MUMBAI, INDIA: In the time of global economic meltdown, American companies feel it is better to continue their current strategies of outsourcing some functions, says a recent study.
According to a research by the Center for International Business Education and Research's Offshoring Research Network (ORN) at The Fuqua School of Business, Duke University and PricewaterhouseCoopers. The ongoing study mainly focuses on the effects of offshoring trends on American competitiveness.
It says that the financial downturn may even accelerate outsourcing plans. The survey, designed to capture business managers' sentiments in the midst of the economic crisis and the presidential election, was conducted during the first two weeks of November and queried nearly 100 firms from the US and Europe about their plans to source some job functions and business processes offshore, said a press release.
The survey on offshoring trends suggests that while cutting labour costs is the most significant factor driving offshoring decisions since the worldwide financial crisis gained momentum this quarter, many survey participants noted an increased urgency to improve efficiencies.
"Our research shows as companies grow the scale and scope of sourcing programs, average efficiency decreases," said Arie Lewin, professor of strategy and international business and executive director of CIBER. "Enhancing efficiencies has become more urgent in recent months as pressure on margins forces companies to increase productivity while spending less."
To cope with the slumping economy, companies plan to enhance efficiencies through business process redesign and by improving coordination and integration of offshoring processes, the study said.
"Redesigning business processes is not equivalent to end-to-end process re-engineering, which requires a significant commitment of resources and time," added Hari Rajagopalachari, executive director, PricewaterhouseCoopers.
"Our findings indicate companies can't wait that long and can't spare those resources; they want to improve their existing organizational capabilities for managing their offshoring strategies."
Forty-one percent of respondents report increasing speed to market is becoming a more important driver of offshoring. Meanwhile, access to qualified personnel has not increased in importance, partly because rising unemployment is widening domestic employment pools.
As a result of the global economic crisis, renegotiating current contracts with service providers is emerging as a growing concern among companies.
Forty percent of companies said they have pressured or plan to pressure providers to offer more favorable contract terms in order to trim costs, the release said.
Sunday, December 14, 2008
Tuesday, December 9, 2008
India’s stimulus package
Finally it’s here
After the RBI’s stimulus package announced on Saturday, it was the turn of the government. The central government introduced a 10-point Rs 320 bn package on Sunday to stimulate the Indian economy. Of this, infrastructure spending to the tune of Rs 200 bn over the next four months is on the cards. Central valued added tax has been cut by 4% across the board, other than valued added tax. Labour intensive exports such as textiles will receive sops. Small scale industries will be eligible for funding without collateral to the tune of Rs 10 m per entity.
The reaction to the package, has however, been lukewarm from the industry, which was expecting an even larger package. Although the government has not ruled further steps, it operates under severe fiscal constraints. It may be noted that the Rs 320 bn push will nearly double India’s fiscal deficit from an earlier projected 2.5% to 5% by the end of FY09. When viewed in combination with the RBI’s actions, we believe the effort definitely points towards the right direction. In fact, public sector banks are likely to announce measures to support home loans up to of Rs 2 m.
Obama will spend too...
It is not just China and India which plan to spend their way out of a slowing economy. The US, where the situation is much graver, has plans of its own. As per a leading business daily, President elect Barack Obama has said he will make the single largest new investment in roads, bridges and public buildings since the Eisenhower administration’s interstate highway program. While doing so, he intends to keep a close eye on results rather than just throwing money at the problem. Those states which do not use the money quickly stand to lose their share.
The thrust of his program will be towards aiding 2.5 m jobs. This is not surprising given that November 2008 witnessed the biggest decline in US jobs in 34 years. While a healthy US economy benefits global commerce including India, the focus on job losses is likely to darken the clouds building up on the poster child of India’s growth story - IT.
RBI’s stimulus package is here
RBI’s stimulus package is here
While the recent inflation numbers have not particularly been a cause of worry for the RBI, a moderation in the real GDP growth, slowdown in industrial and infrastructural activity, muted prospects of growth in service sectors (hospitality, tourism, IT services, financial services) and absolute decline in exports for the first time in seven years seem to have necessitated a stimulus.
The RBI’s recently released data indicate that the demand for bank credit has slackened in November 2008 (from 25% YoY growth during the period April to September) despite comfortable liquidity. Higher input costs and dampened demand have also dented corporate profitability while the uncertainty surrounding the crisis has affected business confidence.
The following are some of the key highlights of the package
The central bank has once again tweaked its oft-used tools of monetary policy to offer additional liquidity to the banking system. It has reduced the repo rate (rate at which it lends to banks) by 1% from 7.5% to 6.5% and the reverse repo rate (rate at which banks lend to RBI) by 1% from 6.0% to 5.0%, effective December 8, 2008.
To enhance credit delivery to the labour- intensive micro and small enterprises (MSE) sector, the RBI will provide refinance facility to the tune of Rs 70 bn to the Small Industries Development Bank of India (SIDBI) that is the prime financer to such enterprises.
To bring some relief to the real estate and housing finance sector, the RBI has allowed loans granted by banks to housing finance companies (HFCs) for lending towards houses costing less than Rs 2 m to be classified under priority sector lending. However, the eligibility under this measure will be restricted to 5% of the individual bank’s total advances. This dispensation will apply to loans granted by banks to HFCs up to March 2010. A refinance facility of Rs 40 bn is also being worked upon for the National Housing Bank (NHB) to lend directly to HFCs. Further to prevent banks from accumulating large real estate - linked NPAs, the RBI has extended an ‘exceptional/ concessional treatment’ to loans disbursed to the sector that are currently delinquent but can be restructured by June 2009.
Proposals have also been put forward for easing credit to exporters and allowing repayment of foreign debt by Indian corporates.
While the package essentially caters to the sectors that are currently under stress, the central bank is hopeful that it will extend some respite to the others that have the potential to shoulder the revival of the economy during the slowdown.
Mere desh ki galti
"Mere desh ki dharti", proclaimed Manoj Kumar in the classic Upkar "will sprout gold, diamonds, and pearls."
But that was the patriotic Mr. Bharat.
The market cap focused Mr. India had other plans.
Large chunks of land were cornered by a few - with much help from friendly sources with political connections.
Land banks were built.
The sona, heeray, aur moti from the glorious land of India that was supposed to benefit all was hastily converted into Special Economic Zones.
The only thing "special" about these zones was that it was an area of land where the economic interest was to be shared by a few "special" people.
Sometimes these tracts of land were to be developed into massive townships that would give abnormal profits to the few. India has a housing shortage and the real estate developers were doing us all a favour by going through the painful process of jumping through the hoops of 62 approvals to give us our homes.
Of course, each of those 62 approvals was an opportunity to share the spoils and act as a barrier to competition. The end product - priced on the basis of "super built-up area" graciously asked us to pay for the price of air on which our dreams float.
For those with connections in the seedy corridors of power, the slum rehabilitation projects in crowded cities like Bombay were tweaked to create fictitious tenants.
These re-allotments would help enhance profits of the developers.
Brand name, reputation, and religion have little meaning when it comes to the world of money - the profit motive is the ultimate objective.
The slogan shouting of roti, kapda, aur makaan and the love for the "aam aadmi" are, eventually, slogans. Governments - across the political spectrum and across various time periods - have made a mockery of India’s need for housing with the land melas that have favoured the few at the cost of many.
Government steps in
But not every plan ends up the way it was supposed to.
Not every racketeering scheme generates the profits that were envisaged.
And so it is true with the real estate "business".
The mighty, with all their connections and all their exchanges of bagfuls of money, built these land banks - but don’t have the buyers.
The "discounted cash flow" model that was used by them to generate bubble-level share prices of their unreal estate companies has, well, been discounted to a fraction of what they were trading at.
The balloon has deflated.
A land bank is now a sinking hole.
Debts have to be repaid and interest needs to be paid.
Every month.
And no sane bank is willing to lend to the real estate developers.
So, what is the solution? That’s an easy one: use the political system to be bailed out.
Over the past few years, the Reserve Bank of India was trying to control the amount of money made available to real estate. And the cost of that money.
Now they are making a u-turn.
Statements from the usual, suspect politicians - possibly with connections to the real estate industry - are nudging the RBI to open the tap and ensure that loans are given to real estate companies.
These companies, after all, have the "sona, heeray, and moti" to be harvested.
Redefine the product
We are on a strange road in real estate. India has a shortage of tens of millions of homes. And, yet, the real estate companies are sitting on dud projects. They cannot sell anything. They are in deep trouble. They needed the help of the political friends to get the land banks and now they need the help of their political friends to ensure that the banks don’t end up seizing their land!
But, sadly, the shortage of homes still exists.
Mr. Chidambaram, when he was the Finance Minister, had a solution: "if they (the car manufacturers and home developers) cut prices I am sure that the demand will increase sharply. The ball is in their court."
This seemed like a reasonable solution. If you cannot sell something at a higher price, reduce the price and a buyer will emerge at some price.
But there is a problem with that solution: the profits that every real estate developer and investor thought they had would be wiped out. And the banks that lent all that money to real estate companies? Ouch! They would be hurt even more.
The developers went on the offensive. Their alternate solution was to have the RBI give them more money at lower cost - and also extend this courtesy to the potential buyers. Rather than accept that they had built over-priced product that could not be sold, they said "lack of availability of credit is the reason why demand is down. There is room for interest rate reductions on home loans to the 7% and 8% levels that existed 2 years ago."
So the rape of the desh ki dharti goes on. The politicians have stepped in to rescue the real estate developers and revive their disappearing profits. This means that you, dear customer, are the one paying the higher price for sub-standard housing sold on a super-built-up basis. But don’t worry - the banks will be more than willing to lend you money at these artificially high prices.
The new age banks will like that increase in activity. They are not used to sitting quiet. They miss the days when they lent money to those who cannot afford to repay the loans. Their "let’s go and get market share" model is at risk.
Promotions and bonuses are due. Something needs to be done to show how brilliant they are.
I don’t know, dear reader, I don’t know.
We seem to be willing to reward people and companies who nearly blew up the economy; who followed a growth for growth’s sake business model; who had this urge for market share.
The dangers of that business model are all around us. And before we have recovered from the first mistake, we are about to make another big banking bet by turning on the tap of cheap home loans for overpriced real estate. Just to save the profit margins of the real estate developers and their partners in the political establishment.
Don’t get me wrong. Giving loans at lower interest rates for buying homes is a great idea. But first the developers need to reduce the prices of their properties by 40% to 50%. The "political connection" premium linked to real estate projects needs to be eradicated.
Maybe the Finance Minister became the Home Minister to save us from the terrorism of artificially high real estate prices and to ensure that we get our homes a lot cheaper. Maybe.
Saturday, November 29, 2008
Indian biz industry at gunpoint of terror: Experts
36 hours after terrorists struck in the heart of Mumbai in planned and synchronized attacks, its important to understand how these attacks will impact voters' trends ahead of elections next year. What impact will it have on the business climate and will it hit international capital flows? Experts like Vinod Sharma, Political Editor, The Hindustan Times; James Lamont, Bureau Chief-Delhi, The Financial Times; and MJ Akbar, Chairman and Director of Publications, Covert, delve deeper.
Vinod Sharma, Political Editor, The Hindustan Times, said, as far as rural India is concerned it's the real India which is the bigger India, so inflation and unemployment will be major issues going forward. But the country should fight unitedly and keep aside their internal differences.
On similar lines, Lamont said expatriates working in Mumbai will be jittery. However, international agencies around the world will help
He feels the security and infrastructure has to be tightened and improved, but whether the city authorities will learn from lessons of these attacks needs to be watched.
Meanwhile, Sharma said, terrorist attack is aimed at gathering sustained publicity for long time. Terrorists have targeted landmarks frequented by foreigners; thus capital inflows will be brought to its knees in due time if nothing done.
Impact of terror attack on elections:
Sharma said terrorism will impact voters’ mind in big cities like Mumbai and
He said it is a combination of anti incumbency over ten years, plus rising consolidated anger against completely ineffective government both in the state and in the centers.
Sharma said, “I don’t think any government which gets elected to power in
The kind of police system that we have inherited in this country and the training of this system which will take enough time, conviction again is a major problem, even if we reduce the political interference element to a large extent, so it’s a battle that the country has to fight unitedly and not fight over so to speak, he added.
Om similar lines, Lamont said, the Prime Minister was talking about possible links with neighbors and by that he means Pakistan and Bangladesh, but whether it is an Al-Qaeda attack which has an international network right across the world or this is an attack similar to those attacks on Western Capital is still to be known, but it has escalated the terror threats in India.
Six hostages killed at Oberoi Trident: NSG
A heavy exchange of fire between the security personnel and the terrorists was reported soon after the rescue. One terrorist was reportedly killed in the crossfire.
An NSG official said at least six hostages were feared dead.
“Terrorists don’t want to listen to anything. They are not ready to surrender. They are threatening to kill all the hostages,” he said.
At least 100 persons, including a World Bank official, are still suspected to be trapped inside the hotel.
The rescued hostages, many of who are foreign nationals, were swiftly escorted to a private bus, as anxious relatives and family members present outside the hotel heaved a sigh of relief.
Police had to resort to lathi charge to bring the crowd of curious onlookers under control.
The National Security Guard and the Marine Commandos are into the final assault against terrorists at the Oberoi hotel. The assault team has sanitised parts of the Oberoi Trident.
Another NSG official informed CNN-IBN that room intervention operation was underway at the Oberoi, where two more floors are yet to be sanitised.
“A room intervention drill entry is made in every room, following which we check each and every thing without any collateral damage. It takes about four to five minutes,” he explained.
"Final assault is yet to happen," he added.
Meanwhile, Army sources claim that the terrorists were provided commando training by Pakistan Army. They also suggested that the terrorists were provided boats and other logistical support by the Mumbai underworld.
Terror strikes to hit long-term FIIs funding: Nirmal Jain
Growth in gross domestic product, or GDP, for Q2 FY09 has come in at 7.6% as compared to 9.3% YoY, and 7.9% QoQ. A CNBC-TV18 poll had estimated it at 7.25%.
Commenting on similar lines,
Nirmal Jain, Chairman and Managing Director, India Infoline, said the market has already factored in a lower gross domestic product or GDP, growth for Q3 and Q4 FY09. “However, the current numbers are better than street expectations.”He said there is no immediate impact of terror attack, but in the long run FIIs will react. “Given the terror attacks, we need tough government measures to assure investors, as FIIs won't put in money in
He feels hotels, airlines and tourism are likely to be in for a few tough quarters.
Here is a verbatim transcript of the exclusive interview with Nirmal Jain on CNBC-TV18. Also watch the accompanying video.
Q: 7.6% is not a bad number for Q2 but we haven’t had any great reaction from the market. Do you think the market is overwrought about Q3 and Q4?
A: The market reaction is not there, because the market sees by whatever is happening in Mumbai and the terrorist attack on the city. If you look at the last two days Asian markets and the
Q: What about the events of the past few days? Do think there might be any long-term impact for our market or as in the past we will manage to put it behind us?
A: There will be some impact, in fact
There will be some impact and impact wouldn’t be felt in copule of days, but next couple of quarters you will see that impact becomes visible in the foreign investment in the country. Markets won’t react, foreigners won’t react by putting in more money so easily, positive news can come in the form of much better agricultural production, may be oil price cut, inflation numbers coming down, Reserve Bank of India (RBI) bringing down interest rates. So even all these positive news will not attract much of foreign capital as it otherwise would have in the next few quarters.
Q: What do you do with the whole infrastructure space with the specific relevance to the kind of growth we have seen and the talk that there has been of some kind of an infrastructure spend or stimulus for the sector?
A: I think the government is facing elections in next few months and also the entire focus politically will be on the terrorist, and they would not like to lose much vote to opposition based on all the developments. So, infrastructure will take backseat for sometime. A lot of spending would come from public sector and government on infrastructure ought to have come in next few quarters, but that probably won’t happen. So, one will wait for elections to get over and new government to come in before we look forward to flow of investment in the infrastructure sector.
Mumbai terror to impact capital flows: Mark Konyn
Here is a verbatim transcript of the exclusive interview with Mark Konyn on CNBC-TV18. Also watch the accompanying video.
Q: Give us a word on the kind of terror attacks you have been hearing of and reading about in Mumbai and whether you think that is going to make any medium-term impact or long-term impact on FII sentiment?
A: Certainly, and the world has been shocked by the images that we have been getting out of Mumbai.
Typically, when we have seen similar outrages in other parts of the world, it does immediately hit investor sentiment but depending on how quickly things get back to normal, it proves to be typically quite short lived.
The worrying aspect here is that uncharacteristically these attacks and outrages have been targeted directly at foreigners and venue sites which are frequented by foreigners in Mumbai. So, I think that is one aspect that foreign visitors and travellers will be looking at.
It may have a dampening effect in terms of how quickly international investors come back into the market. Of course, most international investors have pulled back significantly this year in any event with some USD 13.5 billion or so already withdrawn from the Indian market.
Q: Relatively speaking, in a world which is just basically trying to get back on its feet in terms of liquidity, do you think it puts
A: It clearly is not going to help overall perception and risk appetite, but it is difficult to assess in these types of situations. However, in any event, international capital flows, we are talking about the equity markets, are already under significant pressure. We have got the threat of deflation now as a result of all this deleverage which is at play in global markets.
We have seen central banks internationally trying to throw a lot of money at the problem, trying to improve liquidity, certainly take positions from the government’s perspective to improve solvency and the net effect is quite marginal. This is because of the tremendous amount of leverage that was built up in the financial system particularly in the
The net result is that we are not seeing any flow through in terms of confidence, in terms of the way the banks are lending to each other and to end-users and the way in which credit markets are behaving generally.
So without that improvement, international capital flows are going to be pretty scarce over the next six months, we would estimate. Thus, in that environment, emerging markets generally don’t perform well and as we know, the Indian economy has been quite extensively dependent at the margin on international fund flow.
So, clearly they are going to be lacking anyway. To what extent this outrage that we have seen over the last few days in
GMR Infrastructure plummets 5.2%
GMR Infrastructure had touched an intraday high of Rs 54.95
and an intraday low of Rs 51.50. At 12:22 pm, the share was quoting at Rs 51.90, down Rs 2.9, or 5.29%.
It was trading with volumes of 373,797 shares. On Wednesday the share closed up at Rs 54.80.
| Share Price Movement During The Last 12 Months | ||||
| Period | Price | Latest Price | Gain/Loss (Rs.) | % Gain/Loss |
| 3-Days | 53.00 | 51.90 | -1.10 | -2.08 |
| 5-Days | 54.70 | 51.90 | -2.80 | -5.12 |
| 7-Days | 53.40 | 51.90 | -1.50 | -2.81 |
| 15-Days | 69.85 | 51.90 | -17.95 | -25.70 |
| 1-Month | 49.50 | 51.90 | 2.40 | 4.85 |
| 3-Month | 101.10 | 51.90 | -49.20 | -48.66 |
| 6-Month | 134.00 | 51.90 | -82.10 | -61.27 |
| 9-Month | 182.90 | 51.90 | -131.00 | -71.62 |
| 1-Year | 242.60 | 51.90 | -190.70 | -78.61 |
| Currently -80.68% below the 52-week high of 268.70 |
| Currently 13.82% above the 52-week low of 45.60 |
Aban Offshore declines 4.3%
Aban Offshore had touched an intraday high of Rs 706.40 and an intraday low of Rs 667. At 12:27 pm, the share was quoting at Rs 675.90, down Rs 30.5, or 4.32%.
It was trading with volumes of 46,489 shares. On wednesday the share closed down 0.18% or Rs 1.25 at Rs 706.40.
| Share Price Movement During The Last 12 Months | ||||
| Period | Price | Latest Price | Gain/Loss (Rs.) | % Gain/Loss |
| 3-Days | 759.65 | 675.90 | -83.75 | -11.02 |
| 5-Days | 746.35 | 675.90 | -70.45 | -9.44 |
| 7-Days | 782.00 | 675.90 | -106.10 | -13.57 |
| 15-Days | 974.15 | 675.90 | -298.25 | -30.62 |
| 1-Month | 652.85 | 675.90 | 23.05 | 3.53 |
| 3-Month | 2143.35 | 675.90 | -1,467.45 | -68.47 |
| 6-Month | 3883.50 | 675.90 | -3,207.60 | -82.60 |
| 9-Month | 3826.30 | 675.90 | -3,150.40 | -82.34 |
| 1-Year | 4775.20 | 675.90 | -4,099.30 | -85.85 |
| Currently -87.48% below the 52-week high of 5,400.00 |
| Currently 10.8% above the 52-week low of 610.00 |
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