Restricting the Foreign Players

In India we are protecting the domestic players since our independence. The argument behind this was that we have not achieved the level where we can compete with the foreign players. If we look at 4-5 decades back then this argument can be accepted. But can this be accepted now? Not at-all. We are restricting the foreign players but they are invading through some other way. We are not allowing to Wal-Mart to open its store in India. But it has entered through collaboration with Bharti Group. We are restricting foreign banks. We are allowing only 15 new branches to open in a year to foreign banks. But they have found new way to expand themselves. They are buying out NBFC’s and doing their business. We want foreign money but don’t want foreign players to operate here and earn from India. SEBI is struggling for a long time with the Participatory Notes. Now there are plans to relax the FII investment so that foreign investor can invest in India without any hurdle. Every time we compare Foreign investment in India with China and compare it with the last year figures. First we have to check are we in the right track. We are asking for investment but our policies are so rigid that it makes difficult for investment. Vodafone got the clearance in its fourth attempt. POSCO is still struggling in Orissa.
We have to check what benefit we will get with this rigid policy. We are able to protect our seek PSU and some private corporate. If we look at Telecom sector we are now one of the growing country and adding highest number of subscribers in the world. The government run BSNL is loosing its business to private players because of political reason. There was unnecessary delay in giving the contract where the opportunity cost is very high compared to the cut in bid price for the tenders. The private players have become global players. They are in a position that they can stand in front of the private players. In fact entry of foreign player will make the industry more competitive and the customer will definitely get good service at lower tariff.
When we look at the big corporate they are buying out bigger players than themselves. The recent acquisition of Corus by Tata Steel and Novelis acquisition by Aditya Birla Group are few among them. Across all sector the acquisition is taking place. Be it IT, FMCG, Pharma, Beverage etc. So we are at our best stage. We have understood the business and are becoming global. So why are we restricting the competition? Recently Starbucks was not given the permission to operate in India. So it has dropped its plan for 2 years.
Let us have a look at the big corporate. They are expanding themselves globally and in various businesses. If for a moment we take both RIL and ADAG as one group ( which it was earlier) than there is hardly any business left for the combined group to do. They are almost in all business. Recently RIL announced that they will enter in to the fertilizer business as well. Tata Sons has more than 100 companies under its arm. Bharti is expanding itself into other businesses as well. In fact new and new players are emerging with a mission to get into all the business.
We should cheer for the courage and growth of these corporate as they are indigenous. But when they will grow a situation will come when there will be monopoly. I am giving a hypothetical example. Customer has to buy a Reliance Mobile to get Reliance DTH and he has to buy General and Life Insurance from Reliance. I will always pray this will not happen but the way we are restricting the foreign players it can also happen. So ultimately who is getting the benefit and who is at loss. The ones whom we are protecting are already in a stage where they don’t need protection and the citizens are at loss as they are paying more for a local service where they get world-class service and goods at cheaper rate.

I hope our policy will in near future will give fare chance to the foreign players to operate in India and the citizen of India can avail world-class products.

The New Opportunity in Banking

I came across one News in ET about the new concept in banking which is there in UK and now spreading all over. It is nothing but Peer to Peer Banking. It fascinated me. Under this model the whole process takes through internet. The customers of the bank get the interest rate of their wish. They can also get the loan of their preferred interest rate.

In this model system the customers don’t deposit money with the bank. They actually lend the money to others. So they charge the interest rate of their wish. The borrowers can go for their preferred interest rate of the loan. So the bank which actually does the work of an intermediary is just a platform under this new structure. The depositors (lenders) will have to pay an annual charge of 0.5 % to the bank and the borrowers have to pay a 0.5% interest to the bank on the loan amount. This initiative has been started by the ZOPA Bank. This is a good initiative. One can say that the buyer and seller are transacting directly and the bank is acting as a medium for the transaction.

Can this work in India?

First of all we have very stringent regulations in india as far as the banking sector is concerned. The RBI’s rule like SLR will hamper such a bank to operate in India. But if we forget about the regulator can we tell that this system will work in India?

There are many issues in that:
We in India consider bank as the safest investment tool. Our stock market doesn’t see much investment from the retail investors.

The system of lending which the ZOPA bank has initiated is present in India but not in an organized form. In every part of India this is present. In India the so called HNIs in Village and small towns lend money to the villagers at hefty rates. Many times these villagers fail to pay the interest rate forget about the capital.

The penetration of internet is not much in India. It is restricted to urban area. The rural population can never think of such a banking channel and the advantage of this channel. In India though the internet banking has started for a quite some time it is not that much used because of the low internet penetration.

If we think of the present level of India banking the credit card penetration is not that significant. So banks will never want to loose this instrument and try for a new instrument. They are getting much profit from the credit card business. This market is in expansion phase. They may think of this P-2-P banking when it will be in decline stage.

We still define bank as “A safe place to keep money”. We are not looking it as an avenue for investment. Once the customers think of bank as investment avenue the scenario may change.

Is the brand Hutch going to Die??

Is the brand Hutch going to die? This strike first in my mind when the news about the sale of Hutchison Whampoa came in the news paper. I don'n have the statistics of numerical value of this brand but it is obvious that this is one of the super brand of India. Hutch is seen as the innovator of almost all the value added services in Cellular service provider. It entered in India in 1994 by acquiring a license to operate in Mumbai. It started as Max Touch but changed to Orange in the year2000. Orange is also the successful brand of Hutch. In rest of the country it entered with the name Hutch.

In order to make one brand in 2006, it changed the logo from orange to pink.By 2006 it had wide presence in all over the country and in order to have a feel of one big brand it removed the orange color and choose pink. This was necessary especially in Mumbai circle where it was branded as Orange. It has won the Creative Advertiser of the Year Award of the year for 2003 at ABBYs- the Indian advertising awards.

Now when Hutch is for sale and bidders are also good brands in the market it seems this brand is going to die. There are three serious bidders in the race to acquire Hutch stake in India. Reliance is one among them. Reliance communication is under Anil Ambani's ADAG. Though he gave a new name to his group after the split with his brother but he did not change the brand name Reliance. Reliance in itself is a big brand. So it is obvious that he will no way compromise his brand with Hutch.
The next bidder is Maxis, the Malaysian telecom giant. It has a large stake in Aircel in India. The company was going to reposition Aircel as Maxis. But when the news of Hutch going to sale came it thought of buying Hutch. So for the time being it has stopped thinking about repositioning of Aircel. It will definitely go for repositioning after the merger (if it happens to buy the stake in Hutch).
The next bidder is Vodafone. It is without any doubt one of the big brand in telecom sector worldwide. It is bigger than the Hutch brand. So the company will use its own brand name rather than the company it is going to buy. So the point here is that whoever buys the company Hutch the brand Hutch is going to die. Let's see if any miracle happens and the brand is able to do the magic of being a successful brand.

ICICI moves ahead for Sangli Bank

India’s largest private sector bank ICICI has moved in to takeover one of the country’s smallest banks, Sangli Bank. This may be the result of the lost chance in UWB (United Western Bank) bid in which ICICI lost the bid to IDBI. Sangli bank is also a seek bank and waiting for RBI’s order to sale. ICICI has taken fast step to takeover this bank before RBI invites the interested bidder to acquire this bank.

This deal will cost ICICI Rs 300 crore. The book value of ICICI bank as on March 31, 2006 was at Rs. 248 crore. There are many advantages for ICICI in this deal. Snagli bank has 194 branches which will give inorganic growth to the bank. Again the bank has a good presence in rural India with 96 braches representing the bank in rural and semi urban regions. The bank has presence in Karnataka, Gujrat, Andhra Pradesh, Tamil Nadu, Goa and Delhi along with wider presence in Maharastra. This is an added advantage for the acquiring bank.

One of the reasons behind banks going for inorganic growth is the restrictions imposed by RBI in opening of the new branches. By acquiring the seek banks the acquiring bank get the advantage of the branches operated by the seek bank. The valuation of the seek bank is done looking at its number of branch and the locations. In this deal each branch is valued between 75 lakhs to 1.5 crore.

If we look at the financial position of the Sangli bank, it is quite evident that the bank isnot in a position to solely operate for a long time. It is necessary to merge this bank with a strong bank. As on March 3, 2006 the net loss for the bank was Rs. 29.27 crore when the net worth of the company stood at Rs. 25 crore. Deposit was at around Rs. 1,990 crore. The NPA of the bank was at around Rs. 62 crore (4.3%) while the NPAs were at around Ts. 21 crore (2.34%).

ICICI has acquired Madura bank earlier. This bank is quite experienced in the acquisition and it will be able to sustain its earlier success. So if RBI approves this acquisition this will give strength to the growth of the ICICI bank.

Hutchison Whampoa for sale

The battle for Hutchison Essar has taken a completely new twist. Hong-Kong based Hutchison Whampoa Group is believed to be considering a sale of its telecom business, including its lucrative India operation.

According to the news Hutchison Group is getting out of its Telecom business by selling its stake in all the telecom companies it owns. If this happens this will be the largest sale in the telecom industry.

The Hutchison-Essar, the fourth largest mobile operator in India, is valued at $11 billion. In this the Hutchison’s stake is valued at around $ 8 billion. Private equity firms like Texas Pacific and Blackstone group are looking for the sale of Hutchison’s stake in its telecom buiness.

It is believed that Anil Ambani group Reliance Communication is in the race to acquire the stake of Hutchison’s stake in Hutchison Essar along with Blackstone. If this deal comes through this will give Reliance communication a good GSM network which it was going to start. Reliance may be looking for inorganic growth which will save its time in establishing the GSM network from scratch. This may be one of the reasons that Reliance is eyeing in Hutchison Essar.

But Reliance may face regulatory problem. TRAI does not allow two companies (owned by the same operator i.e; stake is more than 10% in each company) to operate in the same circle. Hutch has presence in many areas where Reliance operates. So it may be a hurdle for Anil Ambani in acquiring the stake in Hutchison- Essar stake. Tata had to sale its stake in Idea due to this regulatory problem.

Another option can be Essar (it has 33% stake in the joint venture Hutchison-Essar) buying the remaining stake of Hutch is Hutchison-Essar. Both this groups are not having good relationships for last few months. These disputes arise after the acquisition of BPL by the Essar group, which was then sold to the Hutchison-Essar group.

Source: Business Standard

‘Index play’

It is not just the vast majority of retail investors that are unimpressed by the toppling of benchmark equity indices frequently over the last six months.

The profit for the day traders is decreasing with the upward move of the SENSEX. The stock market is in upward move due to some frontline shares. The upward move is not reflected in all the stocks. Again there is high volatility in the market. In such a scenario it is difficult for the day traders to predict the market.

Though it is not possible to prove all these movements in the stock market is due to few individual foreign and domestic investors. They are repeatedly churning their portfolio by buying those stocks which have very few sellers. If suppose there are two stocks A & B. If investors are selling their stock of A these investors are buying the stocks of B so that the fall in price of A is neutralized by the gain in B. So as a whole the portfolio is not loosing instead it is gaining.

So the retail investors and the fundamental investors are unhappy with such movement of the stock market. It has become difficult to know the right time for the investment in their chosen stock. On Wednesday and Monday the Reliance Communication stock help the index to maintain its position. The favorite stocks for the so called controller of the index are Wipro, Suzlon and State Bank of India.

Source: Economic Times

Problem in Bengal. What is the underlying truth?

The controversy of Singur land is at its pick. So what actually is the truth behind all this controversy. Few days back the Bengal government’s work for the Singur land were appreciated and were considered as the best way to compensate the farmers. There are many issues in this case. First the land which is being provided is either single-crop land or double-crop land. This is not permitted in the Special Economic Zone rules to give the fertile land for manufacturing purpose. Here double-crop land is being given to TATA.

But if we look at the compensation it is high. The compensation for the single-crop land is Rs. 8.4 lakh per acre and 12 lakh for double-crop land. It is huge compared to Rs. 24,000 per acre given to the firmers in Maharastra. There is a reason behind this huge compensation. The land being acquired is close to N. H. 2 which connects Kolkata with Delhi.

Over 9000 farmers (94 percent of the total land to be acquired) have already agreed with the Bengal government’s proposal. So the government or the TATA motors will not face much problem with the opposition parties which are against this deal. But they have to keep patience to let the political problem calm down.

Another factor is that in Bengal rand reforms had started in last three decades. The work-force for agriculture have three distinct classes- land owners, share-croppers (persons who get the land cultivated and share the produce with the land owners) and the farmer who work on daily wage basis for the land owner and do the actual cultivation. So the compensation being offered is offered to the land owner and in some cases the share croppers. But the actual farmer is not getting any benefit out of this deal. If this deal carries forward the farmers are the person who will be affected more. They will loose their earnings as well as they will not get any compensation. So the government should work out some formula so that these people should not be excluded in all this process.

Another factor is that TATA wants 997 acre of land to manufacture 1 lakh car per annum. If we see at the Maruti Udyog’s plant its total land area is 300 acre and it produces 3.5 lakh cars per year. So TATA should give some explanation like why it needs such a large area which is more than 3 times of the area of Maruti Udyogs plant to manufacture one third number of car of Maruti.

Source: This article is an analysis of the editorial coloumn in Business Standard by Mr. A K Bhattacharya