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SECTOR UPDATE - BFSI ( Thanks to research departments of various analytical firms) Strong government – positive catalyst; but there is a price for everything A couple of thoughts on BFSI sector post the “Congress rally” Strong UPA led government can have following positive impacts for BFSI sector: Fundamental impact – earnings upgrade, RoE expansion 􀂄 Investment and credit activities to pick up – enhanced liquidity and improved industrial activity will bring confidence among corporates to borrow and invest; thrust on infrastructure will continue etc - Positive for the whole sector, as it would enforce revision of consensus credit growth estimates - SBI is key beneficiary as it has huge balance sheet liquidity to fund credit growth 􀂄 Recovery in economy and comfortable liquidity to further assuage concerns on asset quality 􀂄 Capital market activities to go up further from here – brokerage volumes, investment banking deals, inflows into mutual funds/PE funds etc - FII/FDI inflows like...

There was a time, not long back, when the ‘American Dream' was shared not only by Americans but just as fervently by many ambitious students back here in India too. Getting an MBA from a good university abroad and using that as a starting point to get a job in that country was the norm. Well, that dream seems to have been shattered. And the sorry state of the US is now forcing many into realising the potential back here in India. An Economic Times report gives some perspective on the situation. According to a University of California study that surveyed 1,224 foreign nationals from India, China and Western Europe, almost 86% Indian students and 74% of Chinese students believed their home countries' economies will grow faster in the future than they have in the past decade. And with that, many students are either looking homewards, or have already come back to India. Looks like India may not have to contend with a brain drain problem again for a long time to come.

We will take the reforms agenda forward, but not at the cost of development and not at the cost of state firms." This statement by one of the leaders of the Congress party and published in a leading daily highlights the importance of tempering one's optimism over the re-election of the UPA government. Let us not forget that this is the same party that came out with social schemes like the farm loan waiver and the rural employment schemes. Hence, to expect a reforms overdrive from the new government will be akin to asking for a little too much. Of course, the scenario is a lot better this time around as there are no left parties to take two steps backwards for every one step that the UPA government will take forward, but the fact remains that a move towards more reforms is likely to progress at a slow pace at best. Furthermore, unlike 1990-91, where problems were India specific, a synchronized slowdown has engulfed the world and this will give the government more leeway to impl...

With the UPA regaining power, this time without the Left’s support, what does it mean for India? No more political instability risk for India; the new government poised to complete its 5-year term successfully. Near-term positive because of smooth transition – this is more like an extension of UPA’s term. In the event of any other party/alliance coming to power, it would have taken some time for the new government to formulate its policies. UPA to continue with its policies with more power in hand now; no fear of strange coalitions or drag of the communist parties anymore. Near-term positive for the markets Equity markets are likely to open with a big gap up on Monday, as desperation to deploy excess cash (both by DIIs and FIIs) will be high. While FIIs may show interest in large caps, DIIs may hunt for beta (chasing mid caps). India has underperformed other emerging markets (EM) YTD because of election concerns. However, stable government at home and strong global liquidity are likely...

India may soon be the proud owner of a national gas highway network, one that will ensure supply of natural gas across the country. As per an Economic Times report, the oil ministry is contemplating developing this national gas highway as infrastructure firms are refraining from venturing into non-profitable segments. That is the reason why even though there is a nationwide demand for natural gas, gas pipelines are concentrated mainly in the eastern and western regions while the southern, central and north eastern regions lack infrastructure. As such, a balanced distribution of gas will help India achieve a more distributed growth as industries have been known to develop along natural gas pipelines. Besides, with such a massive investment, companies catering to this industry will be direct beneficiaries.

This week will be a cherished one for Indian telecom major, Bharti Airtel as its subscriber base crossed the 100 m mark. In fact, with this milestone, it has now become the world's third-largest single-country mobile operator and sixth-largest integrated telecom operator. As for the top spot, China Mobile and China Unicom are the world's largest and second-largest in-country mobile operators with 414 m and 170 mm subscribers respectively. Expecting India's teledensity to double within the next three years from the current level of 37%, Mr. Sunil Mittal, the company's chairman has given very optimistic views about the future. He believes that the company will be able to double its subscriber base within that period. Given the fact that the telecom players in India are adding mobile subscribers at a very robust pace and also that Bharti Airtel is the market leader (marketshare of about 25%), the task does not look very daunting. However, keeping in mind the intense compet...

The verdict is out and India has decided! Going a step better than most media projections, the Congress led UPA alliance looks all set to return to power and form the next government at the center. Although still some seats short of the magical 272 figure mark, it now appears certain that the Left parties will have no role to play in the government formation this time around. Dr. Manmohan Singh, the reformer par excellence has given enough proof of what he and his team can achieve if given a free hand. And the people of India seemed to have done exactly just that. Now it is up to him to deliver. The road ahead though is anything but smooth. The country's finances are staring down the barrel and economic growth has taken a big hit. However, looked differently, this could just be the time to unleash another wave of reforms and push the economy onto an even higher growth trajectory. Perhaps,it's time for ‘The Great Indian Reforms II'. If at all they happen, the Indian people w...

That the Tata Group is struggling to keep two of its most high profile members, Jaguar-Land Rover (JLR) and Corus, afloat has been very well documented by the media. But what has perhaps made its first public appearance is a statement by the Group Chairman, Ratan Tata that the period during which these companies came into the Tata fold may not have been very opportune after all. In an interview published in a leading British daily, Times Online, Mr. Tata has admitted that he may have gone 'too far, too fast' It is worth remembering that the Corus transaction undertaken by one of his group companies, Tata Steel was one of the most expensive steel deals ever. Even with JLR, had the group waited out, they could have gotten the company even cheaper considering the turmoil the global auto industry is in currently. "If one had known there was going to be a meltdown, then yes (Tata went too far), but nobody knew. Both the acquisitions were made, I would say, at an inopportune tim...

Here's something very interesting that comes straight from the man who saved India. Dr. Y.V. Reddy, the former governor of the Reserve Bank of India and the one whose policies are credited to have saved the Indian banking sector from the gallows of the financial crisis, has revealed the secret of his success as a central banker. In an interview with The Economic Times, he has said, "I cannot define God, but I can recognise the devil. And whenever I see the devil, I take precautionary measures to avoid being affected." I wonder how wonderful place the financial markets would have been only if other central bankers had this ability to recognise the devils! In fact, Nobel economist Joseph Stiglitz has said if America had a central bank chief like YV Reddy, the US economy would not have been in such a mess. Is it any wonder that the world listens to him and not to Alan Greenspan anymore? I believe credit must be given where it is due and Dr. Reddy certainly deserves it.

When we talk of natural monopolies, the usual suspects tend to be utilities like power, gas, waterworks etc. Dominant firms in such industries can easily notch up huge market shares and thwart competition. No wonder then, these industries tend to be regulated around the world. According to CNNMoney, US regulators are beginning to wonder if Google is a natural monopoly. That seems like a bit of a stretch. After all, isn't the internet a perfectly competitive market place? But 76% dominance of the search market does raise the question whether there's more than meets the eye. However, the company presents several points in its defense. First, 'competition is just one click away'. If internet users turn to Google, it is due to the power of habit and not because the company prevented them from turning to other search engines. Second, it doesn't lock anyone into its software like Google Docs. The software formats are open, so users can move content to rival products. Beca...

Now that Tech Mahindra has secured Satyam in its fold, the former is leaving no stone unturned in sprucing up the business and shedding excess flab. This means downsizing operations and Tech Mahindra intends to kick off the process beginning with Satyam BPO (the erstwhile Nipuna). 60% of the support staff in the BPO is set to face the axe. Further, Tech Mahindra has decided to use Satyam's existing marketing, HR and other support functions for the BPO too instead of having a separate set-up. The target is to save about US$ 200 m in costs, which means that more layoffs in the future cannot be ruled out. Given that many departments in Satyam were overstaffed, it is only natural that Tech Mahindra would want to go in for slashing jobs. Thus, while Tech Mahindra's strategy in this regard is pretty clear, Satyam employees continue to be fogged by an air of uncertainty

As per a leading business daily, Jet Airways will start a new no-frills carrier called Jet Airways Konnect. The fares for the service will be 10% to 15% lower than the normal Jet Airways economy fares. The company has not launched the new service under its JetLite brand due to pending litigation with the Sahara group. It may be noted that market share of the more expensive full service carriers has fallen due to the economic slowdown. There is a beleif that the airlines industry is value destructive. As Warren Buffett once said, "Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks." If only, our air carriers paid heed.

Recently, China has minced no words in making its discomfort clear with respect to the US dollar. That it was diversifying its huge cache of dollar denominated forex reserves into other asset classes was also being speculated. Recently though, it let the cat slip out of the bag. And quite a big one at that! China's forex managing agency revealed that it has nearly doubled its gold reserves to 1,054 tonnes, up from 600 tonnes in 2003, making it the fifth largest holder of the precious metal. The disclosure is likely to have quite a few implications. Foremost among them could be a renewed surge in the price of the yellow metal, which has already quadrupled during the last one decade. There is no reason why it cannot inch even higher and scale new peaks. Secondly, it might force a flight from the dollar by other central banks as well, who could well be spooked by the fact that if the largest supporter of the US dollar is stealthily moving out of it, significant depreciation in the gre...

Without any doubt, telecom is one sector that has so far bucked the trend in India while other industries face slowdown issues. Not only this, companies within the sector have been able to grow strongly over the past few months, at least when it comes to ramping up their subscriber bases. The month of March 2009, for instance, saw the sector add a record 15.6 m subscribers, the highest in any month in the sector's history so far. While reduction in tariffs and cost of handsets has supplemented the growth of the Indian mobile telecommunication sector, growth in the recent past has been largely driven by mobile service providers' aggressive entry into the large and relatively untapped rural markets. In these markets for instance, carrying a Rs 2,000 mobile phone can be something of a status symbol. This is clearly indicative of the much-larger drama unfolding in the Indian telecom market, once considered a backwater and now the fastest growing in the world. While the country stil...

The global financial crisis in the past one year had compelled foreign investors to pull out huge sums of money from the emerging markets causing the indices in these regions including India to plunge. But it appears that the appetite of these foreign investors for emerging markets seems to be on the rise again and India in this regard seems to be pulling ahead. As reported in a leading business daily, while India has pulled in US$ 1.8 bn of foreign money, other emerging markets such as Indonesia, Philippines, Taiwan and South Korea have bagged US$ 18 m, US$ 531 m, US$ 632 m and US$ 7 respectively. The perception is that global liquidity is improving and that there are not likely to be any major reversals in these flows immediately unless the risk perception about emerging market equities heightens again. Also, those foreign investors who have been sitting on huge piles of cash are now taking the opportunity to invest in emerging markets including India where valuations are very attrac...

Scary fall. Exports, which contribute around 16% to India's GDP, fell by 33.3% in March to US$ 11.5 bn, the sharpest fall since April 1995. For the whole of FY09, exports touched US$ 168.7 bn, recording a 3.4% growth in dollar terms and falling short of the government's revised target of US$ 170 bn. The fall in exports has obviously been due to the ongoing recession in the US, Europe and Japan. Imports have not been spared either. Non-oil imports in March contracted 18.9% to US$ 11.7 bn while oil imports shrank 58.1% to US$ 3.8 bn. Waning imports in the areas of machinery, equipment and project goods is likely to be an area of concern as it signals a slowdown in industrial production. While there are expectations that the recovery would start manifesting in July itself, others are of the opinion that the export growth will be subdued in FY10 as well. What is clear is that unless some sparks of revival are witnessed in the developed economies, India's export growth till such...