infotonic

The great Indian middle class is now the focus of attention and for good reasons. Expected to touch 400 m people by FY10E, the middle income household earning be-tween Rs75, 000 and Rs5 lakh a year accounts for 61% of total urban income. While the metros continue to be the largest urban middle-class markets, tier II cites are fast catching up. Increase in the number of middle- and upper-income households has expanded the consumption, creating a strong pull factor to consume certain products and services. Not only FMCG companies (over 70% sales of FMCG products are made to middle class households), but also other consumption driven companies are eyeing this opportunity as this segment is expected to fuel growth in the long run. While Tata Motors launched the cheapest car Nano, Indian hotels have priced their Ginger Hotels below Rs 1,000 to attract these households. The real estate, malls and mobile companies have also lined up strategies to target this segment.

A report by Brand Finance Plc., a UK based independent brand valuation consultant, has estimated that the top 500 global brands lost about 25% of their value in 2008 due to the global financial meltdown. But the 'Tata' brand held up relatively well against this, eroding by less than 16%. Tata is the only Indian brand in the top 100 of the rankings, and held the 51st position for 2009, up six places from its ranking for 2008. The consultant found the Tata brand to be worth US$ 9.9 bn and its 16% decline in value was moderate against the huge 40% to 60% slump in brand value of many iconic brands over the same period. For example, brand Citi recorded a 59% erosion in value, Dell 60%, Mercedes-Benz 48%, and AIG 62%. Mr. Gopalakrishnan, the executive director of Tata Sons said that the brand didn't take a hard hit in relative terms for various reasons, and that "The brand has been built on a platform of a century of ethical behaviour." Couldn't agree more! Incident...

Warren Buffett may have called the current crisis in the US 'an economic Pearl Harbor', the Japanese government is in no mood to allow their stock market to become a another Hiroshima-. As reported in a leading, that it has passed a legislation allowing the government to buy shares from the market until March 2012 if share prices plunge to an extent that is seen as an economic emergency. While the exact contours of the 'economic emergency' have not been defined, the fact that the government is willing to bailout shareholders will itself offer enough stability to the Japanese market. The plan strictly limits buying shares to cases where the price-to-book-value ratio of a majority of listed companies falls far below 1.0 time and the price earnings ratio falls below ‘normal’ levels. The Japanese government will set up a public body which on instructions from the country’s prime minister would buy a basket of shares such as exchange-traded funds (ETFs). The funds needed for...

Another case of "diworsification" by a company that seems to be incapacitated to generate returns from the excess cash in its balance sheet and does not wish to return the same to the shareholders. Madras Cements’ decision to venture into sugar manufacturing business at a total investment of approximately Rs 4.5 bn seems to have no logic other than the temporary reversal in sugar cycle. Further, the improved sugar realisations would be offset by higher cane prices. Such instance of companies diversifying into unrelated businesses despite lack of expertise and insufficient rationale is a case of disregard to the rights of minority shareholders.

Infosys kick started the March quarter and full year FY09 result season today on a mixed note. Although its fourth quarter operating performance did not have much to be enthused about, the company managed to add 37 new clients and 1,772 employees (net) during this quarter. This goes to show the consistency in the company’s long term business prospects. While the full year profits grew by a healthy 29% YoY, the company announced an earnings guidance for FY10 that would be lower by 3% to 7% YoY as compared to FY09 EPS.

At a time when companies across sectors are looking to cut costs by slashing salaries, pharma companies seem to be an exception, as many of the employees here are set to receive generous bonuses and increments. The rationale cited for the same is to retain talent and encourage a culture of growth and learning. Further, given that the pharma sector is highly research oriented, attracting the right talent, atleast, in the R&D department becomes very important. For instance, while Lupin has given its employees increments in the range of 25% to 40%, Cadila Healthcare is contemplating an increase of 25%. Those companies which have been catering to the US and are basically well diversified in terms of geographies have done well and this has translated into higher salaries. Having said that, not all pharma companies have been that lucky and those who have not logged in a strong performance will be shelling out relatively lesser increments to employees

If you thought that only banks in the US were going bust in the economic meltdown, think again. As per a business daily, when banks in US were falling like ninepins, some cooperative banks in India were not far behind. In fact, for every five banks going bust in the US, there were two in India that were going belly-up. It may be noted that as many as 19 Indian co-operative banks collapsed in FY09, as against 44 American entities. The newspaper report also states that the RBI’s credit insurance arm had to pay over Rs 1.4 bn to depositors to cover the liabilities of these 19 entities. Under the insurance norms of the Deposit Insurance and Credit Guarantee Corporation, a wholly-owned subsidiary of the RBI, a maximum of Rs 1 lakh is paid to a depositor in case his bank becomes insolvent.

I was just wondering, if the Samajwadi Party (SP) supported government comes to power at the Centre this time around, many companies in India might have to write off another kind of loss from their books - loss on account of unused computers. After all, the party’s supremo Mr. Mulayam Singh Yadav believes that - "The use of computers in offices is creating unemployment problems. Our party feels that if work can be done by a person using hands there is no need to deploy machines." Incidentally, the party is also against stock markets, use of English language, agricultural machines, and high corporate salaries!

It has become fashionable these days to call a highly improbable event, ‘A Black Swan event’, an obvious reference to the hugely popular book ‘The Black Swan’. And now, Nassim Taleb, its author has once again decided to cash in on the phenomenon by coming out with what he believes are 10 principles for a ‘Black Swan-proof’ world. Well, i am not going to give you the summary of his principle; here is a quote for you to analyse Taleb states, "This crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the "Nobel" in economics, banning leveraged buyouts, putting bankers where they belong, claw...

Some of our top Indian companies continue to make their mark on the global stage. They also seem to have made it a habit out off beating some of their bigger and more well established global peers in various areas of business expertise. Now, three Indian corporate behemoths, Reliance Industries, the Tata Group and Infosys Technologies - have entered BusinessWeek magazine's list of world's 50 most innovative companies. While the rankings were topped by iPhone maker Apple, the Tata Group ranks 13th, Reliance Industries 15th and Infosys 26th. What's more, the Tata Group and RIL have been ranked ahead of American industrial conglomerate General Electric (17th), German car manufacturer BMW (20th), Japanese auto firm Honda Motor (22nd) and telecom major AT&T (23rd). Wow! Way to Go, India!

After more than three months of confusion and speculation, Satyam finally got its new owner today in the form of Tech Mahindra, selected through a competitive bidding process. L&T and Cognizant-Wilbur Ross were the other two contenders in the fray for the beleaguered IT firm but Tech Mahindra out bid them with a comfortable margin. Tech Mahindra (through its subsidiary Venturbay Consultants Pvt. Ltd.) will now pay Rs 58 per share to buy a 31% stake in Satyam through a preferential allotment. L&T and Cognizant-Wilbur Ross, on the other hand, had reportedly put in their bids at Rs 45.9 per share and Rs 20 per share respectively

Day in and day out we have been bombarded by the news of gloom and doom. Watching the business news channels has been depressing. Reading the newspapers has been depressing. Luckily, we have the comical relief provided by the elections and the wonderful speeches of hate and violence to inspire us to move onward, to move forward. Should i exit from stock market now? or should i remain invested? - "to be or not to be" Investing in shares is actually an investment in the underlying business of company. In the ability of the managements of those businesses to ride the company through good times - and bad times. Of course, you need to be careful that you don’t end up investing in companies where the management starts riding a tiger of fraud and deceit -as Satyam shareholders found out. Or one in which the horses are pulling two carriages - one with air-conditioned comfort for the founder promoters who get their rich exits (as in the case of Ranbaxy) and one for the rest of us chum...

It looks like recession will be over before we know it. Look at the chart below, which perhaps helps unfold the most potent reason behind the world economy's huge contraction in the fourth quarter of 2008. Image Source: Business Week US consumer, the biggest driver of the world GDP chose to cut back massively and instead, opted to save some of his hard earned income. Well, the trend has continued to this day, manifesting itself in the huge reduction in household debt as indicated by the chart above. As per Business Week, savings as a percentage of US household income during the first two months of 2009 is already ruling at 10-year highs and businesses, adjusting to this new shift of lower spending and higher saving have embarked on a major cost cutting drive. The end result? Even a small pickup in demand will help companies post robust bottomline numbers and help bring back confidence in the battered economy. Furthermore, while everyone knew that deleveraging i.e. reduction of debt...

The worse may not yet be over for the already battered US housing market, where the seeds of the current financial crisis were sown. While house prices since then have crashed, the question that is now on everyone’s mind is - whether they have fallen enough? And the answer may well be ‘no’. The logical conclusion being the bigger the bubble, the bigger will have to be the crash. Not only that, while prices have melted, they are not cheap as comparable to wages and even more so in a scenario where job uncertainty looms large. Furthermore, as reported in the Wall Street Journal, the prices currently are at a level last seen in 2003 when they were perceived to be inflated even then. Therefore, to find pre-bubble prices one would have to go back to about 2000 when values overall were about a third lower than they are today. Interestingly, the paper has compared the current bubble with the 1989 property bubble and has observed that the home prices currently are more expensive in relation to...

Just as odds of bankruptcy at GM and Chrysler continue to rise by the day, there are a few Indian companies who are feeling jittery as well. Because at stake are deals worth nearly US$ 1 bn annually, ranging from outsourcing of IT services to supply of some critical auto components. As per a leading daily, in IT services the worst hit could be TCS, which counts GM amongst its top 10 clients and had also signed US$ 150 m contract with Chrysler last year. As far as auto components are concerned, few of them are already feeling the heat as orders from the two US companies have dried up. Furthermore, payments are also getting delayed on account of the two companies facing severe liquidity problems.

Just as the US Fed chose to take the long end of the yield curve by the scruff of the neck, Mr. Srinivasan has argued that a similar method should be adopted by the Indian central bank. He seemed frustrated that despite RBI lowering rates, Indian firms are not getting access to funding as most banks are parking their surplus liquidity in government securities. Furthermore, increased government borrowing is also leading to crowding out of private investments. Thus, printing money by the RBI and buying back bonds from the market seems to be the only way out as per the new CII President. Furthermore, since the inflation is also very benign at the moment, the odds that such a step might lead to runaway inflation are also on the lower side. Although he was aware that such a step might unleash a fresh round of sovereign downgrades, it also carried an upside with it in the form of greater GDP growth. The central bank must have indeed deliberated upon such an idea but seems to be adopting a wa...