Wednesday, February 17, 2010

Acquisition Spree Of Indian Firms

Bharti Airtel Keen On Zain;
Well, It’s Plausible:

It ain’t been long since Bharti’s talks to take over South-Africa’s MTN fell through and Airtel is back on track, and this time even more steadfast than it was before. It was only a few days ago when Bharti announced its plans and is already in talks with Zain, a Kuwaiti telecoms company, to buy its sub-Saharan assets for $10.7 billion (Around Rs 50,000 crores).

Looks like the Indian companies’ spree to buy assets abroad remains unaffected by the turmoil around the world. Amid the circumstances of fiscal deficits and hence tentative outcomes of the budget 2010-2011, where the investors are already wary of yet-to-come government policies and fears of stimulus unrolling, Bharti’s announcements slammed heavily upon its shares which plummeted by remarkable figures.

One of the reasons behind the investors’ ire is the speculation doing rounds about the over-valuation of Zain’s assets by Bharti. Vivendi, the French media and telecoms giant, had broken off talks in July with Zain about acquiring these assets for around the same price over issues of ‘profitability’. This is what’s worrying the investors and share-holders.

But Bharti’s plans may not be bad altogether. It should be noted that the telecom business has got saturated in developed countries and is rapidly getting saturated in the developing ones like India too. This can be supposed to have prompted the Bharti players to devise the plan. You see, the number of mobile operators in the country is already 12 and recent arrivals include Norway’s Telenor and Japan’s NTTDoCoMo. This has pushed a cut-throat low-call-rates race.

While as for the new deal (if it proceeds), Bharti should find a way-in in the 15 countries, including Nigeria, Uganda and Tanzania, where Zain provides mobile phones to some 42m customers. And noteworthy is the fact that most of’em are poor ones and provide for immense platform for telecom sector to flourish.

Though it can be taken for granted that the newly acquired assets would take a while to emerge as profitable units, but it is indeed a coherent deal (or so I consider) when you look at its future prospects.

Tuesday, February 16, 2010

Beware the 26th of feb

Indian Union Budget 2010-2011: Pro-People or Pro-Fiscal?

The finance minister Pranab Mukherjee will have to tread a tightrope in the course of framing his second consecutive budget on behalf of the UPA government. The queue of expectations is already superfluous and delivering all the things on the list seems quite out-of-question for Mr. Pranab.

It’d be worthwhile to mention that the recovery from recession around the world (India being no exception) was primarily based upon the government spending, stimulus packages, tax holidays/exemptions and sacking of many fund raising mechanisms. When the budget 2009-2010 was out, the FM had to face austere flak about not being transparent enough to mention how the funds would be arranged to meet the faces promised by the budget. Economists had foreseen a rising fiscal deficit and unfortunately that’s exactly what has come about. Worse, it’s morphing into a second version of the crisis, “The Fiscal Crisis”.

The fiscal deficit has bloated to an ever-high position and the government is anything but certain on how to bring it down. The obvious answer then comes out quite perilously: taxes.
While the corporate world stands asking for extension of tax holidays, abolition of surcharges, and abolition of wealth tax, there are individuals (us) asking for increase in limits of tax deduction, reduction in prices and increase in housing loan interest deductions.
Where should the government go?
Continue issuing stimulus packages and get exhausted of its funds?
Continue borrowing and crowd out the corporate?
Continue accruing debts and feature a great uncertainty?

Or should it rather go the other way around? Increase taxes, sack stimulus packages, unroll exemptions and build up revenue?
The government should, indeed, return to the path of fiscal consolidation. Greece is on the verge of an irreparable fiscal breakdown and other Eurozone members have still not decided whether or not to bail it out. Ensuring India doesn’t meet the same fate calls for immediate measures to rebuild the revenues.

It’s a difficult but pressing decision to unroll some of the government spending programmes right-away. The best the government can do is to initiate in a moderate fashion, i.e., neither too-much-too-soon nor too-less-too-late.

And the best you and I can do is to wait and watch “Which Way The ‘Budget’ Jumps.”

Monday, February 15, 2010

Desperate Measures For Desperate Times

Deadlock For The Indian Government

When recovery seemed just around the corner, the spook of inflation flashed its grim face, and lo, all was stalled (or so it seems). While UPA government deserves credit for turning the economy around palpably well, it’s also being reviled for letting the commodity prices go sky-rocketing. Such are the circumstances that the FM, Pranab Mukherjee will find it hard to sleep before the final framings and verdicts regarding the Union-Budget 2010-2011 are shaped. For the time being, he’s busy tackling the salvo of “Bring-Inflation-Down”.
"At 7.31 per cent, the headline inflation rate has crossed the RBI's projected rate of 6.5 per cent for March-end," says Amit Mitra, secretary general, FICCI.
It’s noteworthy that inflation is a sign of growth in economy but only when it’s a healthy one. High inflation rates can curb consumer spending beyond control and would stall progress. Thus bringing it down is vouched for by many to be the new budgets priority.
"Inflation is a matter of concern, and cooling prices a priority on industry wish list", avers Mitra.

Now What’s The Deadlock?
India, just to remind you, is still reeling under a tangible fiscal deficit (6.8%). The reason why the much fuss in the industries about cutting-down the MAT rates and extending tax-holidays ain’t being given much attention is that India wants to refill its coffers. In its attempts to redirect our country on the GDP growth trajectory of 9%, it needs funds to lend a hand to the hard-hit-sectors. That’s the reason why the government has chosen to be silent for a while. On the other hand to counter inflation, it’s chosen the Demand-Side-Management rather than the Supply-Side one. Raising the CRR by 75 basis points is due to suck out Rs 36,000 crores (Rs 360 billions) and would check demand up to some extent that’ll in turn check inflation.

It’s probably because of the same, saving funds, issues that the government has chosen to let agri-prices rise to cater to the needs of farmers rather than going for the Supply-Side-Management which it could do by providing a fillip to the agriculture sector outputs (which would have the same pro-farmer effect but would call for government spending).
Now that’s what needs to be noticed. Agricultural and other commodities are registering snowballing prices and inflation is looming high and still government is desperate on its way to shirk-off fiscal deficits and can’t adopt the required measures.
In other words : It’s a Stern Deadlock.

Saturday, February 13, 2010

Global Policies Take A Quantum Leap

• Paradigm shift in the government and bank policies around the world :

In the wake of the economic crisis, regulators and reformers around the world are eyeing for another renaissance. What was really worth considering was that the banks world-around, especially the ones in U.S.A, went under the meltdown despite years of boom. Economists world over consider it as an utter failure to retain a “decent share of their profits”. Even the big ones couldn’t avoid being in the red. This is what initiated recession and this is what the economists are trying to reform through “countercyclical buffering “. Just to provide a brief overview from around the world, here’s what you need to know:

1.) Shirking off the ‘too-big-to-fail’ :

Reformers have at last sought to change their beliefs in the organisations that are treated as ‘Too big to fail’. The ‘Baseline Scenario’ reports the notion to be rapidly gaining ground in the U.S.A. economists believe that no organisation/bank should be given the status ‘too big to fail’. In other words, even the big ones won’t be receiving government helps and bail-outs and would meet the same fate as the smaller ones. Simply put, they would be allowed to fail too. Reformers think such organisations are dangerous for the financial status of the country by accumulating the major portions of the wealth.

2.) Glass-Steagall revisited :

Just as the great depression saw the establishment of the FDIC (Federal Deposit Insurance Corporation) and the banking act of 1933 (better known as the Glass-Steagall act); Obama administration seeks to bring in the proposed ‘Volcker Rule’ very soon. Though it differs with the Glass-Steagall in many prospects, the underlying idea is the same, i.e., separating the commercial banks from the investment ones. Volcker-Rule states that:

1.) No commercial banks would be allowed to dwell into ‘proprietary trading’ or owning/sponsoring hedge funds.

2.) The overall size of the banks would be capped to about less than 10% of the U.S government insured deposits (the current figure), although how much it’d be has not been decided yet.

Though this rule makes no bindings on the commercial banks regarding ‘underwriting’, which the Glass-Steagull actually did, the theme remains the same.

3.) C.R.R rises by 75 basis points in India:

Among the major changes in Indian banking policies was the R.B.I’s stance toward the Cash-Reserve-Ratio. Each bank is required to deposit a portion of its asset with the R.B.I (reserve bank of India). The C.R.R stood at 5 per-cents but is set to rise by 75 basis points from February, 13, 2010 in two tranches. And I’m not sure if it’s for the same reason or not but the S.B.I’s lending rates are also due to rise. Looks like R.B.I’s attempt to cap India’s banks will have the citizens paying for it.

4.) Greece debt crisis:

But at least the condition in India is much better than that in Greece which is ailing under rigorous debt crisis. The government, on its attempt to jettison its deficits, has cast severe blows on its own people. Numerous schools have been shut down, flights have been grounded and hospitals are running on the emergency-only basis. Although the European Union will take this agenda as its foremost point of consideration in the meetings that follow, but for now, it seems that Greece can be forced to discontinue the use of Euro by the other nations.

The good thing for the world, though, is that at last the U.S.A is taking a tougher stance toward its big-banks. Although such measures can be ground-breaking, they’ll have to get through the opposition-protests and austere lobbying by the organisations and banks. But the conditions do seem to be turning around pro tem.