Next Economy

Number crunching at RBI

2007-04-01T11:01:00.001-04:00

Too much money in the market has forced RBI to curb the demand in form of CRR and repo rate hike. According to RBI report, external inflow of money stood at $18.6 billion between January 2007 and March 23rd 2007 and RBI has already absorbed Rs 23,894 crore between February 1st, 2007 and March 30th, 2007.

A two step CRR hike would take the rate to 6.25 on April 14th and to 6.50 by April 28th. The fixed repo rate has been hiked to 7.75% wth effect from March 30, 2007.

Clearly India looks to be an example of overheating, supply has not been able to keep pace with the demand.

Slowing of US economy ?

2007-03-22T00:17:00.000-04:00

First it was decline in Housing demand, which had its own impact on the subprime lending, where the some of the lenders had to either put themselves for sale or go bankrupt, now Federal reserve has decided against raising interest rates raising the concerns of slowing economy. Fed has even hinted at lowering interest rates if the economy slows down further. The over night loan rate remains at 5.25%.

Slowing US economy is not good sign of emerging markets like India and China which exports bulk of products from services and manufacturing sectors respectively. Much of the Indian GDP constitutes services sector. Indian IT sector which depends on US for its revenue has a bigger share to Indian economy. Any slowdown in US economy could impact IT spending.

On the other hand slowing economy means less returns for investors so can those investors look at emerging markets for more investment ?

Carry trade

2007-03-14T13:06:00.000-04:00

Stock markets around the globe have been hit with the fear of Carry trade and yen unwinding. Indian stock market has felt the shock too.

What exactly is carry trade ?
Carry trade or currency carry trade is simply buying money in low interest currency and investing the same in a high interest currency to gain profits. The difference in interest rates is the arbitrage. Japan has maintained low interest rates for a while, so the cost of yen is relatively low when compared to other currencies. Yen bought at low interest rates are invested in markets with better interest rates like US bonds (no risk). The earnings are converted back to yen to book profits.

Why is Japan maintaining low interest rate ?
Japan has been maintaining low interest rates to keep the liquidity at higher level and to increase investment and production to fuel the economy. However increased production has not increased Yen value. Many believe the Japanese yen is undervalued to a greater extent. The undervalued currency provides a good investment option for the foreign investment since any raise is currency would deem expensive Japanese goods. Automakers like Honda and Toyota whose cars sell like hot cakes in US markets will loose their shine.

How good is carry trade for Japanese Investors ?
Carry trade is a better investment option as long as the Yen is undervalued. Appreciating Yen can nullify the profits made in the other markets.

How is India affected ?
India being one of the major developing country clocking around 9% of growth and with regulated stock market, forms a better investment avenue for FIIs from countries like Japan. FIIs from Japan investing these short term money in Indian stock market could erode the Indian market incase Japan interest rates raises or if Yen appreciates.

Agriculture, Budget or Reforms too ?

2007-02-25T00:52:00.000-05:00

The finance minister will be out with his budget report on 28th, February 2007. The mood about the India growth is optimistic. Is it just the budget allocation which can do the trick to sustain, if not overcome the current growth ?

Looking at the RBI's GDP data and contribution from various sectors to the GDP's growth, clearly, Agriculture sector stands out as laggard contributing just 5.8% even though it employs close to 60% of the population. The Banking reforms have been in constant effort to ensure the credit availibility(even though the farmers comes under bad credit quality). Inspite of efforts ensuring credit, the sector lacks momentum. Growth of services sector has increased employment in its allied industries, which has increased the movement of rural population to urban areas in the urge for better life style.

What should Government do to ensure more agriculture productivity ?
1. Better utilization of money in terms of technology and machineries available to the farmers. Productivity increases with better utilization of resources. Machineries, technology and its automation improves the productivity and allows the people to better utilize and allocate the work hours. Technology like food processing ensures the farming produce to reach consumers rather than the garbage.

2. Educating farmers about the reforms and rights. Most of the reforms made inside the Government office doesn't reach to the illiterate farmers. The government must ensure the information about reforms and money reaches the intended audience before people can make full use of it.

What are your expectations from the budget ?

Inflation and another CRR

2007-02-14T00:20:00.000-05:00

With inflation for Jan 27 coming at 6.58%, more than the estimate, the CRR hike or measure of such kind was expected. RBI lived upto the expectation increasing the Cash Reserve Ratio (CRR) for Banks by another 50bps.

This was the second CRR hike by RBI in less than 2 months. This time the hike is expected to extract another Rs 14000 crore from the market decreasing the money available for credit growth. Also RBI has recently increased its repo rates. It the same old phenomenon of too much money in the market chasing less goods causing this inflation. Major Lenders like ICICI Bank have already increased their interest rates and other banks are soon to follow. Banks are certain to be under pressure to keep their margin guidelines and real estate sector and the realty stocks has already shown weakness in the past two days.

Watch out if you are planning for a loan or a real estate investment. Such kind of RBI actions are required to make sure inflation doesnt hit the growing economy.

Market buzz

2007-02-10T02:28:00.000-05:00

After the TATA-CORUS deal, all eyes are on Hutch bid. Growing telecom sector in India is opening new avenues for the global telcos to increase their margin. News sources say the deal is marked at a whopping $18 billion, creating excitement in the market. As Hutch deal gets closer, another telecom backed by Birla group, Idea cellular, comes out with an IPO. Certainly telecom is creating waves in the market.

Due to increased supply of money in the economy, RBI has increased its repo rate to suck some more money, thereby decreasing the liquidity. This move has forced ICICI bank to increase its lending rate. Does this move just brings down the liquidity and in turn the inflation or does it affect the other sectors along with the real estate sector ? Question to be answered soon.

Change is constant

2007-02-04T00:44:00.000-05:00

Its been lot of changes on personal front. I had to move back to India, so I was busy with my movement all these days. Now that I am more closer to the real happenings, it should more easier for me to focus on its growth and keep this blog updated with my views.

Guru Kant Desai

2007-01-12T20:17:00.000-05:00

Wonder Why, I have this Bollywood movie as a post ? Well, the movie has created an excitement in the movie industry and is inspired by the great Dhirubhai Ambani, who, clearly stands out in the Indian business.

Not sure how much Abhishek Bachchan can live up to the expectation, certainly Ambani has been Guru for Indian business.

Primary education and entrepreneurship

2007-01-03T21:47:00.000-05:00

I was impressed with Venkat's idea of creating entrepreneurs by working for social cause. He has innovative way of using money to provide primary education in rural areas. Check his article here.

In huge country where we often blame corruption and resources not being utilized appropriately, I believe there should performance linked allowance for the people working in the social cause.

Pardon my appearance

2007-01-03T20:47:00.000-05:00

I have been making some changes to my blog and this is bound to affect my page layout. I missed out on my regular feature, Past Week too. Mean while pardon my appearance.

Hutch and Indian Telecom

2006-12-25T13:59:00.000-05:00

The business news in India has been flooded with possible acquisition of Hutch telecom by telecom majors, including giant like Vodafone to the India's very own Reliance Communication. Telecom has been one of the booming sector in this unstoppable Indian economy. This new war between the telecom majors to get a share of profit comes as no surprise.

Following graph compiled with help of COAI (Cellular Operators Association of India) data shows the growing number of subscribers in the Indian celullar industry.

Based on COAI data

Even though the cellular companies have been adding subscribers at a sector wide CAGR (only Cellphone companies taken into account) of nearly 70% for the past four years, the overall ARPU for the subscriber has been slowing as shown in the graph below. The decrease in ARPU is attributed towards the decreasing voice prices due to the increasing competition. A carrier competition which has made comunication affordable for the Indian consumers.

Based on TRAI data

Why Vodafone wants to buy Hutch ?

Vodafone seem to be concentrating on the emerging markets to rake in profits which is supplemented by its recent exit from the Proximus, Belgium. Profit margins for European and US telecoms have been under pressure due to the increasing VOIP services which has reduced the cost of voice. Voice services in these developed markets is slowly transitioning from subscription to free service, which has forced telecoms to look out for other services to retain their customers. As an alternative source of revenue, emerging markets seems to be an attractive destination for these telecoms to sustain their margin, since the usage of VOIP in the emerging markets are limited due to the lack of infrastructure, technology and also the restricting government regulations to protect the economy.

Can the decreasing ARPU, still prove profitable for buyers?
India's growing economy increasingly needs better communication at an affordable price. With more than a billion population, the number of cellular subscribers have just reached 100 million in November 2006. Cellular companies have the infrastructure and its now matter of adding more consumers, atleast at the same growth rate, to increase their profit margins.

Past Week

2006-12-24T10:31:00.000-05:00

I missed out writing for this week, but the buzz in the India never stops.

1. Vodafone joins the foray along with Reliance communication and Maxis in a bid to take the fourth biggest telecom in India, Hutch-Essar. Vodafone, which already owns 10% stake in Bharati has already reached its cap stipulated by the telecom regulation. Vodafone seems to be moving from the saturated telecom market in European region to the promising emerging markets like India and China. It is to be noted that Vodafone has recently sold its 25% stake in Proximus, Belgium.

2.The new regulations from Thai government created ripples in its stock market, which was even felt in Indian bourses. The downfall of the Thai market was triggered when the Central Bank stipulated that 30% of new foreign funds will be locked-in for a year. The move came after the Thai Baht's appreciation during this year. The currency has appreciated close to 9.8% since January 2006 against USD. This appreciation means Thai exports turning out to be expensive to its buyers. But the Thai market recovered sharply after a day.

Past Week

2006-12-17T15:59:00.000-05:00

Here are the events and news that created buzz in the India business.

Sensex lost more than 1000 points in first two days of the week, only to bounce back.The strong comeback by the markets re-emphasize the strong fundamentals in market.
The joint venture of ESPN-Star sports gets ICC telecast rights for next 8 years for a whopping 1.1 billion. The rights will cover ICC's major tournaments such as the Champions Trophy in 2008, 2010, 2012 and 2014, Twenty20 World Cup, women's World Cup and Inter-Continental Cup.The rights will start from september 2007.
Brazil's CSN is now ready to pay 515 pence per share for Corus as against TATA's 500 pence per share. The battle for Corus continues.

Changes to blog

2006-12-17T15:50:00.000-05:00

Starting this week, Iam adding a new feature, "Past Week". This new feature brings in, key events and news that matters most to the business world. Iam expecting that the events mentioned in "PastWeek" to be featured soon in my analysis.

Sensex dips again

2006-12-12T21:12:00.000-05:00

Sensex lost another 404 points, while Nifty lost 133 points on December 12, 2006. The downfall continued its steam for the three days in row, with sensex closing at 12,995 and Nifty closing at 3,717.

Price correction has been due for a while, it was RBI's increase in CRR which triggered the collapse and disappointing industrial growth of 6.2% in October (against 9.8% during October 2005) added fuel to the downfall.

RBI's CRR and its impact

2006-12-11T20:47:00.000-05:00

Sensex was down by 400 points, decrease of about 2.9% to finish the trading daya (Dec 11, 2006) at 13,399.43. The Bankex took the heavy toll of all the sectors at 6.43%.

The drop in the stock market is mainly due to RBI's raise in the Cash Reserve Rate (CRR). Cash Reserve rate is the percentage of Bank deposits to be kept at RBI. RBI raised the CRR on friday by 50 basis points (0.5%), implementing the raise in two stages of 25 basis points (0.25%) each, one to be implemented on Dec 23rd, 2006 and another on Jan 06, 2007.

Why did RBI raise CRR ? What is the impact ?
India has been a clocking a high growth. The GDP for the quarter ending July-Sept 2006 stood at 9.4%. The growth in GDP has come with an increased inflation and the inflation stood at 5.30 percent in the 12 months to Nov. 25. Finance minister Mr.Chidambaram had earlier suggested to manage the inflation by supply side constraints. By increasing the CRR, RBI will be able to extract Rs 13,500 crores from the banks. This means lesser money available with the banks, so banks have to increase the lending rates to sustain their margins. With increase in cost of loans, corporate borrowing from banks will take a hit and eventually slowing the investment. But the increase in CRR means more money available with RBI and Government can spend this surplus money to curb the inflation. Recent measures like reduction in oil prices, import of wheat from Australia and reduction is sugar exports is expected to bring down the overheated economy.

Infosys on NASDAQ-100 Index

2006-12-09T11:03:00.000-05:00

Infosys technologies will be included in NASDAQ-100 index from December 18. Infosys will be the first Indian company to be included in the global index.

The NASDAQ-100 comprises of 100 large non financial companies listed in NASDAQ. Infosys will be weighed along with elite Global tech majors like Amazon.com, Google, Yahoo and eBay.

The share price of Infosys stood at $55.03 on NASDAQ as of December 08, 2006, taking its market capitalization to $5,929,922,740. Infosys listed in 1999 on NASDAQ and it is the first Indian company to ring NASDAQ opening bell remotely from Mysore,India in July 2006. Its promotion to the elite index was expected when the shareholders approved $1.6 billion of secondary offering of ADS in Nov 2006.

India business leader Awards

2006-12-06T22:08:00.000-05:00

CNBC TV-18's 7th anniversary coincides with the India business leader award (ibla). The award is given to outstanding leaders who has carved a niche in India business world.

The award which is presented in 12 different categories, is not only a recognition to the leader but also an inspirational event for other entrepreneurs. It also stands as a milestone in the ever growing Indian economy.

Happy 7th birthday CNBC TV-18 and wish the fever of business leadership multiplies in the country.

Sensex reaches 14000

2006-12-04T23:34:00.000-05:00

Sensex reaches 14,000 points! An incredible achievement given the GDP growth (9.2% for the quarter ending July-september) at which Indian economy is moving forward. It took 26 days for the index to move from 13,000 to 14,000. Even though lot has been said about the anticipated correction, the sensex has proven most of these analysts wrong and taken every by surprise.
So whats in store of us ? Is it a correction or the target of 15,000 ?

Startup culture in India!!!

2006-12-03T14:42:00.000-05:00

Yes! The startup culture is indeed fast catching up in India, says this Mercurynews report. Ten years back the startup culture was unheard of in India. Middle-class which constitutes the large demography in India was all content with their paid jobs and their life style. Venture capitalist were sparingly heard untill the late 90's dotcom boom,so did the "startup". Even today the story of Infosys is fairy tale for many Indians and demands applause anytime for its incredible achievement.

Business in India for most part of last century has been dominated by the rich and royal families. The Ambani's, the Birla's,the Tata's and others enjoyed the headlines in business section of the newspapers. The country's economic state meant little hope for the risk taking community to venture out into business, so did there were less people in building startups that can grow to become sucessful.

Liberalization of economy in the 1991 meant flow of foreign portfolio and direct investment in India. One sector which took everyone by surprise was the IT services sector. Increased development of IT sector meant improved lifestyle and better economic state of the citizens.These improvements gave confidence to risk taking people to venture into business, because its not only the effective production of goods/services which matters most for the risk taking startups, its also the consumption of the produced goods/services which plays a major role in shaping up the startups. Avalibility of resources and knowledge is always a catalyst for the startup growth. Innovation is ready to take its hot seat in this growth and its ready to turn the ideas into reality.

Bharti weds Walmart

2006-12-02T23:13:00.000-05:00

Our daily lunch has always been eventful with discussion topics varying from business to entertainment and lifestyle. Its no surprise that Indian retail did figure in our discussion when the news of two giants, Bharti, an Indian telecom major and Walmart, a retail , joined hands to rewrite the future of Indian retail sector.

Indian economy has been growing around the rate of 9% GDP and retail to an extent was an untapped sector in the growing economy. The retail sector is estimated to have $200 billion share in the booming Indian economy. Government restrictions on the overseas retail companies meant closed doors on retail majors foray into the Indian market. Home grown majors like Kishore Biyani's Big Bazaar was making waves tapping the potential of the sector.

What does this alliance of Bharti and Walmart mean to :
1. Consumers
2. Existing dealers
3. Producers.

The retail sector has been dominated by mom and pop shops over the years. It was the middle men who enjoyed the maximum benefits. The retail giants brings its well defined process coupled with low cost procurement and high volume sales, which means end of honeymoon days for the dealers.

What does the giant's entry mean to producers? Producers including farmers didn't enjoy the constant demand for their products. Varying demand meant varying prices for these producers, which was hard hitting on their profits and their hard work. These retail stores creates a constant demand for the goods produced which means increased profits for the producers.

Consumers, as always they are the king. In the war of prices,the benefits goes to consumers.

Bharti being the leading Indian telecom operator, has the knowledge of Indian consumers. Walmart brings its global retail experience, their marriage means no more than a catalyst to the Indian economic boom.

Long Hiatus

2006-12-02T21:52:00.000-05:00

Its been a long hiatus for me from my blogs. Being busy with my personal tasks, I wasn't far away from economic updates.

Good positive economic developments in Indian economy, right from 9.2% GDP growth in in July-September 2006, when compared to 8.4% GDP growth for the same period last year. If GDP was a heart warming factor for the finance minister, telecom gaint Bharati is joining hands with walmart to give sleepless nights to Kishore Biyani and Reliance fresh.

Good developments indeed, awakening sign unlike my hiatus.

India.mobi

2006-10-29T15:42:00.000-05:00

As Nokia's commerical says "Connecting people", so did Nokia in acquiring 63% share in India's growing mobile market and connecting people across India.

Business week in its report says the major players in the market are set to uptap the hidden potential in Indian telecom.

What this means to mobile manufacturers and content providers is a growing opportunity to take information and technology to the rural places. Already being a Global IT hub, India is all set to supply the technology to its own demand thereby creating a self sustained market.

Time for the Indian Technology to meets its own demands.

Retail-ance

2006-10-29T14:17:00.000-05:00

Reminds of a walmart store, products stocked up, easily visible “How can I help you ?” in red clothes, thats the picture I got when I first saw the glimpses of Reliance Fresh stores.
Retail market has not be tapped to for a while by the growing Indian economy. Reliance announced it self into the fresh source of revenue by announcing itself as “Reliance Fresh”.

This Forbes report says, the retail arm of Mukesh Ambani is all set to become the next Walmart of India tapping the huge potential in the growing Indian economy. With its first store set to sell products to the consumers starting from Non 3, 2006 in Hyderabad,the pilot project is ready to take off in other Indian cities too.
The products come directly from farmers and will be sold to the consumers this removes all the “extra” cost otherwise added by the middle man.Such a scenario would create more opportunity for the farmers and to the agricultural economy as the farmers have a constant demand for their production.

But the question is what happens to all those huge “Kirani” stores who made their living by acting as a middle man ?