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Showing posts with label Business Today. Show all posts
Showing posts with label Business Today. Show all posts
Saturday, April 07, 2007
Saturday, March 24, 2007
Stock Market Soufflé
In may 2006, some of the country's key economic indicators looked like this: The trade deficit, which is the difference between exports and imports (with the latter being higher than the former), stood at $3.8 billion or Rs 16,720 crore; the prime lending rate (PLR) of commercial banks stood at 10.8 per cent; 10-year government securities (G-Secs) were yielding 7.6 per cent; and inflation hovered around 6.1 per cent.
Cut to February 2007: The balance of trade is now negative to the tune of $5.8 billion or Rs 25,520 crore; borrowers of all hues (retail as well as medium-sized enterprises) are coughing up more what with the PLR climbing to 12.3 per cent; safe-haven assets like fixed deposits and bonds are back in fashion as 10-year government paper breaches the 8 per cent mark; and, last but not least, the monthly budget of households has shrunk with inflation peaking at 6.7 per cent.
If the scenario on the economic front was steadily deteriorating in the nine months between May and February, it wasn't quite reflected on Dalal Street. In fact, the euphoria persisted. After hitting a new high on May 10, 2006, of 12,612 points, the Bombay Stock Exchange's (BSE's) benchmark index did brutally correct over 26 trading days by 29.20 per cent to hit a low of 8,929 points thanks to fears of a global commodity bubble that looked set to implode. However, after duly riding out that crisis, the Sensex rebounded in style, and came within striking distance of the 15,000 mark in early February, hitting 14,697 by the 8th of that month. That the markets have since corrected is another story (attributable to global factors), but the 2,000-odd point spurt in just 180 trading days made you wonder whether punters had taken into account the dark clouds in the macroeconomic picture. It would appear, from the Sensex's spurt-and the pundits' consequent predictions that stretched from 20k to 50k over varying time-spans-that market men were blinded to these worries.
They weren't.
For a moment try and look beyond the much-hyped Sensex (and indeed other similar benchmark indices), and consider instead the 30 stocks that give it life. Therein hangs a bearish tale: Just six stocks with a collective weightage of 40 per cent have contributed to the rally. The rest didn't participate at all in the run up to 14,600 levels. In fact, 14 of the Sensex shares have been value destroyers in the May-February period, by as much as 30-54 per cent in a few cases. Look beyond the Sensex and the picture isn't brighter, with the BSE's 286-stock mid-cap and 463-stock small cap indices flat as a pancake. And sectors that were till recently the rage-auto, fast-moving consumer goods, public sector undertakings, metals and pharma-are in various states of neglect (see Does the Sensex Make Sense?). Last fortnight, as markets globally slipped into a free fall, unsurprisingly, back home, the stocks that fell the hardest were those that had fuelled the index's heady rise. For instance, HDFC, HDFC Bank, Reliance Communications, and ICICI Bank were responsible for pushing down the Sensex from the 14,600 levels to 12,500 by March 15.
Meanwhile, bearing the brunt of the apathy to India equity (or at least to most of it) are mutual fund schemes that tapped the markets in 2006 (see No Fun for Funds). Almost all of them have registered negative returns since inception. The net asset value-based returns of DSP Merrill Lynch Mid-cap and Small Cap Fund, for instance, are down by 14 per cent since launch in October, even as the Sensex has moved up by 5 per cent since then. UTI Contra Fund is down 13.14 per cent since being flagged off last March.
he big question being asked on Dalal Street these days is: Is the four-year structural/secular/broad-based rally over? Clearly, signs of fatigue have begun to show in the past nine months, and the multi-bagging machine that the Indian market till recently was, is beginning to sputter. "The focus has suddenly shifted back to large caps and even new investors are chasing the frontline stocks. That's the problem we are facing today," explains Hemendra Kothari, Chairman, DSP Merrill Lynch. Adds Asit Koticha, Managing Director, ask Raymond James: "The broader market's behaviour can be attributed to an underperformance in relation to expectations rather than any actual financial (under)performance." A worry is the decline in delivery-based trades, down to 32 per cent, which is the lowest level in years, and which clearly points to the lack of conviction in the long term. This is also reflected in the advance-decline ratio which has been below one for six out of nine months since May (which means there have more stocks falling than rising in these months) for the 1,000 most actively-traded stocks on the National Stock Exchange.
Some sections of the market can't understand why mid-caps are getting the cold shoulder. Earnings growth for this sector is robust (for the December ended quarter, mid-caps showed a 38 per cent growth in profits). And, as Nimesh Kampani, Chairman, JM Financial, puts it: "Mid-caps are tomorrow's large caps. I am not unduly worried.
The ubiquitous foreign institutional investor (FII), and the flows this tribe brings into the country, will have a major hand to play in creating tomorrow's mega caps. After all, it's been largely FII funds-all of $34 billion or Rs 1,49,600 crore in the past four years-that have been instrumental in pulling up the Indian markets from the undervalued stage to one of fair valuation (some would argue to a stage of overvaluation). However, the bad news is that FII inflows are showing distinct signs of flagging. In the last 10 months since May, net inflows have plunged by close to 60 per cent, to Rs 19,408 crore from Rs 46,445 crore in the previous corresponding period. In fact, the last 10 months' inflows are the lowest since 2003. Sushil Muhnot, Managing Director, IDBI Capital Markets, says: "There has been a slowdown in FII inflows, but that has, more or less, been made up by higher FDI (foreign direct investment)." That's cold comfort for investors who've bought shares hoping that foreign money will fuel those shares to dizzier heights. One reason for the subdued FII interest may be that the options for investment for global investors are simply narrowing down. For instance, in a sector like banking, FIIs have reached their respective permissible limits in stocks like ICICI Bank, State Bank of India, Bank of Baroda, Oriental Bank of Commerce, Punjab National Bank and half-a-dozen other state-owned banks. Amongst the Sensex stocks, ICICI Bank and Bharti Tele are two stocks with a total weightage of 17 per cent where the FII limit has been reached. But fewer options may not be the only reason for the dipping FII inflows. It could just be that the Indian markets have run out of steam in the past 10 months, and other emerging markets-particularly in the Asia-Pacific region- have begun to look more attractive. For instance, the Chinese markets had gained 90 per cent since May 10 till last fortnight; the Sensex on the other hand had inched up by only 3.10 per cent in this period. Yet, there are those who believe that few emerging markets can boast of a story like that of India over the longer term. Andrew Holland, Managing Director, DSP Merrill Lynch, says: "India's growth story is compelling. I don't think the Malaysian, Philippines and Vietnamese markets are big enough to force foreign investors to shift money from India." But the billion-dollar question is whether, barring the elite bellwether stocks, the FIIs have enough conviction in the rest of the pack that's listed on the Indian stock exchanges.
Sunday, March 11, 2007
Money Column
Remember, nine months ago when the market suddenly collapsed when it seemed to be smoothly sailing over the 12,000 mark. That caught most investors unawares. It bounced soon after, again catching investors by surprise. Yet the volatility saw a certain class of funds provide good returns for their unit holders. Since then, the price movements continue unabated. The market has lost 1,245 points in the last two weeks since February 9. The swinging market often leads to huge differences in the spot and futures markets. And here's where arbitrage funds step in. They make the best use of the markets (MIS)pricing mechanisms to generate returns for you.
Last year, many fund houses launched derivative or arbitrage funds, and most outperformed their benchmarks by considerable margins. As arbitrage funds seek to capitalise on price differences between cash and derivatives, they managed to leverage on the bullish trends of the market. It provides fund managers with large enough spreads to make successful arbitrage gains.
But arbitrage funds, unlike an equity product, aren't too risky. They essentially aim to protect your capital by locking on to risk-free strategies that take advantage of the price differences. They aim to lock in the gains and realise them when futures contracts expire. An arbitrage fund is more like a fixed income fund. Says Delhi-based Mukesh Gupta, MD, Wealthcare Securities: "Derivative funds don't take naked exposures to equity. Returns from these instruments are predictable, and more tax efficient. Corporates and high net worth individuals usually opt for these funds."
As a result, these funds are best suited for investors who generally park their money in fixed deposits or bonds. "These funds have primarily been working well with those investors who have been parking their money in fixed deposits or bonds, and are tailored to increase the investor's base in a conservative market," says Nilesh Shah, Chief Investment Officer (CIO), Prudential ICICI Asset Management Company.
Arbitrage funds as a category have generated superior returns as compared to a host of offerings within the debt mutual funds industry, but with varying amounts of volatility. In view of the volatility of this product, this category should bode well for investors with a minimum time horizon of at least six months. "Rising interest rates have made returns from income funds unpredictable and sometimes negative. Liquid fund returns are not adequate. Moreover, returns from these instruments are not tax efficient," says Gupta.
Essentially, arbitrage funds buy a stock in the cash market and sell its futures simultaneously to lock in the price difference. This is also called the arbitrage spread. This spread is realised irrespective of the stock's price at expiry. There's a simple way in which it works. Say 'A' stock trades in the cash (spot) market and the futures market. Since the underlying stock is the same, the only factor accounting for different prices for spot and futures is the interest rate, which is also called the cost of carry. If equal but opposite positions are taken in the spot and futures markets, there is no equity exposure, because it cancels out. But one can earn the cost of carry (equal to the interest).
Here's how it works with specific stocks. On March 31, 2005, Punjab National Bank (PNB) was selling in the cash market at Rs 398.4046 and on the same date, futures (delivery April 28) were selling at Rs 403.2024. By buying PNB in the cash market for Rs 398.4046 and selling PNB futures for Rs 403.2024, one pockets the difference in price of Rs 4.7978. Hence, the profit from the transaction works out to 15.16 per cent per annum.
Fund houses such as UTI, which manage a Rs 300 crore-plus spreadFund, contend that the equity scenario may well remain robust over the long term, leading to extended spreads. Arbitrage funds have a mix of equity and equity-related securities and debt instruments in their portfolios and have been actively chasing these opportunities. It's not always that the markets will have big spreads because arbitrageurs are quick to cash in. But on days of extreme price movements, there's some chance that the arbitraging spreads could be higher, leading to higher yields for the funds.
Their performance will, in future, generally depend on two factors. Firstly, how much spreads a fund can lock-in courtesy of high volatility in the market, and secondly, how high are the yields on low credit risk, short-term debt instruments. Most fund managers are also of the view that arbitrage funds have come of age and there will be more of them in the future. "Till now, mf firms have been providing general products like large-cap equity funds, income funds and hybrid funds, and now that that space is almost saturated, they are looking at specialised catering to varying risk appetite across investor classes," says Shah. More specialised products like thematic funds, derivative funds, structured products and alternate asset class funds will be the order of the day, says Shah.
Among the usual debt funds, derivative funds generated superior returns as compared to a host of offerings within the debt mutual funds industry, but with varying amounts of volatility. But due to the short-term vagaries of the market, this category should bode well for investors with a minimum time horizon of at least six months. Investors looking for a shorter period face the risk of lower returns as compared to a debt fund, because of the arbitrage opportunities. Not all fund houses are enthused by these products because their returns are lower. "These funds generally have low returns ranging between 5 and 9 per cent," asserts Mumbai-based consultant Gaurav Mashruwala. "These have been popular with people who feel that these are new products and have something assured to offer, but over a period time, they could lose appetite," he adds.
But going by the way the market's moving, more funds are coming out with arbitrage funds. Benchmark Asset Management has filed a draft offer document for a 100 per cent equity arbitrage fund. Since June 2006, 100 per cent arbitrage funds have been allowed. Earlier, funds could invest only a part of their corpus in arbitrages. Because of their strategy of locking-in to returns, these funds may make better returns than a liquid fund. However, entry is restricted to certain days in most derivative funds. Fund inflows and outflows have to coincide with the expiration of futures contract or the strategy of the fund. Some funds allow redemptions only after the settlement of derivative contracts.
There are about half-a-dozen funds that make up the category at the moment. These funds, mf circles believe, generally have the scope of outdoing the average short-term options, including liquid funds, because of their strategy. Prudential ICICI Blended Plan A is among the first derivative schemes that enjoys tax treatment of an equity scheme. The minimum and maximum exposure the scheme intends to have to equities and derivatives is 65 and 80 per cent, respectively. The fund manager seeks to capture the spread which is higher than the returns being generated by the debt portfolio. Apart from that, ICICI Pru Blended Plan B caters to international clients. It's a conservative fund offering lower allocation to equity and equity-related instruments.
UTI spread Fund is the latest entrant in the derivative segments. As per the offer document, the scheme strives to maintain varying asset allocation depending upon the market movement. The scheme can have an exposure of up to 90 per cent in equities when there's high opportunity. But Benchmark Derivative Fund, which is India's first derivative fund, is open for subscription only on the last day of the month due to expiry of contracts. Fund managers try to find arbitrages that maximise the gains.
JM Equity and Derivative Fund is a retail savvy derivative fund due to its low investment amount. The scheme has high exit loads to ensure that the investors stay for a longer period of time. From the same fund house, the JM Arbitrage scheme enjoys the tax treatment that equity funds are offered. The scheme maintains an exposure of 65 per cent to equities with a maximum cap of 80 per cent. Kotak Cash Plus offers flexibility of liquidity for the investor. He can enter and exit on any working day. This scheme usually rolls over its position to generate higher returns.
Check out the strategy of the arbitrage fund before signing on the dotted line. If you are looking for pure arbitrage strategies, then go for a fund that has a higher exposure to equity arbitrages. Arbitrage funds are meant for risk-averse investors who want equity exposure. Essentially, arbitrage funds are for investors who seek "debt-plus" returns with low risk.
The straight Advantage
There are endowment plans and there's Jeevan Saral with a flexible life cover plan. Is it for you?
Nitya Varadarajan
If you aren't happy with the rigidity of traditional term plans because there's no return on your investment or aren't comfortable with the uncertainty of the payback in a unit linked plan where returns are highly dependent on the market, endowment schemes could turn out to be what you are looking for. Endowment plans have two advantages: insurance and savings.
In vanilla endowment plans, a policy holder pays regularly during the term of the policy. But if the policy holder dies during the policy term, the nominee gets the death benefit, including the sum assured and the accumulated bonus. If the policy holder survives, he gets the survival benefit and all the bonuses. But there's another plan that allows for partial surrender without penalties and yet keeps much of your benefits intact. In fact, Life Insurance Corporation's Jeevan Saral is not dependent on one's age or term of the policy, unlike many other endowment plans.
For a monthly premium of just Rs 100, one gets a life cover worth Rs 25,000. Additionally, the cover increases every year by the amount of yearly premium you pay, so in many ways it's like an increasing cover benefit plan. Besides, LIC's Jeevan Saral offers your premium back if five annual premiums have been paid, excluding the first year premium.
As this is a flexible plan, opt for the maximum term, which is till the age of 70 or a term of 35 years. Jeevan Saral is a 'for profit' plan, you cannot surrender the policy for 10 years-the minimum lock-in period, if you want to receive loyalty additions, which are paid out after 10 years. But you can surrender 'a portion' of the policy any time. Loyalty additions are payable even if death occurs. However, under this policy, the premium and risk cover reduces after each 'withdrawal'.
Jeevan Saral comes closer to a term plan with premium payback. Says Rahul Aggarwal, CEO, Optima Risk and Management Services, "This is a plan that could suit all sections of society, particularly those whose incomes are uncertain.'' According to Aggarwal, the plan has a very low premium for the cover offered. "The plan has been designed in such a manner to prevent lapses, so it ensures some cover till maturity. That is why it is finding many takers,'' he says.
Returns for the policy are not that great, but decent enough (see The Maturity Benefits). "Jeevan Saral does not offer annual bonuses because of the plan's innate withdrawal flexibility which would make annual computations difficult,'' says Ramakrishnan, a retired actuary from LIC. "But loyalty additions in Jeevan Saral are equivalent to terminal bonuses of other policies and would not be lower than those,'' he says. But for a premium of Rs 100 a month without the hassle of a health check-up, Jeevan Saral fills a gap for individuals looking for lower life covers, with the added benefit of returns.
The Saral Edge
Against other insurance plans, Jeevan Saral stands apart.
Jeevan Saral
PREMIUM COST: Highly affordable
EASY ENTRY: @ Rs 1,200/ year
FLEXIBILITY: Allows for partial surrenders, its key USP
RETURNS: Below average compared to Post Office and other financial instruments
SCORE ON SIMPLICITY: Agent not required
RISK COVER OR RETURN? Risk primarily, but there are rewards
Pure Term Insurance
PREMIUM COST: Highly affordable
EASY ENTRY: Starts at Rs 3,000/ year, depending on company
FLEXIBILITY: Rigid
RETURNS: No returns. Some term plans offer a premium back; but no bonuses
SCORE ON SIMPLICITY: Agent's help is needed
RISK COVER OR RETURN? Risk only
Traditional Endowment Insurance
PREMIUM COST: Expensive
EASY ENTRY: Starts at Rs 5,000/ year, depending on company
FLEXIBILITY: Rigid
RETURNS: Returns better than Jeevan Saral, but poor compared to other financial instruments
SCORE ON SIMPLICITY: Agent's help is needed
RISK COVER OR RETURN? Greater emphasis on return
Unit Linked Plans
PREMIUM COST: Expensive
EASY ENTRY: Starts at Rs 5,000/ year, depending on company
FLEXIBILITY: Allows for withdrawal from fund
RETURNS: Depends entirely on fund mix; risk cover is guaranteed only in a Capital Guarantee ULIP plan
SCORE ON SIMPLICITY: Agent's help is needed
RISK COVER OR RETURN? Emphasis only on return
Irrespective of entry age and the term of the policy, the premium is Rs 1,200 for a cover of Rs 25,000 and in multiples thereof
Opting for a maximum term up to age 70 or a term of 35 years is best as the policy allows for partial surrender with full maturity benefits and loyalty benefits till the surrender period
Unlike a ULIP plan offering similar flexibility, you can compute the exact money you will receive at any time and add to it loyalty additions of a conservative minimum of 6 per cent, though this could be more
The amount by which the annual premium can be reduced has to be a multiple of Rs 600 and should not be less than Rs 1,200
After a partial surrender, the sum assured payable on death reduces and term and accident rider benefits get correspondingly reduced
Super Saver
Embarking on your savings plan early enough will earn you a lot more than you can imagine.
Clifford Alvares
If you embark on a savings strategy and stick to it for long enough, there's a guaranteed chance that you will make money, loads of it, over time. Anyone who saves money knows that it adds up to a tidy sum. But run the numbers for yourself and you will be startled by the results. Assume you are 25, and that you will retire at 65. If you save Rs 5,000 a month for 40 years that grows at 10 per cent per annum (calculated monthly), it balloons to over Rs 3.46 crore.
But if you start, say, just five years later at the age of 30 and save the same amount for 35 years, your corpus adds up to a little Rs 1.89 crore. That's a loss of more than Rs 1.56 crore in five years. For most people, that could spell the difference between a cosy retirement and a struggled one. There are many benefits of starting a savings plan early. The power of compounding ensures that you make your money grow the fastest during the later years.
The Options
Most financial planners are advising the young investors to start immediately on a savings plan. "Even if you start five years late, the kind of impact it has on your financial corpus of the future is enormous," says Amar Pandit, Chartered Financial Planner (CFP), My Financial Advisor, a financial planning firm, adding, "The sooner you start, the better it is for you." Not only that, one must also make sure that savings instruments that one chooses has a compounding element built into it. Instruments such as the public provident fund (PPF), stocks and mutual funds (MFs) enjoy the benefits of compounding, whereas other vehicles such as insurance don't.
Financial planners like Pandit recommend a pay yourself first concept for today's youth. "Youngsters focus far too much on spending," he says, adding, "but if they focus on paying themselves rather than others, they will gain a lot. If you cannot control your spending, make sure you pay yourself first." Among the easiest ways to start on a savings plan immediately is to open an automatic debit account facility where a periodic constant amount gets socked away every month. One must do this at the beginning of the month just as you get your paycheck. You can temporarily park your funds in an open-end mutual fund or floater fund till you find the right equity fund to invest for the long-term. Once you've begun, start a systematic investment plan (SIP) with the fund for the long haul.
The Plan
Additionally, financial planners recommend that you start with saving at least 25 per cent of your gross salary if you are on the younger side so that you can have a sizeable corpus in a short period of time. Higher savings are the building blocks of creating wealth and take a staggered approach to investing as against saving all at one go.
Thirty-somethings who have nothing in their bank account may have to start with a much higher savings budget of around 30-35 per cent annually. That's because of the loss of time and because compounding works harder in the later years. And those in their 40s who previously ignored savings have to allocate close to 40 per cent to catch up with retirement. Consider this, a 30-year-old targeting savings, say Rs 12,000 for 30 years, accumulates a little over Rs 1.97 crore at the age of 60. But anyone who starts five years later has to up the yearly outflow to over Rs 20,000 to reach close to the same corpus. That means an investor, who neglects saving earlier, puts an additional burden on his savings allocations in the latter years.
But even if you aren't able to up your savings ante, it's better that you start with modest sums rather than not start at all. Says Pandit: "Even if you postpone your savings for a year, it makes a lot of difference in the long run." You don't need to start on an aggressive savings plan. Increase your savings rate modestly by starting from, say, 10 per cent of your income in the first year to 12 per cent the next year and 15 per cent and so on. Even that will go a long way in making the most of your cost of savings.
Financial planners say that to begin to save, you must start identifying and reach realistic goals. In other words, you must set a target of the corpus you want to achieve at the end of 30 years, and then break it down into smaller targets of five or 10 years. Over the longer haul, step up your targets and keep scaling up the savings plan. Says Pandit: "Set a savings target and an asset allocation plan and compare it periodically to see where you stand." If you are falling behind your targets, then make adjustments in your lifestyle to update your plan. That's the only way to "keep up with the Joneses".
Destination Caribbean
A sporting carnival draws its own kind of tourists. But the ICC Cricket World Cup 2007 is a one of its kind tourism attraction. It is not very often that one gets a chance to go to the West Indies. After all, it is the first time that the World Cup is going to be held in the Caribbean, the land of beautiful beaches. Besides, the next World Cups of 2011, 2015 and 2019-to be held in the subcontinent, Australia, New Zealand and England, respectively-have been decided and it could be a while before you get an excuse to savour the Caribbean experience.
For most people, the Caribbean is not the most accessible of places which explains why families in India prefer options like a holiday in Europe or the United States. Of course, Asia and Australia are large attractions. There are some issues like flight connectivity in the West Indies which has prevented most Indians from taking a holiday to that part of the world. With an attraction like the World Cup, there appears to be more than one reason to get your bags together and head to that part of the world. So, what deals beckon the traveller?
Shyam Kartikeya, Business Head, SOTC Sport Abroad, says the objective has been to give something more exciting and different to the tourist. "Our target has been the high net-worth individuals (HNIS) like CEOs, MDs and the large corporates. The West Indies, the way we see it, can be a family destination," he says. SOTC, last week, reduced the cost on some of its twin-sharing packages by Rs 1 lakh. For sometime now, the West Indies has had a paucity of hotels and the current World Cup has resulted in hotel tariffs quite literally hitting the roof. One would be lucky to get a hotel room for $500 (Rs 22,000) per night which in most cases comes with a pretty steep rider-you will have to check in for at least seven nights.
Help has come from players like SOTC who are offering tourists the option of getting on to a cruise within the Caribbean. The cruise will take you to the destinations depending on which package you have opted for. This is what the tourist does-fly into the Caribbean after a stopover in London. In the Caribbean, the first landing destination is Bridgetown in Barbados. Here is where you get on to the cruise.
"The West Indies is far away and there have been concerns about the quality and availability of accommodation. The West Indies has been positioned as a resort and our packages are on land," says Gautam Sharma, Head (Marketing & Financial Services), Thomas Cook India Limited (TCIL). His company offers tourists the option of staying in resorts located in places like Antigua and Barbados, which means you get to watch matches being played there. You could choose a package which, for instance, could be for seven nights, in Antigua which will include all meals, a 24-hour snack service and unlimited land and water sports at the resort -all this is apart from the cricket, of course.
Most people in the travel and tourism industry agree that this is a one-time opportunity for tourists to enjoy the World Cup and also the destination. "For those who think it is expensive, we say there is the excitement of watching cricket. The West Indies can be a family destination with a lot of things to do," says Kartikeya. Sharma states that TCIL has over 200 corporate clients. "Our focus is on the corporate segment interested in cricket," he adds.
For an individual who loves to travel, West Indies, perhaps, seems to be a destination that's considered largely inaccessible. If there is an option of a cruise or a resort or a hotel, it's certainly worth a look. And, what's more, the West Indies bears a great deal of similarity to places like Goa. Yes, the whole trip has very few deals, but this is really a one-time opportunity. So, if sun and sand and cricket beckon you, start packing your bags. The Caribbean carnival is about to start.
The Caribbean Experience
Thomas Cook's packages:
Challenge with Down Under
Seven nights accommodation at Antigua's Sandals resort
All meals, 24-hour snacks and unlimited premium drinks
Tickets for two Super 8 India games at Antigua
Package
Double delux room Rs 1.60 lakh
Prices per person (twin sharing basis)
Cricket Lover's Delight
Seven nights accommodation at the Almond Beach Village Resort, Barbados
Economy class air ticket on Virgin Atlantic
All meals, 24-hour snacks and liquor
Tickets for two Super 8 India games at Barbados
Package
Double superior deluxe garden/pool view room Rs 3.10 lakh
Prices per person (twin sharing basis)
The Grand Finale
Eight nights accommodation at Bougainvillea Resort, Barbados
Economy class air ticket on Virgin Atlantic
Bed and breakfast included
Tickets for semi-final in Lucia and final in Barbados
Package
Double standard room Rs 3.10 lakh
Prices per person (twin sharing basis)
Cruise with Cricket
SOTC's packages:
Encounter in Barbados
12 cruise nights aboard Carnival "Destiny" cruise ship visiting Barbados and Grenada
Choice of meals on board
Tickets for three Super 8 India games at Barbados
Package
Ship's interior cabin Rs 2.88 lakh
Ocean view cabin Rs 3.37 lakh
Cabin with balcony Rs 3.89 lakh
Suite with balcony Rs 4.78 lakh
Prices per person (twin sharing basis)
Final Mission
Eight Cruise nights aboard Carnival "Destiny" cruise ship visiting St Lucia for the semi-final and Barbados for the final
Choice of meals on board
Tickets for the St Lucia semi-final and the Barbados final
Package
Interior cabin Rs 3.88 lakh
Ocean view cabin Rs 4 lakh
Ocean view cabin with balcony Rs 4.40 lakh
Suite with balcony Rs 5.30 lakh
Down Under Action in Antigua
Seven hotel nights at a luxury resort
Buffet meals with your stay
Tickets for two Super 8 India games at Antigua
Package
Prices per person (twin sharing basis) Rs 2.50 lakh
Assumption: India makes it to the Super 8 level, and plays at the specified venues
Monday, February 26, 2007
Wednesday, February 14, 2007
Tuesday, February 13, 2007
India's Hottest Software Product Companies
An Indian Windows Vista may take years in coming, but here are 10 home-grown software product companies that could make it big.
In India's glorious software story, there is a sad chapter. While India by now is top of mind in software services, there's no software product-like an SAP enterprise resource planning (ERP) package or Microsoft Windows-that enjoys instant recall globally. The reasons are fairly simple. Developing a software product demands investment upfront and high-decibel marketing, without any guarantee that the product will fly. Besides, it has always been said that to launch a software product, you need to be in the US or some other first-world nation, not India. As a result, while the Indian it software & services industry will log Rs 1,32,750 crore in revenues (domestic and exports) end of this financial year, an overwhelming 79 per cent of it will come from services. Yet, there's evidence that things are changing. A handful of Indian companies are bravely developing products in the belief that a world that has accepted their service offerings will also accept their products. Business Today spoke to a variety of industry experts to identify the 10 software companies that could make it big. Here's the list they are betting on:
In India's glorious software story, there is a sad chapter. While India by now is top of mind in software services, there's no software product-like an SAP enterprise resource planning (ERP) package or Microsoft Windows-that enjoys instant recall globally. The reasons are fairly simple. Developing a software product demands investment upfront and high-decibel marketing, without any guarantee that the product will fly. Besides, it has always been said that to launch a software product, you need to be in the US or some other first-world nation, not India. As a result, while the Indian it software & services industry will log Rs 1,32,750 crore in revenues (domestic and exports) end of this financial year, an overwhelming 79 per cent of it will come from services. Yet, there's evidence that things are changing. A handful of Indian companies are bravely developing products in the belief that a world that has accepted their service offerings will also accept their products. Business Today spoke to a variety of industry experts to identify the 10 software companies that could make it big. Here's the list they are betting on:
3i Infotech
CEO & MD, V. Srinivasan
Revenues: Rs 445.1 crore*
Employees: 3,500
Flagship Product: Kastle: A universal banking product that covers origination, servicing and collection of funds
Funding/ Listing: Listed in April 2005, raised $70 million (Rs 315 crore) in
Aug 2006, via an FCCB issue to fund M&A deals
* For nine months ended Dec. 31, 2006
Since its first tentative steps into the products market six years ago, 3i has become the fourth-largest player in the Indian products market, according to Dataquest, a trade journal. Not bad for a company that began life in 1993 as ICICI Investor Services and went on to become an it services firm (ICICI Infotech) six years later, before adding products to its portfolio. What helped? To put it simply, it bought its way into the products market, buying small firms such as Datacons, FDG and Stet and, in the process, moving into anti-money laundering, insurance and mutual funds markets. Today, half of its revenues come from products. "We are closely focussed on financial services and we offer products in every niche in this market," says V. Srinivasan, CEO & MD of 3i. Instead of trying to take on established players in this market, 3i has focussed on tapping unexplored markets (such as Africa) and tapping unexplored product niches too. To get into more developed markets such as the US, 3i is again banking on acquisitions. "We yet have around Rs 54 crore from two FCCB (foreign currency convertible bonds) issues of $50 million and $20 million in March and October last year," says Srinivasan. If you can't beat them, buy them.
Infosys Technologies
VP - Global Head (Sales & Marketing), Merwin Fernandes
Revenues: Rs 391 crore* amounting to 4.83 per cent of Infosys revenues
Employees: 2,400
Flagship Product: Finacle: A universal banking solution
Funding/ listing: Listed. An SBU of Infosys
* For nine months ended Dec. 31, 2006
For a company that has become India's best-known software brand, success in the products arena has been slow in coming. Its first core banking solution was implemented in 1992, and until 1998, Infosys CEO, Nandan Nilekani, was hopeful of getting 40 per cent of the company's revenues from products. That never happened, since Bancs 2000, as Ver 1.0 of the banking product was known then, never took off. In contrast, iFlex, spun off from a Citigroup tech arm, took such a commanding lead with its Flexcube that in 2005 us-based it major Oracle was prompted to acquire it for an eventual consideration of around $1.5 billion.
However, Infosys went back to the drawing board and relaunched the banking product as Finacle. Last year, Finacle fetched $81.86 million in revenues ($86.74 million or Rs 390 crore in the first nine months of 2006-07)-around four per cent of Infosys revenues. "The important thing today is that Finacle is growing faster than products from competitors such as iFlex and Temenos, though admittedly on a smaller base," says Merwin Fernandes, Vice President and Global Head of Sales & Marketing for Finacle. With the replacement market for core banking solutions projected to touch $34 billion (Rs 1,53,000 crore) in 2010 (compared to $13.9 billion in 2004), Finacle should have a lot of room to grow.
IBS Software
CEO, V.K. Mathews
Revenues: $50 million (Rs 225 crore)
Employees: 1,500
Flagship Product: AIRES - Passenger reservation and inventory management solution
Funding/listing: Privately held
A decade ago, IBS started operations as the sole offshore it services provider to (the now bankrupt) Swissair Group and then added Emirates to bolster its focus on the aviation market. Two years on, when 9/11 hit, IBS nearly went belly up. Rather than shut shop, IBS decided to lean on its domain expertise in travel and tourism industry to build three different it solutions: aires, iCargo and iLogistics. The industry expertise was primarily driven by V.K. Mathews, who headed the technology operations for the Emirates Group before relocating to Thiruvananthapuram, Kerala (and later to Bangalore) to set up his software products shop. "The airline industry globally, in the last 50 years, has cumulatively not made any profit. Though it is a problem for the industry, it is also a great opportunity for companies like IBS to come up with it solutions that will help airlines come out of this economic disaster," says Mathews. To try and match the marketing muscle of its larger competitors, IBS has jointly developed its passenger reservation system aires with Travelport, the holding company of other well-known travel firms such as Galileo, Orbitz, Gulliver Travels and eBookers. It also plans to raise capital to fund growth. "We see a clear opportunity for IBS to attain leadership position in the next 3-4 years," says Mathews. Keep an eye on IBS.
Ittiam
Chairman & CEO, Srini Rajam
Revenues: $8 million (Rs 36 crore)*
Employees: 200
Flagship Product: DSP solutions for portable media players
Funding/listing: Raised $11.5 million from GTV & Bank of America Equity Partners
*BT Estimate
Bought any Taiwan or Korea-made portable media player or digital camera of late? If yes, then you might already be using some of Ittiam Systems' products without knowing it. The company, whose name is inspired by Descartes' most famous one-liner in philosophy, 'I think therefore I am', has by now provided its software product stack to more than 2 million devices.
It's no mean achievement. Six years ago, when Srini Rajam gave up his job as the head of Texas Instruments in India at the behest of venture investor V.G. Siddhartha of Global Technology Ventures to start a product company, the business environment was far from ideal. The dotcom crash was followed by the telecom crash. However, Rajam turned adversity into an opportunity, and imposed financial discipline on the company from Day One to emerge as a player of repute in the digital signal processing (DSP) space. For the third year in a row, it has been voted the world's most preferred provider of DSP-based intellectual property in a survey of DSP professionals. Rajam's ambitions, though, are higher. "Even though we have become profitable, I am not happy with the scale we have achieved," says Rajam. "We had hoped to be a bit farther along the road at this point in our journey, but we are working hard and I think this model will work." Rajam, however, says that he thinks Ittiam has made the right bets, including, most recently, building products for IP video phones, imaging and video.
Ramco Systems
Vice Chairman, Managing Director and CEO, P.R. Venketrama Raja
Revenues: Rs 194 crore*
Employees: 2,000
Flagship Product: Enterprise Series - ERP package targeted at primarily small businesses
Funding/listing: Listed in April 1999
* For nine months ended Dec. 31, 2006
If the software products business were to be won on size alone, the Chennai-based Ramco Systems would have been kayoed in round one itself. This company, which focusses on providing enterprise resource planning (ERP) tools for a range of businesses, is minuscule compared to its multi-billion dollar MNC rivals such as sap, Oracle and more recently Microsoft. If it has survived, it has done so by targeting smaller companies and the domestic market to grow its business. Its small customers needn't buy its products such as Ramco ERP OnDemand. They can simply use it for a fee. But Kamesh Ramamoorthy, Ramco Systems' coo, says that cost isn't the only reason why customers prefer Ramco. "We provide a powerful software application assembly and delivery platform that not only address the functional requirements but also enhance the IT capability of our customers," says Ramamoorthy. Having established a stable base for its existing product base both in India and overseas, Ramco is now looking to build a business services repository in a few verticals and ramp up the delivery of its products on a subscription model. It has taken Ramco 18 years to get this far. The road ahead won't be as arduous, but it won't be easy either.
Sasken Comm. Tech.
Chairman & CEO, Rajiv C. Mody
Revenues: Rs 339.69 crore*
Employees: 2,504
Flagship Product: NA - Solutions at the heart of millions of cellphones in use globally
Funding/listing: Listed in August 2005
* For nine months ended Dec. 31, 2006
Being a software products company isn't easy. Just ask Sasken Communication Technologies. Founded by Rajiv Mody in a garage in San Jose, California, way back in 1989 as Silicon Automation Systems, it arrived in India (Gujarat) as ASIC Technologies, moved to Bangalore a year later, and when investors such as New Enterprise Associates, Nokia Venture Partners, and Intel Capital pumped in $22 million, it reincarnated itself as a telecom solutions provider. "This was clearly a risky move when we made it but it seems to have paid off handsomely over the last couple of years," says G. Venkatesh, Sasken's Chief Technology and Strategy Officer. Today, Sasken's products are shipped with millions of phones worldwide. For instance, its modem software has been slapped into some 55 million handsets globally to date and its application suite installed in more than 8 million high-end or smart phones. "Sasken is driven by the philosophy of connecting the dots in the communications value chain. Operators are rolling out new services and solutions as they want to exercise larger control over this value chain," says Venkatesh. Achieving this involves resolving multiple paint points such as interoperability issues. Pain points for telcos, but opportunity for Sasken.
Subex Azure
Chairman & CEO, Subash Menon
Revenues: Rs 172 crore*
Employees: 1,200#
Flagship Product: RocWare - Operational efficiency and service agility software suite
Funding/ listing: Listed but in the process of raising $200 million (Rs 900 crore) through sponsored GDR
# This includes 300 employees from its recent acquisition Syndesis
* Does not include Syndesis revenues
Sometimes, persistence pays. Back in 1999, when competitors were eating Subex Systems' (as it was called then) breakfast, lunch and dinner in the systems integration business, its founder Subash Menon went against popular advice into software products, although he stuck to its area of expertise, telecom.
As it turns out, that was the best decision he could have made. In the seven years since, Subex has made seven acquisitions worth $323.5 million, including a $164.5-million (Rs 740-crore) purchase of Canadian company, Syndesis, just last month. As a result, Subex's bouquet of products has expanded from telecom fraud management (Ranger) and billing solutions (Concilia) to revenue-enhancing solutions such as Moneta and Optima.
"Until the Syndesis buy, we were offering only operational efficiency tools to our customers-that is, help to reduce cost. With this acquisition, we will be able to provide service agility and thus help increase their revenues," says Menon, 41. Thanks to the acquisitions, 32 of the world's top 50 telecom players are now Subex customers.
Tally Solutions
MD, Bharat Goenka
Revenues: Rs 120 crore
Employees: 850
Flagship Product: Tally 9.0 Accounting package
Funding/ listing: Privately held. Mukesh Ambani CMD of Reliance Industries is a major investor
There are only two kinds of companies in India when it comes to accounting software," says Bharat Goenka, Managing Director of Tally Solutions. "Those who already use Tally and those who will shortly." He isn't exaggerating. Tally enjoys a 90 per cent share in the domestic market for accounting software.
Expanding reach and cutting price from Rs 22,500 per installation three years ago to Rs 10,000 currently has helped the 20-year-old company curb piracy. Around that time too, Tally forayed into Middle East and Africa, and claims to now have 2 million users in 92 countries. Now, it's looking at ERP solutions for small businesses and another one for the retail industry. Things must be headed in the right direction at Tally, since Reliance Industries' Mukesh Ambani recently picked up an undisclosed, personal stake in it. "Tally's turnover must be rounding off error for him, but it is my good fortune that he has taken a personal interest in it," says a grateful Goenka.
Talisma
CEO, Dan Vetras
Revenues: N.A.
Employees: 260
Flagship Product: Talisma CIM - Multi-channel customer interaction management solution
Funding/listing: $79 million* (Rs 355.5 crore) from Oak Investment Partners and SeaPoint Ventures
N.A.: Not available *BT Estimate
With competitors such as SAP, Siebel and salesforce.com on one hand, and Kana, eGain and LivePerson on the other, you'd expect the Bangalore-based provider of customer relationship management (CRM) and customer interaction management (CIM) solutions, Talisma, to be hemmed in. You would be wrong. "We have trebled our customer count to over 800 worldwide now, and we expect to add 50+ customers (big and small) every quarter," informs Girish Krishnamurthy, Managing Director (Asia Pacific), Talisma, which was spun out of Pradeep Singh's Aditi Technologies in 2000. To compete with the larger players, Talisma's executives say, the firm focusses on ease of implementation (measured in days, not weeks or months, they say) and domain expertise. The company, which is headquartered in the US but does almost all of its R&D in Bangalore, relies on word-of-mouth and search engine-based marketing. Despite its rapid growth in recent years, Talisma recognises that it faces many challenges. Attracting and retaining talent apart, Krishnamurthy says, "there are issue of expanding our bandwidth and entering new markets such as travel and tourism and, inevitably, BPO."
Tejas Networks
CEO, Sanjay Nayak
Revenues: Rs 250 crore*
Employees: 350
Flagship Product: Optical Networking Products
Funding/ listing: Raised $49 million (Rs 220.5 crore) till date through investors like Mayfield Fund, Intel Capital, Sycamore Networks, Battery Ventures
*BT Estimate
There could not have been a worse time to start a software product company, that too from India," grins Sanjay Nayak, who co-founded Tejas Networks with one of Silicon Valleyer's posterboys from India, Gururaj Deshpande, just a year before the telecom nuclear winter of 2001. Tejas had stepped into optical networking solutions just as the global telecom industry was coming crashing down due to overcapacity and ruinous auctions of 3g spectrum. Few thought the Bangalore-based company would survive.
For one, global majors such as Cisco, Huawei and ZTE had entered the segment, offering solutions at rock-bottom prices. Yet, Tejas, whose products help telecom carriers build converged networks that support both traditional voice services and data services, has a 25 per cent market share in the segments it operates in. It also ships boxes to other international telecom infrastructure providers, although Nayak won't reveal names. "Once we are able to build a brand internationally, we will sell under Tejas name," says Nayak. With some big investors backing the Rs 250-crore Tejas, it's now just a question of scaling up and challenging global rivals on their turf.
Sunday, February 11, 2007
What Will Chidambaram Do?
Palaniappan Chidambaram, 61, is going to be the envy of most finance ministers when he rises to present the Union Budget for 2007-08. After all, it is not every day that the treasury manages to exceed even its most optimistic revenue targets, and, that too, by a comfortable margin. The finance ministry is expected to close 2006-07 with at least Rs 20,000 crore more than the Rs 4,42,200 crore that Chidambaram had estimated he would collect in taxes. And mind you, this wasn't an easy target by any stretch of imagination; it was as aggressive as it gets. Finance ministry officials point out that the target of Rs 2,10,000 crore for direct taxes was exactly double the actual direct tax collections in 2003-04-a 100 per cent growth in three years-and even that is likely to be exceeded. This has given rise to optimism that the Finance Minister may play Santa Claus on February 28. "If tax compliance improves, there is scope for moderation," he reiterated recently in a television interview. That's the positive part. On the flip side: Chidambaram will be under tremendous pressure from his own party, coalition partners and allies to allocate resources to populist schemes in a year when several states go to the polls.
For economy watchers, this abundance doesn't come as a surprise. It has been in the works for a long time, as the government, over the years, rationalised and simplified the country's complex tax structure. But the more immediate trigger for this bounty is the stupendous economic growth that India has been experiencing over the last few years. "Public finances are improving partly because growth is feeding revenues and partly because of improved tax systems," says Sanjeev Sanyal, Director, Global Markets Research, Deutsche Bank.
The economy has been galloping quarter after quarter. So have corporate profits (See In Step With Each Other). Gross Domestic Product (GDP) growth in the first-half of the current financial year topped the 9 per cent mark-close to the aspirational double-digit growth figure. If the services sector was the lone sprinter earlier, then industry has now joined the race, clocking 14.4 per cent year-on-year growth-nearly 3-4 percentage points over consensus estimates-in November, 2006. The rest is a no-brainer: rapid industrial growth naturally leads to higher excise collections (though they are still lower than what the fm would want) while higher imports swell the customs duty kitty. And corporate tax? This rose over 50 per cent during the first three quarters of the current financial year. It's a virtuous cycle-corporate expansion is fuelling a secular rise in salary levels that has fuelled an over 27 per cent growth in personal tax collections during the same period (See The Coffers Brimmeth Over).
The boom in the services sector, which accounts for 55 per cent of India's GDP, is also being reflected in the tax collections. Though the service tax to GDP ratio is still a low 1 per cent, it is growing rapidly on its still small base and helping sustain the over 20 per cent growth in indirect tax collections. New levies introduced over the last three years, such as the securities transaction tax (STT) and the fringe benefit tax (FBT), also help sustain the momentum. "These new taxes are easing the pressure on traditional contributors such as customs and excise," says Gaurav Taneja, Partner, Ernst & Young.
Improved Tax Systems
Across the economy, the emphasis has shifted from tax avoidance to wealth creation, says Rahul Garg, ED, PricewaterhouseCoopers. "Given the economic buoyancy, there is an increased ability and willingness to pay taxes," he says, adding that the tax department's systematic approach to investigations and scrutiny is also helping create a credible deterrent against non-compliance. "The department has become more aggressive; the intensity of the action is very high," says E&Y's Taneja. The numbers bear this out: tax demands made after scrutiny of a mere 2 per cent of returns typically yield around 10-12 per cent of the gross direct tax collections.
If this aggressive approach is working for the corporate sector, then it is also working in the personal income tax domain. The government is now tapping third party sources such as banks (see Big Brother is Watching) to collect data on "high value" transactions. "Unaccounted for income has to be either spent or invested. We are tracking both routes," says a senior finance ministry official.
Another associated factor, though not directly linked to Central government finances, is the switchover in most states to value added tax (VAT) from central sales tax. This has created, what economists call, a "self-generating, complex paper trail" for unaccounted wealth. And the effect on state government finances has been dramatic. During 2005-06, tax revenues of the 25 states that have implemented VAT grew 13.8 per cent year-on-year-higher than the compounded annual growth in sales tax collections in the previous five years up to 2004-05. As the tax regime gets streamlined, more such advantages will accrue.
Room for Manoeuvre
The government's coffers are overflowing. The big question is: what will Chidambaram do with his bounty? Will he use the available headroom to undertake some much-needed but politically unpopular reformist measures or will he go down the populist path?
"The underlying momentum in the economy, coupled with the new-found efficiencies in the tax collection system, will definitely give the Finance Minister more leeway to invest in areas like infrastructure and education," says V. Balakrishnan, CFO, Infosys Technologies. Also, in the wake of widespread prosperity, there is greater acceptance of the government's "common man" agenda. "Demands for spending large amounts on social sector schemes should not be seen to be at cross-purposes with policies that spur economic growth. These will actually play a complementary role," says E&Y's Taneja. But Rajan Varma, CFO, Dabur India, adds a word of caution. "Higher allocations for the social sector will certainly be welcome if they are targeted," he says, highlighting widespread concerns about the leaky delivery channels for such spends.
However, the Finance Minister will be under tremendous pressure to deliver a populist budget. Elections are due this year in four states, including in the politically crucial Uttar Pradesh; and for the political class the Budget is still a great instrument to make its point. A sneak preview of this pressure was in evidence when excise duty concessions for hilly states, which were due to expire in March this year, were extended by three years. Uttaranchal, a beneficiary of this move, is one of the states going to polls. The same pressures seem to be driving the proposal for priority lending to minorities by banks.
Finance Ministry mandarins are tightlipped about the direction of the Budget, but the heartening point is that the government is making all the right (and responsible) noises about it. The indications are that Chidambaram will use this opportunity to initiate changes that are critical for long-term revenue buoyancy. And political backing for such changes was provided by none other than Prime Minister Manmohan Singh himself. "In the long run, our tax regime should not have too many exemptions which make tax administration an unnecessarily complex exercise vulnerable to misuse," he told an industry forum recently.
The focus on removal of exemptions comes with the need for lower taxes. And there is quite a clamour at least for lower rates on the direct taxes front. Recently, in an open letter to the Finance Minister, investment bank CLSA Asia Pacific Markets argued for a 3-4 per cent reduction in effective tax rates on income for corporates and individuals. His department's bulging coffers gives him sufficient room to grant this wish, and still spare some for correcting the fiscal imbalance. Though the Budget target for fiscal deficit will be easily attained this year, more clearly needs to be done on this score. Standard & Poor's Credit Analyst Sani Hamid points out that India's fiscal position, including its deficits, debt and interest payment liabilities, is still among the weakest of all the countries rated by the global credit rating agency. "India's average general government deficit, of 8 per cent over financial years 2003-2007, is well above the deficit of 2.2 per cent and 2.9 per cent for the bb and B medians, respectively, for the same period." S&P rates India bb+, just a notch below investment grade. Higher tax collections will give the Finance Minister space to begin fixing this problem as well.
"It is imperative that this (buoyant) trajectory be held. All that India needs to do is just stay the course," says Deutsche Bank's Sanyal. And the best part is that this time, Chidambaram can afford to please both the populists and the pragmatists.
YOU CAN EXPECT CHIDAMBARAM TO...
| Remove the 10 per cent surcharge on corporate and personal income taxes Reduce income tax rates on personal income Reduce peak customs duty rate by 2.5 per cent to 10 per cent Increase the service tax rate to 14 per cent and bring more services into the tax net Announce a clearer roadmap for transition to the Goods and Services Tax by April 2010 Reduce myriad exemptions across the tax system Make visible and probably enhanced allocations for education and healthcare Make a visible effort to spur growth in the lagging farm sector. He may set up a farmer infrastructure investment fund as proposed by National Commission for Farmers Announce a special package for unorganised sector workers and for minorities Reduce the excise duty on large cars from 24 per cent to 16 per cent. He could push this to the next year as well Take small steps on financial sector reforms, including capital account convertibility |
Wednesday, February 07, 2007
Wednesday, January 17, 2007
Monday, January 08, 2007
Friday, December 22, 2006
Business Today - Dec 31
Saturday, December 16, 2006
Business Today - Real Estate And Reforms
If you thought real estate was catching the high tide in terms of fund flows, then think again. Were it not for a few snags, the industry could be attracting far more capital. Topping the list of impediments is the opaque nature of the business in India. "The challenges of investing in Indian real estate relate to transparency, limited market history and forecasting difficulties, as well as title complexities and imperfections," says Kurt Roeloffs, Head, RREEF Asia Pacific. Ownership records and land titles are one of the biggest blind spots in property valuations. Further, there is no title insurance in the country. Title insurance, as the name suggests, guarantees against massive losses in case of a faulty title. While domestic funds are able to negotiate these issues, foreign funds too are learning to handle them.
One interesting fall-out of such intense scrutiny by global and domestic funds is that transparency in the market is increasing. According to a global transparency index evolved by realty consultant, Jones Lang LaSalle (JLL), India stood at #41 this year in a list comprising 56 countries-its rank unchanged since 2004. On a scale of 1-5, with a score of 1 showing highest transparency, India's transparency score was a low 3.46. However, as India was among the top 10 countries (the 10th though) in showing the largest improvements, it moved from "low transparency" status to the band that includes "semi-transparent" countries. A flood of major retailers and other MNCs looking to capitalise on India's recent exceptional economic growth, plus an increasing presence of international property consultancies, have significantly improved the quality and availability of market information across all sectors," the JLL report says.
As more transactions between foreign firms and local developers get done, the general accounting and reporting processes are expected to improve, since the local firms will need to start matching global reporting benchmarks. The public offers by real estate developers and the attendant disclosure norms will also lead to more information about real estate assets being released into the market. Similarly, the introduction of real estate mutual funds will aid the process further.
The opaqueness is evident in customer sales as well, where the rampant malpractices are significant enough to inhibit demand. Issues such as cost of property related to built-up, super built-up areas or carpet area have created a lot of confusion in the market. Land use issues, as evidenced in the sealing drive in Delhi, are pointers to an overall lack of urban planning. Stamp duties and archaic laws such as Urban Land Ceiling Act and Rent Control Act need to be rationalised or scrapped. However, as with many other institutional reforms, much of the initiative rests with the state governments.
Even as the government talks of a real estate regulator, many in the industry are wondering what will be its terms of reference. "Considering its importance in economic growth, foreign direct investment and employment generation, it is high time to have a federal regulator for the sector," says Cushman & Wakefield's Verma. Fortunately, he won't have to wait for too long.
Friday, December 08, 2006
Wednesday, December 06, 2006
Business Today - Who's Next
As blue-chip CEOs like K.V. Kamath, Deepak Parekh, and Shiv Nadar, among others, near retirement, the biggest challenge their companies face is to groom competent successors
On October 24, a week before its joint Managing Director Lalita Gupte retired this year, ICICI Bank put out a matter-of-fact press release announcing some key reshuffles in the top management team. Chanda Kochhar, deputy Managing Director, who led the bank's retail business, was given Gupte's portfolio of international banking; V. Vaidyanathan, a senior General Manager who had built ICICI's retail business alongside Kochhar, was elevated to the level of Executive Director, while Nachiket Mor, another deputy Managing Director, retained his oversight of the rural banking initiative and global principal investments and trading. At ICICI Prudential, the bank's life insurance joint venture led by Shikha Sharma, another senior General Manager, Bhargav Dasgupta, was moved into the Executive Director's position, possibly as part of a plan to free up Sharma for a call of duty at the parent company-when the time comes.
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