FIN FAST TRACK’ 2010
FIN FAST
TRACK
FINALS 2011
Fin Fast Track-Finals 2011
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Contents
Global Market Overview & Outlook ............... 3
November 2010 .......................................... 3
Overview ................................................. 3
Outlook ................................................... 4
December 2010 ........................................... 4
Overview ................................................. 4
Outlook ................................................... 5
January 2011 ............................................... 6
Overview ................................................. 6
Outlook ................................................... 7
Indian Markets ................................................ 8
Daily Report February 25’ 2011 .................. 8
Daily Report February 24’ 2011 .................. 8
Week Ending February 12’ 2011 ................... 10
January 2011 ................................................. 11
Key Highlights ............................................ 11
Events ........................................................ 11
December 2010 ............................................. 12
Key Highlights ............................................ 12
Sector Performance .................................. 13
November 2010 ............................................ 14
Key Highlights ............................................ 14
Major Corporate Announcements Events 14
Key Macro Economic Developments ........ 15
Indian Economy............................................. 15
Indian Sectors............................................ 23
World Economy ............................................. 58
Oil Crisis: Impact of Middle-East revolutions
.................................................................. 58
Europe’s Inflation ...................................... 59
Britain: Inflation Dilemma ......................... 61
US .............................................................. 63
Banking: The debt net ............................... 64
ASIA M&A DEALS .......................................... 67
1.Mahindra & Mahindra to acquire South
Korea‘s SsangYong .................................. 67
2. Reliance Industries buys 95% stake in
Infotel Broadband for Rs 4,800 cr ............ 68
3. Steel Consolidation- JSW- Ispat deal ... 69
4. ADAG pack consolidates...................... 70
5. Axis Bank and Enam combine their
investment banking and equities businesses
.................................................................. 71
6. iGATE to Acquire Majority Stake in
Patni Computer Systems ........................... 73
7. BP, Reliance enter $20bn investment deal
.................................................................. 74
USA & Europe M&A ...................................... 76
Sanofi-Aventis - Genzyme ......................... 76
Danaher - Beckman Coulter ...................... 76
DuPont - Danisco ...................................... 77
Amgen - BioVex ......................................... 77
Scorecard: Top M&A deals 2010 .............. 77
Novartis/Nestle - Alcon ............................. 78
Sanofi - Genzyme ...................................... 78
Merck KgaA - Millipore ............................. 79
Teva - Ratiopharm..................................... 79
OSI - Astellas ............................................. 79
Reckitt Benckiser - SSL .............................. 79
NBTY - The Carlyle Group .......................... 80
Abbott Laboratories - Piramal Healthcare 80
Pfizer - King ............................................... 80
Grifols - Talecris ........................................ 81
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Global Market Overview &
Outlook
Source: www.trigoncapital.com
November 2010
Overview
In November equity markets reminded
investors about its risky nature. Last time
the markets showed a negative result was
in August. This time investors once again
paid attention to the deepened debt woes in
the eurozone. In contrast to May, when the
focus has been on Greece struggling with
its budget deficit, now the fate of Ireland
was in question.
Shares of both industrialized and
developing countries have by a couple
percent deviated from this year‘s peaks
reached in early November. The overall
nervous atmosphere has resulted in
increased oil and gold prices, as investors
tend to see these types of assets as safe-
haven in times of uncertainty. The price
increase was particularly steep, if one is to
measure the performance of assets in
euros. At the same time, prices on
industrial metals fell as investing in them
is often associated with risks. The plan to
increase further the money supply
launched in the US has driven yields of
government bonds higher, but a sharp
decline in prices was limited due to the
renewed debt worries in the euro zone. The
situation has again increased the
attractiveness and reliability of such bonds
to investors. Negative performance was
also demonstrated by risky fixed income
investments. On the one hand, there were
fears that difficulties in the troubled
countries will affect businesses, making
corporate financing increasingly difficult.
On the other hand, the bonds of
developing countries fell along with other
risky assets. The 6% decline of the euro
significantly limited negative results of the
assets traded in the US dollar.
In November the support for markets
provided by the earnings season has
weakened, since, as the markets see it, the
most important companies have already
submitted their reports. Moreover, the
recent results were in line with analysts‘
expectations or even appeared slightly
weaker. The Irish saga has overshadowed
certain macroeconomic indicators that
exceeded the expectations and pointed to
accelerating economic growth in the fourth
quarter compared with the past three
months. The growth signals were coming
both from manufacture and services
sectors. The most surprising results were
demonstrated by Germany, which once
again confirmed the dual nature of the
European region‘s development. Over the
past weeks initial jobless claims in the US
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have decreased, although it is still
somewhat early to talk about any marked
improvement in the labour market.
Outlook
The entire story with Ireland has once
again given grounds to doubt the ability of
the PIIGS countries (Portugal, Ireland,
Italy, Greece, Spain) to solve their debt
problems on their own. Ireland is already
the second country turning for help to the
EU authorities. The 750 billion euro
package aimed at ensuring financial
stability on the European credit market
was apparently not enough to restore the
investment confidence. Pressure on other
PIIGS countries was continued with the
result that now they have to finance their
expenses at a higher price. Despite the
assurances of Ireland that the need of
funding is not so high, the reality turned
out to be different. Because of the action
taken to bail out local banks the budget
deficit in Ireland has reached a level of
30% of GDP, and the chances of the
country to copy were minimal. At present
the rescue plan for Ireland has already
been approved. It will cost the EU 85
billion euros. It is now too early to talk
about solving the problems, but at least the
situation was brought under control in the
short-term. The markets continue to
actively discuss the lingering issues in
other PIIGS countries, the contagion effect
and the challenges facing the euro ahead.
Portugal is likely to be the next problem
country. It is still not clear whether Spain
is to follow. However, everything points at
one thing: the PIIGS countries are to face
harsh austerity programs that will affect
the next year's economic growth across
Europe. The US Fed also revised its
forecasts for the next year, lowering the
projected growth rate due to remaining
high unemployment indicators.
At the same time the emerging countries
continue with dynamic growth, and should
support industrialized nations with their
rapid development. The nominal economic
growth of developing countries amount to
10-15%, which creates a favorable
environment for the profit growth of
enterprises. The share of investment
channelled here, does not even remotely
correspond to the role played by these
countries in the world economy nowadays.
December 2010
Overview
For investors this December ended on a
positive note. More than 7% growth on the
world stock markets marked a good ending
of 2010. In terms of performance 2010 was
a successful year. Assets of investors
demonstrated good performance in almost
all classes. The year was especially good
for those who save, consume and measure
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investment performance in euros. Due to
the fact that during this year the euro was
under pressure, such investors have
received a steady 7% gain on their dollar
investments.
According to breakdown by the asset class,
the investments in commodities were of
the highest performance. The commodities
index increased during the last year by
nearly 26%. It was mostly caused by
steady growth of Chinese economy, which
boosted demand for various crops and
industrial metals. Natural disasters that
happened this year limited the supply of
commodities, providing additional
dynamics to the price growth in this asset
class. Performance of stocks of emerging
markets followed the dynamics of
commodities. Performance of such stock
has reached 25%. Growth of developing
countries once again significantly
exceeded that of industrialized countries,
which creates a favourable environment
for growth of company profits. Without a
doubt, the rise in prices on commodities
played an important role here. Equity
markets of developed countries also
showed good performance (+17%) while
supported by actions of governments and
central banks, as well as improved
financial performance in corporate sector.
The debt crisis in the Euro zone became a
slowing factor for European stock markets.
In the bond sector the developing countries
increased most notably (+20%). German
bonds have also grown by 6%.
Outlook
The world economy has still not
completely recovered from the crisis, but
despite this there are some positive trends.
The topic of a second wave of economic
crisis was actively discussed this summer,
but now it is all but forgotten. The growth
of the developed countries continues to be
limited by problems in the labour market
and budgetary constraints. Growth in the
developing countries, and especially in
China, will continue, thanks to strong
macroeconomic foundations and little
damage caused by the crisis.
Regardless of sectors, such countries offer
the best conditions for profits and their
economic growth rates are 2-3 times
higher than those of industrial countries.
Inflation in the developed countries
remains at low levels. This year there is no
reason to expect an increase in interest
rates neither in the US nor in the Euro
zone. The developing countries continue
their fight against inflation. Among the
possible risks one should name the
deepening and widening debt crisis in the
Euro zone, the significant reduction of
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growth of Chinese economy, high levels of
unemployment in the US and the
possibility of overheating in the
developing markets.
In terms of asset allocation, investors will
pay more attention to stocks. Stock
volatility is now at a low level. At the
same time, dividends on shares remain
higher than interests on bonds. For a long
time, investment in stocks was regarded as
too risky. However amid low interest rates
and rising expectations of inflation, stocks
can regain their status of a long-term
investment. And government bonds are not
necessarily risk-free investments. Profits
of enterprises continue to grow, and most
companies do not longer follow solely
cost-cutting strategies, but rather are
starting to invest. Therefore the continuing
growth of mergers and acquisitions is
expected.
January 2011
Overview
For the financial markets year 2011 has
opened with mixed results. The developed
stock markets ended the month with more
than 2% growth. At the same time,
emerging-market stocks dipped by almost
3% if measured in US dollars. As in
January the euro strengthened against the
dollar by 2.5%, the emerging markets
decreased by more than 5% in total.
However, certain heterogeneity could be
seen within the emerging markets too.
India, Brazil and Turkey are among the
countries that have demonstrated the
largest decline. On the other hand, after the
crisis Russia and the Eastern Europe once
again caught the attention of investors,
with their stock markets demonstrating
high performance.
In the last month the emerging stock
markets have been heavily exposed to
concerns about overheating Chinese
economy and monetary policy of the
Chinese government, designed to prevent
such risks. The second important driver is
a sharp rise in energy and food prices,
which puts pressure on the inflation
especially in the developing world. All this
is forcing the governments to actively
implement measures to constrain economic
growth. In January China, India and Brazil
raised their base interest rates, and
according to many estimates we can expect
more hikes like that later this year. A
political crisis in Egypt added to the
market‘s uncertainty. Stocks of the
developed markets have received support
from the improved expectations of
economic growth and a positive start of the
earnings season. Three quarters of
companies who published their results by
now have exceeded the analysts' forecasts.
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Companies in the developing countries
normally publish their results a month or
two later.
Due to higher inflation expectations the
bonds of the developed countries and
highly rated companies demonstrated
negative performance.German government
bonds were falling already for a few
months in a row having lost 3% in the last
three months. High yield corporate bonds
became an exception and unlike most
others showed some growth.
The investors' mood was lifted by the
continuing growth of investment in
commodities. Oil, industrial metals and
many agricultural crops have increased by
the end of the month. Gold as widely
preferred investment during last year has
decreased by 6% off its peak.
Outlook
The important and closely watched
economic indicators continued to
strengthen. The index measuring the
business climate in Germany, has reached
the highest level since the reunification.
According to most analysts Germany will
confidently continue with the gained
momentum this year due to the increasing
exports to the Asian region, as well as the
soaring growth in domestic consumption.
The Euro-zone as a whole also shows
some signs of improvement. Most
certainly, Germany will continue to serve
as the engine for recovery of economic
growth in the Euro-zone, but the so-called
"peripheral countries", such as Greece and
Spain, also demonstrate positive trends.
These are largely based on exports growth.
Also, there are signs of recovery in the
labour market that was such a painful issue
for the governments of Europe in 2010.
Surveys show that the businesses
demonstrate the highest willingness to hire
new workers for the last ten years. The US
manufacturing activity index also reached
its highest level since 2004. It is expected
that the number of new orders and the
production volumes will continue their
swift growth. Consumer behaviour that
supported the economic growth in the IV
quarter is gradually recovering, too.
Attempts of the Euro-zone countries to
avoid deepening of the debt crisis allowed
the "peripheral countries" to significantly
reduce the costs of servicing their debts,
which should also support the optimism of
investors.
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Indian Markets
Daily Report February 25’ 2011
Indian equity benchmarks closed the session
on a positive note on short covering in the
most beaten down stocks. Mrakets were
consolidation ahead of the the Union Budget
scheduled on Monday, February 28. The BSE
Sensex climbed 69 points, to close at 17,701
and the Nifty went up 41 points to end at 5,303
after making an intra-day low of 5,233. The
Nifty March futures closed at 24 points
premium. Buying was seen in financial,
healthcare and FMCG companies. The breadth
remained flat and the total volumes were at Rs.
1,24,056 cr. For the week Nifty wad down 155
points.
In the reality pack, HDIL was up 6.3%,
Unitech down 1.6% & IB Reality up 1.5% and
DLF ended flat.
In the financial space Axis Bank up 4.2%,
ICICI Bk up 4%, SBI up 2% & PNB up 3.3%
and HDFC up 2%.
In Metal space Hindalco down 2.2%, Sesa goa
up 0.7%, Sterlite down 2.3% & Tata Steel up
1.1%.
In Oil & Gas Space BPCL flat, HPCL up 1.5%
& Ongc down 1.1% and Reliance inds. Up
0.6%.
In Auto space M&M down 2.6%, Maruti down
0.90% & Telco up 4.8% and Hero Honda up
0.7%.
There was a mixed trend in railway stocks
during presentation of Railway Budget.
BEML, Titagarh Wagons and Kernex Micro
were down 3-13%.
Amongst the Sensex gainers Telco up 4.4%,
ICICI Bank up 3.5%, ITC up 3%, SBI up 2%
and Wipro up 1.7%.
Among the Sensex losers RCOM down 5%,
Reliance Infra down 4.5%, M&M down 2.6%,
Sterlite down 2%.
Daily Report February 24’ 2011
The markets witnessed huge sell off on
account of weakness seen across the globe and
ended in deep red. All the major sectoral
indices ended in red, Banking and Reality
counters being the worst hit. The Sensex
closed at 17,632 down by 545 points after
making an intra-day high of 18,233 and the
NSE Nifty down by 175 points to close at
5,263 after hitting a high of 5,437. The mid
cap and small cap indices both were down by
2.91% and 2.77% respectively. The market
breadth was negative and the total turnover
was Rs 2,99,230Cr. The Feb future ended at
5,263 down by 341 points.
In the reality pack, DLF down 3.38%, HDIL
down 6.40%, Unitech down 2.98% & IB
Reality down 3.74%.
In the financial space Axis Bank down 5.35%,
ICICI Bk. down 5.63%, SBI down 3.67% &
PNB down 1.92%.
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In Metal space Hindalco down 3.46%, Sesa
goa down 5.48%, Sterlite inds. down 3.46% &
Tata Steel down 2.88%.
In Oil & Gas Space BPCL down by 4.23%,
HPCL down 3.33% & IOC down 3.08%, Ongc
down 2.56% and Reliance inds. down 2.95%.
In Auto space M&M down 3.76%, Maruti
down 0.90% & Telco down 7.83%.
Amongst the Sensex losers Auropharma was
down by 16.93%, Patel Eng was down by
10.27% & Mtnl was down by 9.90%.
Among the Sensex gainers KTK Bank was up
by 2.30%, Opto Circuit was up by 2.25%, &
Hero Honda was up 2.20%Week Ending
February’19
Markets bounce back
The Indian stock market ended the three-week
losing spree, with the Sensex and Nifty
gaining 2.7% and 2.8% of their value,
respectively. However, the market gave up
some of its gains on the last day of the week.
Food inflation fell further to 11.1% from
13.1% in the previous week, thereby reducing
investor concerns. Overall WPI inflation for
January fell to 8.2% from 8.4% earlier. BSE
mid-cap and small-cap indices outperformed
the large-cap counterparts during the week,
gaining 2.9% and 4.1%, respectively. On the
sectoral front, the Bankex outperformed the
other indices, gaining 4.9% during the week,
followed by the BSE Metal index, which
increased by 4.0%. BSE Realty fell over yet
another week, losing 2.2% of its value.
Bankex outperforms the Sensex. The BSE
Bankex recovered smartly from the recent
lows on the back of value buying to report
gains of 4.9%, outperforming the Sensex
during the week. PSU banks showed good
momentum on the back of approval of capital
infusion into few PSU banks. The capital
infusion will enable these banks to grow
advances at a healthy pace going forward and
will be positive for them notwithstanding the
equity dilution. Liquidity also showed some
signs of easing with LAF borrowings for the
first fortnight of February averaging 74,000cr
compared to over 1,05,000cr during the second
fortnight of January. Among private banks, we
have a positive view on ICICI Bank and Axis
Bank; in the large PSU banking space, we
prefer SBI; and among mid-cap banks, we
prefer Dena Bank, J&K Bank and Indian
Bank.
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Week Ending February 12’ 2011
The Indian stock market continued to witness
a decline for the third straight week, with the
Sensex and the Nifty losing 1.6% of their
value each. However, the market ended the
week on a positive note, with strong gains on
the last day of trade.
Food inflation abated a bit during the week,
falling to 13.1% compared to 17.1% in the
earlier week. IIP numbers for December 2010
came in at a weak 1.6%, mainly because of a
high base effect. BSE mid-cap and small-cap
indices significantly underperformed
compared to large-cap indices during the
week, falling 3.8% and 6.3%, respectively. On
the sectoral front, the BSE Metal index was
the biggest loser, losing 5.6% of its value
during the week; followed by the BSE Realty
index, which was down by 4.5%. BSE Bankex
ended the week flat.
Metals stocks witness correction
The BSE Metal index fell by 5.6% during the
week on the back of a broad decline in overall
markets and lower-than-expected profitability
for 3QFY2011. Furthermore, sentiment for
steel stocks was dampened, as Arcelor Mittal
reported EPS of US $(0.51) compared to
consensus estimate of US $0.18 for
4QCY2010. Tata Steel fell by 6.3%, as the
market started expecting poor results from its
European operations.
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January 2011
Key Highlights
The Indian market was the worst performer
among the global indices. The direction of the
market for the month was decided by the
persistent rise in prices, hike in policy rates by
the Central Bank, deteriorating IIP numbers
and the mixed corporate results for the Oct-
Dec Quarter. The inflows by Foreign
Institutional Investors (FIIs) into Indian
equities were negative at approximately INR
4813.2 crore for January 2011 due to negative
macroeconomic events in India and prospects
of growth being seen in developed countries.
All sectoral indices have also ended in the red
for the last month.
The markets are expected to continue to
remain volatile in the current month on
account of both domestic and global factors.
The sectors that will be impacted on account
of continuous rate hikes will be Auto, Realty
and Banking. The Union Budget will be
keenly watched in the month of February. As
at 31 January 2011, the estimated PE ratio for
SENSEX is at 18.39 X and 15.34X for the
fiscal year 2010 (ending March 2011) and
2011 (ending March 2012).
Events
Production at factories, utilities and
mines increased 2.70% (y-o-y) in
November 2010, after increasing
10.80% (y-o-y) in October 2010
Increase in the WPI for the month of
December 2010 was 8.43% (y-o-y);
for the month of
November 2010, the increase was
7.48% (y-o-y)
The Reserve Bank of India (RBI) has
increased the Repo, Reverse Repo by
25 basis point to 6.50% and 5.50%
respectively
Global equities registered a divergent trend as
FIIs shifted their focus on developed markets
from developing markets on improving health
of the US economy. The MSCI AC World
Index climbed 1.5%, however the MSCI
Emerging Markets Index declined 2.81%. The
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Sensex plunged 10.64%, while the Nifty
settled with a loss of 10.25%. The BSE Mid
and Small caps underperformed their larger
counterparts. The BSE Mid-caps dropped
sharply by 11.97%, while, the BSE Small-caps
plunged 12.33%.
Sector Performance
All BSE sectoral indices registered a drop
during January. Major selling was seen in BSE
Realty, which plunged 21.97%, followed by
Auto (-13.1%), Capital Goods (-12.25%), Oil
& Gas (10.56%) and Bankex (-9.83%).
Institutional Activities
FIIs flows turned negative for equities with net
outflows of Rs 6,484.50 crores (USD 1.42 bn)
during January. Domestic MFs remained net
buyers worth Rs 590.80 crores (USD 129 mn)
during January.
Key Q3 Earnings’ Releases
Reliance Industries reported a rise of 28.14%
y-o-y in the net • profit to Rs 5,136 crores
(USD 1.12 bn) during Q3 FY2011. Total
income for the quarter climbed 5.52% y-o-y to
Rs 60,530 crores (USD 13.12 bn).
Tata Consultancy S• ervices announced a
rise of 30% y-o-y in the consolidated net
profit during Q3 FY2011 to Rs 2,370
crores (USD 516 mn). Total income for
the quarter climbed 26.3% y-o-y to Rs
9,663 crores (USD 2.10 bn).
ICICI Bank reported a 77.5% y-o-y jump in
the consolidated profit to Rs 2,039 crores
(USD 444 mn) for the quarter ended
December 31, 2010. Total income increased
by 8.73% y-o-y during the quarter to Rs
15,416 crores(USD 3.35 bn).
December 2010
Key Highlights
Sighting higher returns in Indian markets
due to improved economic conditions,
foreign investors continue to invest in
India.
After six consecutive months‘ of
offloading, Mutual funds turned net buyer
in the market to the tune of Rs. 1,377 crore
in December 2010
In line with other major markets, volumes
remained thin in Indian markets too. The
total average daily turnover on NSE
plunged 23.95% to Rs. 1,20,582 crore,
On the sectoral front, out of 13 indices on
BSE, 10 indices moved higher while 3
indices came under selling pressure.
Banking stocks fell on worries that higher
cost of funds will hit their net interest
margins while Realty stocks fell on
concerns that higher interest rates may
affect demand for residential and
commercial properties.
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Indian markets ended the month in
positive terrain on the back of higher
advance tax payments by corporate India,
liquidity easing measure taken by RBI,
upbeat IIP number and lower monthly
inflation figure.
Markets started the month on negative note
as indices plunged sharply led by Banking
and Realty stocks. Banks fell on worries
that higher cost of funds will hit their net
interest margins while Realty stocks fell
on concerns that higher interest rates may
affect demand for residential and
commercial properties.
During the Middle of the month, market
made smart recovery on the back of
positive economic data. India‘s, industrial
output in October rose a faster-than-
expected 10.8% from a year earlier, higher
than the previous month's annual growth
of 4.4%. Further, decline in monthly
inflation to 7.48% in November from
8.58% increase in October also boosted
sentiments. Market got further push after
RBI left key rates unchanged and
announced pumping in Rs 48,000 crore
into the system through reduction in SLR
and OMO purchases. Investors also
cheered 15-20% higher advance tax
payments by Corporate India for the third
quarter of the current financial year.
Towards the end of the month, market
extended gains as positive US economic
data bolstered sentiments. Investors
remained optimistic regarding the potential
economic growth of US in 2011.
Sentiments were also uplifted after report
showed encouraging holiday spending
figures. Energy stocks rose sharply as
crude prices surged following extremely
cold condition in western countries.
Sector Performance
On the sectoral front, out of 13 indices on
BSE, 10 indices moved higher while 3
indices came under selling pressure.
Metal stocks rose the most on bourses on
the back of higher commodity prices.
Hindalco, Hindustan Zinc, Tata Steel with
19.4%, 19.1% and 16.2% gains, topped the
list of gainers.
Better prospect of US economy lifted IT
stocks. All companies in BSE IT index
managed to edge higher. Wipro, Infosys,
and HCL cloaked 16.7%, 13.0% and
12.9% respective gains.
Realty stocks fell on concerns that higher
interest rates may affect demand for
residential and commercial properties.
Akruti City lost more than 30%, Sunteck
Realty slipped 11% and DB Realty lost
5.9%.
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November 2010
Key Highlights
November 2010 turned out to be sluggish for
stock markets. The first few sessions saw
strong optimism in the market which pushed
Sensex to a new high closing above 21,000
Increase of 25 bps in Repo and reverse repo
rate by RBI came in line with expectations that
tightening may slow down going forward. The
expectations of second round of quantitative
easing by the US Federal Reserve lifted the
sentiments. However, the gains were short-
lived as subsequent sessions witnessed selling
pressure on lower than expected industrial
production data and rate hike fears in China.
The selling pressure intensified in the third
week when the Sensex went down below
20,000 levels due to political logjam over 2G
scam coupled with nexus between corporate
and banks individuals on loans given to realty
sector. Moreover markets were also spooked
by weak global cues. Nevertheless, the
markets cheered good Q2 GDP numbers which
helped recovery from the lows of month.
Global equities fell on concerns of possible
spill over of Ireland‘s debt crisis to other
European nations such as Spain and Portugal,
fears of continuation of tightening in China on
account of rising inflation. Tensions between
South and North Korea added to nervousness
in the market. The MSCI AC World Index and
the MSCI Emerging Markets Index lost 2.40%
and 2.70% respectively. Sensex registered a
fall of 2.55%, while Nifty settled with a drop
of 2.58%. The BSE Mid and Small caps
underperformed their larger counterparts
declining 6.49% and 8.05% respectively.
Sector Performance
The BSE sectoral indices gave a mixed
performance during November. Major selling
was seen in Realty, which plunged 19.52%,
followed by Oil & Gas (-8.10%), Power (-
7.27%) and Metal (-6.33%). On other hand,
Healthcare gained the most with rise of 2.33%,
followed by Auto (+1.92), IT (+1.69%) and
Teck (+1.20%).
Institutional Activities
The FIIs flows remained positive for equities
with net inflows of Rs 10,006.50 crores (USD
2.26 bn) in secondary market and Rs 8,513.60
crores (USD 1.9 billion) in primary market,
Domestic MFs remained net sellers worth Rs
100 Crores (USD 21.8 Mn) during November.
Major Corporate Announcements
Events
Axis Bank announced an Rs 2,067 crores
(USD 450 mn) all-stock deal to acquire the
investment banking and equity businesses of
Enam Securities.
Government divestment programe received
shot in the arm following the stupendous
demand of 15x for USD 3.40 billion (Rs
15,200 crores) Coal India IPO (40% gains on
listing day), the Indian government continued
with its programme in November with Power
Grid raising USD 1.70 billion (Rs 7,600
Fin Fast Track-Finals 2011
Page 15
crores) in a FPO subscribed 18.5x, MOIL beat
those numbers by getting subscription of 56x.
Key Macro Economic
Developments
Indian economy expanded 8.9% during the
second quarter of fiscal 2010-11. Industrial
production registered a growth of 4.40%
for September. Core sectors growth stood
at 7% for October. Exports during October
climbed 21.30% to USD 17.96 billion (a
rise of 15.30% in Rupee terms to Rs
79,763 crores). The WPI inflation for
October moved down to 8.58% (y-o-y)
compared with 8.62% (y-o-y) previous
month. Oil prices gained 3.29% over the
month to USD 84.11 per barrel.
Meanwhile, rupee weakened 3.28% during
the month to Rs 45.88.
Indian Economy Economic Survey sees India back on 9%
growth path in FY12
NEW DELHI: The annual Economic
Survey could have been written by Aamir
Khan and titled ―Aal Izz Well.‖ It is gung-
ho about GDP growth rising to 9% next
year, and staying there in the medium
term. Services (which now have a 57.3%
share in the GDP) will be the main
locomotive of the economy. This, plus the
coming demographic dividend, will offset
many policy flaws and sustain fast growth.
The Survey cites a new Index of
Government Economic Power showing
that India is now the fifth greatest global
economic power after the US, China ,
Japan and Germany, and is well ahead of
Britain or France.
Analysts may worry about the fiscal
deficit, but the Survey declares that India
is galloping down the road to fiscal virtue.
The fiscal deficit in the first three quarters
of this year was just 44.8% of the level in
the previous year.
The Survey says the ratio of consolidated
government debt to GDP, which touched
79.3% of the GDP in 2004-05, will fall to
68.7% by 2013-14 and 65% by 2014-15.
The recent revision of GDP data shows
that we have underestimated true GDP for
many years, and hence have overestimated
the fiscal deficit. This, plus high inflation
this year (nominal GDP will rise 20.3%
against the expected 12.5%), means that
the budget estimate of a fiscal deficit of
5.5% of GDP now translates into just
4.8%.
This actually reveals a dirty economic
secret: inflation can, in the short-run, be
good for the government‘s books. Inflation
erodes the real value of debt, and the
government is the biggest debtor of all.
Fin Fast Track-Finals 2011
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However, inflation with a lag also
increases government spending. Neither
this nor the prospect of rising subsidies
(implied by the Food Security Act and
spike in oil prices) disturbs the Survey‘s
fiscal optimism. It does not hint at any
painful fiscal squeeze to come, either on
the tax or spending side.
What will the government do to bring
down prices? The Survey analyses the
contribution of supply, demand and
international trends to inflation, but spells
out no new initiatives. It describes the
spike in vegetable prices as temporary bad
behaviour which will soon be checked by a
reversion to more normal behaviour.
Going forward, it expects monetary
tightening and other steps to bring down
inflation. Rising oil prices pose a
challenge, and the Survey says India must
adjust to the reality of expensive energy.
Higher infrastructure spending is another
reason cited by the Survey for optimism
about future growth. However, tucked
away in small print is the dismal
information that losses of State Electricity
Boards are 1% of GDP (which means Rs
76,000 crore). Unaccounted leakages of
electricity (theft and transmission losses)
are a whopping 35% of the electricity
generated. No wonder power continues to
be a constraint on growth. Cost overruns in
public sector projects had come down to a
reasonable 12% in March 2008, but rose to
20.7% by October 2010, thanks partly to
higher steel and cement prices. Land
acquisition and environmental clearance
need to be streamlined to expedite
infrastructure, along with standardised
contracts and better designed projects.
Industrial production has dipped in recent
months, and capital goods production has
crashed. The Survey indicates that gross
capital formation will rise only 8.8% in
2010-11, against 13.8% in the preceding
year. Yet, it maintains that the future is
bright since the savings rate is well above
33% and so the investment rate can easily
be 36.5%. Assuming an incremental
capital output ratio of 4.1 (achieved in the
11th Plan) these factors alone should
ensure a GDP growth of 9% in the coming
years. The demographic dividend should
raise savings (which tend to be especially
high for people in their 30s and 40s). The
Survey adds that once an economy
operates close to capacity, growth depends
more on skill development and
innovation.
Survey Criticises Subsidies
It says patent applications are up from
17,466 to 36,812 and patents granted up
from 1,911 to 16,061 between 2004-05
and 2008-09. Actually, a better measure of
Fin Fast Track-Finals 2011
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innovation might be that global business
journals have now started citing ―jugaad‖
as a driver of Indian business success.
Jugaad is simply the ability to extract more
out of less in difficult conditions, and may
be more important for productivity than
just patents.
The Survey mounts a strong attack on
subsidies for an array of goods and
services, which result in huge leakages and
waste. It cites studies showing that 40-55%
of food supplied to the public distribution
system is diverted by ration shops. In
effect, the Survey criticises the proposal
for a Food Security Act operating through
the PDS. It calls for a new approach that
transfers cash to the needy — using the
new technology of smart cards — instead
of subsidising sundry goods and services.
It suggests that a start may be made by
providing a cash subsidy through smart
cards to kerosene beneficiaries, and then
freeing kerosene prices. The poor might
not use this cash for kerosene, but that will
still be better than letting the subsidy leak
to the shopkeepers and adulterators.
The Survey emphasises that it is important
to treat all economic players — including
the policeman, shopkeeper and citizen —
as rational self-seeking agents. If they can
make some money on the side with little
effort, many will do so. Many noble plans
fail because of the assumption that they
can be carried out by morally flawless
agents or perfectly programmed robots.
The problem with such programmes is not
just faulty implementation but faulty
conception.
FEBRUARY 26, 2011
Indian Central Bank Is Addressing High
Inflation
BHUBANESWAR, Orissa—India's high
food inflation is mainly due to supply-side
constraints and the central bank has been
taking steps to control a build-up in
inflationary expectations, its governor said
Saturday.
"Monetary policy becomes the first line of
defence, so if inflation persists for a long
time, people think inflation is going to be
high, and that becomes a self-fulfilling
prophecy," D. Subbarao said at an event in
Bhubaneswar, the capital of the eastern
Indian province of Orissa.
"To break that inflationary-expectations
psyche, [Reserve Bank of India] has to act,
which is why we have been acting over the
last year," he said.The central bank has
raised its policy rates seven times in the
past year.
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Authorities have been grappling with high
inflation as food prices increased owing to
rising demand and choked supplies after
unseasonal rains damaged some crops late
last year.
Mr. Subbarao declined to comment on the
likelihood of an interpolicy-meeting rate
move by the RBI.Earlier this month, he
said that the central bank can act at any
time to deal with the evolving
macroeconomic situation. This fuelled
expectations of a rate increase, possibly
before the next scheduled policy review
March 17 if inflation didn't cool fast.
"Notwithstanding scheduled quarterly and
mid-quarterly reviews, we reserve the right
to alter our policy stance at any time to
respond to the evolving macroeconomic
situation," Mr. Subbarao had said.
Food inflation climbed slightly after two
consecutive weeks of decline, accelerating
to 11.49% in the week to Feb. 12 from
11.05% in the previous week, government
data Thursday showed. The general
inflation rate was at 8.23% in January, and
the government expects it to ease to 7% by
the end of the current fiscal year in March.
High prices have led to protests from
opposition lawmakers and public outcry in
a country where more than 40% of the 1.2
billion population lives on less than $2 a
day.Rising prices of crude oil and other
commodities globally have stoked worries
of intensifying inflationary pressures,
which could further erode the spending
power of the country's poor.
High inflation also would lead to more
monetary action, with most economists
predicting the RBI could increase policy
rates by 0.5 to 1.0 percentage point in
2011.
FEBRUARY 3, 2011
Budget 2011: Rising prices & black
money under the spotlight this year
Most budgets are dominated by tax rates
and high finance. But Budget 2011 will be
dominated by inflation and corruption, the
current two political hot potatoes. Finance
Minister Pranab Mukherjee will have to
announce tax and administrative changes
to curb prices and black money.
At the same time, he will try to enthuse
investors by restricting fiscal deficit to
maybe 5% this year and 4.5% next year,
well below existing targets.
To compensate for inflation, income-tax
relief is certain, especially for lower
income brackets. The tax exemption limit
will be raised from the current Rs 1.6 lakh
to maybe Rs 1.8 lakh, and further to Rs 2
lakh next year (as already envisaged in the
Direct Tax Code).
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Additional tax breaks may be given to
citizens on fixed pensions. The scope of
tax-free savings instruments may also be
expanded.
Abolishing the surcharge on corporate tax
is possible if simultaneously the minimum
alternative tax (MAT) is raised from 18%
to 20%. This has been promised by the
DTC, and so may be implemented only in
2012-13.
Anti-inflation urgency means cuts in
import duty on crude or excise duties on
petroleum products are inevitable. Such
cuts will enable oil marketing companies
to absorb some of their higher costs and
not pass them on entirely to consumers.
Excise duties on some other essential
goods could also be cut.
Mukherjee wants to roll back the fiscal
stimulus of 2008 and 2009, when excise
and import duties were cut sharply. But
given inflation, he may stick to the
existing excise rates. The central tax on
goods and services has already been
equated at 10% for most items.
Some experts want the unified rate to
come down to 8%, in preparation of the
transition to a Goods and Services Tax.
But GST still looks some way off, and
Mukherjee needs revenue for expanded
welfare programmes and fiscal
consolidation. He may cut the central sales
tax from 2% to 1%, though he will have to
compensate states for lost revenue.
The public is sceptical of the government‘s
resolve to tackle corruption and black
money , but Mukherjee will have to
produce a list of schemes to curb both. He
has already talked of a five-point
programme, but got a tepid response. He
will need to do better on budget day. The
anti-corruption mood means proposals for
another tax amnesty scheme will be
mothballed.
He will greatly increase outlays for the
new Food Security Act. The food subsidy
looks like touching Rs 80,000 crore this
year against the budgeted Rs 55,000 crore.
Implementing the Food Security Act may
raise it further to around Rs 1 lakh crore.
Fiscal deficit at 5%
Indexation of wages in NREGA will also
require an increase of Rs 15,000 crore.
Additional funding will be needed for
education and Bharat Nirman.
Will spending more and cutting tax rates
increase the fiscal deficit? No, the boom in
tax collections, combined with windfalls
from the sale of spectrum may enable Mr
Mukherjee to announce that this year‘s
fiscal deficit is only 5% of GDP, against
the budgeted 5.5%.
Fin Fast Track-Finals 2011
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Tax collections are up 27% against the
budgeted 18%, and the fiscal deficit in
April-December was less than half the
deficit in the same period last year.
Spectrum auctions fetched Rs 106,000
crore, and disinvestment may just touch
the budgeted Rs 40,000 crore, though that
depends on an ONGC issue by the end of
the fiscal year.
Next year too, Mr Mukherjee can aim for a
continuing revenue boom and equally high
disinvestment inflow. So, in 2011-12, he
can aim for a fiscal deficit of just 4.5%,
below the medium-term target of 4.8%.
The true deficit may be higher because of
off-budget government arrears to oil
marketing companies, fertiliser companies
and the Food Corporation.
If oil goes well beyond $100/barrel, the
off-budget deficit will swell. Yet it may
not exceed 0.5-0.75% of GDP. In which
case, markets will be delighted.
FEBRUARY 26, 2011
Railway Budget 2011: Mamata rolls out
voter-friendly budget
Railway Minister Mamata Banerjee spread
some cheer among inflation-battered
consumers by holding fares steady for both
suburban and long-distance train travel in
her third annual Railway Budget unveiled
in the Lok Sabha on Friday.
The Budget for 2011-12 increased senior
citizen concession for men to 40% from
30%. Women will get the senior citizen
discount from 58 years, instead of 60
years.
Like in previous years, the railway
minister, promised to make train travel
more comfortable and seamless with
improved amenities on trains and stations,
greater connectivity across the country and
more trains on suburban as well as long-
distance routes. And so, as many as 56
new Express trains, three new Shatabdis ,
and nine new Duronto trains are to be
introduced in 2011-12.
Suburban services in Mumbai and Kolkata
will be augmented with additional services
and an integrated network and those in
Hyderabad, Ahmedabad, and Chennai
upgraded as integrated suburban services.
The Budget also plans to introduce AC
double-decker coach on Jaipur-Delhi and
Ahmedabad-Mumbai routes. Also,
services of 33 trains will be extended and
frequency of 17 trains
increased. Expectedly, West Bengal,
Kerala, and Tamil Nadu, the states that go
to polls this year, are the chief
beneficiaries of Banerjee largesse.
Proposals to introduce faster trains
connecting important cities came up once
again as Banerjee suggested a feasibility
Fin Fast Track-Finals 2011
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study with Japanese assistance to increase
speed of passenger trains to 160-200
kmph. Similar studies are to be initiated
for other corridors such as Mumbai-
Kolkata, Chennai-Bangalore, Delhi-Jaipur,
and Ahmedabad-Mumbai.
For passengers willing to pay a premium,
the minister proposed a new Super AC
Class with improved comfort and features
and more exclusivity. The proposal was
prompted by an upswing in occupancy and
earnings of the AC First Class, as well as
general buoyancy in passenger services.
The minister also promised to make
greater use of technology. A multi-purpose
pan-India smart card "Go India" that can
be used to pay for all forms of rail travel -
long distance, suburban, and metro, will be
introduced on pilot basis. The card can be
used at booking counters, vending
machines, and Internet. A new portal for e-
ticketing is to be launched soon by the
Centre for Railway Information System
that would enable people to make online
reservations for a nominal `10 for AC
classes and `5 for others. In addition,
Internet access will be provided on
Howrah-Rajdhani Express as a pilot
project.
The Budget also promised to improve
quality and cleanliness of linen on trains,
with mechanised laundries to be set up in
Nagpur, Chandigarh, and Bhopal, in
addition to the 19 that are in various stages
of commissioning and 23 under
consideration.
Railway stations across the country are
already undergoing a makeover. Over the
past two years, upgradation of 584 stations
as Adarsh stations were taken up to
provide safe drinking water, pay and use
toilets, and better accessibility for the
physically challenged. Of these,
upgradation of 442 stations is to be
completed by the end of the fiscal year.
Another 236 stations recommended by the
Members of Parliament are also to be
considered.
Other services to be introduced in the
course of the year include advance
booking for retiring rooms and better
access at stations for the physically
challenged. Services of Rail Yatri Sevaks
with modern trolleys are to be extended. It
will also explore possibility of setting up
more multi-functional complexes at
railway stations.
Real-time information on running trains
will be possible with the government
planning to extend train management
system to New Delhi, Bangalore,
Secunderabad, Ahmedabad, and Lucknow
stations.
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FEBRUARY 24, 2011
Managing growth vs. inflation biggest
challenge: RBI
Terming management of tension between
demands of growth and of inflation as a
major challenge after the global financial
crisis, the Reserve Bank of India (RBI)
today said though India recovered early, it
was hit by inflation before others.
"In the aftermath of the crisis, our biggest
challenge has been to manage the tension
between the demands of growth and of
inflation," RBI Governor D Subbarao said
at the 24th convocation of Sambalpur
University here.
Even though we have recovered from the
crisis ahead of most other countries,
inflation too has caught up with us sooner
than elsewhere," he said.
Economic growth requires maintaining a
low interest rate regime whereas inflation
management warrants raising interest
rates.
"In managing this tension, we are deeply
conscious that inflation is a regressive tax
that hurts the poor the most as their
earnings are not protected against rising
prices," the RBI governor said.
As part of managing growth-inflation
dynamics in the post-crisis period, the
apex bank has raised policy interest rates
seven times since March 2010, he said,
adding the apex bank was are also
sensitive to the need for supporting
growth, a necessary condition for poverty
reduction.
The challenge of making monetary policy
has become even more complex in the
context of globalisation, he said.
"How other countries, especially,
systemically important advanced
economies, manage their monetary
policies has implications for us and we
need to take that into account in
determining our own policy stance,"
Subbarao said.
On financial inclusion programme that
seeks to provide banking access to poor
and those living in the villages and remote
parts of the country, the RBI chief said
banks had been advised to draw up board
approved Financial Inclusion Plans for a
period of three years upto March 2013.
Subbarao said this should be integrated
with the business plan of the bank.
A uniform model has not been imposed so
that each bank can build its strategy in line
with its business model and comparative
advantage, he said.
In order to further financial literacy, the
RBI has established centres focused on
Fin Fast Track-Finals 2011
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financial education at its regional offices in
Chandigarh, Pune and Bangalore. "We
hope to replicate this in other cities too,"
he said.
The RBI has also encouraged commercial
banks to set up financial literacy and credit
counselling centres to help people develop
better financial planning skills and to learn
of the opportunities available in the
financial sector, Subbarao said.
"Most importantly, we are encouraging
both central and state governments to
include financial literacy in school and
college curriculum so that the next
generation enters the adult world
financially literate," he said.
Indian Sectors
Banking
The banking system remains, as always,
the most dominant segment of the financial
sector. Indian banks continue to build on
their strengths under the regulator's
watchful eye and hence, have emerged
stronger.
In the annual international ranking
conducted by UK-based Brand Finance
Plc, 18 Indian banks have been included in
the Brand Finance® Global Banking 500.
In fact, the State Bank of India (SBI)
which is the first Indian bank to be ranked
among the Top 50 banks in the world, has
improved its position from 36th to 34th, as
per the Brand Finance study released on
February 1, 2011. The brand value of SBI
has enhanced to US$ 1,119 million. ICICI
Bank, the only other Indian bank in the top
100 club has improved its position with a
brand value of US$ 2,501 million.
According to the study, Indian banks
contributed 1.7 per cent to the total global
brand value at US$ 14,741 million and
grew by 19 per cent in 2011.
According to RBI's 'Quarterly Statistics on
Deposits and Credit of Scheduled
Commercial Banks: June 2010',
nationalized banks, as a group, accounted
for 51.3 per cent of the aggregate deposits,
while State Bank of India (SBI) and its
associates accounted for 22.8 per cent. The
share of New private sector banks, Old
private sector banks, Foreign banks and
Regional Rural banks in aggregate
deposits was 13 per cent, 4.8 per cent, 5.1
per cent and 3.1 per cent respectively.
With respect to gross bank credit also,
nationalized banks hold the highest share
of 51.5 per cent in the total bank credit,
with SBI and its associates at 23.2 per cent
and New Private sector banks at 13 per
cent. Foreign banks, Old private sector
banks and Regional Rural banks held
relatively lower shares in the total bank
credit with 5.3 per cent, 4.6 per cent and
2.5 per cent respectively.
Fin Fast Track-Finals 2011
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The report also found that scheduled
commercial bank offices (with deposits of
INR 10 crore or more) accounted for 65.2
per cent of the bank offices, 96.6 per cent
in terms of aggregate deposits and 94 per
cent in total bank credit.
Significantly, on a year-on-year basis,
bank credit grew by 24.4 percent in 2010
as against RBI‘s projections of 20 percent
for the entire fiscal 2010-11. However,
deposits lagged behind at 16.5 percent
versus a projection of 18 percent.
India's foreign exchange reserves stood at
US$ 299.39 billion as on January 21,
2011, according to the data in the weekly
statistical supplement released by the
Reserve Bank of India.
Indians working overseas sent more
money back home than any of their global
counterparts, remitting US$ 50 billion in
2009 despite a worldwide economic
slowdown and anti-immigration measures
adopted by industrialized countries.
Major Developments
Indian Bank has received the Central Bank
of Sri Lanka's nod to open its branch at
Jaffna in Sri Lanka.
Indian Bank has signed an agreement with
Weizmann Forex Ltd, and will now offer
foreign remittances service over the
counter at all its branches.
The National Payment Corporation of
India is rolling out an instant interbank
mobile payment service (IMPS) that will
enable retail customers of seven banks to
enjoy 24X7 funds transfer. State Bank of
India, Bank of India, Union Bank of India,
ICICI Bank, HDFC Bank, Axis Bank and
YES Bank on November 22, 2010 became
the first set of banks to go live with the
IMPS.
Amongst the private banks, owing to
strong growth in interest income, the
country‘s third-largest private sector
lender, Axis Bank, reported a net profit of
US$ 166.3 million for the second quarter
of FY11, a 38.28 per cent increase from
US$ 120.3 million a year ago.
HDFC Bank, India‘s second largest private
lender reported a 32.7 percent rise in net
profits at US$ 204.3 million for the quarter
ended September 30, 2010.
Government Initiatives
The Cabinet, on December 1, 2010
approved to provide an additional amount
of US$ 1.33 billion, in addition to the US$
3.32 billion already provided in the Budget
2010-11, to ensure Tier I CRAR (Capital
to Risk Weighted Assets) of all Public
Sector Banks (PSBs) at 7 per cent and also
to raise Government of India holding in all
PSBs to 58 per cent. It also approved that
the exact amount, mode of capitalization
Fin Fast Track-Finals 2011
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and other terms and conditions would be
decided in consultation with the banks at
the time of infusion.
The proposed capital infusion would
enhance the lending capacity of the PSBs
to meet the credit requirement of the
economy in order to maintain and
accelerate the economic growth
momentum.
The RBI has allowed banks to make
changes in the repayment schedules or
drawdown without prior approval from the
central bank. However, such a change
could be made on the condition that the
average maturity of the loan should remain
the same. The move is expected to make
external commercial borrowing (ECB)
transactions easier. Transactions both
through automatic and approval routes can
take advantage of this change. Now,
without the prior approval of RBI, Indian
companies may borrow up to US$ 500
million in a year.
As part of further liberalisation of the
extant branch licensing policy in respect of
regional rural banks (RRBs), they have
been permitted to open branches in Tier 3
to Tier 6 centres (with population up to
49,999 as per Census 2001) without the
Reserve Bank's prior authorisation
provided-
The capital to risk-weighted assets
ratio (CRAR) is at least 9 per cent;
The net non-performing assets
(NPAs) are less than 5 per cent;
They have not defaulted in the
maintenance of cash reserve ratio
(CRR)/statutory liquidity ratio
(SLR) during the last year; and
They have earned a net profit in the
last financial year.
On the lending side, the Base Rate system
replaced the Benchmark Prime Lending
Rate (BPLR) system with effect from July
1, 2010. Base Rates of scheduled
commercial banks (SCBs) were fixed in
the range of 5.50-9.00 per cent.
Subsequently, several banks reviewed and
increased their Base Rates in the range of
10–50 basis points by October 2010. Base
Rates of major banks, accounting for over
94 per cent in total bank credit, are in the
range of 7.50-8.50 per cent. Banks have
also raised their BPLRs in the range of 25-
75 basis points for their old loans.
As at end-July 2010, around 70,000
branches of 98 banks had participated in
the national electronic funds transfer
(NEFT) system and the volume of
transactions processed increased to 9.5
million in July 2010.
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In the central bank's Third Quarter Review
of Monetary Policy 2010-11, RBI
Governor D Subbarao has said that the
repo rate and reverse repo rates would be
increased by 25 basis points under the
liquidity adjustment facility (LAF) with
immediate effect. Repo rate increased from
6.25 per cent to 6.5 per cent while reverse
repo rate has been raised from 5 per cent to
5.25 per cent.
The cash reserve ratio (CRR) of scheduled
banks has been retained at 6.0 per cent of
their net demand and time liabilities
(NDTL).
On the basis of an assessment of the
current liquidity situation, the RBI also
decided to extend additional liquidity
support upto April 8, 2011 to scheduled
commercial banks under the LAF to the
extent of up to 1 per cent of their net
demand and time liabilities (NDTL),
which was set to expire on January 28,
2011.
Manufacturing
India has emerged as one of the world's
top ten countries in industrial production
as per UNIDO's new report titled
'Yearbook of Industrial Statistics 2010'.
India surpassed Canada, Brazil and
Mexico in 2009 to reach the 9th position
from the 12th position it held in 2008.
The Index of Industrial Production (IIP)
quick estimates data for October 2010
shows a growth of 11.3 per cent in the
manufacturing sector as compared to
October 2009. The cumulative growth
during April-October 2009-10 over the
corresponding period of 2008-09 is 11 per
cent, according to data by the Ministry of
Statistics and Programme Implementation.
Growth Trends
India is ranked second in terms of
manufacturing competence, according to
report '2010 Global Manufacturing
Competitiveness Index', by Deloitte
Touche Tohmatsu and the US Council on
Competitiveness. The report states that the
country's talent pool of scientists,
researchers, and engineers, together with
its English-speaking workforce and
democratic regime make it an attractive
destination for manufacturers.
As per the Industrial Outlook Survey
conducted by the Reserve Bank of India
Fin Fast Track-Finals 2011
Page 27
(RBI) for October-December 2010 quarter
the Indian manufacturing sector showed
positive overall business sentiment in the
quarter. The business expectation index
(BEI), which acts as a barometer of the
overall health of the manufacturing sector,
has gone up to 126.5 for the assessment
quarter, its highest reading since the April-
June 2007 quarter.
The HSBC Markit Purchasing Managers'
Index (PMI), based on a survey of 500
companies, posted 58.4 in November
2010, increasing from 57.2 in October
2010. Incoming new business received by
manufacturers in India increased
substantially during the month. Further,
the latest expansion in new order volumes
was the strongest in four months.
Panellists also indicated a marked rise in
new export business during November
2010.
Around 50 segments in the manufacturing
sector grew by 39 per cent, entering the
'excellent growth' category, during April-
December 2010-11, according to a survey
by the Confederation of Indian Industry
(CII) and ASCON. Segments in the
excellent category included air
conditioners, natural gas, tractors, nitrogen
fertilisers, ball bearings, electrical and
cable wires, auto components, construction
equipment, electric fans and tyre industry.
Further, 22 segments made it to the 'high
growth' category, registering a growth of
17.3 per cent during the first nine months
of the current fiscal. Industries such as
utility vehicles, crude oil, power
transformers, energy meters, alcoholic
beverages and textile machinery have
registered around 10-20 per cent growth.
Exports from special economic zones
(SEZs) grew by over 68 per cent to US$
12.55 billion as compared to the
corresponding period of 2009-10. [June
30]
Buoyed by India's response to its super-
machines, iconic American superbike
maker Harley Davidson is setting up an
assembly unit at Bawal, Haryana. This will
be its second plant outside the US, after
Brazil
FieldFresh, the 50:50 joint venture of
Bharti Enterprises and Filipino firm Del
Monte Pacific Ltd formed in 2007-end, has
inaugurated its R&D and manufacturing
unit at Hosur, Tamil Nadu, set up with an
investment of US$ 26.14 million.
Doosan Heavy Industries and Construction
Co Ltd of South Korea had expressed
interest in setting up a power equipment
manufacturing facility in Haryana, to be
fully owned by the foreign company.
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Pipavav Shipyard has signed a
memorendum of understanding (MoU)
with SAAB Dynamics AB, part of
Sweden's Wallenberg Group, for
developing products in the defence and
aerospace sectors.
Rieter Nittoku Automotive Sound Proof
Products India Pvt Ltd, a joint venture
between Rieter group of Switzerland (51
per cent holding) and Nihon Tokushu
Toryo Co Ltd of Japan (49 per cent
holding), has invested US$ 15 million in a
new facility at Oragadam, near Chennai.
Global Manufacturing Hub
India is fast emerging as a global
manufacturing hub with a large number of
companies shifting their manufacturing
base to the country. Moreover, India has
the largest number of companies, outside
of Japan, that have been recognised for
excellence in quality. As many as 21
companies have received the Deming
Excellence awards; 153 companies have
achieved Total Productive Maintenance
(TPM) Excellence Award for their total
productivity management practices by the
Japan Institute of Plant Maintenance
(JIPM) committee.
Nissan Motor Ltd of Japan is looking at a
four-fold increase in sourcing of
production components from India for its
global operations. The company would
import US$ 10 million of components in
2010 from Indian vendors. It is set to
increase this to US$ 40 million by the end
of 2012.
Japanese automobile major, Yamaha, is
planning to make India a hub for
manufacturing its premium and deluxe
bikes for overseas markets. The company's
Indian unit supplied 66,904 bikes in fiscal
2010 to Yamaha's global operation
compared with 38,639 units in 2008-2009,
an increase of 73 per cent.
VE Commercial Vehicles (VECV) is
investing US$ 61.9 million in its
Pithampur plant for the production and
final assembly of Volvo's new global
medium-duty engine platform. The
expanded facility will act as a global
manufacturing hub for Volvo group's
requirements.
Nokia's manufacturing facility at
Sriperumbudur near Chennai crossed
production volumes of 350 million
handsets in April 2010. Nokia is now
exporting to North America, Europe,
Middle East, Asia, Australia and New
Zealand, according to company statement.
According to a report by RNCOS, "Global
Vaccine Market Forecast to 2012"
published in February 2010, the vaccine
market in India is forecasted to grow at a
CAGR of around 23 per cent from 2009-
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10 to 2011-12. India has emerged as a new
hub for vaccine manufacturers from across
the world.
Government Initiatives
The government has issued the new
Consolidated Foreign Direct Investment
(FDI) policy document, which has come
into effect from April 1, 2010.
Moreover, as per Mr Anand Sharma,
Union Minister of Commerce and
Industry, the government is planning to
launch National Manufacturing Policy by
January 2011. He said a Cabinet note will
be sent soon on manufacturing policy and
the setting up of National Manufacturing
and Investment Zones (NMIZs).
Main objectives of NMIZs are:
To promote investments in the
manufacturing sector and make the
country a hub for both domestic
and international markets
To increase the sectoral share of
manufacturing in GDP to 25 per
cent by 2022
To double the current employment
level in the sector; and
To enhance global competitiveness
of the sector
Infrastructure
The country‘s core sector, comprising six
key infrastructure industries, accelerated
by 7 per cent in October 2010 from a year
ago, according to the data released by the
Union Ministry of Commerce and
Industry. The growth was primarily led by
a 16.8 per cent increase in cement output
and a 6.2 per cent rise in production of
finished steel. Electricity generation
growth improved to 8.4 per cent in
October, the highest growth rate in 14
months.
The Planning Commission has projected
that investment in infrastructure would
almost double at US$ 1025 billion in the
12th Plan, compared to US$ 514 billion in
the 11th Plan. Of the US$ 1,025 billion, 50
per cent is expected to come from private
sector, whose investment has been 36 per
cent in the 11th Plan.
Infrastructure investment in India is set to
grow dramatically. As per Union Minister
for Finance, Mr Pranab Mukherjee, India
would require to develop a rupee-
denominated long-term bond market for
funding the infrastructure sector that
requires an investment of around US$ 459
to US$ 500 billion by 2012.
The State Level Single Window Clearance
Authority (SLSWCA) on October 1, 2010
cleared 16 investment proposals worth
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US$ 1.46 billion while 15 other proposals,
each entailing an investment of over US$
225.35 million were referred to the High
Level Clearance Authority (HLCA). The
investment proposals approved by
SLSWCA include five in the steel sector,
four in the cement sector, two in ancillary
industries and one each in food processing,
power, paper manufacturing and
engineering.
Meanwhile, a committee on infrastructure
under Prime Minister Dr Manmohan Singh
will conduct quarterly review of
development of power, road, ports, civil
aviation and railways sectors, announced
the Planning Commission of India
recently. Further, the cabinet committee on
infrastructure (CCI) will handle specific
infrastructure cases that may require
necessary policy correction or solving
issues affecting projects.
Notably, truck sales, a key indicator of
goods movement, registered a growth of
43.6 per cent at 29,420 units during
September 2010, as per the data released
by the Indian Foundation for Transport
Research and Training (IFTRT).
In order to develop eco-friendly
infrastructure for new cities in the Delhi-
Mumbai Industrial Corridor (DMIC),
Japan-based consultants such as Nikken
Sekkei, Mitsubishi and IBM Japan would
work along with DMIDC and three state
governments. The project, expected to be
completed by 2018, as per Mr Anand
Sharma, Union Minister for Commerce
and Industry is ―by far the world‘s biggest
infrastructure project.‖
Ports
The major ports in India handled 271.29
million tonnes (MT) traffic during April-
September 2010-11, as compared to
267.98 MT handled during the same
period last year, registering a growth of
1.23 per cent, according to Indian Ports
Association data.
The annual combined capacity of the
major and non-major ports in the country
will be 1.5 billion tonnes by 2012, stated
by Minister of Shipping, Mr G K Vasan,
while speaking at the Logistics
Outsourcing Summit organised by the
Confederation of Indian Industry (CII).
The Union Cabinet has given the approval
to the Shipping Ministry for declaring
Andaman and Nicobar ports as major port,
stated Union Minister of Shipping, Mr G
K Vasan.
The Cabinet Committee on Infrastructure
(CCI) has approved a proposal to develop
the fourth container terminal at the
Jawaharlal Nehru Port (JNPT), the
country's busiest port, at an estimated cost
Fin Fast Track-Finals 2011
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of US$ 1.44 billion. The government also
cleared a proposal to build standalone
container handling facility at Mumbai port
at a cost of US$ 129.6 million. The project
would be implemented within two years
from the date of the award of the project.
According to the Department of Industrial
Policy and Promotion (DIPP), the foreign
direct investment (FDI) inflow into ports
has been US$ 1.63 billion from April 2000
to September 2010.
Airports
The domestic airlines registered an 18.3
per cent growth, carrying 41.93 million
passengers during January-October 2010
as against 35.45 million passengers during
the same period last year, led by budget
carriers Spicejet, Go Air and IndiGo, as
per the data released by the Ministry of
Civil Aviation.
Mr Praful Patel, Minister of State for Civil
Aviation, stated that the country will
become the top-five civil aviation markets
in the world in the next five years. India is
the ninth largest civil aviation market in
the world at present.
The Airports Authority of India (AAI), the
agency responsible for civil aviation
infrastructure, is likely to spend over US$
1.01 billion on the modernisation of non-
metro airports in the current year.
Aircraft manufacturing companies, Boeing
and Airbus, remain upbeat over India's
aviation growth potential. Aircraft
manufacturer Airbus Industrie has forecast
that India will require an additional 1,000
aircraft in the next 20 years.
HCC Infrastructure, wholly-owned
subsidiary of Hindustan Construction Co
Ltd (HCC), is entering the business of
building and operating airports.
According to DIPP, the FDI inflow into air
transport (including air freight) has been
US$ 330.72 million from April 2000 to
September 2010.
Railroads
Indian Railways earned US$ 11.70 billion
during April-October 2010 registering an
increase of more than 7 per cent over the
same period last year. The total goods
earnings have gone up from US$ 7.3
billion during the same period last year to
US$ 7.78 billion this year, showing an
increase of 6.70 per cent.
According to DIPP, the FDI inflow into
railways related components has been US$
109.93 million from April 2000 to
September 2010.
Roads
An in-principal approval for converting
10,000 km of state roads to national
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highways has been given by the
Empowered Group of Ministers (EGoM).
It is estimated that around US$ 3.3 billion
would be required over the next five years
to undertake this project.
According to the Press Information
Bureau, the Cabinet Committee on
Infrastructure (CCI) on October 5, 2010
has approved the implementation of the
sub-project for the development of four
laning of the 84 Km. long Panvel-Indapur
Section of NH-17 in Maharashtra under
NHDP Phase III in BOT (Toll) mode of
delivery on Design, Build, Finance,
Operate & Transfer (DBFOT) basis. The
total project cost is estimated at US$ 212.4
million.
Anil Dhirubhai Ambani Group (ADAG)‘s
flagship company Reliance Infrastructure
Ltd (R-Infra) a road project worth US$
205.7 million from the National Highways
Authority of India (NHAI).
Investments
The infrastructure sector seems to have
emerged as a favourite for the private
equity (PE) in 2010. According to Venture
Intelligence data, till June 2, 2010, there
have been 19 deals in this sector at an
approximate investment of US$ 1.1
billion, as compared to 14 deals with an
investment of US$ 257.5 million during
the same period last year.
Asian Development Bank (ADB) plans to
enter the Indian debt market in early 2011
to raise funds through rupee bonds to
finance private sector infrastructure
projects.
Sadbhav Infrastructure Project Ltd (SIPL),
a private developer of highways and roads,
is raising US$ 85.7 million from
institutional investors Norwest Venture
Partners (NVP) and The Xander Group
Inc.
The Ennore Port Ltd (EPL) has signed a
concession agreement with Bay of Bengal
Gateway Terminals Pvt Ltd for the
construction and development of the US$
301.48 million container terminal at
Ennore on a build, own and transfer basis.
Geosyndicate Power Private Ltd, a
Mumbai-based energy company, will set
up the country's first geothermal power
plant of 25 MW in the Khammam district
of Andhra Pradesh at an investment of
US$ 64.83 million.
IVRCL Infrastructures & Projects Ltd
(IVRCL) has bagged a toll road projects
on the Goa-Maharashtra border from the
NHAI. The project entails a total
investment of US$ 659.1 million.
Government Initiatives
The infrastructure finance companies
(IFC) are being included in the category of
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non-banking finance company (NBFC) by
the Reserve Bank of India (RBI). The IFCs
would require a capital adequacy ratio of
15 per cent and the similar criteria of
NBFCs would be applied to IFCs as well.
Further, RBI stated that at least 75 per cent
of the assets of these institutions should be
used in infrastructure and their net owned
funds should be US$ 64.6 million or more.
Finance Minister had announced the
allocation of US$ 37.7 billion, around 46
per cent of the total plan outlay of US$ 81
billion for 2010-11 to infrastructure
sectors. In the last fiscal, this proportion
was about 30 per cent.
The Government of India has envisaged
capacity addition of 100,000 MW by 2012
to meet its mission of power to all.
Recently, a ministerial group discussing
large power plants with a capacity to
generate 4,000 MW of power has
approved, in principle, a proviso requiring
such plants that will be awarded in the
future to use local power generation
equipment. The move is expected to
provide a fillip to domestic manufacturing.
The decision on so-called ultra mega
power plants, or UMPPs, will also benefit
domestic power generation equipment
manufacturers such as state-owned Bharat
Heavy Electricals Ltd (Bhel) and Larsen
and Toubro Ltd (L&T), which has a joint
venture with Mitsubishi Heavy Industries
Ltd (MHI) of Japan. At least three joint
ventures, between Toshiba Corp. of Japan
and JSW Group; Ansaldo Caldaie SpA of
Italy and GB Engineering Enterprises Pvt.
Ltd; and Alstom SA of France and Bharat
Forge Ltd are looking to start
manufacturing power equipment in India.
Further, the government is also
implementing the National Solar Mission,
aimed at setting up 20,000 MW of solar
power capacity by 2020.
The Asian Development Bank (ADB) has
approved a financial assistance for US$
200 million under the Assam Power Sector
Enhancement Investment Programme. The
project has some innovative features like
franchisee-based distribution, off-grid
electrification with renewable energy,
reduction in CHG emissions through
efficiency gains.
Services
The services sector has been at the
forefront of the rapid growth of the Indian
economy.
As per the Central Statistical Organisation
(CSO), Ministry of Statistics and
Programme Implementation:
Trade, hotels, transport and
communication are collectively
estimated to grow by 11 per cent in
2010-11 owing to major progress
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pertaining to passengers handled in
civil aviation (14.9 per cent), air
cargo (21.3 per cent) and stock of
telephone connections (40.9 per
cent) during April-November
2010-11.
Similarly, financing, insurance, real
estate and business services is
expected to show a growth rate of
10.6 per cent during 2010-11, on
account of 14.0 per cent growth in
aggregate deposits and 22.6 per
cent growth in bank credit during
April- November 2010 (against the
respective growth rates of 18.6 per
cent and 10.1 per cent in the
corresponding period of previous
year)
Community, social & personal
services is estimated to grow by 5.7
per cent in 2010-11.
Indicators
Lead indicators suggest that the pace of
expansion in the services sector activity is
likely to be sustained.
Foreign tourist arrivals (FTAs)
during Month of January 2011
were 5.38 lakh as compared to
FTAs of 4.91 lakh during the
month of January 2010 and 4.22
lakh in January 2009, as per the
Ministry of Tourism data.
According to the Telecom
Regulatory Authority of India
(TRAI), the number of telephone
subscribers in the country reached
787.28 million in December 2010
from 764.76 Million in November-
2010, thereby registering a growth
rate of 2.95 per cent. With this the
overall tele-density (telephones per
100 people), touched 66.16.
According to the Indian Ports
Association data major ports in
India handled 468.27 million
tonnes (MT) traffic during April
2010- January 2011, as compared
to 463.25 MT handled during the
same period last year, registering a
growth of 1.1 per cent.
The total approximate earnings of
Indian Railways on originating
basis during April 2010 – January
2011 were US$ 16.68 billion (INR
76187.27 crore) compared to US$
15.48 billion (INR 70696.03 crore)
during the same period last
financial year, registering an
increase of 7.77 per cent.
The total goods earnings have gone
up by 6.57 per cent and total
Fin Fast Track-Finals 2011
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passenger revenue earnings
expanded by 10.05 per cent during
April 2010-January 2011.
Sales of commercial vehicles have
registered a growth rate of 34.1 per
cent whereas cargo handled by
civil aviation has grown by 21.3
per cent and passengers handled by
civil aviation has grown by 14.9
per cent during April-November
2010.
Exports
According to World Trade Organisation's
(WTO) "International Trade Statistics
2010" released recently, India ranks
twelfth in commercial service exports.
The HSBC Markit Business Activity
Index, based on a survey of around 400
firms, rose to 58.1 in January 2011 from
57.7 in December.
The Indian IT-BPO sector is estimated to
have grown by 19 per cent in 2010-11 to
US$ 76 billion in revenues, according to
software industry body National
Association of Software and Service
Companies (NASSCOM). Exports
continued to be the mainstay of the
industry with revenues of US$ 59 billion,
growing at 18.7 per cent.
Investments
According to data released by the
Department of Industrial Policy and
Promotion, the services sector (financial
and non-financial) attracted foreign direct
investments (FDI) worth US$ 2,596
million between April and November 2010
while the cumulative FDI between April
2000 and November 2010 has been US$
26,197 million, accounting for 21 per cent
of the total FDI inflow.
Some of the investments in the service
sector include:
Denmark-based ISS, a facility
services provider, has acquired a 49
per cent stake in Chennai-based
security firm SDB CISCO.
Travel, transport and logistics
major IBS Software has entered
into a five-year deal with TUI
Group Airlines to provide support
services.
Kolkata-based Keventer Group will form a
joint venture with French analytical
service major Groupe Carso for setting up
a state-of-the-art food tasting laboratory in
the state.
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Automobiles
Post liberalisation in 1991, Indian
automobile sector has been aptly described
as the sunrise sector. Owing to its vertical
and horizontal integration with other key
segments of the economy, the industry is
said to be a major growth driver. A steady
growth in the sector has attracted heavy
investments from various foreign majors
through direct investments or private
equity.
India continues to consolidate its position
on the global front being one of the
world‘s top 10 auto-producing countries.
India, the seventh largest vehicle
producing nation in the world, now
accounts for 5 per cent of global auto
production, up from 1.4 per cent at the
beginning of 2000, according to industry
lobby Society of Indian Automobile
Manufacturers (SIAM).
According to a study by global
consultancy firm Ernst & Young, the
Indian market will clock the fastest
compound annual growth rate between
2009 and 2020, more than double that of
China and the triad of North America,
Europe and Japan. India's CAGR between
2009 and 2020 is expected to be 14 per
cent compared with China's 6 per cent,
other emerging markets' 6 per cent (which
includes BRIC nations) and the triad‘s 4
per cent.
Investments:
India has emerged as one of the favourite
investment destinations for automotive
manufacturers in recent times.
Maruti Suzuki India Ltd (MSIL)
has announced an investment of
US$ 411.45 million for setting up
its third plant at Manesar in order
to capitalise on the rapid growth of
the Indian auto industry. This new
production line–Maruti's sixth
overall would have 250,000 units
annual capacity.
The auto-maker has also launched
its luxury sedan Kizashi in India.
The cars would be imposrted from
parent company‘s Japan facility.
Volvo-Eicher Commercial
Vehicles (VECV) has announced
an investment of US$ 61.51
million for a new engine plant at its
existing facility at Pithampur,
Madhya Pradesh. With this, India
will now become a global
manufacturing hub for Volvo's new
medium-duty engine platform, with
the only other factory for the
engine type being present in Japan.
Tata Motors is in talks with a
Fin Fast Track-Finals 2011
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Canada-based company for its
second generation gearless Nano.
Toyoto plans to invest US$ 107
million to make engines and
gearboxes for Toyota's new small
car, Etios that is expected to be
launched by year-end.
India Yamaha Motor Limited is
also planning to tap the rural
market, which currently accounts
for around 15 per cent of its overall
sale. The company has launched a
new bike YBR 110 that will target
the rural markets.
Mercedes Benz has met its single
largest order—of 150 cars worth
US$ 14.7 million—from the small
industrial town of Aurangabad,
Maharashtra.
The Renault-Nissan alliance and
Bajaj Auto have signed a
memorandum of understanding for
developing a low-cost car.
According to the MoU, the design,
engineering, manufacturing and
supply base expertise to create the
product will be executed by Bajaj
with the support of the Renault-
Nissan alliance.
Indo-Russian commercial vehicle
joint venture (JV) Kamaz Vectra
Motors plans to more than double
its annual capacity to 12,000 units
at its Hosur plant by 2012 to
capture the fast-growing market in
India.
Ashok Leyland and Japanese car
maker Nissan Motor Co Ltd have
announced the launch of three light
commercial vehicles (LCVs) from
2011 through 2013. The auto
makers also confirmed to be in
talks to create a small car for the
Indian market within the US$
2,000 - US$ 6,000 price range.
British luxury brand Jaguar Land
Rover (JLR) plans to increase
presence in India and will tap
parent Tata Motors for assistance
in areas like logistics and service
support.
BMW, the luxury car maker, is
planning to infuse US$ 15.76
million in its Indian operations.
Andreas Schaaf, President, BMW
India, said that the company had
invested US$ 24.77 million till
September 2010 and this would be
increased to US$ 40.53 million by
the end of 2012.
Luxury carmaker Mercedes-Benz
India will set up a new facility for
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building of city bus bodies at its
Chakan plant in Pune. The new
unit will become operational by
mid-2011 and will have a capacity
of 700 units a year.
Mercedes Benz has also re-
introduced its super premium sedan
Maybach in India in 2011.
Mahindra & Mahindra has revealed
its plans to launch 8-10 new
products, including a premium
sports utility vehicle, across
various segments by March 2012.
Domestic Market/ Sales:
India‘s auto market grew at 32.69
per cent in 2010, marginally better
than China‘s 32.44 per cent,
according to SIAM.
According to the data released by
SIAM, in December 2010, total
sale of vehicles across categories
registered a growth of 30.51 per
cent to 13,05,872 units, as against
10,00,562 units in the same month
of 2009. The industry has been
growing at around 30 per cent in
the ongoing fiscal.
According to data released by
SIAM, the passenger vehicles
segment during April-December
2010 grew at 31.83 per cent over
same period last year. Passenger
cars grew by 32 per cent, utility
vehicles grew by 20.82 per cent
and multi-purpose vehicles grew
by 50.58 per cent during this
period.
The overall commercial vehicles
segment registered a growth of
34.08 per cent during April-
December 2010, as compared to
the same period last year. While
medium and heavy commercial
vehicles registered growth of 42.85
per cent, light commercial vehicles
grew at 27.12 per cent.
Two wheelers registered a growth
of 28.21 per cent during April-
September 2010. Mopeds, scooters
and motorcycles grew by 24.47 per
cent, 48.90 per cent and 24.62 per
cent, respectively.
Road Ahead:
Global auto companies are investing to tap
the growing demand in India as investment
spending and the government's social
programmes raise incomes in smaller cities
and rural areas too. "The Indian
automobile industry is geared up to invest
up to US$ 17.12 billion in fresh capacity in
the next four years," Vishnu Mathur,
Fin Fast Track-Finals 2011
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Director-General, SIAM said. He further
stated, "The components industry will also
invest US$ 12 billion up to the end of the
Automotive Mission Plan."
Car and motorcycle sales in India are
setting records with rising incomes, cheap
lending by banks and launch of new
models such as Volkswagen's Polo and
Fiat's Linea. Car manufacturing capacity is
set to rise to 5.7 million units by 2015,
according to consultants Ernst & Young.
Further, India aims to become the small
car hub of the world by dethroning Japan,
the biggest maker of compact cars, a
majority of which is consumed
domestically. Last year, it had pipped
Brazil to become the second-largest
producer of such cars.
Passenger vehicle production is expected
to grow to 9 million a year in 2020, while
two-wheeler production will touch 30
million, said B.S. Meena, secretary,
department of heavy industries.
According to the annual forecast of the
SIAM, passenger vehicle sales in the
country will be 21,96,791 units in 2010-11
as compared to 19,49,248 units in 2009-
10.
While two-wheeler sales are expected to
be up 9-10 per cent at 10,287,837 units
from 9,368,230 units in 2009-10,
commercial vehicle sales in India will
grow 17-18 per cent at 6,21,681 units vis-
à-vis 5,31,395 units last financial year.
Sales of three-wheelers are expected to go
up 7-8 per cent at 4,73,693 units in the
current financial year as against 4,40,368
units in 2009-10.
However, with demand outgrowing the
supply in the market, the overall market
growth for 2010-11 is most likely to
exceed SIAM's initial prediction of 10-14
per cent.
HealthCare
Sector structure/Market size
The Indian healthcare sector is expected to
become a US$ 280 billion industry by
2020 with spending on health estimated to
grow 14 per cent annually, according to a
report by an industry body. "Healthcare
has emerged as one of the most
progressive and largest service sectors in
India with an expected GDP spend of 8 per
cent by 2012 from 5.5 per cent in 2009. It
is believed to be the next big thing after IT
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and predicted to become a US$ 280 billion
industry by 2020," the report said.
At present the sector is estimated to be
around US$ 40 billion and will grow to
US$ 78.6 billion by 2012.
As per a study by an industry body and
Ernst & Young, India would require
another 1.75 million beds by the end of
2025. The public sector however is likely
to contribute only around 15-20 per cent of
the required US$ 86 billion investment.
The corporate India is therefore,
leveraging on this business potential and
various health care brands have started
aggressive expansion in the country. Some
of the companies that plan to increase their
footprints include Anil Ambani‘s Reliance
Health, the Hindujas, Sahara Group,
Emami, Apollo Tyres and the Panacea
Group.
Sahara Group is planning several
healthcare projects such as a 200-bed
multi-specialty tertiary care hospital at
Gorakhpur in Uttar Pradesh, a 1,500-bed
multi super-specialty, tertiary care hospital
at Aamby Valley City and 30-bed multi-
speciality secondary care hospitals across
all the 217 Sahara City Homes Townships.
Meanwhile, Artemis Health Sciences
(AHS), a health care venture of the Apollo
Tyres Group, is also planning to establish
four to eight multi-specialty hospitals in
Punjab, Uttar Pradesh, Madhya Pradesh,
Rajasthan and Haryana over the next three
years.
The rural healthcare sector is also on an
upsurge. The Rural Health Survey Report
2009, released by the Ministry of Health,
stated that during the last five years rural
health sector has been added with around
15,000 health sub-centres and 28,000
nurses and midwives. The report further
stated that the number of primary health
centres have increased by 84 per cent,
taking the number to 20,107.
The size of the Indian medical technology
industry may touch US$ 14 billion by
2020 from US$ 2.7 billion in 2008 on
account of strong economic growth, higher
public spending and private investments in
healthcare, increased penetration of health
insurance and emergence of new models of
healthcare delivery, according to a report
‗Medical Technology in India: Enhancing
Access to Healthcare through Innovation‘
released by PwC and an industry body.
Health Insurance
The Indian health insurance market has
emerged as a new and lucrative growth
avenue for both the existing players as
well as the new entrants. According to a
latest research report "Booming Health
Insurance in India" by research firm
RNCOS released in April, 2010, the health
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insurance market represents one the fastest
growing and second largest non-life
insurance segment in the country. The
Indian health insurance market has posted
record growth in the last two fiscals (2008-
09 and 2009-10). Moreover, as per the
report, the health insurance premium is
expected to grow at a CAGR of over 25
per cent for the period spanning from
2009-10 to 2013-14.
Investments in Healthcare
As per data released by the Department of
Industrial Policy and Promotion (DIPP),
the drugs and pharmaceuticals sector has
attracted foreign direct investment (FDI)
worth US$ 1.82 billion between April
2000 and September 2010, while hospitals
and diagnostic centres have received FDI
worth US$ 955.10 million in the same
period.
Care Institute of Medical Sciences
(CIMS), a hospital venture brought
forth by a group of doctors in
Ahmedabad, has come up with
India‘s first ‗green hospital‘.
Drug maker Lupin plans to invest
an average US$ 100 million each in
the coming years for capital
expansion and acquisition of
foreign companies, according to
Ramesh Swaminathan, President –
Finance and Planning, Lupin.
The Apollo Hospitals Educational
and Research Foundation
(AHERF) has firmed up its stem
cell research collaboration with
US-based StemCyte, investing US$
15 million in the 50-50 venture.
Apollo Hospitals also plans to
invest US$ 650.04 million by 2014
to add 4,000 beds.
New Delhi-based hospitals chain
Fortis Healthcare plans to invest
US$ 146.81 million over next 12-
18 months to add 2,100 new beds,
said Bhavdeep Singh, Chief
Executive Officer, Fortis on
November 3, 2010.
Nova Medical Centres, a
specialised day care surgery centre
chain, plans to invest nearly US$
225.5 million for setting up 100
centers across the country by 2014,
said Suresh Soni, Chairman, Nova
Medical Centres.
Manipal Hospitals plans to invest
US$ 45.23 million in the next three
years to double its capacity to
8,000 beds, said Rajen Padukone,
Chief Executive Officer, Manipal
Hospitals.
Wockhardt Hospitals plans to
invest up to US$ 158.32 million to
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double its bed capacity to 2,000 by
2013, said Anil V Kamath,
Managing Director, Wockhardt
Hospitals Ltd.
Medical Tourism
According to a new report published by
RNCOS, titled "Booming Medical
Tourism in India" India‘s share in the
global medical tourism industry will reach
around 3 per cent by the end of 2013. The
report states that medical tourism is
expected to generate revenue around US$
3 billion by 2013, growing at a CAGR of
around 26 per cent during 2011–2013. The
number of medical tourists is anticipated to
grow at a CAGR of over 19 per cent
during the forecast period to reach 1.3
million by 2013.
The Indian medical tourism industry is
presently at a nascent stage, but has an
enormous potential for future growth and
development on the back of low cost range
of treatments provided by the country. The
growth in India‘s medical tourism market
will be a boon for several associated
industries, including hospital industry,
medical equipments industry and
pharmaceutical industry.
Domestic medical tourism in the country
has also seen growth in the recent years.
As per the report ‗Domestic Tourism in
India, 2008-09‘ released by the National
Sample Survey Office (NSSO), trips for
‗health and medical‘ purposes formed 7
per cent of overnight trips in the rural
population and about 3.5 per cent in the
urban population. ‗Health and medical‘
purposes accounted for 17 per cent of
same-day trips in rural India and 8 per cent
in urban India. Expenditure on medical
trips accounted for 30 per cent of all
overnight trip expenditure for rural India
and 15 per cent for urban.
Mobile Healthcare
Computer-based bio-surveillance projects
generating data about diseases and creating
databases on healthcare in rural areas are
becoming popular in India with various
organisations entering into this arena.
The Indian Institute of Chemical
Technology (IICT) in Hyderabad
has developed a model to forecast
possible epidemics of diseases such
as malaria and encephalitis in rural
Andhra Pradesh.
A recent initiative by a global
consortia consisting of the Indian
Institute of Technology, Madras,
the National Centre for Biological
Sciences, Carnegie Mellon
University's Auton Lab,
LIRNEasia, University of Alberta,
Respere Lanka, Lanka Jathika
Sarvodhaya Society and the
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International Development
Research Centre (IDRC), called the
Real Time Biosurveillance
Program (RTBP), has attempted to
use the power of the mobile phone
in developing a healthcare model.
Narayana Hrudayalaya and the
Mazumdar Shaw Cancer Centre
tied up with SANA, a research
group at Harvard/MIT, to use smart
phone-based detection of oral
cancer and other diseases.
Government Initiative
The Government launched the National
Rural Health Mission (NRHM) in 2005. It
aims to provide quality healthcare for all
and increase the expenditure on healthcare
from 0.9 per cent of GDP to 2-3 per cent
of GDP by 2012.
According to Union Budget 2010-11, the
Finance Minister, Mr Pranab Mukherjee
increased the plan allocation for Ministry
of Health and Family Welfare from US$
4.2 billion in 2009-10 to US$ 4.8 billion in
2010-11.
Moreover, in order to meet revised cost of
construction, in March 2010 the
government allocated an additional US$
1.23 billion for six upcoming AIIMS-like
institutes and upgradation of 13 existing
Government Medical Colleges.
The Union Cabinet on October 20, 2010
approved the proposal of the Ministry of
Health & Family Welfare to declare
National Institute of Mental Health and
Neuro Sciences (NIMHANS), Bangalore
as an Institute of National Importance on
the lines of All India Institute of Medical
Sciences, New Delhi, Post Graduate
Institute of Medical Education and
Research, Chandigarh and Jawaharlal
Institute of Postgraduate Medical
Education & Research, Puducherry.
Telecom
The Indian telecommunications industry is
one of the fastest growing in the world.
The industry has witnessed consistent
growth during the last year on the back of
rollout of newer circles by operators,
successful auction of third-generation (3G)
and broadband wireless access (BWA)
spectrum, network rollout in semi-rural
areas and increased focus on the value
added services (VAS) market.
According to the Telecom Regulatory
Authority of India (TRAI), the number of
telephone subscriber base in the country
reached 742.12 million as on October 31,
2010, an increase of 2.61 per cent from
723.28 million in September 2010. With
this the overall tele-density (telephones per
100 people) has touched 62.51. The
wireless subscriber base has increased to
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706.69 million at the end of October 2010
from 687.71 million in September 2010,
registering a growth of 2.76 per cent.
Meanwhile, Indian Global System of
Mobile Communication (GSM) telecom
operators added 17.45 million new
subscribers in November 2010, taking the
all-India GSM cellular subscriber base to
526.18 million, according to the Cellular
Operators Association of India (COAI).
The GSM subscriber base stood at 508.72
million at the end of October 2010.
Value-Added Services (VAS) Market
Mobile value added services (VAS)
include text or SMS, menu-based services,
downloading of music or ring tones,
mobile TV, videos and sophisticated m-
commerce applications. As per a report,
‗India Telecom 2010‘ released by KPMG
in December 2010, currently, the VAS
market is worth US$ 2.45 billion-US$ 2.67
billion, which is around 10 per cent of the
total revenue of the wireless industry. The
share of VAS in wireless revenue is likely
to increase to 12-13 per cent by 2011, on
the back of increased operator focus on
VAS due to continuous fall in voice tariffs,
increasing penetration of feature rich
handsets, availability of vernacular content
and increased user adoption of VAS
applications.
Major Investments
The booming domestic telecom market has
been attracting huge amounts of
investment which is likely to accelerate
with the entry of new players and launch
of new services. According to the
Department of Industrial Policy and
Promotion (DIPP), the
telecommunications sector which includes
radio paging, mobile services and basic
telephone services attracted foreign direct
investment (FDI) worth US$ 1,062 million
during April-October 2010-11. The
cumulative flow of FDI in the sector
during April 2000 and October 2010 is
US$ 9,993 million.
As per an industry report the telecom
industry witnessed merger and acquisition
(M&A) deals worth US$ 16.60 billion
during April-December 2010, which
represented 28.26 per cent of the total
valuation of the deals across all the sectors
during the period analysed. There were 10
inbound, outbound and domestic M&A
deals in the telecom sector during the first
nine months of the current fiscal. The
biggest M&A deal in the sector was made
by telecommunications service provider
Bharti Airtel through the acquisition of
Zain‘s African mobile services operations
in 15 countries. The deal involved a
transaction of US$ 10.7 billion. In another
deal, Bharti Airtel acquired 100 per cent
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stake of Telecom Seychelles Ltd for US$
62 million.
Other major M&A deals included the
acquisition of 95 per cent stake in Infotel
Broadband for US$ 1,032.26 million by
Reliance Industries and 26 per cent stake
of US-based mobile chipmaker
Qualcomm‘s Indian arm for US$ 57.72
million by India's Tulip Telecom and
Global Holding. Further, India-based GTL
Infrastructure Ltd has bought 17,500
telecom towers of Aircel Ltd. for US$
1,702.95 million.
Going Global
In March 2010, Bharti Airtel bought the
African operations of Kuwait-based Zain
Telecom for US$ 10.7 billion, driving the
Indian player into the league of top ten
telecom players globally.
The Reserve Bank of India (RBI) has
liberalised the investment norms for Indian
telecom companies by allowing them to
invest in international submarine cable
consortia through the automatic route. In
April 2010, RBI issued a notification
stating "As a measure of further
liberalisation, it has now been decided... to
allow Indian companies to participate in a
consortium with other international
operators to construct and maintain
submarine cable systems on co-ownership
basis under the automatic route." The
notification further added, "Accordingly,
banks may allow remittances by Indian
companies for overseas direct investment."
Tele-medicine
With increase in cell phone users to around
700 million and introduction of 3G
services soon in the country, remote
treatment and diagnosis of patients through
mobile phones would become a reality in
the near future. In fact, a few telecom
operators and value-added service
developers are planning to use mobile
phones for diagnostic and treatment
support, remote disease monitoring, health
awareness and communication.
The Gujarat health department plans to
connect all villages through its
telemedicine network. The state
government has so far expanded the reach
of telemedicine services from 53 villages
in 2008 to 453, and hopes to cross 500
villages soon. Jay Narayan Vyas, state
health minister, said "First thing we plan to
do is to start the 104 service over the
phone. People can call up and talk to
paramedics in call centers who can suggest
the primary action to be taken in case of
any health emergency. Also, they would be
able to suggest generic and over the
counter drugs."
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3G Services
The Department of Telecom has taken the
pioneering decision of launching of 3G
services by BSNL and MTNL and
initiation of process for auction of
spectrum for 3G services to private
operators. Allocation of spectrum for 3G
and BWA services was done through a
controlled simultaneous, ascending e-
auction process.
All the 71 blocks that were put up for
auction across the 22 service areas in the
country were sold, leaving no unsold lots.
Auction for 3G spectrum ended on May
19, 2010 after 183 rounds of intense
bidding over a span of 34 days. The
Government is expected to morph revenue
worth US$ 14.6 billion. All the available
slots across 22 circles have been sold to
seven different operators.
A pan-India bid for third generation
spectrum stood at US$ 3.6 billion. The
Anil Ambani-led Reliance Communication
bagged the highest number of 13 circles at
a cost of US$ 1.9 billion, followed by
Bharti Airtel in 12, Idea in 11 and
Vodafone and the Tatas in nine circles
each, according to the Department of
Telecommunications. MTNL and BSNL
will have to pay US$ 1.42 billion and US$
2.2 billion respectively.
3G spectra have already been allotted to
successful bidders for commercial use on
September 1, 2010 as per the timelines
indicated in the Notice Inviting
Application (NIA) and in the Letter of
Intent issued after the bid amounts were
deposited. The 3G spectrum has been
allotted to AirTel, Aircel, Vodafone, S Tel,
Reliance, Idea Cellular and Tata Cellular
Services who won the bids through the
electronic auction spread over a period of
34 days in respect of 3G and 16 days in
respect of BWA. The BWA spectra have
also been assigned to the successful
bidders which are Aircel, Augere, Tikona,
Qualcomm, Infotel and Bharti. 3G &
BWA spectrum would enable users to have
value added services like video streaming,
mobile internet access, higher & faster
data downloads.
Manufacturing
The Indian telecom industry manufactures
a vast range of telecom equipment using
state-of-the-art technology.
As per a press release by the Ministry of
Communications & Information
Technology, the production of telecom
equipments in value terms is expected to
increase from US$ 10.87 billion during
2008-09 to US$ 11.87 billion in 2010-
2011. Favourable factors such as policy
moves taken by the Government,
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incentives offered, large talent pool in
R&D and low labour cost can provide an
impetus to the industry. Exports increased
from US$ 89.24 million in 2002-03 to US$
3 billion in 2009-10 accounting for 26 per
cent of the total equipment produced in the
country and it is expected to increase to
US$ 3.33 billion in 2010-11.
Meanwhile, telecom regulator TRAI has
released a consultation paper on
‗Encouraging Telecom Equipment
Manufacturing in India‘ seeking views of
stakeholders for promoting research and
development (R&D) and manufacturing of
telecom equipment in the country. The
consultation paper issued on December 28,
2010 aims at discussing, debating and
finalising measures for promotion of R&D
and creation of intellectual property as
well as manufacture of telecom equipment
and electronic components in India.
Further, the Indian mobile handsets market
continued to grow in the third quarter 2010
as well to record a quarter-on-quarter
growth of 3.6 per cent to touch 40.08
million units in the quarter, according to
market intelligence firm IDC‘s India
Quarterly Mobile Handsets Tracker. The
year 2010 is expected to end with total
mobile handset sales of 155.9 million
units.
The study further showed that the Finnish
handset maker Nokia had the largest share
of 31.5 per cent in terms of units shipped
during the third quarter of 2010. Nokia
was followed by the Chinese brand G‘Five
in terms of unit shipments market share
and Korean handset manufacturer
Samsung occupied the third slot.
According to a report by technology
researcher Gartner Inc, India ranks fourth
in manufacturing telecom equipment in the
Asia-Pacific (Apac) region. The country
has a 5.7 per cent share of the region's total
telecom equipment production revenue of
US$ 180 billion in 2009.
"We expect India to move up to the third
spot (after China and South Korea) with a
share of 8.5 per cent of the total
(estimated) Apac telecom equipment
production revenue of US$ 277 billion by
2014," Gartner said. The firm estimates
India's telecom equipment production
revenue to grow at a CAGR of 17.1 per
cent to reach US$ 22.6 billion in fiscal
2014. India will be the fastest growing
telecom equipment production market in
the Apac region over the next five years, it
predicts.
Rural Telephony
The rural Telephone connections have
gone up from 3.6 million in 1999 to 12.3
million in March 2004 and further to
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200.77 million in March 2010. Their share
in the total telephones has constantly
increased from around 14 per cent in 2005
to 32.75 per cent at the end of October
2010. The rural subscribers have grown to
243.04 million at the end of October 2010.
The wireless connections have contributed
substantially to total rural telephone
connections; it stands at 233.95 million in
October 2010. During 2010-11, the growth
rate of rural telephones was 21.05 per cent
as against 18.69 per cent of urban
telephones.
The private sector has contributed to the
growth of rural telephones as it provided
about 84.27 per cent of rural telephones
during October 2010.
The government plans to connect all
revenue villages in India either through
landline, mobile or WLL by February
2011. ―We have already connected about
96 per cent of the revenue villages. The
remaining 25,000 villages will have
connectivity by February 2011,‖ stated Mr
Sachin Pilot, Minister of State for
Communications and IT.
Further, the Government, under Bharat
Nirman II Programme, has envisaged
providing broadband coverage to all
250,000 Gram Panchayats by 2012.
Policy Initiatives
The government plans to formulate a
comprehensive ‗National Telecom Policy
2011‘ including the recognition of
Telecom as infrastructure and as an
essential service, encouraging Green
Telecom, steps to accelerate migration
from IPv4 to IPv6 at the earliest, release of
IPv6 standards by Telecom Engineering
Centre for implementation in the country,
etc., as per a press release by the Ministry
of Communications & Information
Technology.
Further, the government plans to take
concrete steps towards finalisation of
‗National Broadband Plan‘ including
strategy for implementation and initiation
of steps for roll out of optical fibre.
The government has taken many proactive
initiatives to facilitate the rapid growth of
the Indian telecom industry.
In the area of telecom equipment
manufacturing and provision of IT-
enabled services, 100 per cent FDI
is permitted
No cap on the number of access
providers in any service area. In
2008, 122 new Unified Access
Service (UAS) licences were
granted to 17 companies in 22
services areas of the country
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Revised subscriber based criteria
for allocation of Global System of
Mobile Communication (GSM)
and Code Division Multiple Access
(CDMA) spectra were issued in
January 2008
To provide infrastructure support
for mobile services a scheme has
been launched to provide support
for setting up and managing 7,436
infrastructure sites spread over 500
districts in 27 states. As on
December 31, 2009, about 6,956
towers had been set up under the
scheme
According to the Consolidated Foreign
Direct Investment (FDI) Policy document,
the FDI limit in telecom services is 74 per
cent subject to the following conditions:
This is applicable in case of Basic,
Cellular, Unified Access Services,
National/ International Long
Distance, V-Sat, Public Mobile
Radio Trunked Services (PMRTS),
Global Mobile Personal
Communications Services
(GMPCS) and other value added
Services
Both direct and indirect foreign
investment in the licensee company
shall be counted for the purpose of
FDI ceiling. Foreign Investment
shall include investment by
Foreign Institutional Investors
(FIIs), Non-resident Indians
(NRIs), Foreign Currency
Convertible Bonds (FCCBs),
American Depository Receipts
(ADRs), Global Depository
Receipts (GDRs) and convertible
preference shares held by foreign
entity. In any case, the 'Indian'
shareholding will not be less than
26 per cent
FDI up to 49 per cent is on the
automatic route and beyond that on
the government route. FDI in the
licensee company/Indian
promoters/investment companies
including their holding companies
shall require approval of the
Foreign Investment Promotion
Board (FIPB) if it has a bearing on
the overall ceiling of 74 per cent.
While approving the investment
proposals, FIPB shall take note that
investment is not coming from
countries of concern and/or
unfriendly entities
The investment approval by FIPB
shall envisage the conditionality
that the Company would adhere to
licence Agreement
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FDI shall be subject to laws of
India and not the laws of the
foreign country/countries
The Road Ahead
According to a report published by Gartner
Inc in June 2009, the total mobile services
revenue in India is projected to grow at a
compound annual growth rate (CAGR) of
12.5 per cent from 2009-2013 to exceed
US$ 30 billion. The India mobile
subscriber base is set to exceed 771
million connections by 2013, growing at a
CAGR of 14.3 per cent in the same period
from 452 million in 2009. This growth is
poised to continue through the forecast
period, and India is expected to remain the
world's second largest wireless market
after China in terms of mobile
connections.
"The Indian mobile industry has now
moved out of its hyper growth mode, but it
will continue to grow at double-digit rates
for next three years as operators focus on
rural parts of the country," said
Madhusudan Gupta, senior research
analyst at Gartner. "Growth will also be
triggered by increased adoption of value-
added services, which are relevant to both
rural and urban markets."
Mobile market penetration is projected to
increase from 38.7 per cent in 2009 to 63.5
per cent in 2013, according to Gartner.
The much-awaited mobile number
portability was launched on November 25,
2010 in Haryana and will be available to
more than 700 million subscribers from
January 20, 2011 across the country. As
continued efforts of the Government to
increase competition in the market and to
provide wider choice to customer, Mobile
Number Portability will be an important
step.
Steel
Sector structure/Market size
India became the fourth largest producer of
crude steel in the world in 2010 as against
the eighth position in 2003 and is expected
to become the second largest producer of
crude steel in the world by 2015. India also
maintained its lead position as the world‘s
largest producer of direct reduced iron
(DRI) or sponge iron.
Led by strong demand for autos and
engineering services, the domestic steel
demand in India remains robust, as per
Moody's sectoral analysis on Asia's steel
sector. According to the analysis, the
outlook for the domestic operating
environment is positive, driven by robust
growth in infrastructure, autos and
construction and constrains on additional
supply by 2011.
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Production
As per provisional data released by World
Steel Association (WSA), India was the
fourth largest producer of crude steel
during January–September 2010. India
produced 50.1 million tonnes (MT) crude
steel during the period under review.
Capacity for crude steel production
expanded from 51.17 million tonnes per
annum (mtpa) in 2005-06 to 72.96 mtpa in
2009-10. Crude steel production grew at
8.4 per cent annually from 46.46 MT in
2005-06 to 64.88 MT in 2009-10.
As per the latest estimates, the crude steel
capacity in the country is likely to reach
120 MT by 2012 from 72.9 MT in the
2009-10.
Production for sale of finished steel stood
at 59.69 MT during 2009-10 as against
46.57 MT in 2005-06, an average annual
growth of 6.5 per cent. Production for sale
of finished steel during April-October
2010-11 stood at 35.595 MT and was up
by 4.4 per cent over the corresponding
period of the previous year.
Public sector steel companies Steel
Authority of India Ltd. (SAIL) and
Rashtriya Ispat Nigam Ltd. (RINL) are in
the process of expanding their crude steel
capacities. SAIL envisages increasing its
crude steel production from existing 12.84
Mt to 21.40 MT per annum in Phase-I to
be completed by 2012-13 at an
approximate estimated cost of US$ 15.23
billion including cost of mine
development.
RINL is expanding its existing capacity of
2.9 MT of crude steel production to 6.3
MT per annum to be completed by
December, 2011 at an estimated cost of
US$ 26.60 million.
Another public sector company, NMDC
Ltd., is to set up a 3 MT per annum
integrated steel plant at Nagarnar,
Chhattisgarh at an estimated investment of
US$ 33.78 million. The Plant is likely to
be commissioned in 2014.
Tata Steel registered sales of 5.9 MT
during the third quarter ended December
2010, while Steel Authority of India Ltd
(SAIL) sold 3.25 MT steel in Q3 FY'11,
registering a growth of 10.7 per cent over
Q3 FY'10. Meanwhile, JSW Steel‘s
production during the quarter grew by 11
per cent to 1.636 MT.
Consumption
The domestic steel consumption grew by
9.8 per cent to 29.82 MT during April-
September 2010 over the year-ago period,
on the back of steady demand from sectors
like automobile and consumer durables. As
per the provisional data from the Ministry
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of Steel, consumption was at 27.15 MT in
the same period a year ago. In September
2010, steel consumption rose 4.1 per cent
to 4.72 MT, against 4.53 MT in the year-
ago period.
Major Developments
A host of steel companies have lined up
major investment proposals. Furthermore,
with an expanding consumer market, the
Indian steel industry is likely to receive
huge domestic and foreign investments.
Tata Steel plans to invest US$ 22.5
million to commission its proposed
ferroalloys plant and bar mill at its
industrial park at Gopalpur and a
greenfield steel plant at Kalinga
Nagar.
JSW Steel plans to invest US$
16.86 billion over the next 10 years
to ramp up capacity from 7.8
million tonne per annum (MTPA)
to 32 mtpa through greenfield and
brownfield projects.
Japan's Nippon Steel will begin a
manufacturing operation in India
making steel pipes for use in
automobiles and plans to invest
US$ 36.91 million on production
and sales operations.
Tata Steel plans to ink a pact with
Japan-based Nippon Steel
Corporation (NSC). The proposed
joint venture (JV) with a 50:50
holding would be set up at an
investment of US$ 537.37 million
for producing auto-grade steel.
Visakhapatnam Steel Plant (VSP)
has entered into a memorandum of
understanding (MoU) with the
Central Public Works Department
(CPWD) to develop a new
stockyard here near Ukkunagaram
township and augment its facilities
at Hyderabad stockyard. The
Ukkunagaram project would cost
US$ 3.7 million while the
Hyderabad one is estimated at US$
1.70 million.
Essar Steel and Kobe Steel of
Japan have entered into a
memorandum of understanding
(MoU) to produce autograde steel
in India.
Steel Authority of India Ltd has
signed a memorandum of
understanding (MoU) with
Japanese steelmaker Kobe Steel
Ltd for a comprehensive strategic
collaboration covering
technologies, projects and other
areas.
India's largest miner NMDC has
signed a pact with Russian steel
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and mining major Severstal to set
up a 5 million tonne per annum
steel plant in Karnataka as part of a
strategy that aims to boost the
company's revenue by increasing
presence in value added product
chain.
National Aluminium Company
(Nalco), JSW Steel and Jaiprakash
Industries have evinced interest in
setting up an alumina refinery and
aluminium smelter in Kutch. The 1
million tonne per annum (TPA)
alumina refinery project and 0.5
million TPA smelter project
involves expenditure of US$ 2.20
billion.
Sunflag Iron and Steel Ltd, makers
of automobile spring steel, has
announced a technical tie-up with
Japanese speciality steel maker
Daido Steel Ltd.
JSW Steel plans to infuse US$
83.54 million in Ispat industries in
the next 2-3 years.
Government Initiative
As per the Press Information Bureau,
during 2009, the government took a
number of fiscal and administrative steps
to contain steel prices. Central value added
tax (CENVAT) on steel items was reduced
from 14 per cent to 10 per cent with effect
from February 2009.
Moreover, in the Union Budget 2010-11,
the government has allocated US$ 37.4
billion to the infrastructure sector and has
increased the allocation for road transport
by 13 per cent to US$ 4.3 billion which
will further promote the steel industry.
In order to encourage R&D activities in
iron and steel sector, Ministry of Steel is
providing financial assistance from Steel
Development Fund (SDF) and Plan Fund.
64 research projects initiated by
public and private undertakings,
research laboratories, educational
and other promotional institutions
have so far been approved at a cost
of US$ 98.45 million during 2010,
of which the SDF component is
US$ 61.92 million. So far 31
projects have been completed and
24 research projects are underway.
US$ 26.28 million was allocated
from Plan Fund during the 11th
five year plan for promotion of R
& D in steel sector. Under this
scheme eight R& D projects have
been approved with Plan fund of
US$ 24.72 million.
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Pharmaceuticals
India's pharmaceutical industry is now the
third largest in the world in terms of
volume and stands 14th in terms of value.
According to data published by the
Department of Pharmaceuticals, Ministry
of Chemicals and Fertilizers, the total
turnover of India's pharmaceuticals
industry between September 2008 and
September 2009 was US$ 21.04 billion. Of
this the domestic market was worth US$
12.26 billion.
The Indian pharmaceuticals market is
expected to reach US$ 55 billion in 2020
from US$ 12.6 billion in 2009, according
to a report ‗India Pharma 2020: Propelling
access and acceptance, realising true
potential‘ by McKinsey & Company. The
report states that the market has the further
potential to reach US$ 70 billion by 2020
in an aggressive growth scenario.
Moreover, according to an Ernst & Young
and industry body study, the increasing
population of the higher-income group in
the country, will open a potential US$ 8
billion market for multinational companies
selling costly drugs by 2015. Besides, the
report said the domestic pharma market is
estimated to touch US$ 20 billion by 2015,
making India a lucrative destination for
clinical trials for global giants.
Further, IMS Health India, which tracks
drug sales in the country through a
network of nationwide drug distributors,
estimates the healthcare market in India to
reach US$ 31.59 billion by 2020.
Growth
The Indian pharmaceutical market reached
US$ 10.04 billion in size, with a value-
wise growth rate of 20.4 per cent over the
previous year‘s corresponding period on a
Moving Annual Total (MAT) basis for the
12 months ended July 2010, according to
data from IMS Health India.
Cipla maintained its leadership position in
the domestic market with 5.27 per cent
share, followed by Ranbaxy. The highest
growth in the domestic market was for
Mankind Pharma, which grew 37.2 per
cent. Leading companies in the domestic
market such as Sun Pharma (25.7 per
cent), Abbott (25 per cent), Zydus Cadila
(24.1 per cent), Alkem Laboratories (23.3
per cent), Pfizer (23.6 per cent), GSK India
(19 per cent), Piramal Healthcare (18.6 per
cent) and Lupin (18.8 per cent) had
impressive growth during July 2010,
shows the data.
According to the All India Organisation of
Chemists and Druggists (AIOCD), the
pharmaceuticals industry in India will
grow by over 100 per cent over the next
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two years.
"The people are increasingly becoming
health conscious and the sell of all types of
medicines, particularly anti-biotic, will
zoom up in the coming years. We expect
the business to double by 2012", as per JS
Shinde, President, AIOCD.
According to Shinde, the pharmaceutical
industry is currently growing at the rate of
12 per cent, but this will accelerate soon.
The sale of all types of medicines in the
country stands at US$ 9.61 billion, which
is expected to reach around US$ 19.22
billion by 2012.
India's domestic pharmaceutical market is
valued approximately at US$ 12 billion in
2010, and has shown a strong growth of
21.3 per cent for the 12 months ending
September 2010, as per consulting firm
Pricewaterhouse Coopers (PwC). It
estimates that over the next 10 years, the
domestic market will grow to US$ 49
billion, at a compounded annual growth
rate (CAGR) of 15 per cent.
Further, a RNCOS report titled 'Booming
Pharma Sector in India' projects that the
formulations industry is expected to
prosper parallel to the pharmaceutical
industry. It is expected that the domestic
formulations market in India will grow at
an annual rate of around 17 per cent in
2009-10, owing to increasing middle class
population and rapid urbanisation.
Diagnostics Outsourcing/Clinical Trials
According to the research published by
RNCOS titled 'Indian Diagnostic Market
Analysis' published in January 2010, the
Indian diagnostic services are projected to
grow at a CAGR of more than 20 per cent
during 2010-2012.
Some of the major Indian pharmaceutical
firms, including Sun Pharma, Cadilla
Healthcare and Piramal Life Sciences, had
applied for conducting clinical trials on at
least 12 new drugs in 2010, indicating a
growing interest in new drug discovery
research.
Generics
According to Mr Srikant Kumar Jena,
Union Minister of State for Chemicals and
Fertilisers, India tops the world in
exporting generic medicines worth US$ 11
billion and currently, the Indian
pharmaceutical industry is one of the
world's largest and most developed.
Moreover, as per a press release by
research firm RNCOS in May 2010, the
report titled ‗Booming Generics Drug
Market in India' projects the Indian generic
drug market to grow at a CAGR of around
17 per cent between 2010-11 and 2012-13.
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Mr Anand Sharma, Union Minister of
Commerce and Industry and Lim Hng
Kiang, Minister for Trade and Industry,
Singapore , have signed a 'Special Scheme
for Registration of Generic Medicinal
Products from India' in May 2010, which
seeks to fast-track the registration process
for Indian generic medicines in Singapore.
According to Lim Hng Kiang, "What we
have agreed is that if your (Indian)
generics have already cleared the
regulations of one of the five countries/
regions - US, Canada, the European
Union, UK or Australia - Singapore will
take that as 'already cleared' and we will
import it (the generic medicines) without
any additional clearances."
Mr Sharma said, "This (understanding)
will facilitate quick registration and
approvals (of Indian generic drugs) in
Singapore. It is a major movement
forward. One-fourth of the world's
generics come from India. This has
ensured easy availability of life-saving
medicines particularly where affordability
has been an issue."
Government Initiative
100 per cent foreign direct investment
(FDI) is allowed under the automatic route
in the drugs and pharmaceuticals sector
including those involving use of
recombinant technology. (DIPP)
The Government plans to set up a US$
639.56 million venture capital (VC) fund
to give a boost to drug discovery and
strengthen the pharma infrastructure in the
country.
According to Mr Ashok Kumar, Secretary,
Department of Pharmaceuticals, the
Government had issued an expression of
interest (EoI) for technical and financial
bids for the selection of a global level
consultant (GLC) for the preparation of a
detailed project report (DPR) in order to
develop India as a drug discovery and
pharma innovation hub by 2020.
The Drugs and Pharmaceuticals
Manufacturers Association has received an
in-principle approval for its proposed
special economic zone (SEZ) for
pharmaceuticals, bulk drugs, active
pharmaceutical ingredients (APIs) and
formulations to be located at Nakkapalli
mandal in Visakhapatnam district,
according to a government press release.
According to Mr Srikant Kumar Jena,
Union Minister of State for Chemicals and
Fertilisers, the Department of
Pharmaceuticals has prepared a "Pharma
Vision 2020" for making India one of the
leading destinations for end-to-end drug
discovery and innovation and for that
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purpose provides requisite support by way
of world class infrastructure,
internationally competitive scientific
manpower for pharma research and
development (R&D), venture fund for
research in the public and private domain
and such other measures.
The government plans to open 3,000 Jan
Aushadhi stores, which sell unbranded
generic drugs at heavy discounts to
branded drugs, in the next two years
Investment
The healthcare sector has attracted
growing investor support in 2010 with
nearly a tenth of the total private equity
funding going to this sector. In the third
quarter the calendar year 2010, a total of
US$ 2,047 million was invested across 88
deals, of which 9 per cent were healthcare
deals, according to research firm Venture
Intelligence.
Further, in October 2010, the pharma,
healthcare and biotech sector witnessed
five merger and acquisition transactions
(M&A) worth US$ 250 million, according
to global consultancy firm Grant Thornton.
The drugs and pharmaceuticals sector has
attracted FDI worth US$ 1,825.43 million
between April 2000 and September 2010,
according to data published by Department
of Industrial Policy and Promotion (DIPP).
Some of the major investment
developments in the sector include:
Hyderabad-based Natco Pharma
plans to raise US$ 22.22 million to
fund its expansion plans and
research activities.
Private equity major Sequoia
Capital has made its first
investment in the pharmaceutical
sector in the country by investing
US$ 15.86 million into Celon Labs,
which will use the funds to double
its manufacturing facility.
Belgium based Helvoet Pharma,
part of the Daetwyler Group is
setting up its first greenfield
production facility in Khandala
Industrial Area, phase I (SEZ), on
Pune- Bangalore Highway, near
Pune. The company has invested
US$ 26.56 million for the plant.
Swiss Pharma major Lonza AG,
would invest around US$ 55.33
million through its Indian
subsidiary in a phased manner in
Genome Valley project,
Hyderabad, said Stefan Borgas,
CEO, Lonza.
Chennai-based Bafna
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Pharmaceuticals plans to raise
around US$ 4.43 million for its
future expansion by issuance of
warrants and shares.
Hyderabad Menzies Air Cargo
Private Limited, a joint venture
between GMR Hyderabad
International Airport Limited
(GHIAL) and Menzies Aviation,
has launched India's first airport-
based pharma zone, a dedicated
pharmaceutical cargo storage and
handling facility, at Hyderabad.
The project involved an investment
of US$ 1.22 million.
Road Ahead
According to a report by PwC in April
2010, India will join the league of top 10
global pharmaceuticals markets in terms of
sales by 2020 with the total value reaching
US$ 50 billion.
World Economy
Oil Crisis: Impact of Middle-East
revolutions Global markets paid scant attention to
the Egyptian and Tunisian revolutions as
both were seen as lacking systemic
economic and financial significance. This
is now changing as youth-inspired
uprisings spread to other countries in
North Africa and the Middle East.
It is understandable that Egypt and Tunisia
had essentially not registered on the
markets‘ traditional scale of systemic
influence. The two countries are not
significant global economic powers; they
do not owe much money to western banks
and governments; and they are not large
exporters of commodities. Yet Egypt and
Tunisia are catalysts for a broader
phenomenon of change that is gaining
systemic importance. Over the past few
weeks, protests occurred in a growing
number of countries in the region, from
Algeria and Morocco in the west to
Bahrain and Yemen in the east. Two
developments are particularly important
when it comes to global demand and price
dynamics.
With an oil exporter such as Libya now in
the grips of a popular uprising, markets
will push oil prices higher to reflect much
greater supply uncertainties for this key
global commodity. And with sectarian
issues now on display in Bahrain,
geopolitical risks are higher for the region
– especially as other countries seek to
influence events in the Kingdom.
Unfortunately, there is also a deplorable
change in dynamics; and one that makes
this transformational period even more
unpredictable and dangerous.
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Relatively peaceful movements in Egypt
and Tunisia regrettably gave way to
violence elsewhere as governments applied
force to clamp down on street protests.
Casualties multiplied alarmingly. Yet the
strength and determination of the popular
movement became even more apparent for
all to see.
In the short run, regional developments
will be stagflationary for the global
economy due to three main factors: First,
higher oil prices will increase production
costs and act as a tax on consumers.
Second, greater precautionary stockpiling
around the world will intensify pressures
on commodities as a whole, aggravating
the impact of demand-supply imbalances
and large injections of liquidity. Third, the
region will be a smaller market for other
countries‘ exports. This economic reality is
far from encouraging for western countries
that have few options in reacting to what is
an increasingly fluid situation.
On the regional stage, they are essentially
bystanders to developments in countries
where protests are in their early phases. At
best, they can only marginally offset
tendencies towards violence. Fortunately,
they can do more in post-revolutionary
Egypt and Tunisia, where both Europe and
the US are eager and able to support the
peaceful path to democracy, including the
important visit to Cairo of David Cameron,
the UK prime minister.
Domestically, having already countered
aggressively the impact of the global
financial crisis, western economies have
little room left for further demand
stimulus. Some have already embarked on
fiscal consolidation, while for others it is
only a matter of time. Moreover, recent
evidence of inflationary pressures is
already influencing the narrative of some
central banks. In the next few days,
markets will react to the changed outlook
for the region and the global economy.
Higher commodity prices will be
accompanied by greater risk aversion in
the equity and credit markets. Over time,
however, such market apprehension is
likely to give way as the impact of greater
long-term stability in a key part of the
world is felt. In the long term, after all,
democracy and individual freedoms are the
best drivers of prosperity.
Europe’s Inflation The European Central Bank has been
warning about the inflationary effects of
higher commodity prices. For a central
bank that takes its target seriously the
concern is justified. But higher food and
energy costs are not even the biggest
problem. A clearer and more present
inflationary threat would be an
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overheating German economy at a time
when peripheral Europe is in a depression.
Is Germany overheating?
It is hard to come to that conclusion from
the actual levels of real gross domestic
product. Between the third quarters of
2007 and 2010, seasonally adjusted
quarterly German real GDP fell by 0.2 per
cent, according to Thomson Datastream,
while it rose by 0.1 per cent in the US. So
how can it be overheating when it has not
even reached the pre-crisis level of output?
It would certainly be a sign of
extraordinary structural weakness if that
were to happen. And Germany, so we are
told, is very strong.
For Germany, this is the first cyclical
recovery in decades that begins with a
comparatively low level of unemployment.
In August 2007, seasonally adjusted
unemployment was still relatively high at
8.9 per cent. The rate fell to 7.6 per cent a
year later and rose to only 8.3 per cent
during the 2009 recession. Companies
used imaginative short-time work schemes
to keep their workers on board. The
unemployment rate has since come down
to 7.5 per cent.
That is very good news for German
workers. But due to an export-based
industrial monoculture, Germany is
vulnerable to labour supply shortages. In
December, the shortage of graduate-level
engineers rose by 6 per cent, double what
it was a year earlier. The Association of
German Engineers, which monitors the
labour market situation within its
profession, said the rate of increase in
labour shortages was frightening, and it
expects it to get worse. The gap was
accounted for by mostly two sectors –
mechanical and electrical engineering.
Average German labour costs will be
contained in the current year because some
of last year‘s wage agreements run into
this one. The economy also still generates
new low paying jobs that bear down on
average wage costs. This effect, which
stems from welfare reforms, is not going
to last forever
Where would this leave the eurozone?
Until now, German inflation has been
consistently below the eurozone average.
But the situation is about to reverse. This
will make the adjustment process in the
European periphery progressively harder –
if you factor in the ECB‘s likely policy
response. Because of price-indexing
mechanisms, Belgium and Italy would
produce inflation rates at least as high as
Germany‘s. So the combination of an
overheating German economy, indexations
and commodity price rises might bring a
persistent increase in eurozone inflation. A
German inflation rate rising slowly
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towards 4-6 per cent over the next two
years, which would be consistent with a
rate of nominal annual GDP growth of
about 6-9 per cent. The eurozone data
would be a little lower, perhaps 3-5 per
cent for inflation, and 5-8 per cent for
nominal growth.
Where would this scenario leave
monetary policy?
If the ECB is determined to stick to
its inflation target, it will need to raise
interest rates soon. It is probably best to
think in terms of insurance – a central bank
is ready to pay a premium to prevent large
deviations from the inflation target. From a
pure monetary policy standpoint, the least
risky option is a moderate rise right away,
followed by a few further rate increases
during the year. That would depress
average growth. It may even drive the
eurozone periphery over the edge. But it
would probably not produce deflation for
the eurozone as a whole. If the ECB leaves
rates unchanged for another year, it will
risk an inflationary overshoot later.
Britain: Inflation Dilemma For many years the job of the Bank of
England‘s monetary-policy committee
(MPC) seemed straightforward. The
knocks that from time to time pushed the
economy off its path of steady growth
tended to shove inflation downward, too.
A weaker economy meant interest-rate
cuts; recoveries prompted rate rises. The
bank‘s rate-setters knew it might not
always be so easy—that in some instances,
output and inflation might be pulled in
opposite directions. But they might never
have envisaged a policy dilemma quite as
acute as the one they now face.
Figures released on February 15th showed
that Britain‘s inflation rate reached 4% in
January, twice the bank‘s official 2%
target. Inflation is likely to rise further in
the coming months, to 4.5% or even
higher, according to the bank‘s
quarterly Inflation Report, published a day
later. The report seemed to endorse the
widespread expectation that interest rates
will go up as soon as May, and continue
climbing: the bank reckons inflation is as
likely to be below as above 2% in the
medium term—based on the financial
market‘s forecast of a gradual rise in the
benchmark interest rate to 3% by the end
of 2013.
Mervyn King, the bank‘s governor, said
the report should not automatically be read
as a manifesto for a swift rate increase.
The timing and speed of policy changes
will not be set by market expectations but
by how the MPC sees the balance of risks,
he said. The fear of enduringly high
inflation has to be set against the danger
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that it falls too far if the economy stays
weak.
Hence the bank‘s dilemma.Much of
today‘s inflation stems from temporary
influences beyond its control: a surge in
energy and food prices, increases in VAT,
a consumption tax and the delayed effects
of a weaker pound. These are likely to
fade—unless firms and employees start to
factor high inflation into their price- and
wage-setting. An increase in interest rates
might lower the chances of that spiral. But
it might also unduly harm the economy,
which is still fragile, and, in April, faces
tax increases and sharp public-spending
cuts.
What makes the bank‘s problem especially
acute is that, in recent years, inflation has
spent more time above 2% than below it,
testing faith in the bank‘s ability to meet
the target (see chart). Some think it
unseemly to keep interest rates at 0.5%
when inflation is at such relatively heady
levels, and believe there is a case for one
or two ―symbolic‖ quarter-point rate
increases to show the bank is serious about
curbing it. A modest tightening might do
little harm: the benchmark rate is too low
to have much influence on the higher
charges levied on business loans and
mortgages. The idea that a rate rise will
make little difference, but is necessary all
the same, was scorned by Mr King. Better
to explain carefully why high inflation is
likely to prove temporary than to indulge
in ―futile gestures‖, he said.
The trouble with the bank acting tough to
shore up its reputation is that the Treasury
is engaged in a similar exercise. Mr.
Osborne believes that Britain‘s reputation
for fiscal prudence depends on cutting
public spending aggressively. His hope
was that the bank could insure against the
perils of his fiscal tightening by keeping
monetary policy very loose, or even
loosening it further. There is now some
fear of a ―credibility race‖ between the
central bank and the Treasury, resulting in
an economic policy vice that strangles the
recovery.
Certainly another round of ―quantitative
easing‖—using central-bank money to buy
government bonds—now looks
improbable. And even if a rate rise in May
is uncertain, the recent poor run of
inflation data makes an increase this year
seem likely. If that happens, Britain would
scarcely be the first biggish, rich country
to raise interest rates since the global
financial crisis: Australia and Canada have
already done so. Sweden‘s central bank
raised its benchmark interest rate to 1.5%
on February 15th, and said further
increases were likely. Canada and
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Australia have strong banks and are
benefiting from the commodity boom.
Sweden‘s export-based economy has
bounced back even more impressively than
Germany‘s.
The challenges facing the rich world‘s
central banks have increased as a result of
the financial crisis. But Britain‘s has the
least room for error in its main job of
keeping inflation stable. Tighten too soon
or too much, and the recovery is in
jeopardy. Tighten too late and inflation
might take off.
US BEFORE November‘s election,
Republican leaders in the House of
Representatives solemnly promised that
they would cut spending by $100 billion
this year alone if voters put their party in
charge. Voters did, in the House at least,
and on February 19th the new Republican
majority repaid the compliment by
approving cuts of $100 billion in the
budget Barack Obama proposed for last
year (compared with the short-term
―continuing‖ spending resolutions
Congress has actually adopted, the cut is
only $61 billion). The hitch is that the
measure will not become law, since the
Democrats who control the Senate, not to
mention the president with his veto pen,
are implacably opposed to it. With the
continuing resolution due to expire on
March 4th, there is little time to work out a
compromise, and little evidence either side
wants one.
The cuts the House approved constitute an
unprecedented reduction of some 10% in
non-defense discretionary spending. Food-
safety inspections, oversight of financial
institutions, college scholarships for the
poor, nutrition schemes for mothers and
babies and other seemingly
unobjectionable items would all be scaled
down. Funding for pet Democratic causes,
such as public broadcasting, regulating
greenhouse-gas emissions and Mr
Obama‘s health-care reforms, would be
eliminated altogether. There were even
some cuts to homeland security and
defence—normally a sacred cow for
Republicans. Tim Geithner, the secretary
of the treasury, said the cuts would
―damage our capacity to create jobs and
expand the economy‖. Harry Reid, the
leader of the Democrats in the Senate,
complained that the Republicans were
slashing ―the programs that keep us safe
and keep the economy growing‖. Mr
Obama, who proposed a mere freeze on
non-security discretionary spending in his
budget earlier this month, had threatened a
veto of the House bill even before it was
passed. Yet the Republican Study
Committee had wanted to cut $22 billion
more.
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Despite such worrying portents, the leaders
of both parties say they want to strike a
deal before March 4th, to avoid a
government shutdown. Moderate
Republicans, in particular, seem fearful of
a repeat of earlier budget battles that led to
shutdowns in 1995-96, when Bill Clinton
managed to paint the Republican majority
in Congress as extreme and recalcitrant.
Whether they can persuade their extreme
and recalcitrant colleagues of the wisdom
of holding back is another matter. The
party‘s top brass, after all, had originally
proposed much smaller cuts, only to be
overruled by the lower ranks. The Senate‘s
Democrats are not making things any
easier. They say that with Congress in
recess this week, there will not be time to
hammer out a deal before March 4th.
Instead, they say, Congress should extend
the government‘s authority to continue
spending at current levels for another
month or so. John Boehner, the House
speaker, says he will not agree to any
extension that does not entail cuts. A
group of moderate senators are trying to
help. But time is short, and the willingness
of the Republican rank and file to
compromise uncertain.
Banking: The debt net Recently, Ireland‘s High Court issued two
rulings to initiate the wind-up of the two
failed banks at the centre of the
country‘s financial meltdown, namely
Anglo Irish Bank and Irish Nationwide
Building Society. A few days later, there
was a response to the court action – one
that goes to the heart of the crisis in the
eurozone and the question of just who
should bear the cost of the bust. Two of
Anglo Irish‘s bondholders, Cayman
Islands-registered hedge funds run by Fir
Tree Capital, filed a lawsuit in a New York
district court claiming the Irish rulings
were ―egregious‖ and ―brazenly violated‖
its right to be repaid.
Fir Tree‘s claim to victim status contrasts
sharply with attitudes in Dublin, where
calls to ―burn‖ the bondholders of Irish
banks are a central theme in the general
election campaign – itself a result of the
crisis that toppled the government – that
reaches its conclusion this Friday. Voters
facing tax rises and job losses are angry.
While such fury may be at its harshest in
Ireland, it reflects a question being asked
by many across the western world: why
the investors who imprudently lent the
money with which banks such as Anglo
Irish made bad loans during the boom
years now appear to be getting off scot-
free, leaving taxpayers to foot the bill.
To date, bondholders have been largely
shielded from the fallout of the eurozone
crisis.In Ireland, the second-tier investors
have received as little as 20 per cent of
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their money – a far larger group of senior
bondholders have not, so far. That is a
state of affairs policymakers in Europe and
the US are keen to change. In future, bond
investors would lose part of their
investment to, in regulatory parlance, ―bail
in‖ an ailing institution before taxpayers
are called upon to bail it out.
The European Commission last month
proposed a bail-in regime across the 27-
member bloc. ―We must put in place a
system that is well prepared to deal with
bank failures in an orderly manner –
without taxpayers being called on again to
pay the costs,‖ said Michel Barnier, the
European Union‘s internal market
commissioner, at the time. The US has
already put in place bail-in-like powers as
part of the Dodd-Frank financial reform
act passed last year. The law includes a
resolution scheme that gives regulators the
ability to impose losses on bondholders
while ensuring the critical parts of the
bank can keep running. Employees will be
paid, the lights will stay on and derivatives
contracts will not have to be instantly
unwound, one of the areas that caused
market confusion when Lehman
Brothers collapsed in September 2008.
Germany and the UK have developed their
own versions of bail-in. This month
Denmark deployed its powers for the first
time on Amagerbanken, after loan losses
unexpectedly wiped out its capital.
Creditors stand to lose two-fifths of their
investments. Advocates of such
measures see them as one way of sharing
the pain and protecting taxpayers from
footing the entire bill of future bank
rescues. By quickly addressing the
problems of sickly institutions, they would
also help stabilize the financial system by
removing uncertainty.
But bondholders warn that such moves
could have negative consequences for the
wider economy. Banks finance most of
their customer lending through bonds.
Raise the risks of bond investors losing
money, and they will charge more interest.
If banks‘ borrowing costs rise, that in turn
will be priced into the costs of mortgages
and other customer loans. Regulatory
efforts to protect taxpayers could
unintentionally expose them to a
permanent rise in the cost of credit.
Furthermore, senior bank bonds are
typically held not by hedge funds but by
pension funds, insurers and other asset
managers– attracted by the apparent safety
and reliability of bank bonds. If that safety
goes, there is a knock-on risk that the
ultimate cost will be borne by those behind
the insurers and pension funds: the general
public.
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Bail-in is a novel concept that unnerves
investors as it would take place in the no-
man‘s-land just before insolvency: a grey
area where an institution is tottering but
has not yet completely collapsed. Banks in
particular need a special regime because
they crumble so quickly. Traditional
insolvency systems are too slow because
cash and customers flood out of the door
as soon as trouble strikes. ―Insolvency is
the third rail for banks. Touch that and
everything starts to unravel,‖ says Wilson
Ervin, senior adviser at Credit Suisse. ―So
you deliberately design bail-in to happen
five minutes before that.‖ ―Bondholders‘
biggest fear is not getting repaid. With
bail-in, that has to be a big risk and it will
cost the banks,‖ says one investor. ―Bail-in
should only ever be the very, very last
resort but our fear is that regulators will do
anything to prevent a failure and [impose
losses] way too early.‖
The timing of the debate is unfortunate.
Markets have not fully recovered from the
crisis; investor confidence remains fragile.
While the biggest banks are able to sell
bonds, smaller institutions and those from
weaker economies such as Spain and
Portugal are still struggling to tap the
market at prices that make economic
sense. Many of these weaker banks are still
largely reliant on the European Central
Bank for funding. In January the ECB
privately warned the European
Commission about the dangers of its bail-
in announcement – even if it felt the long-
term principle was sound – spooking the
still jittery markets.
When Brussels unveiled its plans in early
January, bond markets choked. For a few
days they virtually froze as investors
digested the implications. While nerves
have since steadied, one outcome is
already clear: investors are increasingly
seeking specially protected bonds that
would not be subject to bail-in. These
include ultra-safe covered bonds backed
by bank assets such as mortgages (see
box). This year, banks are selling record
amounts of them.
Rating agencies have already warned that
the presence of bail-in is likely to lead to
downgrades – another factor likely to push
up borrowing costs. Moody‘s Investors
Service downgraded the junior debt of five
Danish banks and 23 German ones, and
has warned that it is reconsidering its
assessments of all banks‘ junior debt in the
light of bail-in regimes.
There is also the question of whether bail-
in would, in fact, help stabilize the broader
system. Bail-in might allow you to freeze
the institution, giving you some critical
time to sell off or transfer the systemically
important and viable pieces, but it‘s highly
Fin Fast Track-Finals 2011
Page 67
unlikely to create an environment where
you can preserve a bank in anything like
its original form. In Europe, lawyers have
cautioned that altering existing insolvency
regimes to reflect the new powers is no
simple task since it touches on
fundamental areas of law such as property
rights.
This is one of the arguments that Fir Tree
has made in its complaint about the
treatment of bondholders in Anglo Irish. It
is a familiar position. Bondholders have
none of the potential upside offered to
shareholders, for whom theoretically the
sky is the limit. The best outcome that
bond investors can expect is to receive
their money and interest on time. This is
why they have always guarded the legal
covenants and conditions they felt
guaranteed that they would be paid back in
full.
ASIA M&A DEALS
1.Mahindra & Mahindra to
acquire South Korea’s SsangYong
Mahindra & Mahindra (M&M) has signed
a Memorandum of Understanding (MoU)
to acquire South Korean auto maker Ssang
Yong Motor Company (SYMC). The deal
is valued at close to $ 500 Million, making
it the second largest outbound acquisition
in the automotive space.
The deal is expected to close in March.
SsangYong would give M&M access to
more than 1400 dealers in almost 100
countries. Of special interest, is access to
markets in Russia, Europe and Latin
America. Access to the US market is also
valuable as M&M has not been successful
in its past efforts to create a viable
distribution in the US.
The two companies would also share their
R&D and production platforms resulting in
huge cost savings. This will also help the
companies launch new products with a
reduced lead time. Mahindra & Mahindra
launched the SUV ‗Xylo‘ seven years after
the launch of its flagship ‗Scorpio‘ in
2002. Ssang Yong has not launched a new
product in the last four year.
M&M also intends to bring in Ssang
Yong‘s existing products to the Indian
market. Mahindra currently does not have
any presence in the aboveRs.10 Lakhs
market segment in India and Ssang Yong‘s
SUVs like the Rexton, Kyron and Actyon
are expected to fill up this void. The
product portfolios of the two companies
complement each other extremely well.
Overall, the move seems to be a perfect fit
in M&M‘s target of becoming a big player
within the niche of utility vehicles and
having a globalpresence in this market.
Fin Fast Track-Finals 2011
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http://115.111.80.201/consult/wp-
content/uploads/2010/09/PanoramaSepte
mber2010.pdf
2. Reliance Industries buys 95%
stake in Infotel Broadband for Rs
4,800 cr
MukeshAmbani owned Reliance Industries
has bought 95% stake in Infotel
Broadband for Rs 4,800 crore. Infotel
Broadband will now be a subsidary of
Reliance Industries. Shares of RIL have
been buzzing of late on rumours of foray
in the telecom sector.
Unlisted Infotel Broadband Services is the
only firm to win broadband spectrum in all
22 zones in India in an auction that ended
on Friday. The firm is paying Rs 12,848
crore ($2.7 billion) for the spectrum, the
government said. Announcement of the
deal came within hours of Infotel emerging
as the sole winner of broadband spectrum
for the entire country.
This marks Mukesh Ambani group's entry
into telecom sector in less than a month of
he and his younger brother Anil reaching a
truce by ending all the no-compete
agreements to enable each other an
opportunity to enter and invest in areas
hitherto barred under the family settlement
reached in 2005 for division of Reliance
empire.
RIL will invest Rs 4,800 crore by way of
subscription to fresh equity capital at par
to be issued by Infotel Broadband, the
company said in a statement.
RIL's shares also surged over three per
cent to close at Rs 1,046.25 a share on the
day of announcement. Commenting on the
initiative, RIL Chairman and Managing
Director Mukesh Ambani said, "We see
this as the next wave of value creation
opportunity in the wireless broadband
space. We believe this will pole-vault
India's economy into the digital world at
an accelerated pace while creating next
generation tools that will enhance
productivity and create world-class
consumer experiences." RIL said that
BWA services can provide an opportunity
to be in the forefront among the countries
providing world-class 4G networks and
services.
"A single 20 MHz spectrum when used
with Long Term Evolution (generally
known for 4G technology) has the
potential of providing greater capacity
when compared to existing communication
infrastructure in the country," the company
said.
In the BWA space, no other player could
bag pan-India spectrum. BhartiAirtel and
US-based Qualcom won four circles each,
while Aircel bagged spectrum in eight
circles.
There are reports that RIL was also talking
to a new telecom licencee, Videocon
Fin Fast Track-Finals 2011
Page 69
Mobile, for a possible stake in the
company. Videocon's share also went up
by 0.40 per cent to close at Rs 22.20 a
share.
It was reported in The Economic Times
that MahendraNahata-owned Himachal
Futuristic‘s arm, Infotel Broadband
Services, could be a candidate for
acquisition by RIL. The government has
raised over Rs 38,300 crore from the 16-
day long auction for Broadband Wireless
Access (BWA) spectrum. As many as 11
companies, including BhartiAirtel,
Reliance, Idea Cellular , Aircel, Vodafone
and Tata Communications Internet
Services, participated in the auction for
Broadband Wireless Access spectrum.
http://economictimes.indiatimes.com/news
3. Steel Consolidation- JSW- Ispat
deal
High rates of growth to the tune of 9% per
annum, compounded with huge
infrastructure investments have ensured
that the demand for steel will remain
robust in the near future. JSW Steel is
therefore continuously on the lookout for
both organic and inorganic growth
opportunities. The collaboration with Ispat
Industries fits in very well with JSW‘s
bullish outlook on the emerging steel
scenario.
ISPAT’s UNIQUE FEATURES:
Ispat Industries, with a production capacity
of 3.3 mtpa, is inherently seen as a
pioneering company that brought new
technologies into India viz: Twin Shell
ConArc furnace and Thin Slab Casting
facility. The Twin Shell Con Arc furnace
provides the steel making facility with a
great amount of flexibility. Along with the
state-of-the-art Compact Strip Mill, Ispat
also has an in-house jetty, with a cargo
handling capacity of 12 mtpa,that gives it
an added advantage. Further, Ispat‘s
mining concessions in India and overseas
along with the geographical location of the
plant in the West of India makes it all the
more attractive.
STRATEGIC PLAN FOR PERFORMANCE
ENHANCEMENT:
The current difficulties of Ispat Industries
emanate from a financial imbalance and
lack of integration in key inputs of coke,
pellet and power. JSW‘s infusion of equity
removes this financial stress and the
proposed linkages of key inputs will
reduce the operating cost. By taking over
the management of Ispat Industries, JSW
will address these concerns, creating value
for all Ispat stakeholders.
Ispat Industries will issue on the
preferential basis, 108.66 equity shares at
Rs.19.85 per share for a consideration of
Fin Fast Track-Finals 2011
Page 70
Rs.2157 cr. In addition, JSW will make an
open offer to minority shareholders of
Ispat Industries as per the SEBI
requirements.
While JSW‘s holding will be at 41.29% on
completion of preferential allotment, with
a scope to go up based on the outcome of
the open offer, the existing promoters will
hold 26% on completion of transaction.
Dilution of holding for both the parties
will occur if there is a capital raising in the
future. JSW will further re-finance the
entire outstanding debt of Ispat.
JSW will also put in a systematic plan to
turnaround Ispat Industries by developing
synergies in the competitive steel market.
JSW Steel will facilitate sourcing of key
inputs like coke, pellet and power which
will bring down the cost of production
substantially. JSW‘s extensive pan India
network will provide Ispat with better
market penetration. By improving the
levels of efficiency and by rationalizing
the sourcing of Iron ore lumps and fines
JSW will reduce the cost of production.
Besides this, Ispat industries will set up a
captive coke oven plant, pellet plant and
power plant to achieve complete
integration of steel making facilities over a
period of 36-48 months in order to reduce
cost of production. Along with this various
operational efficiency projects which shall
be taken up along with debottlenecking of
existing facilities for capacity
enhancement from 3.3 mtpa to 4.2 mtpa.
Ispat Industries will be renamed JSW Ispat
Steel Ltd. Mr.Sajjan Jindal will be the Non
Executive Chairman of the Company. Mr.
Vinod Mittal will be Executive Vice-
Chairman of the Company during the
transition period and subsequently
function as a Non-Executive Vice
Chairman.
This controlling stake takes JSW one step
closer in achieving its aim of producing 34
mtpa by 2020.
http://www.jsw.in/media_zone/pdf/JSW_
Steel_Ispat_press_release-1.pdf
4. ADAG pack consolidates
Reliance Natural Resources Ltd (RNRL)
will merge with Reliance Power (R-
Power) in an INR 500 bn, all-stock deal.
The approved swap ratio for this deal is of
4:1, meaning RNRL shareholders will get
one R-Power share for everyfour they
hold.
The merger will take the market
capitalisation of R-Power to over INR 500
bn. Its market cap was INR 419 bn at the
close of trading on Friday and that of
RNRL was INR 104 bn.R-Power will
retain the assets and people of RNRL.
After the merger, the company‘s net worth
Fin Fast Track-Finals 2011
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will exceed INR 160bn. The net worth of
RNRL is INR 19 bn.
THE RATIONALE
RNRL was formed to supply gas from
RIL‘s KG basin to the ADAG companies.
The company has no power projects
of its own, so it has to resell the gas
purchased from RIL to R-Power. This
comes under gas trading.
Merger of R-Power and RNRL will ensure
that RNRL ceases to exist and R-Power
gets the gas directly from RIL.
The gas supply will be ensured for R-
Power as RIL and RNRL had recently
signed a new gas supply agreement to
comply with the Supreme Court ruling in
May.
THE IMPACT
The merger will be positive for R-Power‘s
plans to set up a 10,000 MW gas-based
power plant. R-Power currently has ~1,000
MW of generation capacity and plans to
implement about 37,000 MW of power
projects. RNRL‘s shareholders, about 80%
of them also shareholders of R-Power, will
now get an opportunity to join the latter‘s
powerd reams.
This merger will make R-Power a
domestic power company with one of the
largest coal reserves. It has about four
billion tonnes of coal reserves in Indonesia
and India. RNRL has 45% interest in four
coal-methane blocks, spread over 3,251 sq
km and estimated resources of 193 billion
cubic metres, and a 10% share in an oil
and gas block in Mizoram, with an acreage
of 3,619 sq km and reserve potential of up
to 28 bn cu m. R-Power will also benefit
fromRNRL‘s coal supply logistics and
shipping business.
OUTLOOK AND VALUATIONS
The merger is positive for R-Power as gas
allocation will be done faster by the
government. This will give a boost to
R-Power‘s gas based plants.
http://www.uniconindia.in/Research_Pdf/
RPower-RNRLMerger-EventUpdate.pdf
5. Axis Bank and Enam combine
their investment banking and
equities businesses
Axis Bank Limited (―Axis‖) and Enam
Securities Private Limited (―Enam‖)have
agreed to combine their Investment
Banking and Equities businesses.
Accordingly, it is proposed that Enam
Securities will demerge its investment
banking, institutional equities, retail
equities and related businesses such as
distribution of financial products and loans
against shares, among others to Axis
Fin Fast Track-Finals 2011
Page 72
Securities and Sales Limited (―ASSL‖), a
wholly owned subsidiary of Axis Bank.
The proposed transaction has also been
approved by the Board of Directors of
ASSL.
Pursuant to the Scheme and in
consideration for the proposed demerger,
Enam shareholders will receive shares of
Axis Bank in the ratio of 5.70 shares of
Axis for every 1 share held in Enam,
translating into an approximately 3.37%
shareholding in Axis Bank.
The proposed transaction is subject to the
requisite regulatory approvals including
approvals from the RBI, SEBI, Stock
Exchanges and the High Courts of Gujarat
and Maharashtra and from the
shareholders and creditors of the
respective companies.
The proposed transaction would create one
of India‘s leading financial services
powerhouses combining the investment
banking and equities franchise of Enam
Securities with thedominant debt capital
markets and commercial banking franchise
of Axis Bank. The strategic bjective is to
create a complete bouquet of financial
products and services for corporate,
institutional and individual clients that will
enhance the ability of the combined
business to better serve client needs in a
seamless manner across product categories
and geographies.
With Axis‘s distribution platform of over
1,100 branches and Enam‘s extensive
retail network,the combined business will
have an unparalleled opportunity to build a
dominant retail franchise as well.
The Board of Axis proposes to invite
Mr.Vallabh Bhanshali, the Co-founder and
Chairman of Enam, as an independent
director, subject to necessary approvals.
Mr. Manish Chokhani would be the MD &
CEO of ASSL while Mr.Jagdish Master
will provide guidance as aboard member
of ASSL, subject to necessary approvals.
Commenting on the proposed transaction,
Ms. Shikha Sharma, Managing Director &
CEO of Axis said ―This transaction is in
line with Axis‘s strategy of continuously
expanding its product and service offerings
to its customers in order to deepen its
relationships and value differentiators. We
are delighted at the prospect of combining
forces with Enam Securities, apre-eminent
name in the investment banking and
advisory field, to create an Indian financial
services power house at a time when India
has occupied the world‘s centre-stage and
is poised for years of rapid growth.
http://www.axisbank.com/xmlapplication/personal
/pdf/Axis-Bank-and-Enam-combine-their-
investment-banking-and-equities-businesses.pdf
Fin Fast Track-Finals 2011
Page 73
6. iGATE to Acquire Majority
Stake in Patni Computer Systems
iGATE Corporation (Nasdaq:IGTE), the
first Business Outcomes based integrated
technology and operations company, today
announced that its subsidiaries have
executed definitive agreements to acquire
a majority stake in Patni Computer
Systems Ltd. (NSE:PATNI) (NYSE:PTI),
the Mumbai-based IT services and BPO
company. The transaction is valued at
approximately $1.22 billion, including the
mandatory open offer to the public
shareholders of Patni. The transaction is
expected to be completed in the first half
of 2011. iGATE expects the transaction to
be accretive by 2012 on a cash earnings
per share basis.
The acquisition will bring together two
highly recognized information technology
outsourcing companies with
complementary industry verticals, and
facilitate sustained long-term growth for
the combined entity. The combination will
create a compelling go-to-market strategy
with iGATE's differentiated iTOPS and
outcomes-based business model
augmented by Patni's delivery expertise
and focus on micro-verticals. iGATE
expects to realize multiple synergies from
this combination:
- Opportunity to play in larger deals and
more verticals
- Opportunity to cross-sell key solutions to
a broader client base
- Opportunity to enhance win ratio based
on selling combined strengths
- Efficiencies in operations and delivery
services
- Economies of scale from consolidation of
shared services
Commenting on the acquisition, Phaneesh
Murthy, CEO of iGATE Corporation, said,
"It has been our stated intent to scale
revenues, customers, and expand our
vertical capability. We believe the
threshold of a billion dollar revenue will
facilitate faster adoption of our iTOPS for
Business Outcomes model. We also
believe that the combination will help
customers get better service, access to
more service lines and deeper pools of
expertise."
He added, "The objective is to synergize
the leadership team of both iGATE and
Patni to create, over time, a world class
integrated leadership team which will
drive the combined company to newer
horizons."
iGATE's subsidiaries have signed
definitive agreements with the three
founders of Patni Computer Systems, viz.,
Mr.Narendra Patni, Mr.GajendraPatni and
Mr. Ashok Patni, and private equity firm
General Atlantic, to acquire their 45.6%
and 17.4%stakes, respectively, at a price of
Rs.503.5 per share, amounting to a total
Fin Fast Track-Finals 2011
Page 74
consideration of approximately $921
million.
In accordance with the requirements of the
Securities and Exchange Board of India
("SEBI") and the applicable Indian rules
on Takeovers and Mergers, iGATE's
subsidiaries will make an open offer to the
public shareholders to purchase an
additional20.6% stake in Patni. The
aggregate price for the shares to be
purchased in the open offer assuming full
tender is estimated at$301 million.
The closing of the acquisition is subject to
customary conditions, including receipt of
required regulatory approvals, and the
completion of the open offer for the
purchase of shares of the public
shareholders of Patni. Patni Computer
Systems has16,556 employees, 282
customers, 22 global delivery centres, and
offices in 30 locations worldwide, and
reported revenues of$689 million for the
12 months ended September 30, 2010.
iGATE has 8,278 employees, 82
customers, seven global delivery centres,
and offices in 16 countries, with revenues
of $252 million for the 12 months ended
September 30, 2010.
An expanded pool of talent, diverse
expertise across multiple verticals, higher
level strategic end-to-end service offerings
and an established management team with
a track record of proven execution are
expected to strengthen iGATE's
competitive position as a top-tier player in
the highly-fragmented global IT industry.
iGATE's iTOPS solution methodology is
designed to overcome the limitations of
traditional outsourcing models. It
addresses the problem of conflicting
business interests between traditional
outsourcing vendors and clients by
allowing clients to use and payfor only the
outcome. For the service provider, it also
creates a discontinuity in the linearity of
revenue with people iGATE's advisors
include: Jefferies & Company, Inc.,
financial advisors, Kirkland & Ellis LLP,
international legal counsel, Khaitan & Co,
Indian legal counsel, Kotak Mahindra
Capital Company Limited, Managers for
the Open Offer, and Ernst and Young, tax
advisors.
http://www.igate.com/uploads/newsroom
/press_releases/163iGATE_to_Acquire_M
ajority_Stake_in_Patni_Computer_Systems.
7. BP, Reliance enter $20bn
investment deal
British energy giant BP and India‘s
Reliance Industries announced last week a
massive investment deal which could be
worth up to $20bn with later investment in
key Indian oil and gas assets.
Fin Fast Track-Finals 2011
Page 75
BP said it will pay $7.2bn (¤5.3bn) to
Mumbai-based Reliance Industries for a
30-percent stake in 23 Indian oil and gas
blocks, announcing another major foreign
venture as it seeks to put last year‘s Gulf
of Mexico oil spill disaster behind it.
Earlier this year, it joined forces with
Russia‘s Rosneft in what could be another
transforming deal to explore for oil in the
Arctic region.―BP will pay Reliance
Industries Limited an aggregate
consideration of $7.2bn, and completion
adjustments, for the interests to be
acquired in the 23 production sharing
contracts,‖ the two firms said in a joint
statement.
―Future performance payments of up to
$1.8bn could be paid based on exploration
success that results in development of
commercial discoveries. These payments
and combined investment could amount to
$20bn.‖
―The partnership will combine BP‘s
world-class deepwater exploration and
development capabilities with Reliance‘s
project management and operations
expertise,‖ the two groups added.
The Indian news marks BP‘s latest attempt
to move on following the devastating Gulf
of Mexico oil spill disaster last year which
forced it to set aside billions to cover
environmental damage and tainted its
reputation.Crisis-hit BP reported its first
annual loss in almost two decades earlier
this month, as a result of the oil spill
catastrophe, and outlined fresh plans to
shift its focus away from the United States.
BP suffered a loss of $4.9bn last year, the
first shortfall since 1992 and compared
with a massive profit of $13.96bn in
2009.The group has also announced plans
to halve its US refining business.
Analysts in India hailed the accord as a
huge boost for Reliance and the country
which has been trying to boost energy
production to meet the needs of its
booming economy.―This is a huge
sentiment booster for Reliance and the
country, demonstrating that its oil blocks
have strong credibility,‖ said SonamUdasi,
head of research with Mumbai-based IDBI
Capital.
The BP cash will also help Reliance build
its war-chest for further expansion, Udasi
said.Reliance has generated two billion
dollars through the sale of shares since
September 2009 and is expected to keep
raising cash to boost its reserves and
ability to make acquisitions.
Reliance operates the world‘s largest oil-
processing complex in Jamnagar, western
India, where two adjacent refineries have a
Fin Fast Track-Finals 2011
Page 76
combined capacity to process 1.24 million
barrels of oil a day.
Apart from the oil and gas blocks, BP and
Reliance will also set up a 50-50 joint
venture for the sourcing and marketing of
gas in India.The production sharing
contracts currently produce more than 30
percent of India‘s total gas consumption
and more than 40 percent of its total
production.
http://www.thepeninsulaqatar.com/busines
s-news/143366-bp-reliance-enter-20bn-
investment-deal.html
USA & Europe M&A
The M&A scorecard lists the top deals of
2011 based on published headline value in
US dollars.
M&A deal scorecard | deals valued at
over $500m
Last updated: 18 February, 2011
Rank Partners Date Value,
US$m
1 Sanofi -
Genzyme
Feb
'11
$20,100m
2 Danaher -
Beckman
Coulter
Feb
'11
$6,800m
3 DuPont -
Danisco
Jan
'11
$6,300m
4 Amgen -
BioVex
Jan
'11
$1,000m
Sanofi-Aventis - Genzyme
February | headline value: $20,100m
Sanofi-aventis and Genzyme Corporation
have entered into a definitive agreement
under which sanofi-aventis is to acquire
Genzyme for $74.00 per share in cash, or
approximately $20.1 billion.
In addition to the cash payment, each
Genzyme shareholder will receive one
Contingent Value Right (CVR) for each
share they own, entitling the holder to
receive additional cash payments if
specified milestones related to Lemtrada™
(alemtuzumab MS) are achieved over time
or a milestone related to production
volumes in 2011 for Cerezyme® and
Fabrazyme® is achieved.
Danaher - Beckman Coulter
February | headline value: $6,800m
Definitive merger agreement under which
Danaher will acquire all of Beckman
Coulter's outstanding common stock for
$83.50 per share in cash (without interest),
representing an approximate 45% premium
over the closing price of Beckman
Coulter's common stock on December 9,
Fin Fast Track-Finals 2011
Page 77
2010 before rumors of an acquisition
entered the marketplace.
The transaction is valued at approximately
$6.8 billion, including debt assumed and
net of cash acquired.
DuPont - Danisco
January | headline value: $6,300m
DuPont has entered into a definitive
agreement for the acquisition of Danisco, a
global enzyme and specialty food
ingredients company, for $5.8 billion in
cash and assumption of $500 million of
Danisco net debt.
Amgen - BioVex
January | headline value: $1,000m
Biovex, Inc. has entered into a definitive
acquisition agreement where Amgen has
agreed to acquire BioVex Group, Inc.
Amgen will pay up to US$1 billion;
US$425 million in cash at closing and up
to US$575 million in additional payments
upon the achievement of certain regulatory
and sales milestones.
Scorecard: Top M&A deals 2010
M&A deal scorecard - top 25 - 2010 -
deals valued at over $500m
Source: CurrentPartnering, 2011,
http://www.currentpartnering.com/scorecar
d/manda2010
Last updated: 31 December, 2010
Rank Partners Date Value,
US$m
1 Novartis/Nestle
- Alcon
Aug
'10
$28,300
2 Sanofi -
Genzyme
Aug
'10
$18,500
3 Merck KgaA -
Millipore
Feb
'10
$7,000
4 Teva -
Ratiopharm
Mar
'10
$4,925
5 OSI - Astellas May
'10
$4,000
6 Reckitt - SSL Jul
'10
$3,900
7 NBTY - The
Carlyle Group
Jul
'10
$3,800
8 Abbott -
Piramal
May
'10
$3,700
9 Pfizer - King Oct
'10
$3,600
10 Grifols -
Talecris
Jun
'10
$3,400
11 Biovail -
Valeant
Jun
'10
$3,300
12 Celgene - Jun $2,900
Fin Fast Track-Finals 2011
Page 78
Abraxis '10
13 Covidien - ev3 Jun
'10
$2,600
14 Crucell - J&J Sep
'10
$2,300
15 Thermo Fisher -
Dionex
Dec
'10
$2,100
16 McKesson - US
Oncology
Nov
'10
$2,000
17 Wuxi - C. River
(term.)
Apr
'10
$1,600
18 Cardinal -
Kinray
Nov
'10
$1,300
19 Aspen - Sigma
(term.)
May
'10
$1,240
20 Qualitest - Endo Sep'
10
$1,200
21 Inventiv -
Thomas H Lee
May
'10
$1,100
22 DSM - Martek Dec
'10
$1,087
23 3M - Cogent Aug
'10
$943
24 Boehringer Ing.
- SSP
Feb
'10
$913
25 BMS - Sep $885
ZymoGenetics '10
Novartis/Nestle - Alcon
August 2010 - headline value: $28,300m
Novartis and Nestlé have wrapped up a
$28.3 billion all-cash deal that gives
Novartis, the Swiss drug giant, a
controlling stake in the eye-care company
Alcon, one of the last steps in a deal
initiated in 2008.
Novartis now holds 77 percent of Alcon
shares, with the remaining 23 percent
trading on the New York Stock Exchange.
While Novartis has proposed a merger
with Alcon, representatives of Alcon‘s
minority shareholders have resisted the
terms of the deal.
Sanofi - Genzyme
August 2010 - proposed acquisition -
headline value: $18,500m
France's Sanofi-Aventis has publicly
disclosed its $18.5 billion, $69-per-share
cash offer for Genzyme Corp. in a bid to
rouse shareholders after failing to engage
the U.S. biotechnology company in merger
talks.
Sanofi said it is considering all options to
complete the transaction, hinting it would
consider a hostile takeover bid.
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Analysts have said they expect a deal to be
finalized in the range of $74 to $77 a
share. If Sanofi walks away, analysts see
shares of Genzyme falling to the low $50-
range. Some say it could take at least a
year for them to rebuild the lost value.
Merck KgaA - Millipore
February 2010 - headline value: $7,200m
Definitive agreement under which Merck
KGaA will acquire all outstanding shares
of common stock of Millipore, for US$
107 per share in cash, or a total transaction
value, including net debt, of approximately
€ 5.3 billion (US$ 7.2 billion). The
transaction was approved by the boards of
directors of both companies. Millipore and
Merck will create a € 2.1 billion (US$ 2.9
billion) world-class partner for the Life
Science sector, achieving significant scale
in high-margin specialty products with an
attractive growth profile.
Teva - Ratiopharm
March 2010 - headline value: $4,925m
Definitive agreement to acquire
ratiopharm, Germany's second largest
generics producer and the sixth largest
generic drug company worldwide, for an
enterprise value of $3.625 billion. The
transaction is subject to certain conditions
including relevant regulatory approvals.
On a pro forma basis, the combined
company would have had 2009 revenues
of $16.2 billion. Teva expects to complete
the transaction by year-end 2010.
OSI - Astellas
May 2010 - acquisition - headline value:
$4,000m
Astellas Pharma, Japan's no. 2 drugmaker
buys U.S. biotech OSI Pharmaceuticals for
$4 billion in cash, in a sweetened bid that
will add OSI's blockbuster cancer drug
Tarceva to its line-up.
Astellas will pay $57.50 per OSI share, 11
percent more than a previously proposed
$52. The new price represents a 55 percent
premium to OSI's last closing price before
Astellas launched its hostile bid on March
1.
Reckitt Benckiser - SSL
July 2010 - acquisition - headline value:
$3,900m
Reckitt‘s offer is worth 1,171 pence a
share, 33 percent more than SSL‘s closing
price yesterday. SSL rose 33 percent in
London trading, the most ever. Reckitt, the
maker of Cillit Bang cleaners and Nurofen
painkillers, gained 3.5 percent.
Reckitt is paying about 18 times SSL‘s
earnings before interest, taxes,
depreciation and amortization, according
to Bloomberg data. The maker of Veet hair
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remover paid almost 30 times Ebitda for
the $2.3 billion purchase of Adams
Respiratory Therapeutics Inc. in 2008, its
last major acquisition.
NBTY - The Carlyle Group
July 2010 - acquisition - headline value:
$3,800
The board of directors of NBTY has
unanimously approved the merger
agreement and recommended that NBTY's
stockholders adopt the agreement with
Carlyle. A special meeting of NBTY's
stockholders will be held as soon as
practicable after the preparation and filing
of a proxy statement with the Securities
and Exchange Commission and
subsequent mailing to shareholders. The
mailing of the proxy statement is expected
to take place following the expiration of
the 35 calendar day period following the
date of the merger agreement, during the
course of which NBTY is permitted to
solicit alternative proposals from third
parties. The transaction is expected to
close by the end of 2010.
Completion of the transaction is subject to
customary conditions to closing, including
approval of NBTY stockholders and
regulatory approvals, but is not subject to
any condition with regard to the financing
of the transaction. The transaction has
fully committed financing, consisting of a
combination of equity contributed by
Carlyle Partners V, a $13.7 billion U.S.
buyout fund, and external debt financing
provided by BofA Merrill Lynch, Barclays
Capital and Credit Suisse.
Abbott Laboratories - Piramal
Healthcare
May 2010 - asset purchase - headline
value: $3,720m
Abbott Laboratories announce the $3.7bn
acquisition of the generic drugs unit of
Indian conglomerate Piramal, in a move
which significantly increases the U.S.
group's emerging market presence.
Piramal will receive $2.1bn in cash up-
front and $1.6bn over the next four years
whilst underlining group's growing interest
in getting a foothold in one of the world's
fastest growing pharmaceutical markets.
Pfizer - King
October 2010 - acquisition - headline
value: $3,600m
Pfizer will acquire King, a diversified
specialty pharmaceutical discovery and
clinical development company, for $3.6
billion in cash, or $14.25 per share, which
represents a premium of approximately
40% to King's closing price as of October
11, 2010, and 46% percent to the one-
month average closing price as of the same
date.
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Grifols - Talecris
June 2010 - acquisition - headline value:
$3,400m
Definitive agreement through which
Grifols will acquire Talecris for a
combination of cash and newly-issued
Grifols non-voting shares having an
aggregate value today of approximately
$3.4 billion (€2.8 billion), creating a global
leader of life-saving and life enhancing
plasma protein therapeutics.