Wednesday, August 02, 2006
Business News Aug 1st,2006
Essar calls off BPL deal with Hutch
Mumbai/New Delhi, Aug. 1: Hutchison Essar appears to have decided to hang up on the $1.2 billion deal to acquire BPL Mobile’s business, in the absence of government approval for the merger deal by the July 31 deadline. The Essar group has sent a notice to Hutchison Essar for terminating the deal.
Essar Teleholdings had bought out 100 per cent stake (64 per cent held by Rajeev Chandrasekhar and rest by various investors) in BPL Communications in July 2005. BPL Communications held a 74 per cent stake in BPL Mobile Communication and wholly owned BPL Mobile Cellular. BPL Mobile Communication operated the Mumbai circle, while BPL Mobile Cellular operated the three circles of Maharashtra & Goa, Kerala, and Tamil Nadu.
While the 3 circles of Maharashtra & Goa, Kerala, and Tamil Nadu have since then been merged with the joint venture, the Mumbai circle remained to be merged. The merger of BPL Mobile with Hutchison-Essar depended on the approvals coming through by July 31. The deal could be terminated and BPL’s stake in Hutchison would go to Essar and a clutch of other investors.
Sources familiar with the developments said even if the deal fell through, it would not make any material difference to the overall shareholding of Essar in the Hutchison-Essar joint venture. According to the sources, the deal was to have been closed in June but was subsequently extended to July. Though BPL’s business was bought by Essar, the entire cellular business was to be merged with Hutchison-Essar.
The Essar group had announced last July that it has entered into a binding agreement with BPL’s Rajeev Chandrasekhar to acquire a controlling interest in BPL Communications. The deal was valued at over Rs 4,400 crore. “It is the stated intention of Essar to have BPL Mobile merge with hutchison essar’s cellular services after the necessary approvals. Once merged, Hutchison Essar will become the second largest player in telephony in the country with a combined subscriber base of over 11 million across 21circles,” the company had said at the time of BPL Mobile’s acquisition announcement.
Even as the deadline for approvals was approaching, Essar is believed to have been approached by a number of prospective buyers, including the Aditya Birla group, Maxis and some telecom companies from the Middle East. The bone of contention, according to industry watchers, is Essar’s opposition to the presence of Egypt’s Orascom Telecom in Hutchison Essar, citing “national security” reasons.
Experts: India needs to better manufacturing competitiveness
Hyderabad, Aug. 1: While India has taken major strides in the services sector, particularly in software, the government and Indian businesses need to do a lot more to make India a manufacturing destination, including the improvement of physical infrastructure and flexibility in labour laws, experts said on Tuesday.
“Indian business needs to identify new markets to export their products to. More importantly, the government and industry in India should work together to develop a talent pool of people who can do semi-skilled jobs,” said Gary C. Coleman, global managing director, manufacturing, of Deloitte Touche Tohmatsu, a consulting firm.
Says N. Viswanadham, executive director of the Centre for Global Logistics And Manufacturing Strategies (GLAMS) at the Indian School of Business, “We need to formulate strategies that will encourage more manufacturing activity in the country. India needs to provide jobs for the millions of young people in the country, and a labour intensive manufacturing sector can do this,” Mr Viswanadham said.
The ISB is organising a three-day international summit on “Indian Manufacturing Competitiveness 2006: Setting the Agenda for Growth” here from August 2-4. Mr Viswandham said V. Krishnamurthy, chairman, National Manufacturing Competitiveness Council, would be delivering the keynote address at the summit on August 2, via a video-conference from New Delhi.
Mr Coleman, who will be delivering the inaugural address at the summit, said that one of the biggest obstacles to growth in the manufacturing sector was the inflexibility in the labour market. “Flexible labour laws will encourage employers to hire more,” he said.
According to him, while Indian manufacturers, especially in the auto components and the transport sector, had been expanding overseas by acquiring companies, the manufacturing needed to develop products and identify new markets for profitable growth. “India has not missed the manufacturing bus again, but it needs to be more focused on developing products for global markets after identifying new markets. Only with such exports can there be the creation of jobs in the country,” Mr Coleman said.
Major banks up rates, home loans get dearer
New Delhi, Aug. 1: Home, auto and personal loans from State Bank of India (SBI), HDFC, Punjab National Bank (PNB) and Oriental Bank of Commerce (OBC) have become costlier by up to one per cent, with these lenders on Tuesday announcing a hike in interest rates.
The hike follows the increase in cost of funds to banks after the Reserve Bank of India raised short term rates (repo and reverse repo) by 0.5 per cent in the last two months. While the country’s biggest lender SBI hiked its prime lending rate (PLR) by 0.25 per cent, top home loan lender HDFC increased lending rates by 0.50 per cent to 9.5 per cent for floating options and to 11 per cent for fixed option.
Delhi-based OBC has hiked home loan rates by 0.5-1 per cent while raising deposit rates by 0.25 per cent across all maturities. “Taking into account market conditions and increase in cost of funds, the bank has decided to hike home loan rates by 0.5-1 per cent, effective from August 7,” OBC chairman K.N. Prithviraj said.
Further, PNB hiked home loan rates by 0.5 per cent for all repayment tenures except for tenor of 20-25 years wherein the increase is 0.25 per cent. It also increased the benchmark PLR by 0.25 per cent from Tuesday. Bank of Baroda had hiked its PLR by 0.5 per cent on Monday.
However, the nation’s second biggest lender ICICI Bank has decided against hiking home loan rates “for the time being.” The bank’s executive director Ms Chanda Kochhar said, “We would like to wait and watch for a while, before making any announcement on the hike in rates.”
Maruti hikes prices by Rs 5,000; Zen, Swift untouched
New Delhi, Aug. 1: Passenger car major Maruti on Tuesday hiked prices of select models on Tuesday, leaving prices of Swift, Zen, Baleno (Vxi) and WagonR (Petrol) unchan-ged. The price increase is in the range of Rs 500 to Rs 5,000, a statement said.
The price hike includes two of Maruti’s most popular models, Alto and Maruti-800, both of which would cost Rs 500 more for all their variants. The maximum increase was reserved for the newly launched WagonR LPG, which now gets dearer by Rs 5,000. The hike would make the mid-size Sedan ‘Esteem’ expensive by Rs 1,000 across all variants.
Maruti also hiked prices of ‘Omni’ across all variants ranging between Rs 500 and Rs 3,000. The increase, with effect from Tuesday, varies from 0.17 per cent to 1.47 per cent. Maruti said that the price increase was due to rise in input and freight costs, which increased following rise in crude prices. It added that in this phase, only a part of the increase in costs has been passed to the customers.
Meanwhile, Maruti, on Tuesday reported 10.1 per cent increase in domestic sales during July. It stood at 44,653 units as compared to 40,553 units in the same month last year. However, exports dipped by 58.2 per cent at 1,755 units as against 4,203 units in July last year. Total sales grew 3.7 per cent at 46,408 units in July.
Fitch gives India investment grade rating
Hyderabad, Aug. 1: India’s economic outlook got a shot in its arm when international rating agency Fitch on Tuesday upgraded the country’s long-term foreign and local currency issuer default ratings to BBB- from BB+. The short-term foreign currency IDR was raised to ‘F3’ from ‘B’ and the country ceiling is upgraded to ‘BBB-’ from ‘BB+’.Other major rating agencies like Moody’s already rates India’s foreign debt at investment grade while Standard and Poor’s assigns a rating just below that.
Paul Rawkins, senior director in Fitch’s Sovereign team in London, said in a statement, “This upgrade reflects Fitch’s view that fiscal consolidation is at last taking hold in India, reinforced by the impressive growth story. India’s external strengths have looked comfortably low investment grade for a while; public finances are still weak, but they are no longer an insuperable constraint on this rating.”
Fitch says that for the first time since it started rating India in March 2001, there appears to be near universal commitment among the Centre and the states to fiscal consolidation.This sea change in policy intent, coupled with a more discernable path of fiscal consolidation, has reduced the risk that India’s weak public finances could impair its strong external financial position.
Although still high, revised data show the general government deficit declined to 7.7 per cent in 2005-06 from 10.1 per cent of GDP in fiscal year 2001-02. Higher growth and lower interest rates have played a part in this outcome but so, too, have much improved tax administration and some widening of the tax net.
Modest tightening at the Centre has been matched by parallel progress among India’s 25 states and UTs, many of which have introduced VAT and enacted fiscal responsibility legislation. Fitch acknowledges that, at 84 per cent of GDP, the public debt ratio remains far above the ‘BBB’ median (34 per cent) and has been slow to respond to higher growth.
However, the agency argues that India has long demonstrated an ability to sustain much higher debt levels than many of its rating peers. Fitch said India’s structural reforms, gradual though they may appear, are starting to reap dividends: the economy has been growing at close to 8.5 per cent per annum since 2003-04, notwithstanding the oil price shock, an earlier precursor of which brought the economy to its knees in the early 1990s.
2nd green revolution in Punjab, by RIL
Chandigarh, Aug. 1: Indian corporate major Reliance Industries Limited (RIL) on Tuesday embarked upon its foray into the farm sector amidst promises of reviving Punjab’s failing agricultural economy and visions of ushering in a whole new green revolution in India.
A new group company Reliance Retail signed an MoU with the government of Punjab to build and operate a chain of rural hubs across the state.Reliance Retail’s chief executive, Mr Sanjeev Asthana said the agreement with Punjab is the first among several similar deals planned with at least ten states, including West Bengal, Himachal Pradesh, Uttranchal, Uttar Pradesh and Haryana, which would eventually serve as sourcing or procurement areas for a huge chain of retail - hyper and super-malls that the company proposes to open across India.
Company representatives said work is already underway to purchase or lease more than 1,100 acres of land in Punjab’s 19 districts to build the rural hubs. Reliance Retail has plans to make a direct investment of about Rs 500 crores for its land acquisitions and rural infrastructure.
And while not willing to disclose a figure, Mr Asthana said the final investment on the project would be far more substantial if the company continues to receive the kind of administrative support it is getting currently. The proposed hubs — the first of which is expected to open by this November — would serve as common procurement, farm extension service, warehousing and processing points with additional facilities with education, health and veterinary services.
Company representatives claim the integrated venture including the rural hubs, the food supply chains and retail malls would eventually provide direct employment to more than a million people. Mr Asthana said the basic business plan is “to bring the farmer and the end-user or consumer closer while ensuring both remunerative prices for farm produce and cheaper retail prices for consumers.”
But not everyone is prepared to believe Reliance and the Punjab government’s claim’s of ushering in a new green revolution. Most Opposition parties and a number of farmer organisations are vehemently opposed to the venture and say the entry of big private sector player would play havoc with the lives and livelihoods of small and marginal farmers who constitute a 70 per cent majority in Punjab. Critics of the Reliance venture have also been reminding people of the similarly revolutionary but failed promises made by other private mega-corporations in past years.
OPD has arrived in India, says research firm
Hyderabad, Aug. 1: Product development — though small in size — is one of the fastest growing segments of offshore services market, and as companies across a range of verticals from aerospace to medical instruments grapple to add more value-added software to their product while cutting their overal R&D costs, this offshore segment will expand dramatically, acco-rding to Forrester Research,Inc..
“Though it started with the high-tech companies, theproduct development work that comes to India will spread across a range of industry segments. This expansion will fuel the demand for product development skills as firms from verticals like automotive and industrial controls jump on the bandwagon,” says SudinApte, senior analyst and country manager, India, for Forreseter Research, Inc. In a new study on offshore product development (OPD),Forrester says that over the past two decades, end-user companies offshored IT services to cut costs.
“What started as staff augmentation 20 years ago has emerged as a U.S.$20 billion offshore IT services industy, centred in India. In parallel, more than 200product companies have jumped on the offshore bandwagon and established their presence in India over the last three years — through their own captive operations or outsourcers,” it says.
The growth rate in this segment has eclipsed traditional IT services market as product development has grown 10-fold from U.S. $ 300 million in 2001 to over $3 billion in 2005.“Forrester says that in industries such as automotive, telecom, and consumer electronics, the role of software and embedded intelligence, as a way to add value, continues to expand. For example, the percentage of acar's value that comes from software/electronics will increase from 10 per cent at present to 25 per cent over the next three years. Most product OEMs will depend on offshoreskills to compensate for their own lack of internal expertise and limited software development capabilities,” the report says.
Apart from the cost-factor, India and China had the advantage of churning out over three lakh engineers against the 75,000 in the U.S., it says, adding that many product firms believe that tapping into this large base will help them accelerate their product development activities. “In segments such as consumer electronics and telecom, countries like India and China represent the fastest-growing markets.
Hence, firms believe a local Asian presence will help them understand and exploit these opportunities more quickly,” the report says. Forrester says that as growth accelerates, product development will emerge as a unique segment, different from traditional offshore ITservices. “R&D requires an alternative approach and psyche to serve product companies that range from start-ups to tier I automotive suppliers,” it says.
Linux geek takes potshots at FSF
IT Today
There is obviously something rotten in the world of open-source software, when Linus Torvalds, one of the geeks who founded the open source operating system Linux, takes potshots at the Free Software Foundation, especially at a time when the group is about to release its latest draft of a revised General Public License (GPL). Mr Torvalds is quite blunt in his posting on Groklaw.
“I think that ‘freedom; is fine, but we’re not exactly talking about slavery here,” he says. “Trying to make it look like we’re the Abraham Lincoln of our generation just makes us look stupid and stuck up. I’d much rather talk about ‘fairness’ and about issues like just being a much better process for generating better code, and having fun while doing so.”
Mr Torvalds’ angst-ridden post comes days after the FSF and the Software Freedom Law Centre released the second discussion draft of the GNU GPL version 3. The draft marks the halfway point of a year-long public review process for proposing changes and finalising the GPLv3. GPL is a software license that covers free software and the Linux kernel. According to the FSF, nearly 75 per cent of all free software programmes in the world are distributed under the GPL, which was last revised more than 15 years ago.
“Since January, members of the free software community submitted nearly 1,000 suggestions for improving the license. Many of those suggestions have been discussed at international conferences held in the United States, Brazil and Spain. The FSF said the draft of GPLv3 released last week incorporates changes based on many of the suggestions,” IW quoted the FSF as saying.
“By listening to people from around the world, we are working toward a license that acts consistently in many different legal systems and in a variety of situations,” Eben Moglen, Software Freedom Law Centre founder and chairman said. Mr Torvalds, who insists on calling his software ‘open’ to make a distinction from, and avoid association with, “free software” advocates, said the discussions of GPLv3 have not allowed for real opposition. He also criticised an earlier version of the GPLv3, calling it a “crusade.”
Under the new draft, the GPLv3 would directly restrict Digital Rights Management technology only when it is used to prevent people from sharing or modifying GPLv3-covered software.“The clarified DRM section preserves the spirit of the original GPL, which forbids adding additional unfree restrictions to free software,” the FSF says. Clearly, the last word is yet to be heard on this.
Sensex gains 7 pts at close
Mumbai, Aug. 1: The benchmark index, Sensex, recovered from the day’s low levels on the Bombay Stock Exchange on Tuesday, on emergence of buying by institutional investors and closed with a gain of over seven points.
The Sensex, which remained low throughout Tuesday and touched a low of 10,646.65 points, closed with a gain of 7.78 points at 10,751.66. Though, earlier in the day it had touched a high of 10,777.47.
Similarly, the National Stock Exchange index, Nifty closed higher by 4.60 points at 3147.80, after moving between 3113.60 and 3154.70 points. Fresh buying in late noon deals, helped by Fitch upgrading India’s rating to investment grade, saw the index recoup all its losses and move into the positive zone. The BSE Mid-cap and small-cap indices ended marginally in the red at 4283 and 5113, respectively.
Wipro Technologies, BT tie-up for AI product
Hyderabad, Aug. 1: Wipro Technololgies, the global IT services division of Wipro Ltd., said on Tuesday it has signed a licensing and advanced development deal with BT to jointly develop an advanced mobile/remote workforce management system.
“This deal involves joint development of BT’s ‘mPower’ product and the non-exclusive licensing of BT’s ‘mPower’ intellectual property rights to Wipro. ‘mPower’, developed by BT’s Research and Venturing business, enables organisations to mobilise their enterprise applications, whilst enabling their remote workers to communicate, collaborate and co-ordinate effectively to achieve their individual and collective goals,” a Wipro statement said. Dr A.L Rao, CEO, Wipro Ltd said, “Our expertise combined with BT’s IP and their ‘mPower’ platform will enhance the portfolio for the next generation of mobile enterprise applications.”
The statement said Wipro will carry out development work over the next twelve months to productise ‘mPower’ for BT. In addition, Wipro will develop its own ‘mPower’ related offerings that it can provide to its customers as well as license to other companies providing workforce management solutions.
DQE picks up stake in French TV company
Mumbai, Aug. 1: Hyderabad-based animation, gaming and visual effects giant, DQ Entertainment limited or DQE on Tuesday announced the formation of a joint venture with France-based Onyx Films, whose movie Renaissance is in contention for the top awards at the Toronto Film Festival to produce computer generated images or CGI feature films.
DQE also announced buying strategic stakes of 20 per cent in Method Films SARL, the television production unit of Onyx Films. In the new joint venture, DQE will hold 51 per cent share in Onyx Film for an initial investment 1.5 million euros.
“This alliance will not just be an Indian venture. It will be globally relevant,” said Mr Tapaas Chakravarti, chief executive officer and managing director of DQE. Mr Chakravarti also stated that this venture endorses to the fact that DQE is at par with the best in business in terms of quality and capability to execute larger multiple projects within the stipulated time frame, technology and human resources.
In global finance arena, Bernanke is lord of dance
Now that the World Cup and the Tour de France are behind us, the most exciting global spectator sport is watching Ben Bernanke: Will he raise interest rates in August or not? And what will his decision mean for world financial markets? When the Federal Reserve raises interest rates, global investors find dollar-denominated investments more attractive.
This increased demand for American assets tends to increase the value of the dollar. But the higher the value of the dollar, the more expensive American goods become for foreigners and the cheaper foreign goods become for Americans, worsening the balance of trade. Eventually, a highly valued dollar can lead to a drop in production in industries that are sensitive to imports or depend on exports.
International financial markets respond to interest rate changes almost instantaneously, while the real side of the economy - production, employment, imports and exports - adjusts over many months or even years. If the dollar continues to strengthen this summer, the United States could see weaker demand for exports and increased demand for imports by next spring and summer, worsening the balance of trade. But that is not the whole story.
The demand for dollars depends not just on interest rates in the United States but also on interest rates on assets in other currencies, and they are moving up as well. On July 14, the Bank of Japan raised overnight interest to 0.25 per cent, ending six years of zero interest rates.
Euro interest rates are also rising, mostly in response to inflationary pressures in Europe, but they are also responding to the higher rates in the US. These higher interest rates on euro and yen assets will tend to reduce the demand for American assets, counteracting the effects of the higher interest rates in the US.
The international financial system is like a 19th-century ballroom dance. The central bankers lead with an interest rate adjustment. Their partners, the global investors, watch closely, trying to anticipate their every move. In the background, the waiters carry trays of imports and exports slowly back and forth, taking their cues from the pace set by the dancers in the centre of the ballroom.
But how will the dance end? It looks as if the interest rate increases will soon stop in the US, if not in August then in September. The rates for the euro and the yen will probably continue to rise for several months after that. Given the direction of foreign rates, it is also possible that the dollar will become relatively less attra-ctive to foreign investors over the next several months.
A weaker dollar would stimulate demand for American exports, which would partly counteract the effect of the higher interest rates. At least that is the rosy outlook. But there are lots of things that could happen between now and then.
Disruption in the Middle East could push oil prices even higher, setting off a ripple effect on employment. Central bankers would probably halt or reverse their rate increases to cushion such a blow. Another worry is a natural or man-made disaster: A hurricane or a major terrorist attack could rattle the markets. China is a wild card as well. It might change its exchange rate policy, allowing the yuan to appreciate more against the dollar to cool its own economy.
Or it might change its investment policy to favor euro-denominated bonds, rather than investing primarily in US Treasury bonds. Neither of these things would necessarily be bad for the United States, but such changes could have a big effect on exchange rates and global markets.
There is a palpable sense of anxiety in financial markets these days, as investors contemplate these and other possibilities. Low interest rates lulled financial markets into complacency. As rates move up, volatility in stock prices has returned with a vengeance. This is all taking place against the backdrop of continued deficit spending by households and the federal government. If we cannot balance our private and public budgets, we will have to continue to borrow from the rest of the world to make up the difference.
But will they continue to lend? The current interest rate increases are an attempt to slow the economy to avoid inflation. But over the next decade, we may be forced to raise interest rates simply to attract foreign lending to finance our budget deficit. Such high rates would discourage economic growth, putting more pressure on the Fed to return to the low-interest, easy-money policy we have seen in the past few years.
Mumbai/New Delhi, Aug. 1: Hutchison Essar appears to have decided to hang up on the $1.2 billion deal to acquire BPL Mobile’s business, in the absence of government approval for the merger deal by the July 31 deadline. The Essar group has sent a notice to Hutchison Essar for terminating the deal.
Essar Teleholdings had bought out 100 per cent stake (64 per cent held by Rajeev Chandrasekhar and rest by various investors) in BPL Communications in July 2005. BPL Communications held a 74 per cent stake in BPL Mobile Communication and wholly owned BPL Mobile Cellular. BPL Mobile Communication operated the Mumbai circle, while BPL Mobile Cellular operated the three circles of Maharashtra & Goa, Kerala, and Tamil Nadu.
While the 3 circles of Maharashtra & Goa, Kerala, and Tamil Nadu have since then been merged with the joint venture, the Mumbai circle remained to be merged. The merger of BPL Mobile with Hutchison-Essar depended on the approvals coming through by July 31. The deal could be terminated and BPL’s stake in Hutchison would go to Essar and a clutch of other investors.
Sources familiar with the developments said even if the deal fell through, it would not make any material difference to the overall shareholding of Essar in the Hutchison-Essar joint venture. According to the sources, the deal was to have been closed in June but was subsequently extended to July. Though BPL’s business was bought by Essar, the entire cellular business was to be merged with Hutchison-Essar.
The Essar group had announced last July that it has entered into a binding agreement with BPL’s Rajeev Chandrasekhar to acquire a controlling interest in BPL Communications. The deal was valued at over Rs 4,400 crore. “It is the stated intention of Essar to have BPL Mobile merge with hutchison essar’s cellular services after the necessary approvals. Once merged, Hutchison Essar will become the second largest player in telephony in the country with a combined subscriber base of over 11 million across 21circles,” the company had said at the time of BPL Mobile’s acquisition announcement.
Even as the deadline for approvals was approaching, Essar is believed to have been approached by a number of prospective buyers, including the Aditya Birla group, Maxis and some telecom companies from the Middle East. The bone of contention, according to industry watchers, is Essar’s opposition to the presence of Egypt’s Orascom Telecom in Hutchison Essar, citing “national security” reasons.
Experts: India needs to better manufacturing competitiveness
Hyderabad, Aug. 1: While India has taken major strides in the services sector, particularly in software, the government and Indian businesses need to do a lot more to make India a manufacturing destination, including the improvement of physical infrastructure and flexibility in labour laws, experts said on Tuesday.
“Indian business needs to identify new markets to export their products to. More importantly, the government and industry in India should work together to develop a talent pool of people who can do semi-skilled jobs,” said Gary C. Coleman, global managing director, manufacturing, of Deloitte Touche Tohmatsu, a consulting firm.
Says N. Viswanadham, executive director of the Centre for Global Logistics And Manufacturing Strategies (GLAMS) at the Indian School of Business, “We need to formulate strategies that will encourage more manufacturing activity in the country. India needs to provide jobs for the millions of young people in the country, and a labour intensive manufacturing sector can do this,” Mr Viswanadham said.
The ISB is organising a three-day international summit on “Indian Manufacturing Competitiveness 2006: Setting the Agenda for Growth” here from August 2-4. Mr Viswandham said V. Krishnamurthy, chairman, National Manufacturing Competitiveness Council, would be delivering the keynote address at the summit on August 2, via a video-conference from New Delhi.
Mr Coleman, who will be delivering the inaugural address at the summit, said that one of the biggest obstacles to growth in the manufacturing sector was the inflexibility in the labour market. “Flexible labour laws will encourage employers to hire more,” he said.
According to him, while Indian manufacturers, especially in the auto components and the transport sector, had been expanding overseas by acquiring companies, the manufacturing needed to develop products and identify new markets for profitable growth. “India has not missed the manufacturing bus again, but it needs to be more focused on developing products for global markets after identifying new markets. Only with such exports can there be the creation of jobs in the country,” Mr Coleman said.
Major banks up rates, home loans get dearer
New Delhi, Aug. 1: Home, auto and personal loans from State Bank of India (SBI), HDFC, Punjab National Bank (PNB) and Oriental Bank of Commerce (OBC) have become costlier by up to one per cent, with these lenders on Tuesday announcing a hike in interest rates.
The hike follows the increase in cost of funds to banks after the Reserve Bank of India raised short term rates (repo and reverse repo) by 0.5 per cent in the last two months. While the country’s biggest lender SBI hiked its prime lending rate (PLR) by 0.25 per cent, top home loan lender HDFC increased lending rates by 0.50 per cent to 9.5 per cent for floating options and to 11 per cent for fixed option.
Delhi-based OBC has hiked home loan rates by 0.5-1 per cent while raising deposit rates by 0.25 per cent across all maturities. “Taking into account market conditions and increase in cost of funds, the bank has decided to hike home loan rates by 0.5-1 per cent, effective from August 7,” OBC chairman K.N. Prithviraj said.
Further, PNB hiked home loan rates by 0.5 per cent for all repayment tenures except for tenor of 20-25 years wherein the increase is 0.25 per cent. It also increased the benchmark PLR by 0.25 per cent from Tuesday. Bank of Baroda had hiked its PLR by 0.5 per cent on Monday.
However, the nation’s second biggest lender ICICI Bank has decided against hiking home loan rates “for the time being.” The bank’s executive director Ms Chanda Kochhar said, “We would like to wait and watch for a while, before making any announcement on the hike in rates.”
Maruti hikes prices by Rs 5,000; Zen, Swift untouched
New Delhi, Aug. 1: Passenger car major Maruti on Tuesday hiked prices of select models on Tuesday, leaving prices of Swift, Zen, Baleno (Vxi) and WagonR (Petrol) unchan-ged. The price increase is in the range of Rs 500 to Rs 5,000, a statement said.
The price hike includes two of Maruti’s most popular models, Alto and Maruti-800, both of which would cost Rs 500 more for all their variants. The maximum increase was reserved for the newly launched WagonR LPG, which now gets dearer by Rs 5,000. The hike would make the mid-size Sedan ‘Esteem’ expensive by Rs 1,000 across all variants.
Maruti also hiked prices of ‘Omni’ across all variants ranging between Rs 500 and Rs 3,000. The increase, with effect from Tuesday, varies from 0.17 per cent to 1.47 per cent. Maruti said that the price increase was due to rise in input and freight costs, which increased following rise in crude prices. It added that in this phase, only a part of the increase in costs has been passed to the customers.
Meanwhile, Maruti, on Tuesday reported 10.1 per cent increase in domestic sales during July. It stood at 44,653 units as compared to 40,553 units in the same month last year. However, exports dipped by 58.2 per cent at 1,755 units as against 4,203 units in July last year. Total sales grew 3.7 per cent at 46,408 units in July.
Fitch gives India investment grade rating
Hyderabad, Aug. 1: India’s economic outlook got a shot in its arm when international rating agency Fitch on Tuesday upgraded the country’s long-term foreign and local currency issuer default ratings to BBB- from BB+. The short-term foreign currency IDR was raised to ‘F3’ from ‘B’ and the country ceiling is upgraded to ‘BBB-’ from ‘BB+’.Other major rating agencies like Moody’s already rates India’s foreign debt at investment grade while Standard and Poor’s assigns a rating just below that.
Paul Rawkins, senior director in Fitch’s Sovereign team in London, said in a statement, “This upgrade reflects Fitch’s view that fiscal consolidation is at last taking hold in India, reinforced by the impressive growth story. India’s external strengths have looked comfortably low investment grade for a while; public finances are still weak, but they are no longer an insuperable constraint on this rating.”
Fitch says that for the first time since it started rating India in March 2001, there appears to be near universal commitment among the Centre and the states to fiscal consolidation.This sea change in policy intent, coupled with a more discernable path of fiscal consolidation, has reduced the risk that India’s weak public finances could impair its strong external financial position.
Although still high, revised data show the general government deficit declined to 7.7 per cent in 2005-06 from 10.1 per cent of GDP in fiscal year 2001-02. Higher growth and lower interest rates have played a part in this outcome but so, too, have much improved tax administration and some widening of the tax net.
Modest tightening at the Centre has been matched by parallel progress among India’s 25 states and UTs, many of which have introduced VAT and enacted fiscal responsibility legislation. Fitch acknowledges that, at 84 per cent of GDP, the public debt ratio remains far above the ‘BBB’ median (34 per cent) and has been slow to respond to higher growth.
However, the agency argues that India has long demonstrated an ability to sustain much higher debt levels than many of its rating peers. Fitch said India’s structural reforms, gradual though they may appear, are starting to reap dividends: the economy has been growing at close to 8.5 per cent per annum since 2003-04, notwithstanding the oil price shock, an earlier precursor of which brought the economy to its knees in the early 1990s.
2nd green revolution in Punjab, by RIL
Chandigarh, Aug. 1: Indian corporate major Reliance Industries Limited (RIL) on Tuesday embarked upon its foray into the farm sector amidst promises of reviving Punjab’s failing agricultural economy and visions of ushering in a whole new green revolution in India.
A new group company Reliance Retail signed an MoU with the government of Punjab to build and operate a chain of rural hubs across the state.Reliance Retail’s chief executive, Mr Sanjeev Asthana said the agreement with Punjab is the first among several similar deals planned with at least ten states, including West Bengal, Himachal Pradesh, Uttranchal, Uttar Pradesh and Haryana, which would eventually serve as sourcing or procurement areas for a huge chain of retail - hyper and super-malls that the company proposes to open across India.
Company representatives said work is already underway to purchase or lease more than 1,100 acres of land in Punjab’s 19 districts to build the rural hubs. Reliance Retail has plans to make a direct investment of about Rs 500 crores for its land acquisitions and rural infrastructure.
And while not willing to disclose a figure, Mr Asthana said the final investment on the project would be far more substantial if the company continues to receive the kind of administrative support it is getting currently. The proposed hubs — the first of which is expected to open by this November — would serve as common procurement, farm extension service, warehousing and processing points with additional facilities with education, health and veterinary services.
Company representatives claim the integrated venture including the rural hubs, the food supply chains and retail malls would eventually provide direct employment to more than a million people. Mr Asthana said the basic business plan is “to bring the farmer and the end-user or consumer closer while ensuring both remunerative prices for farm produce and cheaper retail prices for consumers.”
But not everyone is prepared to believe Reliance and the Punjab government’s claim’s of ushering in a new green revolution. Most Opposition parties and a number of farmer organisations are vehemently opposed to the venture and say the entry of big private sector player would play havoc with the lives and livelihoods of small and marginal farmers who constitute a 70 per cent majority in Punjab. Critics of the Reliance venture have also been reminding people of the similarly revolutionary but failed promises made by other private mega-corporations in past years.
OPD has arrived in India, says research firm
Hyderabad, Aug. 1: Product development — though small in size — is one of the fastest growing segments of offshore services market, and as companies across a range of verticals from aerospace to medical instruments grapple to add more value-added software to their product while cutting their overal R&D costs, this offshore segment will expand dramatically, acco-rding to Forrester Research,Inc..
“Though it started with the high-tech companies, theproduct development work that comes to India will spread across a range of industry segments. This expansion will fuel the demand for product development skills as firms from verticals like automotive and industrial controls jump on the bandwagon,” says SudinApte, senior analyst and country manager, India, for Forreseter Research, Inc. In a new study on offshore product development (OPD),Forrester says that over the past two decades, end-user companies offshored IT services to cut costs.
“What started as staff augmentation 20 years ago has emerged as a U.S.$20 billion offshore IT services industy, centred in India. In parallel, more than 200product companies have jumped on the offshore bandwagon and established their presence in India over the last three years — through their own captive operations or outsourcers,” it says.
The growth rate in this segment has eclipsed traditional IT services market as product development has grown 10-fold from U.S. $ 300 million in 2001 to over $3 billion in 2005.“Forrester says that in industries such as automotive, telecom, and consumer electronics, the role of software and embedded intelligence, as a way to add value, continues to expand. For example, the percentage of acar's value that comes from software/electronics will increase from 10 per cent at present to 25 per cent over the next three years. Most product OEMs will depend on offshoreskills to compensate for their own lack of internal expertise and limited software development capabilities,” the report says.
Apart from the cost-factor, India and China had the advantage of churning out over three lakh engineers against the 75,000 in the U.S., it says, adding that many product firms believe that tapping into this large base will help them accelerate their product development activities. “In segments such as consumer electronics and telecom, countries like India and China represent the fastest-growing markets.
Hence, firms believe a local Asian presence will help them understand and exploit these opportunities more quickly,” the report says. Forrester says that as growth accelerates, product development will emerge as a unique segment, different from traditional offshore ITservices. “R&D requires an alternative approach and psyche to serve product companies that range from start-ups to tier I automotive suppliers,” it says.
Linux geek takes potshots at FSF
IT Today
There is obviously something rotten in the world of open-source software, when Linus Torvalds, one of the geeks who founded the open source operating system Linux, takes potshots at the Free Software Foundation, especially at a time when the group is about to release its latest draft of a revised General Public License (GPL). Mr Torvalds is quite blunt in his posting on Groklaw.
“I think that ‘freedom; is fine, but we’re not exactly talking about slavery here,” he says. “Trying to make it look like we’re the Abraham Lincoln of our generation just makes us look stupid and stuck up. I’d much rather talk about ‘fairness’ and about issues like just being a much better process for generating better code, and having fun while doing so.”
Mr Torvalds’ angst-ridden post comes days after the FSF and the Software Freedom Law Centre released the second discussion draft of the GNU GPL version 3. The draft marks the halfway point of a year-long public review process for proposing changes and finalising the GPLv3. GPL is a software license that covers free software and the Linux kernel. According to the FSF, nearly 75 per cent of all free software programmes in the world are distributed under the GPL, which was last revised more than 15 years ago.
“Since January, members of the free software community submitted nearly 1,000 suggestions for improving the license. Many of those suggestions have been discussed at international conferences held in the United States, Brazil and Spain. The FSF said the draft of GPLv3 released last week incorporates changes based on many of the suggestions,” IW quoted the FSF as saying.
“By listening to people from around the world, we are working toward a license that acts consistently in many different legal systems and in a variety of situations,” Eben Moglen, Software Freedom Law Centre founder and chairman said. Mr Torvalds, who insists on calling his software ‘open’ to make a distinction from, and avoid association with, “free software” advocates, said the discussions of GPLv3 have not allowed for real opposition. He also criticised an earlier version of the GPLv3, calling it a “crusade.”
Under the new draft, the GPLv3 would directly restrict Digital Rights Management technology only when it is used to prevent people from sharing or modifying GPLv3-covered software.“The clarified DRM section preserves the spirit of the original GPL, which forbids adding additional unfree restrictions to free software,” the FSF says. Clearly, the last word is yet to be heard on this.
Sensex gains 7 pts at close
Mumbai, Aug. 1: The benchmark index, Sensex, recovered from the day’s low levels on the Bombay Stock Exchange on Tuesday, on emergence of buying by institutional investors and closed with a gain of over seven points.
The Sensex, which remained low throughout Tuesday and touched a low of 10,646.65 points, closed with a gain of 7.78 points at 10,751.66. Though, earlier in the day it had touched a high of 10,777.47.
Similarly, the National Stock Exchange index, Nifty closed higher by 4.60 points at 3147.80, after moving between 3113.60 and 3154.70 points. Fresh buying in late noon deals, helped by Fitch upgrading India’s rating to investment grade, saw the index recoup all its losses and move into the positive zone. The BSE Mid-cap and small-cap indices ended marginally in the red at 4283 and 5113, respectively.
Wipro Technologies, BT tie-up for AI product
Hyderabad, Aug. 1: Wipro Technololgies, the global IT services division of Wipro Ltd., said on Tuesday it has signed a licensing and advanced development deal with BT to jointly develop an advanced mobile/remote workforce management system.
“This deal involves joint development of BT’s ‘mPower’ product and the non-exclusive licensing of BT’s ‘mPower’ intellectual property rights to Wipro. ‘mPower’, developed by BT’s Research and Venturing business, enables organisations to mobilise their enterprise applications, whilst enabling their remote workers to communicate, collaborate and co-ordinate effectively to achieve their individual and collective goals,” a Wipro statement said. Dr A.L Rao, CEO, Wipro Ltd said, “Our expertise combined with BT’s IP and their ‘mPower’ platform will enhance the portfolio for the next generation of mobile enterprise applications.”
The statement said Wipro will carry out development work over the next twelve months to productise ‘mPower’ for BT. In addition, Wipro will develop its own ‘mPower’ related offerings that it can provide to its customers as well as license to other companies providing workforce management solutions.
DQE picks up stake in French TV company
Mumbai, Aug. 1: Hyderabad-based animation, gaming and visual effects giant, DQ Entertainment limited or DQE on Tuesday announced the formation of a joint venture with France-based Onyx Films, whose movie Renaissance is in contention for the top awards at the Toronto Film Festival to produce computer generated images or CGI feature films.
DQE also announced buying strategic stakes of 20 per cent in Method Films SARL, the television production unit of Onyx Films. In the new joint venture, DQE will hold 51 per cent share in Onyx Film for an initial investment 1.5 million euros.
“This alliance will not just be an Indian venture. It will be globally relevant,” said Mr Tapaas Chakravarti, chief executive officer and managing director of DQE. Mr Chakravarti also stated that this venture endorses to the fact that DQE is at par with the best in business in terms of quality and capability to execute larger multiple projects within the stipulated time frame, technology and human resources.
In global finance arena, Bernanke is lord of dance
Now that the World Cup and the Tour de France are behind us, the most exciting global spectator sport is watching Ben Bernanke: Will he raise interest rates in August or not? And what will his decision mean for world financial markets? When the Federal Reserve raises interest rates, global investors find dollar-denominated investments more attractive.
This increased demand for American assets tends to increase the value of the dollar. But the higher the value of the dollar, the more expensive American goods become for foreigners and the cheaper foreign goods become for Americans, worsening the balance of trade. Eventually, a highly valued dollar can lead to a drop in production in industries that are sensitive to imports or depend on exports.
International financial markets respond to interest rate changes almost instantaneously, while the real side of the economy - production, employment, imports and exports - adjusts over many months or even years. If the dollar continues to strengthen this summer, the United States could see weaker demand for exports and increased demand for imports by next spring and summer, worsening the balance of trade. But that is not the whole story.
The demand for dollars depends not just on interest rates in the United States but also on interest rates on assets in other currencies, and they are moving up as well. On July 14, the Bank of Japan raised overnight interest to 0.25 per cent, ending six years of zero interest rates.
Euro interest rates are also rising, mostly in response to inflationary pressures in Europe, but they are also responding to the higher rates in the US. These higher interest rates on euro and yen assets will tend to reduce the demand for American assets, counteracting the effects of the higher interest rates in the US.
The international financial system is like a 19th-century ballroom dance. The central bankers lead with an interest rate adjustment. Their partners, the global investors, watch closely, trying to anticipate their every move. In the background, the waiters carry trays of imports and exports slowly back and forth, taking their cues from the pace set by the dancers in the centre of the ballroom.
But how will the dance end? It looks as if the interest rate increases will soon stop in the US, if not in August then in September. The rates for the euro and the yen will probably continue to rise for several months after that. Given the direction of foreign rates, it is also possible that the dollar will become relatively less attra-ctive to foreign investors over the next several months.
A weaker dollar would stimulate demand for American exports, which would partly counteract the effect of the higher interest rates. At least that is the rosy outlook. But there are lots of things that could happen between now and then.
Disruption in the Middle East could push oil prices even higher, setting off a ripple effect on employment. Central bankers would probably halt or reverse their rate increases to cushion such a blow. Another worry is a natural or man-made disaster: A hurricane or a major terrorist attack could rattle the markets. China is a wild card as well. It might change its exchange rate policy, allowing the yuan to appreciate more against the dollar to cool its own economy.
Or it might change its investment policy to favor euro-denominated bonds, rather than investing primarily in US Treasury bonds. Neither of these things would necessarily be bad for the United States, but such changes could have a big effect on exchange rates and global markets.
There is a palpable sense of anxiety in financial markets these days, as investors contemplate these and other possibilities. Low interest rates lulled financial markets into complacency. As rates move up, volatility in stock prices has returned with a vengeance. This is all taking place against the backdrop of continued deficit spending by households and the federal government. If we cannot balance our private and public budgets, we will have to continue to borrow from the rest of the world to make up the difference.
But will they continue to lend? The current interest rate increases are an attempt to slow the economy to avoid inflation. But over the next decade, we may be forced to raise interest rates simply to attract foreign lending to finance our budget deficit. Such high rates would discourage economic growth, putting more pressure on the Fed to return to the low-interest, easy-money policy we have seen in the past few years.
