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4 CompaniesThe Economic Times, Mumbai, Saturday, 18 October 2014
Mumbai: At one of the customary pre-monetary policy meetings with industry,former Reserve Bank of India governorDuvvuri Subbarao wanted to know howmany of those present would benefit froman interest rate cut. Almost all hands wentup. The next question was how manywould pass on the lower cost to customers.Almost no one raised their hands. Subba-rao kept interest rates unchanged.
The voice of industry, which is alwaysseeking a cut in the cost of funds, is get-ting louder again, thanks to both con-sumer and wholesale price readingsdropping to record lows in September.It’s natural that governor Raghuram Ra-jan, who has made it his mission to bringinflation as measured by the consumerprice index permanently under 6%, willbe under greater pressure to cut rates.But will he budge at the next monetarypolicy announcement, scheduled to bemade on December 2? It seems unlikely.
Easing price pressures may be a lotmore sustainable than in the past giventhat most commodity prices are in thegrip of a bear market. Crude oil is downmore than a fourth, while iron ore andcoal have nearly halved from recentpeaks. Apart from bringing down infla-tion, this is boosting the profitability ofcompanies. But the central bank be-lieves companies are not doing enough toalleviate price pressure.
“Beyond a point, once the bottom linegets hit, the corporates also price theirproduct in such a way that they prefer cut-ting down on their production rather thancompromising on price,’’ RBI executivedirector Deepak Mohanty told analystsrecently. “So that kind of oligopolistic be-haviour also we have seen in the market.’’
Retail inflation dropped to a low of 6.46%in September, below the 8% target for Ja-nuary 2015, and closer to January 2016’starget of 6%. But the catch is that once thebase effect fades, the measure is expectedto rise again by early next year. In fact, theRBI model forecasts 7% retail inflation byMarch 2016, which may be revised lower ifcommodity prices keep falling.
“The case for an RBI cut is building up,but will be stronger not just when inputprices are falling, but when that is passedon to customers through final productprices,” said Hitendra Dave, managingdirector and head of global markets forHSBC in India. “It is not that demand canbe revived just with lower rates, but alsowith lower prices for final products.”
Rate cuts could become a reality inMarch if fiscal numbers turn better andcommodity prices keep sliding. But pre-dicting lower interest rates based on justthe current inflation numbers is akin toforecasting the outcome of the football-ing derby between Manchester Unitedand Chelsea by looking at past data. Sta-tistics may show that Manchester Unitedwould be the likely winner, but the prob-lem with that is it doesn’t factor in the ab-sence of Alex Ferguson and the presenceof Jose Mourinho at Chelsea.
Similarly, Rajan is in charge at the RBI,and he’s shown himself to be resoluteabout pursuing the goal of permanentlylow inflation. Meanwhile, Arun Jaitley
is finance minister, not P Chidambaram,who was keen to push for lower interestrates as a means of getting growth backup to speed.
Low readings for one or two monthswon’t be enough for Rajan to begin thelong-awaited lowering cycle. Commodityprices may turn quickly if the US post-pones raising rates due to sputtering eco-nomic growth and threats to the financialmarkets. So external risks remain.
“The medicine (higher rates) seems tobe working,’’ the central bank governorhas said, elaborating on the need forlong-term remedies. “The problem is be-fore the patient has run the full course ofthe medicine, you want to take the pa-tient off the medicine and say let’s take achance. That is always the danger in Indi-an policy. We have to have the disciplineto stay the course.’’
Companies are seeking lower interestrates to boost demand. But there’s littlesign that falling commodity rates areprompting them to lower product prices,choosing to cut output instead.
Mahindra & Mahindra recently declared“no production days” for tractors at its Ru-drapur and Jaipur plants “as part of align-ing its production with sales require-ments”. Many other companies havetaken similar action.
Industry may eventually have to pass onprice cuts given that the RBI is only likelyto change course when it sees a sustaineddowntrend. The central bank is not justlooking at 8% and 6% inflation at twopoints over the next 15 months, but ulti-mately wants 4% as recommended by theUrjit Patel panel. Though the 4% targetmay not be discussed publicly, the talksthat are currently on between RBI andthe government may lead to such a figurebeing agreed with a band on either side.
“These are not two separate goals,’’ Ra-jan has said, bolstering his argument.“First we meet the 8%, then we party for afew months, and then we decide whatabout the 6%. It’s part of a continuousprocess. And of course central bankscan’t be schizophrenic, or volatile in in-terest rates. As and when the interest-rate cycle turns, it turns in decisivelyone direction rather than moving up anddown on a monthly basis.’’
RBI May Look for Price Cutsby Cos Before Lowering RatesTHE BIG DEBATE The central bank believes cos are not doing enough to alleviate price pressure
There’s little sign that fallingcommodity rates areprompting cos to lowerproduct prices
RBI governor Raghuram Rajan
Mumbai: Sudhakar Balakrishnan has quit as manag-ing director and chief executive of Adecco India afterheading one of the country’s largest staffing compa-nies for seven years, a development that comes at a timewhen business is booming for such firms.
The company has appointed Angelo Lo Vecchio, whohad been head of operations for general staffing andmanaged 40 branches since 2009, as its India head .
“I have quit after being in this HR industry for dec-ades and am looking at options,” said Balakrishnan,who worked with the company for 14 years and will re-main with the company till his successor settles in.
Under Balakrishnan, Adecco India became the firstHR company in the country to cross the 100,000 markin temporary staffing. Its peers include Randstad In-dia, Teamlease and ABC Consultants, among others.
Vecchio has worked with the company since 2001.Balakrishnan was the chief operating officer of
recruiting firm Peopleone Consulting when foundermember Ajith Isaac sold 67% of the stake to Switzer-land-based Adecco in 2000. The recruitment companywas renamed Adecco Peopleone Consulting, with Isaacas the CEO. Between 2004 and 2007, Adecco acquired theremaining 33% and Adecco India became a wholly-owned subsidiary of the Swiss giant. Isaac left after sell-ing his shares and Balakrishnan was made the CEO.
“He may not start or join a recruitment company forthree years because international firms have a no-compete clause,” said a staffing company head.
Among hiring companies, a no-compete clause issigned because with shift of companies, the recruit-ment heads often take away the existing clients as well.
“It is surprising to hear about these exits whenmarkets are at a high and recruitments will boomeven for staffing firms, but then again runningstaffing industry in India is not easy,” said MD ofanother Bangalore-based staffing company.
Adecco India MDBalakrishnan Quits After 7 Yrs
Our Bureau
New Delhi: Thanks to two longweekends and special fares, air-lines saw a 28% surge in passengersin the month of September. Accord-ing to the Directorate General ofCivil Aviation data, released on Fri-day, air passengers during themonth of September grew from 45.5million in September last year to58.2 million for the same month,this year. This growth in air passen-ger number is the highest in the cur-rent calendar year. The month ofJune, this year saw a 16.1% increasein passenger traffic. In the month ofAugust, number of air passengershad grown by 10.9%.
Analysts say that the increasecould be a combination of longweekends and lower fares, but donot see same kind of growth in thecoming months. “The growth wasdriven by low fares and extendedholiday weekends last month.Though I’m surprised with levelof increase, I do not see anythingon ground to suggest that it is a re-covery and sustainable,” said Ka-pil Kaul, CEO of Centre for AsiaPacific Aviation in India.
IndiGo continued to maintain astrong lead in the domestic marketwith nearly one out of every threetravelers opting to fly with the air-line. Indigo recorded a marketshare of 32.8% for the month, fol-lowed by Jet Airways which alongwith JetLite accounted for 20.8% ofthe domestic air travel market.
SpiceJet and Air India registeredshares of 18.6 and 16.6%, respec-tively followed 9.3% by GoAir. AirCosta and AirAsia India stood at1.1% and 0.7%, respectively.
During the month, SpiceJet regis-tered the highest passenger loadfactor (PLF) at 85.9%. PLF is a mea-sure of how much of an airline'spassenger carrying capacity ornumber of seats is being used. Jet-Lite was second with load factorsof 82.7% followed by GoAir withload factors of 82.3%. The marketleader IndiGo, however, recordedlow load factors of 77.9% duringthe month. AirAsia India regis-tered lowest load factors of 68.7%.
Airlines See28% Surge inPassengers
RBI may not giverelaxation in ratesjust as yet
New Delhi: Noida-based builder Supertech is raising.̀ 150 crore from Kotak Realty Fund to expedite its pro-jects and deliver a total of 10,000 apartments this fiscal,reports RaviTeja Sharma. It has also raised construc-tion finance of about .̀ 350 crore from Indiabulls Hous-ing Finance for some of its existing projects in Noida.
RK Arora, MD of Supertech, confirmed that the com-pany is at an advanced stage of negotiation to raisefunds from Kotak Realty Fund. This money will beused to fast track completion of apartments in Noida,Ghaziabad and Greater Noida. “We will deliver around10,000 homes during this financial year. Of these, about2,500 have already been handed over,” Arora said.
Supertech to Raise .̀ 150 crfrom Kotak Realty Fund
HDAVEMD, HSBC India
The case for an RBIcut is building up,but will be strongernot just when inputprices are falling,but when that ispassed on to cus-tomers through final product pric-es. It is not that demand can be re-vived just withlower rates, but also with lowerprices for finalproducts.
DMOHANTYExec Director, RBI
Beyond a point,once the bottomline gets hit, thecorporates alsoprice their productin such a way thatthey prefer cuttingdown on their pro-duction rather thancompromising onprice...So that kindof oligopolistic be-haviour also wehave seen.
