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The Terror Of Numbers

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Be afraid, very afraid, and here’s why. At 6.7 per cent of GDP in the third quarter of FY13, imports, exports, remittances and invisibles combine to take managing the current account deficit (CAD) out of the government’s control. Yes, global oil prices may be stable, but we are increasing imports and consuming more — by close to 10 per cent. The coal story is similar, and gold imports show no sign of abating. Near-stagnant global GDP growth means exports aren’t growing much; nor are invisibles (mostly services exports) and remittances. Both for the same reason. Capital inflows seem robust, but a lot of it is in external commercial borrowings — our external debt at roughly $370 billion is more than our forex reserves — and portfolio flows into debt rather than equities. FDI is policy-determined, and the controversies and challenges over that is well known. Compared to similar economies, India’s CAD is among the worst (close to South Africa and Turkey). It’s the biggest chink in the armour of our growth story; worse, we’re stabbing ourselves with it.
— Srikanth Srinivas

Discoms On Display
Addressing the data vacuum on state distribution companies (discoms), the power ministry recently announced the first annual ratings for discoms. These are intended to help discoms that have been performing well secure loans at low interest rates (such as those in Gujarat) and apply pressure on poorly performing discoms (like those in Uttar Pradesh) to improve their performance, and address concerns such as increasing aggregated transmission and commercial (AT&C) losses, low regulatory clarity (reflected in the delay in filing of tariff petitions for the past three years) and negative networth.
 
The ratings will also help financial institutions understand the risks associated with lending to these discoms, and force state governments to provide security to them, thus securing funds for poor-performing discoms. But for now, they have a year to get their house in order.
— Chhavi Tyagi

Keeping Track Of Ad Time
The Telecom Regulatory Authority of India (Trai) decision to limit the amount of ads that can be shown for every hour of programming to 12 minutes (as is the case in most countries) may have made TV viewers happy, but the broadcasters aren’t, and with reason. Ideally broadcasters ought to have a free hand in deciding ad content and revenue. The problem arises when a broadcaster exploits exclusivity of certain content (such as the rights to broadcasting the Olympics), or when TV channels form a cartel to keep a minimum number of ads across all channels. 
 
5,600 on the Nifty is a level at which caution is called for
All this brings us to the question: Should this decision have been taken by the competition regulator instead?
— Abraham C. Mathews
 

Holding On To Hope
Equity benchmarks corrected close to 5 per cent in mid-March, making it a tipping point for brokers to voice active ‘buy’ calls. According to them, the market has entered an ‘oversold zone’, and is trading close to its 200-day moving average at 5,616 on the Nifty. “This may induce investors to take fresh positions,” says the research head of a foreign brokerage house.

While most brokers are hopeful of a ‘bounce back’, local money managers are still cautious. Despite the aggressive ‘buy’ pitch, domestic institutions are specifically staying away from mid-cap counters, the representative index of which — the BSE Mid-cap Index — has fallen more than 6 per cent in the month. The million-dollar question now is: Should investors commit money at 5,600-levels?
 
Yes, if their intent is to hold on to their investments for long. First, the correction has made frontline stocks more attractive. Second, the possibility of rapid short covering is high once the market gains more clarity on the political front. So, it is advisable for investors to accumulate quality stocks at lower levels and wait for the rally. Third,
moderate-but-appreciable fourth-quarter earnings may give a leg-up for equities in April.  
— Shailesh Menon
 
Em‘powering’ The Mumbaikar
Reliance Infrastructure has proposed to not hike its tariff for the next two years for low-end consumers (those consuming up to 300 units of electricity a month) in Mumbai. This is after around 350,000 consumers changed over to rival Tata Power’s network in the past three years. Mumbai is the only city to offer this choice. Reliance’s proposal at least levels the playing field a bit, since even though Tata charges a lower tariff (at Rs 4.80 a unit for up to 300 units) than Reliance (at Rs 6.57 a unit), the addition of increasing wheeling charges on Tata brings both tariffs almost at par.

And with a proposal to increase wheeling charges for third party users from 88 paise to 146 paise in fiscal 2014 already in place, it remains to be seen if Reliance’s move will help it retain customers.
— Chhavi Tyagi
 
When Reality Hits The Reel
For Sanjay Dutt’s lawyers, it was a foregone conclusion; but for Bollywood — used to living in the reel world — his conviction under the Arms Act came as a shocker. 
 
How can one explain the poor due diligence of the film producers who signed up Dutt knowing fully well that the Supreme Court was in the final stage of deciding the actor’s appeal in the 1993 Mumbai bomb blasts case? The producer of the film Policegiri, T.P. Aggarwal, claimed that 95 per cent of the film had already been shot; but he now faced the prospect of losing about Rs 25 crore.

The other films that include Dutt in the cast are Raju Hirani’s Peekay, the remake of an old Amitabh Bachchan movie Zanjeer and Rensil D’Silva’s Ungli. Collectively, trade analysts say that about Rs 200 crore may go down the hatch unless Dutt and his legal team find some way of avoiding his additional three-year jail term. 

Press Council of India chairman Markandey Katju has made out a case that the Maharashtra governor has the power to pardon Dutt. However, it is unlikely that governor K. Sankaranarayanan will oblige either Katju or Dutt, considering the scathing judgement of the apex court against the actor.
— Gurbir Singh
 
Reinventing An Icon
Many would say it’s better late than never. This, in response to Hindustan Motors (HM) — manufacturer of the iconic Ambassador car — finally deciding to introduce a hatchback by March 2014. “Work on the hatchback is already in progress. The new car will be built on the Ambassador platform,” says Uttam Bose, CEO and MD of HM, adding that the new car will also sport the Ambassador badge. The risk in this is whether buyers will take the Ambassador name to mean trust and endurance or associate it with rather archaic technology.
— Swati Garg
break-page-break
 
Taking An Inconvenient Stand
There is considerable pressure on the RBI to take stronger action to promote growth.
Management guru Stephen Covey talked about three constants in life: change, choice and principles. You could well apply those to the Reserve Bank of India (RBI). In the mid-quarter review of monetary policy in March, the RBI changed its position on policy interest rates and cut the repo rate by 25 basis points.
 
Choice for the central bank is about trade-offs. In this case, it’s the trade-off between it’s priorities of controlling inflation and managing the current account, and pushing economic growth. In his policy statement, RBI governor Duvvuri Subbarao put it best: low interest rates are a necessary but not sufficient condition for reviving economic growth.
 
There is considerable pressure (and will continue to be) on the RBI to take stronger action to promote growth, now that the government has done its bit. But here is where principles count: giving up inflation control as a priority would be a violation of the RBI’s principles. Here, Subbarao has shown the courage to stand by them.
­— Srikanth Srinivas

Calling Up The Past, With An Eye On The Future
This time around the big fish are in trouble. Unlike 2008 when only new operators went under the scalpel, this time the pressure is on incumbents. 
 
A Central Bureau of Investigation special court has summoned Bharti Airtel chairman Sunil Mittal; Essar vice-chairman Ravi Ruia; former Hutchison Max managing director Asim Ghosh and former Department of Telecommunications (DoT) secretary Shyamal Ghosh to appear before it. The case relates to alleged gains from the change in spectrum allocation norms in 2002. The DoT had then reduced the minimum number of subscribers needed for allotting additional spectrum over 6.2 MHz to GSM operators from 900,000 to 400,000 subscribers. 
 
7,000 no-frill demat accounts have been opened since Oct
Vodafone (then Hutchison Max) got 1.8 MHz of spectrum over and above the 6.2 MHz in Delhi and Mumbai; Bharti got it for Delhi alone. These licences complete their 20-year term in 2014. So, is this a case of collusion between certain sections of the industry and government? 
 
For now, rather than rake up cases after a decade, what the government needs to do is come up with a clear forward-looking policy that provides better coverage to subscribers, greater revenues for the government and a cleaner business environment for all.
— Anup Jayaram

Falling Between The Cracks
The finance ministry’s best-laid plans to bring in more retail investors to the equities market seems to be going awry with little support from the intermediaries. 
 
The United Progressive Alliance government’s ambitious Rajiv Gandhi Equity Savings Scheme (RGESS), which encourages first-time investors to invest in the securities market and save on tax, is not getting the desired marketing push from brokers. 
 
According to sources, brokers are not promoting RGESS’s direct equities plan since it involves a higher marketing cost but rings in lower revenues. This is not the first time that an investor-friendly measure has failed due to lack of support from market intermediaries. A basic services demat account (or no-frill account) proposed by the Securities and Exchange Board of India, which was launched in October, is also not being promoted in a big way by brokers, who have been citing cost-viability reasons. According to market sources, brokers have opened just
7,000 no-frill accounts since its launch. The bottom line is: if the Centre wants to promote RGESS, it better pay brokers their fair (or fare) share.
­— Shailesh Menon
 
Risqué Ads Can Be Risky
Was it Ford’s folly or was it  JWT’s error of judgement? The ad agency may have chosen to take the blame, but Ford has driven itself into a storm too over the scandalous ad that showed gagged women in a trunk. Risqué ad campaigns may help brands break the clutter, but they face huge risks. In this case, the spotlight is on scam ads created just to win awards. What an irony that an unpublished ad could create such global outrage. It’s unfortunate that the agency did not stand behind its creative team. But perhaps one positive fallout from the issue is the debate it may fuel on what’s socially acceptable and what’s not, as well as the culture of creating ads solely for awards.
— Chitra Narayanan
 
Not Magical Enough
It’s final. Walt Disney Company has scotched all speculation that it may be building a Disneyland theme park in India. Walt Disney International chairman Andy Bird, during his recent India visit, clarified, “We have no plans for a Disneyland park in India. Not now, not later.” The justification for sidestepping India is that the market has not matured to the level of purchasing power that will justify such a gargantuan investment. Instead, the firm has placed its bets on China, where the Shanghai Disneyland has $5 billion riding on it — excluding infrastructure costs, Bird said. 
 
This must be music to Manmohan Shetty’s ears as his firm, Walkwater Media, hopes to open India’s largest theme park off the Mumbai-Pune Expressway soon.
— Gurbir Singh
 
Not A Sunny State Of Affairs
$541 million was how what Suntech defaulted on
Another one bites the dust. Chinese solar panel manufacturer Suntech Power Holdings, the world’s No. 1 solar photovoltaic panel maker, declared bankruptcy earlier in March. But does that mean the future is bleak for the solar power industry? Industry experts do not seem to think so. But with German company Q-cells shutting down last year and many manufacturers reporting losses over the last two fiscals in spite of increasing demand, Suntech’s default in payment of bonds worth $541 million does raise serious concerns. The saving grace is that with the government taking over the firm — which had around 2,000 MW of annual production capacity at the end of 2011 — it may not have to completely shut down. 

Harish Ahuja, president, strategy and corporate affairs, of Moser Baer is optimistic, saying “this is reflective of the sector that is constantly changing”. There are also many who believe this will help photovoltaic panel manufacturers as now prices will not fall steeply or suddenly, and there will be further consolidation in the market, causing prices to stabilise.
— Moyna

Sneaking In The Message
If you’re an advertiser looking for one of the cheapest ways to test the market, then social media is where you
need to be. The latest in the advertising arena is native advertising. Reversing the trend of flashy ads, these ads are surreptitiously embedded in your Twitter and Facebook newsfeeds or websites, so that you treat them with equal importance. Evidence of the native bug working is the rise of sites like Viraliti, which ‘pins’ sponsored content on personal Pinterest boards. Although advertisers are currently swearing by the formula due to the ‘low cost per click’ and ‘high click’ rates, it remains to be seen whether they will find it viable enough to invest in. 
— Ankita Ramgopal

Too Much, Or Too Little?
What would happen if football star Lionel Messi decided to give the Fifa World Cup a miss by saying it is not challenging enough? Unthinkable? Well, when advertising giant Ogilvy and Mather (O&M) announced that it would give this year’s Goafest a miss, the news was met with similar bafflement — especially since it has had a dream run in garnering awards in previous editions.
 
While O&M said that there wasn’t enough motivation to enter its work for the Creative Abbies, rivals claim that the agency did not have the enviable body of work it did in previous years. But is that reason enough to pull out?
 
Unlike sports, advertising is not all about winning and losing (awards). Take Lowe Lintas for instance: it has stayed away from creative awards for a while (the Aamir Khan of advertising?).

But with O&M opting out of Goafest, it raises the question whether awards hold any significance in the ad business. Or did O&M simply give its peers a chance to celebrate?
— Prasad Sangameshwaran

(This story was published in BW | Businessworld Issue Dated 22-04-2013)
 
 
 


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