important for market participants to understand the analytical foundations that have gone into the recommendations. The key issue there is that the corridor (of repo and reverse repo) that we have been operating so far is not a fixed corridor; it's a variable corridor because we had witnessed the corridor peaking at 300 bps and now it is 100 bps. The call rate, an indicator for short-term market liquidity, has been outside the corridor. Thus, the corridor has not functioned as a corridor for most of the time because the call rate has not moved between the boundaries. What the working group recommends is that we create an effective corridor by the repo being inside the corridor and not on the boundary. Above the repo we have something called an exceptional lending facility, where banks wanting liquidity but not having the capacity to borrow in the repo can get liquidity by accessing that expensive window which is set to be 50 bps above the repo. And below that is the lower part of the corridor, the reverse repo. If banks have surplus liquidity and if they want to park it with RBI, we will pay 100 bps less than the repo. The additional feature is that repo becomes
the only rate that is announced. Others are fixed in terms of the intervals between the repo. It now brings the policy rate in the middle of the corridor and that was the key in terms of making the corridor most efficient.
Some banks have been seen making arbitrage in the call money markets and have been investing in liquid plus fund schemes. Has RBI taken any action on that front?
You have to look at our press release of March 21, 2007, which says that if banks borrow from the repo, there is really no view or constraint on onlending that.
Is the economy weakening amidst weak IIP numbers and high inflation?
One of the debates that have emerged in the last few months with the IIP showing signs of weakness is whether growth is slowing down. IIP is clearly showing signs of weakness; the question is whether that reflects a slowdown in the economy. We obviously look at a number of indicators other than the IIP — indirect tax collections, direct taxes, corporate sales and earnings and credit growth. So when you look at other indicators that tell you whether the economy is growing or not, they don't give you the same signal that the IIP does. I think the key message in the mid-quarter review was that there are risks that we should be watchful in 2011-12, and it has to do with both global developments and the persistence of inflation pressures domestically.
It will be almost nine months since the base rate system has been introduced. Has it improved the monetary policy transmission?
It's an ongoing assessment; our initial view is clear that monetary transmission has become visible. Banks are raising their base rates in the way that we expected that the framework should work. Their ability to add premiums to a constant base rate is limited unlike BPLR, where you could keep discounting it, and it was not very transparent; we did not see it till the data was reported. The base rate system is much more transparent and there clearly seems to be an impact on transmission.
Has monetary policy helped the common man who is still reeling under high inflation?
We have to recognise that the monetary policy has an impact on some drivers of inflation but not on others. So when we talk of bringing overall inflation down, there are other factors that need to be brought into play. Now when we talk of food inflation, something which the monetary policy does not directly impact, we have to look at other measures. I think some of the measures the Budget has announced, particularly in relation to proteins in general but specifically in terms of pulses, should have an impact in terms of higher productivity fairly quickly. I wouldn't be looking at a very long-term impact for this. So that's one very important way in which food prices can be brought under control. Monetary policy is basically maintaining the balance, it's not just inflation that impacts the common man but also growth.




A Very Giving Date for India Inc with Buffett & Gates

A galaxy of Indian entrepreneurs ideated with the high priests of global philanthropy—Warren Buffett and Melinda & Bill Gates—as the idea of giving back to society took centre stage on Thursday in a manner and scale unprecedented in India.
Billionaires such as Wipro's Azim Premji, Infosys' NR Narayana Murthy, HCL's Shiv Nadar, DLF's KP Singh and ace investor Rakesh Jhunjhunwala joined leading Indian entrepreneurs in an unusual meeting with the Gateses and Buffett. Across two meetings on Thursday evening, the trio talked on philanthropy and encouraged wealthy Indians to think more about giving.
"This meeting was more like sharing of ideas and experiences between the Indian entrepreneurs, and Buffett and Mr & Mrs Gates. Awareness in India is already there and people are gradually giving. However, much more needs to be done. That is precisely the reason they are sharing their experiences," said KP Singh. The Berkshire Hathaway chairman and Microsoft co-founder, friends who have routinely topped global rich lists for years, have sparked off an expansive effort to encourage other billionaires to give to social causes.
Buffett Enthused by Response
Called The Giving Pledge, the initiative has attracted pledges worth more than $125 billion from mostly American billionaires. The duo, who have pledged most of their own wealth to the Gates foundation, have been on a mission to spread the appeal of the pledge beyond America. Gates met billionaires in China before he travelled to India.
India's ratio of charity to GDP is higher than that of nations such as China and Brazil, but much lower than the UK or US. At a press conference later Thursday evening, the Gateses and Buffett answered questions about the work of the Bill and Melinda Gates Foundation and their mission to promote giving. "India has a great history of giving back and it certainly has influenced us," Melinda Gates said. Buffett said he was enthused by the response he received from Indian entrepreneurs. "There was exceptional participation and candour. We
certainly experienced great enthusiasm. What form it will take will be seen in days to come," he added.
Bill Gates said his experience was first-generation entrepreneurs were more generous with their wealth than dynastic wealth. As India pro-duces a greater number of billionaires each year, this should be an encouraging factor, he said.
Gates and Buffett declined to
say if they have received any pledges from Indian entrepreneurs. "We are certainly not asking anyone to do anything here," Buffett said. He said that was the approach they fol-lowed in China as well. He said in both countries, he heard very personal stories and saw a great deal of interest in philanthropy. The same evening, Rohini Nilekani moderated a closeddoor panel dis-cussion on philanthropy attended by some 60-70 Indian entrepreneurs as well as the Gateses, Buffett and Premji. "India has got a very old culture of giving since the time of Buddha. It was interesting to learn from Bill, Melinda and Warren about their experience of giving," Bajaj Group Chairman Rahul Bajaj said.
The meeting was also attended by Godrej Consumer Products Chair-man Adi Godrej, Wipro Chairman Azim Premji, Jaiprakash Group Chairman Manoj Gaur, DLF Chairman KP Singh, Fortis Healthcare Chairman Malvinder Singh and MD Shivinder Singh, Piramal Health-care Chairman Ajay Piramal, JM Financial Group Chairman Nimesh Kampani, ace investor Rakesh Jhunjhunwala, founder MD and CEO Rana Kapoor, HCL Chairman Shiv Nadar, Bharat Forge Chairman Baba Kalyani, Bharti Enterprises Vice-Chairman Rakesh Mittal, among others. "Giving is extremely addictive and gives a huge high. It is like taking drugs. This campaign
will give some booster to Indian industrialists to give more towards society and the needy," Nadar said.
Narayana Murthy said the event focused on the joy of giving and it was about learning from each other's experiences. "In the beginning it was just a meeting of about 15-20 people where everyone talked about their philosophy of philanthropy, their experiences and their models. Later, there was a panel discussion of about 60 people on the same issue. It was wonderful meeting Warren Buffett and Bill and Melinda Gates." Some of the business leaders such as Murthy, Premji, Nadar, and Pi-ramal were accompanied by their wives.
"These families are clearly thinking very hard about how to make the greatest impact and bring their business acumen to the world of giv-ing," said Melinda Gates.

At the press conference, Buffett said he preferred to give his money to the Gates foundation as it would be spent by people he knew and trusted. He differed with Mexican billionaire Carlos Slim Helu that creating jobs was better than playing Santa Claus. "You can do both. Santa Claus employs about 12 elves," Buffett said. He said his pledging of Berkshire Hathaway stock or Gates' pledge of Microsoft shares don't in any way diminish the ability of the respective companies to do business and create jobs.

PHILANTHROPIC TALK: Bill Gates, Azim Premji, Melinda Gates & Warren Buffett

Wednesday, March 23, 2011

Stock, Commodity Trades to Attract Uniform Levy

Surplus budget retains standard VAT rate at 12.5%; state sales tax revenue expected to grow 26% from last year

The Maharashtra government has decided to levy a uniform stamp duty of 0.005% on all transactions in the stock and commodity exchanges, including transactions of securities, futures, delivery and non-delivery based transactions. This was announced by the state's finance minister Ajit Pawar in the annual budget presented on Wednesday.
Maharashtra's annual budget shows asurplus of . 58 crore and has a revenue target of . 1,21,503 crore for the fiscal 2011-12. The size of the annual plan has been set at . 41,500 crore. The budget has retained the standard VAT rate at 12.5%, while state sales tax revenue is expected to increase 26% from last year.
Though the finance minister did not specify the revenue projection from the 0.005% stamp duty levied on stock and commodity transactions, he said the move will simplify collection of duty on all such transactions. At present, stamp duty is levied at different rates depending on whether turnover is delivery-based, non-delivery-based, or proprietary. Brokers are required to pay 0.01% for the first category, 0.002% for the second and 0.001% for the third.
The state government has decided to make some amendments in the Bombay Stamp Act 1958 to increase the revenue from stamp duty by 31% in the state. Transactions of transfer of longheld tenancy rights of house property (extension of lease) will now be liable for stamp duty at market value.
The budget proposed to levy a new 5% tax on sale of telecast rights of various events, including cricket matches and entertainment programmes like award shows. It also proposed to increase the rate of tax on soft drinks to 20% from 12.5% and changed excise duty formula for country liquor, Indianmade foreign liquor, and beer in order to increase revenue. The minimum rate of excise duty will be increased to . 95 per proof litre for country liquor, . 240 per proof litre for foreign liquor, . 33 per bulk litre for mild beer, and . 42 per bulk litre for fermented beer. The budget has also proposed change in the VAT structure for liquor. Instead of
charging 25% VAT at each stage with deduction for set-off, now 50% VAT will be charged only once at the sale stage based on the sale price of the liquor.
Some amendments for procedures were also proposed in the MVAT Act. These include amendments of revised returns, providing for deposits instead of advance payments for voluntary registration, changes to provisions of refund application to be filed by dealers making interstate sales, etc. The bud
get proposed stern action against those convicted in Hawala dealings, with two years imprisonment. The budget also proposed . 1,440 crore for providing basic infrastructure facility to the urban poor and . 2,500 crore for various infrastructure schemes under the JNNURM. It has proposed . 2,749-crore expenditure for building roads in rural areas, . 5 crore for construction of a floating jetty at Gateway of India, and . 162 crore for airport upgradation.
In order to promote air traffic in various districts, tax on aviation turbine fuel has been kept at 4% in all districts of the state, except Mumbai and Pune. This scheme of concession will continue till March 31, 2012. The film industry
breathed a sigh of relief as the finance minister proposed to abolish the tax on copyright of Bollywood films.
The budget proposed a subsidy of . 2,500 crore to farmers for their electricity bills. Wheat, rice, pulses, flour, turmeric, chillies, tamarind, gur, coconut, cummin seeds, wet dates, fenugreek, and papad have been exempted
from tax till March 31, 2012. Domestic liquefied petroleum gas (LPG) will also be exempted from state tax. The finance minister also proposed change in recovery procedure for sugarcane purchase tax. Instead of recovering the entire tax in the crushing season, the purchase tax will now be recovered every month from the sale proceeds.



MONEY TALK: Maharashtra CM Prithviraj Chavan (left) & deputy chief minister and finance minister Ajit Pawar (extreme right) with their colleagues at Vidhan Bhavan shortly after the presentation of the budget in the House.

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Maharashtra State targets ‘liquid’ cash in surplus budget


Drinks, Power, Cable TV Dearer

Sanjeev Shivadekar TNN


Mumbai:Afew stings were in store for the well-heeled as Maharashtra finance minister Ajit Pawar announced a surplus budget of Rs 58 crore on Wednesday. Pawar's first budget kept up the sops on the food front, while simultaneously targeting tipplers and those who like to add a little fizz to their day. Cable TV and power bills are also likely to rise following levies in those sectors. Consumers can also expect to pay more for sunglasses.
    Liquor, both foreign and Indian, is set to get more expensive due to hiked excise rates. A 750 ml bottle of Indian Made Foreign Liquor (IMFL) is expected to rise from around Rs 260 to Rs 300, while a 650 ml bottle of mild beer should go from around Rs 77 to Rs 89. Value-added Tax (VAT) in bars with a fourstar or higher rating will be 20%, while in other watering holes it will be 5%.
    These are some of the levies expected to go towards creating the surplus in the state's budget for 2011-12. In 2010-11, the revenue deficit was a staggering Rs 5,687 crore. Pawar said the turnaround would be achieved because of a 31% increase in stamp duty collection and a 26% increase in sales tax revenue.
    Cable TV could become expensive because of a 5% tax levied on telecasting rights for various sports and entertainment events.

GETTING COSTLIER LIQUOR/BEER: Hiked excise duties could be passed on to buyer. A 750-ml bottle of IMFL whisky costing Rs 260 could go up to Rs 300. A bottle of beer that costs Rs 77 will cost Rs 12 more now. VAT system restructured, but may not affect prices
POWER BILLS: Additional levy
on electricity produced and sold
SOFT DRINKS: VAT hiked from 12.5% to 20%: If MRP is Rs 20, you pay Rs 22.50 now, which will rise to Rs 24
CABLE TV: Could get costlier after 5% tax on telecasting rights of sports and entertainment
BUYING/RENTING OF FLATS UNDER PAGRI SYSTEM: Stamp duty to be paid at market rate (not agreement value)
GETTING CHEAPER
DRY FRUITS: VAT drops from 12.5% to 5% (except for raisins, currants and cashews, which are tax free): If price is Rs 600/kg, you pay Rs 642 now, which will drop to Rs 630
VADA PAV (at eateries): VAT drops from 12.5% to 5%; If the popular snack costs Rs 15, you pay Rs 16.90 now, which will drop to Rs 15.10
DHOOP, AGARBATTI: No tax
NO CHANGE
Tax exemption to continue on LPG, rice, turmeric, chillies, coconut, cumin seeds, jaggery, methi, parsely, Solapuri chaddars, towels, fabrics, sugar
Concessional 5% tax to stay on tea
Stamp duty on mkt transactions
Mumbai: Finance minister Ajit Pawar adopted a hard stand on soft drinks, raising the VAT on them from 12.5% to 20%. Sunglasses will attract a 5% VAT.
    The state government has decided to levy additional duty and tax on the electricity produced and sold in the state to fund infrastructure facilities that would
be improved in areas having power-generation plants. This burden could be passed to the consumer.
    Meanwhile, several dry fruits are set to get cheaper with VAT
dropping from 12.5% to
5%. The Mumbaikar's
favourite snack, the vada pav, will also be cheaper with VAT falling by the same amount. An eatery selling it for around Rs 17 will now have to price it Rs 2 lower. Pawar has also decided to continue keeping the grocery list cheap, with tax exemptions to continue on items like LPG, rice, turmeric, chillies, coconut, cumin seeds, methi, parsley, jaggery and sugar.

    To please religious communities, the finance minister has proposed to exempt dhoop, loban and incense sticks from taxes.
    Stamp duty on stocks and the capital market has been amended. "Transaction of securities, futures, delivery and no-delivery takes place in the share market and commodity exchanges. The transactions are charged at different rates of stamp duty,
which makes collection of stamp duty a difficult task. To bring uniformity in collection of this tax, the finance department has proposed stamp duty of 0.0005% on all these transactions," Pawar announced.
    Pawar was happy with revenue collected through tax. "Last year many states enhanced VAT from 12.5% to 13.5%; in some states it was raised to 15%. But without changing the tax rate in Maharashtra, the state has shown a record increase in the revenue collection," the finance minister said, adding, "This year too there is no proposal to increase the standard rate of VAT (12.5%)."

Tuesday, March 22, 2011

‘I want to be remembered as the world’s oldest man’

Bangalore: The world will remember him best as a prodigious philanthropist. But he wants to be remembered as "the world's oldest man". Warren Buffett, No. 3 on the global rich list, who has pledged to give 99% of his wealth to charity, at 80, is on his first trip to India and easily admits that he
was a "bit of retard to have come to India so late".
    But making up for lost time, he committed to making one big investment in India every year
and clubbed India with the UK, Germany, China and Brazil as potential destinations for his company Berkshire Hathaway's future investment plans.

Warren Buffet in Bangalore: I am a bit of a retard to have come to India so late

Self Criticism Could Derail Indian Growth: Ratan Tata

Tata Group chairman Ratan Tata said on Tuesday that he hoped India will continue to prosper and grow as an economic power and not destroy itself in self criticism as it was doing right now.
Tata did not specify what he was referring to, but his comment comes amidst widespread public debate over policy paralysis and a spate of scams that have rocked the country in the past few months.
"I am very proud to be in India at a time when it has emerged from a developing economy to an emerged na
tion in this part of the world," Tata said at a function where he was conferred the Life Time Achievement Award by the All India Management Association. "I hope India will continue to prosper and grow and see itself as an economic power. I also hope India does not destroy itself in self criticism as it is doing now," he said. Recounting his rise, after he succeeded JRD Tata as the chairman of the century-old group around 20 years ago, Tata said he initially wondered how he could be a clone of his illustrious uncle. "I figured I could not be like him and have to be my own self."
He said there were three
factors that helped him in transforming the group from being an old world business conglomerate to a diversified global company much bigger in size, compared with what it was two decades ago. He identified the three factors as the legacy of integrity in how to do business left behind by JRD Tata, the opening up of Indian economy, and the spirit and support of employees.


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Buffett Comes With Big Appetite for Indian Cos

India a large market, not an emerging one, says the world's third-richest man As The World's Top Investor Comes Calling For The First Time To Tap Indians' Philanthropic Instincts, The Boss Of The World's Second-Largest PC Maker Reaffirms His Faith In The Country

Billionaire investor Warren Buffett said he is looking forward to using the enormous cash pile of flagship firm Berkshire Hathaway to acquire companies in India, which he described as a large, and not an emerging, market.
"I guess you will have to regard me as a bit retarded. I should have been here much sooner. I have been sort of a stay-at-home fellow for most of my life," the 80-year-old said to a packed room of mediapersons on his first visit to India that began Tuesday afternoon. "Better late than never," he quipped.
The Omaha, Nebraska-based Berkshire has made two large acquisitions in the past one year, buying chemicals additive firm Lubrizol for about $9 billion a few days ago and railroad firm Burlington Northern Santa Fe for about $26.5 billion last year. The cash pile on its books is estimated at $38.2 billion. "The elephant gun has been reloaded," Buffett told investors some months ago, hinting at major purchases.
"I do not consider India as an emerging market. It is a large market," he said on Tuesday, adding he hopes to spend some money here. Buffett will also use the India visit to join his billionaire friend and
Microsoft founder Bill Gates on a mission to push wealthy Indians to pledge money for a global philanthropic drive called the 'Giving Pledge'.
Witty, down-to-earth and very unassuming, he showered praises on Ajit Jain, the Indian head of Berkshire's re-insurance business who, Buffett said, had made more money for the company than the legendary investor himself.
"He (Jain) could have made a lot more money working for someone else than working for Berkshire, but he is unbelievably loyal and hardworking and unbelievably smart. After he worked for me for a couple of years, I wrote to his parents and said, if you have got one more like him, send him over because I could use him," said Buffett.
Jain has for long been considered as one of the potential successors to Buffett. "I owe the people of India an enormous amount for sending me a person like Ajit Jain," he said. On Thursday, after wrapping up his Bangalore visit, Buffett will fly to Delhi, where he will hold a joint press conference with Gates and then speak with some leading CEOs on the philanthropy initiative. Later, in the afternoon, he is expected to meet Prime Minister Manmohan Singh.
"If you open a restaurant, and the public doesn't like your food, you will know. If you do the wrong things in philanthropy, you don't get a feedback from the market system," said Buffett.
Philanthropy More Difficult Than Business
Buffett said philanthropy is much more difficult than business but that does not mean you ignore it. Buffett has pledged nearly 99% of his personal net worth of $50 billion to the Bill and Melinda Gates Foundation. "In China, we talked to 50 to 60 billionaires and we were astounded that frankly one after the other people talked about the same things they talk about in the US. They talked about their family, their businesses, their hopes, their fears," said Buffett, who said there was no real agenda in India apart from seeing a debate on the different ways of doing philanthropy.
Leading Indian CEOs like Analjit Singh of Max India and Shiv Nadar of HCL Tech,
Planning Commission Deputy Chairman Montek Singh Ahluwalia, investor Rakesh Jhunjhunwala, the Munjals of the Hero group, UIDAI Chairman Nandan Nilekani, and National Security Advisor SS Menon are among the many expected to meet Buffett in Delhi. "I have never given up a meal to give away money, I have never given up a movie, I have never given up taking my family on a vacation trip so I have everything in the world that I could possibly want. And yet I have a lot left over, that money will do nothing for me, it will do a lot for other people, so I am giving up something that has no value to me and that has value to other people and to me that makes nothing but sense," he said, adding the decision to give most of his money to charity was taken while he and his late wife Susan were still in their twenties. "I felt it was better to be giving away billions later on than millions early on and so far it has worked out that way," he added. Buffett, who chose to start his maiden India trip by visiting Bangalore, said he remained a great believer in global trade despite the political rhetoric against outsourcing and general fear about India taking away American jobs. "There are 309 million Americans; some people will feel anything is threat, whether its India, China or Japan, you name it. But I am an enormous believer in trade. The more trade the world has, the better it is over time," he said. The famous conservatism that Buffett brings to bear on his investment decisions was on display as he doled out advice to investors looking to make returns from the stock market. "Don't get outside of what I call your circle of confidence. Don't try and buy and sell actively. I don't know how to do it," he said.
Buffett begins his maiden India trip with a visit to metal-cutting tools maker TaeguTec India Pvt Ltd—his only investment in the country till date—on Wednesday. His other major India connection is the recent tie-up with Bajaj Allianz to sell auto insurance policies. "We do not have an insurance company here now. We have an agency, it would be more attractive to us if we could buy more than 26% of a company. You put the same amount of effort into a company you own 26% in and in the company you
own 50% or 75%," he said, adding in the near term, his firm would continue to operate as an agency in the insurance business in India.
Buffett tried to soothe frayed investor nerves after the twin jolt to the global economy in the form of the Japan devastation and Libyan bombings by saying economies "will march forward" despite interruptions. "My children will live better than I do. My grandchildren will live better than my children. That's been the history of the market society." In response to a question on how he views the accusation of insider trading in the US against Rajat Gupta, former McKinsey chief, Buffett said, "There have been allegations made but in America and most of the world, you are innocent until proven
guilty and eventually a jury will decide what the true facts of the case will be," adding he would be following the trial that could last three to six months. "It's an interesting story no question about that," he added.

THE ELEPHANT GUN'S RELOADED: In Bangalore on his first Indian visit, Warren Buffett says he should have been here much sooner



Sunday, March 20, 2011

India to Overtake Brazil as Sixth Largest Car Maker

Country to produce 3 million cars by the end of current financial year

 Driven by rising purchasing power and a spate of new launches, India will produce 3 million cars by the end of the fiscal, making it the world's sixth largest car manufacturing country in the world after South Korea, said senior officials in automobile companies. China tops the list with an annual production of 1.38 crore cars. Currently, India is the seventh largest carmaker after Brazil. The Indian car market, which produced 26.78 lakh cars in the April-February period, will notch up the sixth position due to phenomenal growth in sales this fiscal, beating the Society of Indian Automobile Manufacturers' (SIAM) earlier projection of India finding a place among the world's top six carmakers by 2015.
With several new launches set to drive up sales, India may produce 34.5 lakh cars in the new fiscal. "Actual sales are much higher than all our projections made in the past. The strong fundamental of the economy
and new cars hitting the market are likely to keep the momentum going that should lead to a high growth of 14-16% in the next fiscal despite the high base of current fiscal," said Sugato Sen, senior director, SIAM.
Demand in the last fiscal was mainly driven by the new launches. "The demand for newly-launched cars is much higher than our estimates. Just two of our new cars — Alto K10 and Eeco — launched in 2010, forms over 15% of our million cars sold in this fiscal.
Helped by rising incomes and buoyant economy, new cars will continue to drive growth in the next fiscal too," said Shashank
Srivastava, the chief gen
eral manager (marketing) of Maruti Suzuki.
Maruti's R3, Honda's Brio, Toyota's Liva and GM's Sail are among the 50 new cars, which are set to hit the market by FY12. Fresh capacities, which can produce an additional one million cars, will go on stream next year. Maruti Suzuki is coming up with a new 2.5-lakh cars plant in Haryana, while Renault's 2-lakh cars-a-year plant at Chennai is expected to come up in the new fiscal.

Japan and your investments

The world's third largest economy has been bruised, but there's little reason for Indian investors to panic.

In our previous issue, we had written about the need for geographical diversification of your investments to mitigate country-specific risks. The past week has shown how terribly correct our assessment was. The 11 March earthquake has shaken the Japanese economy, pulverised the stock markets and sent shockwaves across the world. The Japanese stocks suffered their biggest two-day loss in almost 25 years, when the Nikkei slipped 6.2% on 14 March, followed by a 10.6% tumble on 15 March.
    The natural calamity in Japan has put retail investors in India on the tenterhooks. While the Indian markets have not been hit too badly, this could change if the nuclear situation worsens in Japan. However, before you make a hasty decision regarding your stock holdings, here are a few points to consider.
Not the time to panic: The world's third largest economy has been badly bruised, but eventually, it will recover. The restoration could take some time given the magnitude of the devastation. In fact, the rebuilding of Japan could lead to a higher demand for Indian products. Economists say that natural disasters are negative for growth in the short term, but tend to be positive over the medium term. So, dumping your stocks now may not be a good move, especially since most of the bad news has been factored in. Don't catch falling knives: When we say this is not the time to offload stocks, we don't mean it's time to add more. A sudden drop in the price of the share you have been tracking may appear tempting, but you may be trying to catch a falling knife. Don't keep adding more of a losing stock just because it reduces your average buying price. Wait for things to settle down before making fresh commitments. Diversify your portfolio: An important lesson from the disaster is that diversification really works. Not just across stocks and sectors but also across geographies. The Japan effect has been felt worldwide, yet some markets have not fared as badly as those directly dependent on the Japanese economy. So, don't put all your eggs in one basket. One way to do this is to buy a diversified equity fund which also invests in global assets. Maintain a cash buffer: This is not directly related to stocks but could have a bearing on the returns from your investments. Keep enough cash reserves to help you tide over an emergency. If you don't have enough cash, you might be forced to liquidate other assets. Selling stocks to raise cash when the markets are reeling under the impact of a natural disaster can be a nightmare.
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Another Downtrend


THE stock market closed lower at the end of another week with two-way swings. The Sensex finished 1.62% or 295.28 points lower, and the Nifty ended 1.32% down. The CNX Midcap Index was flat, with a loss of just 0.18%.
    Reliance Communications was the biggest winner among index stocks with an 8.5% gain. The other index stocks to rise included Reliance Infrastructure, Tata Power, Tata Steel and State Bank with gains between 3.8% and 0.7%.
    Maruti Suzuki was the biggest loser among index stocks, with a 7.5% loss. The other index stocks to fall included HDFC, Hindalco, ONGC and Hero Honda with losses
falling between 6.0% and 3.8%.
    VIP Industries was the biggest winner among the more heavily traded non-index stocks with a 22.7% gain. The other non-index stocks to go up included Fineotex Chemical, Acropetal Technologies, Tata Coffee, Reliance Capital, Central Bank, Kwality Dairy India and Aurobindo Pharma with gains between 20.5% and 6.9%.
    Sudar Garments was the biggest loser among the more heavily traded non-index stocks with a 17.2% loss. The other nonindex stocks to go down included MphasiS, ARSS Infrastructure Projects, Bajaj Finserv, HDIL, Dr Reddy's Laboratories, Tata Motors DVR and Indiabulls Real Estate,
with losses falling between 12.4% and 5.1%.
INTERMEDIATE TREND: The market's intermediate trend has turned down once again. The downtrend is now two weeks old, having started on March 4 when the Sensex peaked at 18,737. The Sensex will have to climb past 18,475, the Nifty past 5,550 and the CNX Midcap Index past 7,700 in order to enter a new uptrend. (Numbers have been rounded up to the nearest 25). Almost all global markets are in intermediate downtrends now, and have been falling quite heavily in the past 2-3 weeks. Our market has resisted global pressures lately, with our indices doing better than almost all global markets since mid-February, corresponding to the time that the Dow started its intermediate downtrend.
LONG-TERM TREND: Our long-term (major) trend is still down, which is equivalent to saying that this is a bear market. However, a moderately
strong rally could alter the picture by taking the Sensex and the Nifty above their previous intermediate tops of 18,700 and 5,600 respectively, as well as past their 200-day moving averages. That would, in turn, signal a new bull market.
    The shortest bear markets of the past 25 years have ended within three months, and the mildest ones had a 20-25% loss. This bear market has clocked just over three months at its lowest point so far, which was reached on February 11 when the Sensex made a low of 17,296. The decline from the bull market peak was about 18% on that day. There is some
chance that the bear market could have bottomed out as we have not had a new low for over a month now. The Nikkei is in a long-term (major) downtrend after the heavy crash it has been through, and the major trends of several European markets and even Hong Kong appear to be down now.
TRADING & INVESTING STRATEGIES: There is not much point in getting out of existing portfolios as there is some chance that a bull market could develop soon. Even the riskier stocks would tend to rally if that happens. However, further investments are best made once this intermediate downtrend shows signs of ending.
GLOBAL PERSPECTIVE: Most
global markets are in intermediate downtrends now. The Dow will have to cross 12,300 to get into an intermediate uptrend. Most global markets were in bull phases, with our market and Brazil among the very few that were in major downtrends. However, Japan, Hong Kong and some of the European indices also seem to have joined the list. The Dow would go into a major downtrend if it were to breach 10,900.
    The Sensex gained 3.6% in the 12 months that ended on Thursday, up two positions to the 19th place among 35 well-known global indices considered for the study. Sri Lanka continues to head the list with a 93.6% gain. Argentina, Indonesia, Russia and Denmark follow. The Dow Jones Industrial Average has gained 9.2% and the NASDAQ Composite has gained 10.2% over the same period.
    (These rankings do not take exchange rate effects into consideration).
    
(The author is an independent technical analyst)


DEEPAK MOHONI Technical Analyst

Fly High With Commodities

With equities showing no signs of a rebound, investors can turn their attention to commodities, albeit with caution.

 While equity markets globally have not yielded impressive returns in recent times, commodities have more than made up for it. The Sensex has fallen 7% since the beginning of the year while the MCX Comdex, India's Composite Commodity Index, has risen 25% during the same period. In an environment marked by rising inflation, high interest rates, declining industrial production, governance issues and political turmoil, prospects of equities rebounding in the near term appear rather weak. Commodities, on the other hand, have had a splendid run since June last year. Base metals have risen almost 50%; gold was up 16% while silver rose 90%. Yet, the market is still bullish on commodities as an asset class.
    In the second half of 2010, asset classes across the board provided investors moderate returns, making up for the sluggish beginning at the start of the year. This rally was triggered by nascent signs of economic recovery in the US and Europe, and more importantly, by the US Federal Reserve's second stimulus package — Quantitative Easing (QE2). This additional liquidity triggered a spurt in equities, especially in emerging markets like India, reflecting in returns of 17% on the Sensex from June to February 2011. Interestingly, the MCX Comdex rose 30% during the same period outperforming the equity markets — a trend witnessed across the globe. The S&P 500 gained 11% while the S&P Global Commodities Index rose 14% in 2010.
    A key driver for global investors to flock to commodities was the printing of money in the US that saw the dollar lose value against several currencies, coupled with low interest rates in the West. Therefore, relative to other asset classes, commodities proved to be the safest bet, spurring investment. Second, this excess liquidity also led to high inflation, especially in emerging economies — further pushing up commodity prices.
    Strong demand from China and other emerging markets, coupled with supply constraints in Russia and South America on account of climatic adversities, added further impetus to the upward price movement. Commodities across the spectrum fared well. From the agricultural sector, cotton was the star performer, gaining 80%. Silver was the best performer among precious metals, mainly driven by its increasing inclusion in ETFs.
    Whether this trend in commodities will continue hinges on how geo-political issues pan out. The Middle East, North Africa tension has seen base metals correct from their February highs. The Japanese calamity has doused the rally in most commodities in view of the slowdown in demand. A further correction could be expected, but the medium-to-long-term outlook is positive. This is supported by the case for redevelopment in Japan after recent events.

For A Safe Landing
While commodities as an asset class offers good opportunity of making money, it also involves certain inherent risks. Investors need to be aware of them before they start trading
    In India, commodities exchanges provide only futures contracts for trading. Options, a safer alternative, is not currently on offer
    It is pertinent to understand the fundamentals of a commodity, just the way one studies the fundamentals of a company before investing in it
    Investors are subject to high leverage in commodity futures trading. Hence, one must always beware of overleveraging one's portfolio and not trade a contract that is considerably larger than one's risk appetite
    Price action in commodities can become very volatile, thanks to a variety of factors such as geo-political crisis, weather changes and calamities. Investors, therefore, need to be agile while trading.
    The philosophy of 'adhering to a stop loss' needs to be followed even more diligently while trading commodities
ET Intelligence Group analyses trends in the most actively-traded commodities to help you cash in on investment opportunities.

In 2010, aluminium prices rose 8% y-o-y fuelled by the recovery in the US and Europe in the second half of the year. Compared with other base metals such as copper, tin and nickel, the rise was muted. The outlook for aluminium is positive as demand remains robust on back of growth in the packaging industry in India, China and Latin America and recovery in the transatlantic markets. However, large inventories are likely to keep prices range-bound in the near term.


Copper prices increased 31% y-o-y on the back of supply constraints, which are expected to continue through 2011, signalling further buoyancy in prices. It has corrected a little from record highs in early February. However, lower inventories and robust demand from India and China will restrict any drastic fall. The outlook on this base metal remains positive.


Corn prices have gone up 80% in the past one year. They are likely to correct in the short term, partly on account of a temporary decline in Japanese demand (Japan being the largest importer) and bearishness ahead of the South American harvest. The outlook is bullish in the medium term as Japanese demand has been delayed and not doused. However, investors cannot expect returns of the same magnitude as last year since the South American harvest is likely to be good this year.


Cotton has been the best performing commodity - yielding returns of more than 145% in last one year. There is an expectation of reduction in demand with prices remaining near all-time high levels. The global cotton production may outpace demand for the first time in seven years. However, the expanding Chinese imports may support demand for cotton. Prices of cotton are therefore likely to remain volatile given such demand-supply dynamics. In India, cotton is competing with food items for acreage. Since prices of food items have risen exponentially they are getting more acreage than cotton. So, while the demand for cotton is optimistic on back of rising consumption, the prices are likely to remain volatile as production is going to be uneven.


The demand-led uptrend in global crude oil prices since December 2010 was further accentuated in January onwards due to the political upheaval in Egypt and Libya. However, the rally was largely psychological rather than fundamental. The global oil inventories have remained higher than the 5-year average and spare production capacity with OPEC has been comfortable. As the political unrest spread across Bahrain and UN prepared to enter Libya the oil prices continue to remain high. However, the disaster in Japan and approaching low-demand June quarter are putting pressure on oil prices. Further, the International Energy Agency noted that high oil prices are dampening demand and lowered its 2011 demand estimate. Unless the geo-political tensions continue, oil prices are likely to drift lower in near term


Gold continues its unprecedented rise in 2010, gaining 30% over the previous year. On account of uncertainty of the global economic recovery and the euro zone debt crisis in the first half of the year, investors rushed to safe havens such as gold. Though these issues have subsided, gold as an asset class is still likely to yield positive returns as uncertainty regarding the pace of economic recovery in Europe and the US continues. In the near term, there could be a correction as the Japanese central bank is likely to continue selling the precious metal to inject yen into money markets in an effort to calm investors.


Silver has had a stellar year in 2010, outperforming gold and yielding returns over 80% against the previous year, driven by investment demand. In 2010, silver holdings in ishares ETFs rose 15% touching an all-time high. It would be prudent to book profits in silver at this point and wait for a correction. Given that the rise in silver is also linked to industrial metals, any correction in the latter could cause a dip in silver price.


Soybean oil futures prices have risen over 42% in the past one year. However, they have been trading sideways for the past three months. They are likely to remain weak in the short term due to advance in harvesting activities in South America, expectations of a higher supply of soybeans this year and present weakness in crude oil prices. Prices are also likely to weaken around May-June period on the back of fresh production of palm oil from Malaysia. However, they are likely to rebound later in the year. Edible oil prices are closely linked to energy prices due to their use in the production of biodiesel, an alternative to fuel. Hence, any major spike or correction in crude oil prices will have a similar impact on soy oil prices.


Global sugar prices touched an all-time high in February due to the Australian cyclone and remained volatile since then. According to the latest analyst estimates, raw sugar future prices are expected to see a correction due to better production in Brazil in May 2011. In the domestic market, sugar prices are expected to trade in the range of 28-30 per kg in the short term. They are likely to correct in the case of any upward revision in the sugar production estimates which currently stand at 25 million tonnes for the current sugar year (October 2010-September 2011) against the consumption of 22 million tonnes.


Among all the base metals, zinc was the only underperformer in the past year, yielding negative returns. This was primarily because for the fourth consecutive year, global output of refined zinc exceeded its usage. While the surplus is expected to be lower in 2011, its impact is not likely to see any major improvement in prices. So, while the rise in the price of zinc is on the cards, it may not be very significant.
    crystal.barretto@timesgroup.com 
    (with inputs from Rajesh Naidu, Ramkrishna Kashelkar and Shikha Sharma)



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