IIPM- NEWS RELEASE: March 2013

Thursday, March 28, 2013

Thumbs down to The free ride!

The Indian Government’s Initiatives towards free trade have not been met as Enthusiastically as Expected by The Industry. What is The way forward?

During an informal dinner conversation with a top government official and some people from the industry, we were discussing the big idea that could come up ahead in the 12th Five Year Plan, which could take India ahead in the next decade. Infrastructure was almost unanimously the choice of most people in the group. Suddenly, I decided to play the Devil’s Advocate and brought up the topic of exports. I asked him why exports cannot be that key thrust area, since it has lifted so many economies like Japan, South Korea and China and taken them strongly on the path of development. His answer baffled me. He said that it wouldn’t work, since over 50% of Indian companies are not really interested in exporting, and are rather perfectly happy serving the domestic market.

The domestic market is obviously considered one of the greatest advantages of being an Indian company. India Inc. has been in a typically self congratulatory mode since our companies were relatively less impacted by the economic recession due to staying local. But the cushion of having a strong domestic market is also one of the greatest drawbacks. Companies in nations like South Korea and Japan had such a small domestic market that exports were the most viable option. That encouraged them to move out, and that is why, their companies have been all over the globe. China, on the other hand, had the cushion but choose to ignore it, and we know the other part of that story. When you look at 2009 figures from WTO, India had a 1.3% share of global merchandise exports of $12.18 trillion, while China accounted for a whopping 9.9%. Indeed, there is an urgent need for the government to change that mind set. Kwang Ro Kim, Vice Chairman, Onicra, tells B&E, “The point on having a huge domestic market is a myth. Moreover, it is the best way to create jobs for 70% of India, since everyone is not intellectual enough to work in IT companies.”

Of course, there are a number of initiatives that the government takes from time to time to boost exports, but we are going to discuss a particular one here – the rising number of Free Trade Agreements (FTAs). India has been signing a number of them in the past few years (like ASEAN, South Korea & Japan); and has also consciously followed a ‘Look East’ policy. When asked about the key benefits of such FTAs, Minister of Commerce Anand Sharma tells B&E, “We have been seeing significant shifts in development from Asia and developing countries like India. We need to focus on different FTAs to boost growth.”

When it comes to Asia, in particular, FTAs are becoming a very critical policy tool. Failure of the Doha round of WTO means that FTAs would be a valuable tool to leverage on trade opportunities and also deepen regional networks and linkages. Even Indian firms have relied on Western markets to a disproportionate extent in the past. Looking at figures for the period from April-September 2010, India’s top destination for exports has been UAE with exports of Rs.657.11 billion (growth of 21.48% yoy) followed by US with exports of Rs.539.42 billion (growth of 23.43% yoy) and China with exports of Rs.256.13 billion (growth of 28.73% yoy).

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Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Tuesday, March 26, 2013

Will they be Good at Crossing ‘Tablets’?

A number of low cost Giants are Preparing to launch tablets in India, Motivated by the way The Mobile Phone landscape changed in The Country. Is an Encore as Certain as expected

First there were desktops. Then there were laptops. Then there came mobiles. Indeed these devices made life simpler. But then, as smart phones, netbooks, media PCs, smartbooks, mobile internet devices and now tablets have come into the picture, life is not necessarily easier, neither for companies nor customers. For innovator companies like Apple, which rejuvenated the tablet segment in the first place, the challenge is to be able to milk innovation fast enough before competitors bring in substitutes and disrupt their pricing structure. Within a short span of launch of the iPad, competitors like HP, Blackberry, Dell, Samsung, HTC and Asus came into the fray.

Simultaneously, there are a host of Asian players who are looking to grab the opportunities in this new gold mine, and India will be very firm on their radar. After all, a precedent was set for them when Nokia suffered deep cuts in its market share from 60% in 2008 to around 31.5% by the quarter ending September 2010, thanks to players like Micromax, Lava & G’Five, who enhanced the value proposition by many times.

Now these players are set to enter the emerging tablet PC market in India with a price tag less than Rs.15,000. Delhi-based Lava Mobiles is on the verge of introducing its affordable tablet PC by September this year, which will be priced between Rs.15,000 and Rs.20,000. Micromax has plans to launch a tablet somewhere in July. Though initially these tablets might sound a bit expensive, prices will most likely fall. According to report released by the Boston Consulting Group titled ‘Swimming against the tide’, competition will drive down prices of affordable tablet PCs to Rs.9,000 by 2013. This is reaffirmed by S. N. Rai, Director and Co-founder, Lava Mobiles, as he exclaims, “Once our range of Tablet PCs is launched, we will keep working on the innovation side and therefore expect that the price will come down further to sub Rs.10,000 levels.” Zen, Olive, G’Five, Acer and Fly are expected to make their launches soon. But will customers, who pay for sub-Rs.5000 mobiles, show the same response to sub-Rs.15,000 tablets from these companies? According to Arshit Pathak, MD, G’Five, “Tablets from Apple and BlackBerry will be an add on for people who already own a laptop and/or a smartphone, but our product will be an independent device and will target people who don’t have any computing system.” They will look at students, SMEs & young professionals who wish to remain connected, have a better multimedia experience and don’t wish to spend on a notebook or a smart phone.

When the phenomenon called the Apple iPad took over the computing world last year in March, the immediate result was a fall in netbook shipments. In the nine months ending December 31, 2010, Apple sold 15 million iPads globally. Gartner estimates worldwide media tablet sales to touch 54.8 million units in 2011, up 181% from 2010, and surpass 208 million units in 2014. In fact, a recent study conducted by Accenture titled ‘Finding growth: Emergence of a new Consumer Technology Paradigm’ states that “while the growth rate of computers is expected to decline, the growth rate of tablet PCs is expected to be up by 160% in 2011”.

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Little Ventured Means Little Gained

After Resisting The Global Financial Crisis almost Unhurt, expectations are high from The Indian Banking Sector to help India achieve a Double Digit growth rate. But with The Industry still struggling to achieve a Good Penetration rate, The Question remains, Can it live up to The Mark?

Banking is understood in common parlance as a field that begins and ends with numbers. To begin with, we take a look at a few startling facts about the Indian banking sector:

Total assets of the Indian banking industry jumped by more than five times to $1.25 trillion in the last decade from $250 billion in 2001.

Total business of Indian banks has grown over threefold from $516.7 billion in 2004 to $1.72 trillion in 2010.

Total income of all scheduled commercial banks of India has risen from Rs.1.51 trillion in 2001 to Rs.4.94 trillion in 2010.

The BSE Bankex has climbed by 970% up since the beginning of 2002 as compared to 445% by the benchmark BSE Sensex.

A commendable performance indeed. But the question remains, more so for the fact that the country aims to remain as one of the fastest growing economies in the world, has the growth been satisfactory? The answer, considering that out of the 600,000 habitations in the country, only 5% have a commercial bank branch and just 40% of the total population across the country has bank accounts, is a certain no. And this, in essence, means that the development of the country’s banking sector needs to be taken forward in a much bigger way to serve the larger needs of financial inclusion through expansion of banking services. But are the banks in the country prepared to take up the challenge?

Considering the journey of the industry from the pre-liberalisation decade, Indian banks have come a long way from virtual nobodies to creating one of the strongest banking industries in the world, which managed to weather the last global recession almost unhurt. Factually, cumulative capital and reserves of banks in India that stood at $95 million, $4.1 million and $4.5 million for public sector, private sector and foreign banks respectively in 1980, now stand at $53.5 billion, $26.6 billion and $15.3 billion respectively. However, during most of these 30 years, the growth story was driven by various factors; from industrial funding to infrastructure funding. But the last decade has seen Indian banks really banking on retail banking to boost their bottomlines.

In fact, banks, in both the public and private sector, have moved beyond the traditional boundaries of what can be called plain vanilla banking, and have started exploring other lucrative areas like wealth management, private banking, credit cards, investment advisory services et al. Moreover, considering the initiatives, the cumulative profit of Indian banks is expected to double to over $40 billion in 2015; adding muscle to the sector to expand into the hinterlands. Interestingly, a majority of this growth is expected to come from the retail banking segment. But then, why is retail banking drawing so much of attention now?

As reports suggest, with a saving rate of 32.4% of their income, Indian households are among the biggest savers in the world. And the irony is that 53% of these households are still without any banking assistance. While this is a problem from the country’s perspective, it’s a golden opportunity for bankers. And no bank operating in the country wants to miss on it. So currently, every bank is busy in boosting their retail banking operations. But it’s not a trend very peculiar to India; the global trend is also moving in favour of retail banking. As Andy Mcguire, Senior Partner and Managing Director (London Office), The Boston Consulting Group (BCG) reiterates, “The retail banking industry was battered by the global financial crisis. But in many markets, its resilience has helped to enable a turning of the tide that began in 2009 and continued into 2010. Overall, retail banking is on track to resume its stature as a reliable and profitable backbone for universal banking.”

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Monday, March 18, 2013

An Exclusive Interaction with Virat Bahri of B&E

HZL COO Akhilesh Joshi in an Exclusive Interaction with Virat Bahri of B&E

B&E: What is your outlook with respect to the market for Zinc globally, as there are some economies that are still not bak on the growth track?
AJ: In India, domestic demand is going to be high. Internationally, it is not going to be good in some countries but in countries like China, it is expected to remain good. If you look at the availability of the concentrate, it is expected to remain in short supply in the coming years, so it has good potential.

B&E: Your margins were affected in the first half of the current fiscal owing to factors like higher stripping costs and higher coal pries. What challenges do you see to your margins going forward?
AJ: There is no challenge as such – it is our DNA to work for better efficiencies and productivity in order to keep our cost under control. On the price front, we are not expecting any downfall in the prices.

B&E: On the front of Zinc prices, do you feel that the London Metal Exchange (LME) is a robust exchange?
AJ: Yes it is a very robust exchange. If you see, the general marginal cost of production for Zinc is around $1000-1200 per tonne and any LME price above that will always give margin to the producer.

B&E: What is the role of innovation in your business?
AJ: The role of innovation in our business is to reduce costs. The rest is market trends. This is an ongoing initiative and we are showing improvement every year.

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Tuesday, March 12, 2013

How Karachiites are Fighting For a Brighter Tomorrow...

How ‘The City of Lights’ lost its Sparkle, and how Karachiites are Fighting For a Brighter Tomorrow...

In the wake of the previous Afghan War, drug and arms culture was introduced in Karachi. The drug mafia penetrated in Lyari that happened to be the most vibrant area in yesteryear, politically and culturally.

Gradually, land mafia, transport mafia and drug mafia became so powerful that political activism retreated and was replaced by the barrel of a gun. With growing penetration of drug mafia and bureaucratic capital, the social fabric of Pakistan’s society and Karachi in particular was destroyed, and sectarian killings became order of the day.

Class contradictions were also sharpened. On one hand were limousines worth tens of millions of rupees that plied on the streets of Karachi, on the other were hordes of jobless youth who had nowhere to go.

With population the size of Islamabad migrating to Karachi in search of jobs, the demography of the largest city of Pakistan started changing dramatically. No wonder Karachi now hosts the biggest Pushtoon population in Pakistan.

Had it not been for philanthropists, tens of thousands of people in Karachi would have died of hunger. Social workers such as Abdus Sattar Edhi are not only feeding millions of people in Karachi, but are also running world’s largest ambulance service in the private sector.

But sadly enough, the fate of Karachi is decided by land mafia that has entrenched almost every political party and can trigger gang war and ethnic war in almost every nook and corner of the city.

Clifton, Hawkes Bay, Sandspit and other beaches that once provided solace to Karachiites are now eyed by land mafia. Similarly, heritage buildings too are endangered because Godfathers want to replace them with skyscrapers.

However, there is a silver lining! Despite threats, the civil society and the intelligentsia in the financial hub of Pakistan are adamant on resisting mafias and saving beaches, and to expose the vested interests.

Nobody knows how many years it would take to undo the wrongs of General Ziaul Haq, but one could find oasis in Karachi in the midst of anarchy, lawlessness and chaos.

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Monday, March 11, 2013

AXIS BANK: NEW AVENUES

The Indian Banking Sector is going through a Massive Transformation post Economic Crisis. While some have cut down on Expenses, Some have Halted Expansion. However, Axis Bank is the one which has Hardly Changed its Course as it Apparently kept its basics right. But can this ‘Basics’ Strategy work out for the long run as well?

Banking experts, who were previously reticent to own up to the continuing benchmark performance of Axis Bank, are now slowly but surely coming around to the Axis camp. Some like Chandan Taparia, Banking Analyst at Anand Rathi Securities are more forthcoming, telling B&E, “Building on the well-accepted UTI brand name, Axis Bank has built a very strong retail franchise apart from its existing strength in corporate business. The bank was one of the first in the private space to expand rapidly in Tier 2 and Tier 3 cities and has managed to build a strong (and fast-growing) customer base that has given it substantial low-cost deposits as well as retail fee-based income.” In fact, fee income contribution (across a spectrum of services) to Axis Bank’s total revenues has been a meaningful 1.9% of assets (almost twice the level in PSBs) over FY 2008-10. Further, with corporate loan growth picking up and capital markets reviving, fee income growth is expected to gain momentum (at 30% CAGR over FY 2010-12), taking the contribution to 2% of assets by FY 2012.

All this has been possible because Axis Bank did a commendable job in transforming itself into a strong private bank over the last decade, a bank with a growing market share in both corporate and retail banking. During the last decade, the bank has rapidly expanded its network (Axis Bank today has 1,095 branches and 4,846 ATMs) and gained traction in segments such as transaction banking, wealth management, et al.

But the credit for the transformation of the bank can be traced back to some years in the past, to the leadership of Supriya Gupta, the first MD & CEO of the erstwhile UTI Bank. Within a few years of operations, the bank went public in September 1998 with a Rs.710 million public issue, which was eventually oversubscribed by 1.2 times. Then, in January 2000, came Dr. P. J. Nayak, the miracle man who intensively focused on ensuring a robust IT infrastructure, better risk management and employee empowerment. By then the bank had had its basics right. Even before Nayak could settle in his new post and set new strategies, there was a virtual war going on in the banking sector. While Axis Bank’s counterparts were completing successful mergers (for instance, acquisition of Times Bank by HDFC Bank in 2000 and ICICI Bank’s takeover of Bank of Madura in 2001), Nayak was always of the belief that the bank should not grow market share just for the sake of it. In fact, on his appointment for the second term in December 22, 2004 he said that as the bank had been growing at the rate of 35-40% between 2000 and 2004, therefore there was no need for them to look at inorganic growth. If one were to analyse this critically, a decision to ensure that the bank only focused on its core operations and didn’t even attempt to diversify much like the others did, was radical and open to much criticism during those times of dynamic industry change.

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Thursday, March 07, 2013

Respect to his understanding of the Indian customer

Karl Slym, President & MD, GM India has spent close to three years in the Indian market. The times have changed him considerably, more with respect to his understanding of the Indian customer. Slym shares with B&E the decisions taken in the hard times and the strategy forward with GM’s Chinese JV Partner.

B&E: You have a good experience of working in the JV environment in the past as well but as far as the Indian market is concerned, we have seen many JVs not working in the past. What makes you so sure of the fact that the partnership with SAIC will go a long way?
Slym: I think that JVs are something that you have to embrace. Where there are no synergies and both are not seeing any potential benefits together, there is a problem. But if the planning upfront is right where both parties are seeking their own set of benefits and are able to make something better, which was not possible individually; you have a strong foundation on your side to start with. It is not a single point focus, but if it is done carefully, one may look at the benefits, which are huge in magnitude. Moreover, as we have already seen a lot of success with the partner in China, we are trying to ensure that we are able to replicate that success in the Indian market as well.

B&E: But you have had a bitter experience on the same with your partnership with Reva. What about your plans for the electric car market?
Slym: After the deal with Reva didn’t go through, we decided to go ahead alone in the electric car segment. We will show you an electric car in the first half of next year, which will be a small car.

B&E: You mentioned in our last interaction about your plans for the LCV market for end 2012. What is the latest update on the same?
Slym: We are now planning to roll out the LCVs much before that. It will still be in 2012, but it will be done at the 11th Auto Expo. We will roll out close to six products in total with 15 fuel variants in the next 24 months. We have a design centre here but at the moment, they don’t have a proper architecture, which is a vision for them to grow to. The way we work therefore is that we have global products wherein, let’s say, we pick up a Cruze from Germany and then we put it through our Indian R&D Centre. The centre makes sure that the ground clearance, suspension, horn and similar things are adjusted according to Indian conditions. We will follow a similar process for the vehicles from China. Needless to mention, we are aiming for a very high level of localisation that will be close to a level of 90%. Therefore, we are now signing up with new suppliers for the plans for the LCV market.

B&E: As you have decided to brand it under the Chevrolet umbrella, what makes you come to a conclusion that you will require a new infrastructure to sell commercial vehicles in India?
Slym: As everybody knows Chevrolet today, more and more people are accepting it as one of the most promising brands as well. A lot of energy and effort has gone into establishing the Chevrolet brand after we started with GM moving on to Opel and then finally landing right with Chevrolet. Moreover, when you know you are going to compete against a brand as strong as Tata, you don’t really want to take any chances with a brand which is completely new to the Indian consumer. By the time we launch, we could have reached new heights in terms of consumer confidence and there will be close to half a million Chevrolet cars on the Indian roads. For the different infrastructure, there are two entirely different sets of consumers that we are trying to address here with passenger cars and LCVs. And as both environments are very different from each other, it makes a lot of sense for us to have a separate infrastructure for them too. We have a possibility of sharing a back office for that but the final point of sale will be different from passenger cars.

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Wednesday, March 06, 2013

“Russia must accept we are an independent country!”

In an exclusive conversation with Akram Hoque and sayan ghosh, H.E. Miloslav Stasek, the Czech Republican Ambassador to India, shares his views on EU, NATO and US and throws light on Czech’s post-USSR relations with Russia.

B&E: Czech Republic is one of the most recent countries to establish itself on the world map. What is your vision for the nation?
Miloslav Stasek (MS): We separated from the Slovak Republic on January 01, 1993. But we were an independent country from as early as October 28, 1918 and were known as Czechoslovakia. We are a young democracy and our vision for the nation is in line with democratic values and principles. We passed through the socialism era and at the same time became the member of NATO and EU. Our economy is mainly exports based and we aim to strengthen the auto industry by ramping up production. With a population of 10.2 million, we produce 1.5 million cars which shows our economic progress and stability.

B&E: What is the status of your relations with Slovakia?
MS: I must say that our separation with Slovakia was not an overnight affair. We are still very close. And it is not only due to our history but also due to common language. Our relation is a good example because after the separation, we divided this huge compound into two pieces. We still have a common house called the House of Czech and Slovak Republics.

B&E: Czech Republic and Slovakia together have 2000 soldiers in Iraq. Do you find the US war in Afghanistan and Iraq justified?
MS: We have decreased the number of soldiers in Iraq. Now we are in Afghanistan and the Balkan region. Those missions were under the umbrella of NATO. As a member of NATO, it was our duty to support the mission and provide necessary logistics. In Afghanistan, it is not only about military operations. We are also involved in civil programmes, NGOs and building infrastructure. The restoration process is peaceful in Iraq. Most of the areas are now under control.

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Monday, March 04, 2013

MIXED SIGNALS

Mamata Banerjee is drawing flak for neglecting the ministry, but as a response to an RTI query from TSI (a Planman Media publication) shows, the railway minister isn't doing as badly as her immediate predecessors. A report by Vikas Kumar

If despair often blurs reality, chaos completely engulfs it. With the Indian Railways being rocked by another tragic mishap, the second in West Bengal in two months, that is exactly what supporters of mercurial Trinamool Congress leader and Railway Minister Mamata Banerjee, must be thinking. The feisty lady is being pilloried – and not entirely unjustifiably – by her political rivals for neglecting her ministerial work and focusing her energies on Bengal politics even as the railways under her charge lurches from one devastating wreck to another.

But the question is: is the 63,000-km stretch of the railways and the musty corridors of Rail Bhavan any worse off under her than they were under her predecessors of the past two decades?

The fact is that Mamata is running for cover. The Railway Ministry, which was adjudged the best performing ministry during the tenure of Lalu Prasad Yadav, has suddenly started hogging the limelight for all the wrong reasons. But what may be apparent is not always true. Going by cold statistics, Mamata certainly isn't the worst Railway Minister of the last two decades.

Data available with the Commissioner of Railway Safety for the period 1991 to 2010-11 shows that she has fared much better than her predecessors. During the tenure of CK Jaffer Sharief, who served as Railway Minister from July 21, 1991 to November 22, 1995, Indian Railways saw more than 500 accidents every year. The number of accidents in 1993-94 was 587, resulting in a death toll of 226. In the year prior to that, when two railway ministers, George Fernandes and Janeshwar Mishra, held the post, the number of mishaps was 532 and the death toll crossed 200.

Nitish Kumar, the current Bihar Chief Minister who loses no opportunity to take swipes at Mamata Banerjee for running the railways from Kolkata, seems to suffer from selective amnesia. During his tenure of almost a year, the number of fatalities was 374, which is the second highest during a single-year tenure of any railway minister. Similarly, with 302 fatalities, Lalu Prasad's record as railway minister is only marginally better. Mamata is fifth on the list of worst performers in terms of rail mishaps. When it comes to misusing the railways, Mamata's record is once again far better than that of her immediate predecessors. The Railway Ministry, in a response to an RTI query filed by TSI, gave out data of railway passes issued by respective railway ministers. This makes interesting reading and reflects the differing approaches of the ministers.

As far as free distribution of railway passes is concerned, Ram Vilas Paswan was generosity personified. During his one-and-a-half-year tenure from June 1, 1996 to December 29, 1997, he issued 597 complimentary rail passes. Of these, 445 were issued in the last year of his term.

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“We are collectively working towards facilitating more financial inclusion”

Nipun Kaushal, Head – Marketing, ICICI Prudential AMC talks about the need to educate investors

After high-flying challenging careers at Future Group, Hero Honda, Maruti Udyog, Citifinancial, Nipun Kaushal feels religiously responsible at ICICI Prudential AMC in doling out his role of generating marketing strategies, customer acquisition and retention. In a candid conversation with B&E’s Mona Mehta, Kaushal discusses the past, present and the road ahead for MF industry in India.

How has the Indian mutual fund industry evolved over the last few years?
Today, as we see our country poised for taking a quantum leap towards progress, we realise that MF as a category can serve as a catalyst to trigger an individual’s progress. MFs are now seen as a way of bridging the need gap between the dominant desire to progress and how to make it a reality. The industry too is collectively working towards facilitating more financial inclusion with the support from channel partners and regulators alike. The category today has the most competitive and cost efficient structure in place, which we believe is extremely favourable for the final investor. MFs have been extremely transparent with high disclosure standards which help investors in their process of due diligence. This industry has thus become an intrinsic and essential part of financial inclusion which facilitates wealth creation and progress.

How is ICICI Prudential AMC planning to gain a competitive edge?
All AMCs are working collectively towards providing investors with the knowledge of the category and how long term investments in MFs will benefit them. Healthy competition because of increasing number of players will mean increased awareness of category and innovative product offerings for investors, all of which will help make India a more mature and progressive financial solution-providing destination. However, at the same time, I would also like to emphasise that only AMCs that are willing to commit long-term infrastructure, focus on investor interest and provide resource bandwidth will witness growth. As far as our competitive edge is concerned, it lies in our endeavour to introduce products that fulfill an existing need gap. We offer the investor a bouquet of funds to choose from. Depending on his specific need, the investor can take his pick from the array of products on offer.

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