Indian Economy - News & Updates - Archive

[Contrarian]

Rel Comm to invest $1.5b over 3 years

MUMBAI: Reliance Communications would spend about Rs 7,000 crore ($1.5 billion) over the next three years to build an advanced submarine cable system that will connect 60 countries.

The new optical fibre cable system, christened FLAG NGN (Next Generation Network), would be built over the existing FLAG cable system that the company operates at present, Anil Ambani, chairman, Reliance Communications (RelComm) said.

Once complete, the undersea cable network would be the largest one in the world and RelComm will continue to be one of the three largest submarine cable companies in the world.

Post-completion, RelComm's network, through its partners across the globe, would reach about 5 billion people.

Speaking to the media, Ambani said that the laying of the new cable network based on the new technology is to meet future demand from its partners and customers.

Industry analysts said that the move on the part of RelComm was to keep itself ready for the 3G of mobile services scenario in the Indian telecom space.

Once 3G is in place, people would be able to do a lot more with their handsets and could require more data, voice and video.

In such a situation of increased demand with extra spectrum, RelComm's network with extra capacity could prove to be a triumph card.

This investment of $1.5 billion would go in laying another 50,000 kilometers of network which by December 2009 will take FLAG's global network to about 1.15 lakh kilometers and RelComm group's to 2.30 lakh kilometers.

 

[Contrarian]

Trade deficit rises to $17.9 billion in Q2

MUMBAI: Rising oil imports continue to take a toll on the country's trade deficit. India's trade deficit rose to $17.9 billion in the second quarter of 2006-07 as compared with $13.2 billion in the corresponding quarter in the last fiscal, according to the Reserve Bank's balance of payments data.

Despite an invisible surplus of $11 billion, the current account deficit also rose to $6.9 billion ($3.6 billion) due to the large trade deficit. Oil imports rose 36.9% in April-September 2006, while non-oil imports recorded a more moderate 11.5% growth. During the same period the average crude oil price recorded a year-on-year increase of 25%, while volumes grew 11%. The average price of the Indian basket of crude rose to $67.2 per barrel from $53.7 in the corresponding period last year.

"The rise in trade and current account deficit was anticipated due to a moderation in exports and the high crude prices. However, the oil prices have moderated and this would be reflected in the future numbers, which could lower the deficit in the second half," said Abheek Barua, chief economist, ABN Amro Bank India.

Invisibles receipts continued to record robust growth of 32.8%, driven by growth in business and professional services and remittances. Invisibles payments also witnessed a steady expansion, reflecting continuing pace of outbound tourist traffic from India, rising payments towards transportation and strong domestic demand for business related services and higher investment income payments.

Net capital flows, external commercial borrowings, foreign direct investment, NRI deposits and short-term trade credit showed firm growth, adding to the country's external debt position. The external debt of the country has risen by $4.3 billion to $136.5 billion at the end of September 2006 from $132.2 billion at the end of June 2006.

Despite a booming market, portfolio investment — largely FIIs — for the period slipped to $1.6 billion from $5.4 billion. NRI deposits rose by $912 million to $36.6 billion, accounting for 26.85% of the total debt at the end of September 2006, followed by multilateral debt at 24.6% and commercial borrowing at 23.8%.

The strong demand for ECBs, foreign investment and banking capital (banks borrowing overseas through hybrid instruments) during April-September 2006 lead to an accretion of $8.6 billion to foreign reserves. Valuation gain, reflecting the appreciation of major currencies against the dollar, accounted for a rise of $5.1 billion in total reserves during the first half as against a valuation loss of $5 billion during the corresponding period in the previous year.

Other capital gains of $3 billion also helped boost the country's forex which touched a record $176.22 billion.

 

[Contrarian]

Aurobindo's arm acquires Dutch firm

HYDERABAD: Agile Pharma, the Netherlands-based wholly-owned subsidiary of Aurobindo Pharma Ltd, has acquired Pharmacin International, another Netherland-based generic pharmaceutical company. The acquisition has been done through a share purchase agreement with Pharmacin's shareholders — Jerim and Jonghound International.

However, Aurobindo has not disclosed the valuation of the acquisition and the price at which the shares have been bought. This is Aurobindo's second acquisition in Europe.

During the beginning of the current calendar year, Aurobindo acquired Milpharm Ltd, a UK based company."The product portfolio of Aurobindo, manufacturing and R&D capabilities are expected to help strengthen and grow the relationships of Pharmacin. Aurobindo would stand to benefit as this acquisition would provide an opportunity to expand into European markets with a dependable infrastructure and proven relationships," a company statement said.

 

[Contrarian]

Infotech poised for a bigger boom

BANGALORE: An expat in Bangalore was a silent witness to a conversation on the crumbling infrastructure in the city. When asked what makes him still visit the city, the reply was simple. "All great cities of the world have gone through this phase. Eventually, infrastructure will be world-class. No government in can ignore this and the benefit it brings to the economy."

The Indian IT juggernaut seems to have no stopping. As another year rolls by, it is this optimism among people that continues to grow the sector.

Expansion of existing operations, larger deals coming to Indian IT vendors, increased VC investment (over $3 billion in the first six months of the year), acquisitions abroad, focus on product development and emergence of semiconductor industry were some of the key highlights in 2006.

"This year was a turning point for the IT industry. India has been accepted much widely as a brand and clients worldwide seem to have included India in their decision for multi-sourcing of contracts. This would provide a huge momentum on contracts that are going to be negotiated in the year to come," says Deepak Khosla, senior VP, Patni Computers.

"Fundamental acceptance of India as a product engineering hub was the biggest change during 2006. After proving that we can do highend engineering in 2005, Indian firms began to get access to the world and this time, it was driven by availability of capital. MNCs would increase the quantum of work done in India during 2007," said Samir Bordas, president (product engineering) Aztecsoft.

 

[Contrarian]

Sensex gains 47%, funds pour in

MUMBAI: On Friday, the last trading day of 2006, the sensex ended 59 points lower at 13,787, but that doesn't take away the huge positives that came through during the year, probably the best in the 132 years of BSE.

A 47% gain in BSE Sensex, nearly $8 billion worth of foreign fund inflows and over Rs 13,000 crore from domestic funds, and Rs 11.2 lakh crore addition to investors wealth: This is the market for you in the year that is about to end. 2006 witnessed a sustained bullish trend that lasted throughout, except for a one-and-a-half month period during May and June when sensex corrected nearly 35% from all-time high of 12,672.

Prior to this crash, the sensex had, at regular intervals, raced past 10K, 11K and 12K levels. And after the crash and subsequent recovery, when the index embarked on record-breaking spree all over again, it went past 13K and 14K peaks, boosted by foreign and domestic fund buying, along with speculative excesses. In the end, the sensex also bettered the 42% gains of 2005.

It was a record year for cement shares with a number of doubling in price. Along with industry leaders ACC and Grasim Industries, prices of smaller players like India Cements also went through the roof. With infrastructure sectors leading the charge in a galloping economy, it was a year to remember for investors who had put their bets on cement stocks.

Along with cement and infrastructure stocks, real estate stocks too showed huge gains, although part of the gains could be attributed to the lack of collective knowledge about the valuation of these stocks.

It was also a memorable year for investors in telecom stocks with Bharti Airtel appreciating about 81% and Reliance Comm, which was listed in March, giving a 62% return. The record gains of 2006 has also made market veterans cautious. "One of the dangers for 2007 is that 2006 could be looked back as the benchmark year," said Arun Kejriwal, director, KRIS, an investment and advisory services company.

In such a situation, if the sensex grows by another 45% next year, it should be at 20K level by December 2007. This will require frontline companies to grow at the same rate, that's 45%, which is improbable.

Long-term players are not looking at repeating 2006 performance in 2007. "We expect gains of about 15-20% for best run companies. Any P/E expansion is unliekly," said Naresh Kothari, executive V-P, Edelweiss Capital.

The choice between investments in frontline stocks, and small and mid-cap stocks could be a dillemma for investors in 2007, market players said. Most of the frontline stocks look fully valued at the current level, so any fresh investment in these stocks might not give good returns. On the other hand, there is not enough liquidity in second rung stocks and they are highly risky bets. Recently,"a lot of investors were shattered when they went overboard in these counters and those memories are fresh," said Kejriwal. In case investors do decide to take bets in small- and mid-cap counters, it would also lead to higher volatility.

Could there be hidden minefields in 2007 as well? With each passing day, as the Indian market is getting more aligned to the global markets, negative developments elsewhere in the world could lead to a fall in India, said Kotahri. Rising interest rates, along with rising inflation in a stabe global crude oil price regime could also spell trouble for the India Inc, market players said.

Market analysts are looking at a strong Q3 and a good Q4 from corporates, but they expect the quarters beginning July 2007 and October 2007 to be tough ones for even the best of Indian companies.

 

[Contrarian]

Verizon may join Hutch race

MUMBAI: In a race that's being driven as much by rumour as by reality, the latest piece of speculation — put out by a wire agency out of New York — is that US telecom giant Verizon is also interested in Hutch Essar.

Said an agency report,"Verizon Communications, which has a market capitalisation of $108 billion, is the latest name being churned out by rumour mills for the prized Indian firm. While a spokesperson for the US firm said it was the company's policy not to comment on 'this kind of speculation', industry sources said the move could be strategically important for Verizon as the US market was near saturation level and India offers great growth opportunities."

There were also speculations about Vodafone hiking its valuation of Hutch Essar to an adjective-defying $20 billion, which would price Hutchison Whampoa's 67% at roughly $14billion — the price below which it had said it would not wish to sell its shares.
But it's also the kind of price that analysts are now warning bidders against, saying that it's way over the top and difficult to service. There's fear that at such prices, the classic winner's curse will kick in and that to lose the bidding war might actually be a blessing in disguise. But sources dismissed both reports as imaginative thinking.

Amid these alleged multi-billion dollar bids, there are stories that talks between the Ruias and Hutchison bosses in Hong Kong have not being going too well. Hutch, according to some people close to the situation, is not overly keen on selling its stake to its 33% Indian partner with whom it's not had the best of relations.

The ever-growing number of potential suitors, including two confirmed parties, Reliance Comm and Vodafone, has already pushed the valuation of Hutch Essar to unrealistic levels, according to industry analysts.

Other possible bidders doing the rounds include Malaysia's Maxis, Egypt's Orascom and private equity funds. Hutchison Whampoa has confirmed it has been approached by several potential buyers and the company's finance director Frank Sixt recently said it would not entertain offers below $14 billion.

This price has taken the company's valuation to nearly $21 billion and represents a huge premium since June last year when HTIL raised its stake in Hutch Essar by 5.11% for $450 million while valuing the company at less than $9 billion.

 

[Contrarian]

Trai to seek more power

NEW DELHI: Trai has decided to make 2007 the year of the consumer. As its plan to make life easier for telecom users is not an easy one, Trai will approach DoT to seek more powers to take on mercenary and uncaring operators.

"We will be circulating a draft regulatory mechanism in a few days to ensure quality of service (QoS) for consumers, but we lack the power to impose penalties on erring operators. We will approach DoT to give us these powers," says Trai chairman, Nripendra Misra.

It is well known that the Trai Act 1997 gives very little teeth to the regulator on QoS issues. The consumer has borne the brunt of this for nearly a decade.

All that is about to change. Alongside a serious self empowerment initiative, Trai has devised a creative mechanism to push service providers to bring consumer protection to the forefront.

For once, Trai has placed information related to consumer rights in the public domain. Key among these are that operators must inform users within a week of service activation, complete details of tariff plan and changes. Allow consumers to move from one plan to another without a migration fee.

Similarly, even if talk time value is exhausted, prepaid customers will get all services independent of talk time value such as incoming calls and messages during the validity period.

Fixed line and broadband customers with faults pending over three days will get rental rebate.

One of the most treacherous experiences for consumers has been mobile metering and billing. A special regulation notifying code of practice to bring transparency and minimise the incidence of billing complaints is being enforced.

For once, consumers will be able to make sense of their bill.Good news for global roamers too. They can opt for a particular ring back tone indicating to caller through the ringback tone of their roaming status to avoid unwanted calls.

Finally, a process to enforce the regulation — nodal officers will be appointed by operators to deal with complaints and all complaints to be given a unique docket number transparent to the consumer for follow up.

At last, human interface to replace the endless runaround of press 1 for this option or 2 for that, 3 for something else and hanging up unsuccesful and helpless at the end.

 

[Contrarian]

IT results to be 1st trigger for sensex

MUMBAI: As Dalal Street awaits its first trading session of 2007 on Tuesday, brokers and dealers said expectations of a robust results season would start from the word go.

As has been the trend for the last few years, technology shares would be off the block first, with Infosys having scheduled its third quarter results for January 11.

While most brokers and analysts are sure that technology companies would meet Street expectations, huge advance tax payment figures for the October-December quarter has also raised hopes for sterling performance from a host of frontline companies from other sectors, like cement, oil & petroleum and banking.

"Results expectations would drive the market this week. Apart from proprietary trades by brokers and institutions, there are possibilities that they would also buy on expectations of substantial FII fund allocation later in the month," an institutional dealer said.

Behind the expectations of robust quarterly numbers, there are market intermediaries who are keeping a close watch on rising inflation and the interest rate scenario, despite a relatively stable crude oil prices.

While these so-called investment negatives could be ignored while the going is good, in case the market turns southward, these same reasons could weigh down the index further.

 

[Contrarian]

Tougher times for tax evaders

NEW DELHI: The tax department seems unwilling to let go of the opportunity to raise collections in a booming economy and is expected to further tighten the noose on evaders over the next three months.

With surveys having unearthed over Rs 1,000 crore hidden income, the Central Board of Direct Taxes (CBDT) is expected to use the measure to extract concealed income even as it appears set to close the financial year with collections of around Rs 2,20,000 crore instead of the budget target of Rs 2,10,000 crore.

"With our officers being mobile, we have managed to generate around Rs 1,000 crore through surveys between June and December as against Rs 211 crore during the last financial year," CBDT spokesperson A K Sinha told a press conference.

Refusing to disclose details, he said one survey alone had revealed an additional income of Rs 25 crore. While the exercise had revealed large amounts of income, only a third would be taxed, which will mean that the exchequer will be able to realise an additional Rs 300 crore.

While on an all-India basis, over 200 surveys have been conducted — including one on the premises of a company promoted by Shah Rukh Khan — eight surveys in Delhi's Chandni Chowk alone resulted in businessmen revealing income of Rs 1-2 crore instead of the Rs 5-6 lakh that they had reported.

And with more information on high value transactions like investment in mutual funds, purchase and sale of immovable property and large spending through credit cards, the department intends to track more people who have been splurging but not paying taxes.

Retailers and those hawking expensive pens or LCD monitors may face surveys to ensure that they pay their dues to the taxman on the cash transactions that they have entered into.

The move is also expected to throw up names of those who have purchased high-end items, who could also be put under the scanner.

Unlike a search, which is often referred to as a raid, tax officials launch surveys, based on information received, which are less invasive and the operations are confined to the business premises.

Taxmen scan through books to ascertain whether things are in order. During the searches conducted so far, it has often come to light that stocks had been under reported and were not reflected in the books.

With the department's field formation busy completing the assessment of returns by December 31 deadline, number of surveys last month were fewer, Sinha said.

But as the officials scurry to meet the targets set for them for the fiscal, more surveys appear a near certainty.

 

[Contrarian]

Govt weighing options for Indian-AI merger

NEW DELHI: The government is considering several routes like enacting a law or getting a court order or simply issuing an ordinance for merging the two state-owned carriers, Indian and Air-India, official sources said on Tuesday.

The fastest way to merge the two would be the ordinance route as was done in 1953 when the Air Corporation Act was repealed to create the two public sector airlines, the sources said.

However, a legislation could also be brought in during the Budget Session of Parliament after the Union Cabinet gives its final nod to the proposal of the Group of Ministers (GoM) headed by External Affairs Minister Pranab Mukherjee, they said.

The Committee of Secretaries (CoS), which was asked by the GoM to finalise various options and work out the nuances of the merger process, has already favoured the merger and offered several choices as to how to go about it, they said.

The GoM, headed by External Affairs Minister Pranab Mukherjee, is yet to consider the CoS recommendations and proposals.

Sources said that there could be some delay in the process but not an inordinate one as the statutory time-frame has to be met.

The two airlines, they said, would have to give notice to their creditors and lenders about the process going forward.

 

[Contrarian]

DoP charts Rs 6K cr tech plan

NEW DELHI: Year 2007 seems to be the year of reinventing, at least for the Department of Posts (DoP), which has lately realised that unless it upgrades its technology, it will be unable to compete.

With the 11th Five Year Plan set to take on, the world's largest postal network plans to spend about 50% or over Rs 6,000 crore of its proposed expenditure — to enhance itself technologically — in the next five years, starting 2007. This translates into an annual spending of Rs 1,200 crore, which will start from April.

"India Post strongly needs to strengthen technologically and that too at the grass-root level if it wants to do away with the deficit of Rs 1,100 crore in the next five year," says IMG Khan, secretary, Department of Posts.

And to give wings to its vision, India Post is banking on big vendors like TCS, Wipro, Infosys and Microsoft to outsource Enterprise Resource Planning systems (ERPs) that will integrate about 8,000 computerised post offices all across the country.

Though the department continues to outsource services from National Informatics Centre, it will shortly announce tenders for ERP solutions. And if all goes well, India Posts expect to finalise our IT partner by June-July this year and take off after the contract is assigned.

"With India Post already struggling to turn into a profit making entity, we will focus at reasonably low-cost wireless-based connectivity for our 1,55,566 post offices spread across India," Khan said. The department also plans to pump in over Rs 200 crore for HR management.

 

[Contrarian]

Working world is getting better for Indian women

MUMBAI: It's life as usual for Catherine Gilbert, a Chennai-based Senior Software Engineer with IBM India. She wakes up, finishes her morning chores and gets to work. But there's a difference here.

Gilbert works from home. When she was two months into pregnancy, Gilbert opted for IBM's work-life flexibility option. And, her responsibilities are no less compared to her other colleagues.

"I still work under the same deadlines," she says. Gilbert works with a team spread across various cities and several of her teammates work from home. "You can work when you feel like and relax in between. In fact, I am planning to continue working this way for at least a year after I have my baby."

This is part of a series of programmes IBM has undertaken in India to help women in the workplace, as part of its larger initiative to encourage diversity.

The idea is simple: Lots of women employees tend to opt out of the workforce due to child bearing and family reasons.

"There is a severe war for talent," says Anita Guha, diversity lead, IBM. "We don't want to close our minds to any segment."

For IBM it doesn't stop with flexi-timing and sabbaticals. It has embarked on a project to help women who have dropped out for various reasons back into organisation.

It is also investing in vendors developing childcare centres and creches in key cities. The idea is simple: Once the projects are off the ground, children of IBM employees will get a preference.

The percentage of women in IBM's 43,000-strong India workforce has climbed up to 26%. Contrast this with the figures revealed by a recent CII survey: In large companies, the ratio of women is barely 4% of total workforce, whereas in medium-scale companies, it stands at 18%.

It is not just IBM alone. Several other organisations are going all-out to attract and retain women employees.

For instance, whenever headhunters conduct an executive search for Bharti Airtel, they are told to include at least 25% of women candidates in the shortlist.

Vijaya Sampath, corporate director, adds, "But we make sure that all appointments are made on merit and there are no quotas for women."

IBM gives placement agencies a higher fee if they bring in women candidates. Bharti, which has about 17-18% of women in its workforce, has recently launched a major diversity initiative.

It ensures that there are enough women senior managers on the panel during pre-placement talks on campuses.

 

[Contrarian]

Sensex up 155 points

MUMBAI: The sensex shot up by 155 points on the first trading day of the New Year following a widespread rally led by auto stocks and heavy fund buying after firm Asian advices.

Trading began on a promising note as FIIs, who were away for holidays, resumed activity with a bang and made hefty purchases following a steep rally in Asian markets, dealers said.

The index opened strong at 13,827.77 as against its previous close of 13,786.91. After hitting a high of 13,980.54, it ended at 13,942.24, a gain of 155.33 points, or 1.13%.

Bull operators and retail investors became active and made good purchases in heavyweights, which boosted the market sentiment, brokers said.

Nifty shot up 41 points, or 1.03%, to end at 4,007.40 points. Auto shares led by Bajaj Auto made handsome gains after the announcement of encouraging December 2006 sales figures of many companies.

The BSE-Auto index zoomed 177.54 points, or 3.22%, to finish at 5,518.5.

 

[Contrarian]

MNCs to dominate tech hiring wave in India

BANGALORE: The multinational companies will dominate tech hiring wave in India, during the next three calendars, giving their domestic counterparts a backseat.

MNCs alone are expected to hire 1,50,000 people in the country during calendar 2007 against around 60,000 recruitments they have cumulatively accounted for in the previous calendar.

The MNC hiring will more than double year-on-year in the next three years till 2009. That means, domestic tech firms, that have been going great guns with large-volume hiring during calendar 2004,'05 and '06, will put hiring on a backburner, say industry observers.

Accenture, Bearing Point, CapGemini, EDS, IBM, JP Morgan and Merrill Lynch, are the leading MNCs that are going to drive the hiring storm in India till end 2009.

Again, a whole host of MNCs like Cisco, Oracle, Dell, SAP, Deloitte, Perot Systems, Microsoft, VeriSign, British Telecom and Logica CMG and dozens of MNC outsourcing firms like Fidelity, Convergys, America Online, Barclays, Reuters, Ocwen Financials, Viteos and HSBC are expected to scale up their people front significantly in India.

A lot of high-value hiring is expected by over 50 different product development and design MNCs. In addition to all these, a large number of MNCs are waiting in the wings to enter India.

"So together, starting now, a lot of action is expected among MNCs in the coming few years" says BS Murthy, CEO, HumanCapital, a career consulting firm.

MNCs have excellent vertical domain competencies and great ability to win big and long-term deals, a constrast to desi big firms, that are still willing to negotiate $2 million or $5 million deals or busy scouting for peacemeal deals. In the coming years, the principal hiring will be by large and established players, who are capable of bagging big deals, say industry observers.

Irrespective of the diminishing cost arbitrage factor, India is increasingly becoming attractive for MNCs firms. In fact, share holders have been insisting MNCs to have presence in "critical geography" like India as they see a lot of value in the country in terms of availability of people who can work in multiple skills, technologies, domains and platforms," observes Anjan Dutta, CEO, CareerGraph, another recruitment firm in the city.

Also, all these years, campuses, by and large, have remained as an exclusive terrain for domestic firms. "This trend will reverse during this calendar as large number of MNCs will be hiring from campuses giving domestic players a dry run.

Who can resist job offers with a 30% or more premium salaries?," asks Mamtha Jain, a HR consultant.

Does this mean Indian firms will stay away from hiring?. "Tier ones like TCS, Wipro, Infosys, Satyam, HCL, Cognizant will hire to support and continue their 30% to 50% year-on-year growth. But again, the MNC hiring numbers will double in absolute terms. Small and medium firms will take the brunt, without being able to attract or retain talent," says Kris Lakshmikanth, CMD, HeadHunters.

 

[Contrarian]

Infrastructure on upswing

NEW DELHI: The boom in industrial activity is continuing and the lower IIP growth in October seems to have been a temporary blip.

At least the index of six infrastructure industries, which has a 26.7% weight on IIP, points to a revival in November.

Data shows that the six core sectors grew 9.5% during November 2006, compared with 5.7% during the corresponding period last year, pushing up the growth rate to 7.8% during April-November 2006, as against 5.2% in the year ago period.

What's more, the boom, though led by energy, seems to be all round.

The steepest growth was witnessed in petroleum refinery production which registered a growth of 16.4% in November 2006, compared with 1.5% in the year ago period. During the first eight months of the fiscal, petroleum, diesel, kerosene and other refined petro goods production went up 13.5%, as against a dip of 0.6% during April-November 2005.

Crude petroleum production rose 5.5% during April-November 2006, while it had dropped by 5.7% in the corresponding period in 2005.

The trend numbers indicate that Indian refiners depended more on imported oil to meet their higher demand.

Electricity generation went up 8.8% in November 2006, while it grew 7.3% during April-November 2006-07, compared to a rise of 4.9% during same period in 2005. But a poor show by coal could have hindered higher growth in power production.

Coal production rose 4.9% in November 2006, as against 6.9% in the same period a year ago. During April-November 2006 the sector recorded a 4.8% growth, compared with 6.1% during the corresponding period in 2005.

While economy is booming, coal and electricity have been the laggards and government and economists have blamed the two sectors for pulling down growth.

But what points to a boom in housing and construction, albeit at a lower pace, is the higher production of cement and finished steel.