3G fails to enthuse & more... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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3G fails to enthuse & more... 

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In this issue:
» Pollution concerns to cloud India's power plans?
» MNCs losing charm in India's 3G dreams
» Nasscom's target for software product exports
» Easing rules for non-government PFs
» ...and more!

00:00 India's power woes...
...do not end in the points about scarcity and deficit. Rather, they go beyond and include global concerns about the amount of pollution that the country's large power plants will create once they are commissioned over the next few years. One such concern has been raised against the ultra-mega power plant being developed by Tata Power in the state of Gujarat. As per reports from the Bank Information Center (BIC), an international economic and development research firm, when fully operational, the Tata Power plant will become one of the world's 50 largest emitters of greenhouse gases. The BIC report is particularly critical of the fact that the World Bank Group's private sector arm, the International Financial Corporation (IFC) is increasing funding of such projects, while the development institution (World Bank) talks about stepping up assistance in fighting climate change.

  • Also read - Opportunity in India's power sector spending

    In fact, the BIC report states that the World Bank (through IFC) increased its lending for fossil-fuel projects by a staggering 165% in FY08. Total World Bank Group financing for fossil fuel projects is estimated to have been nearly US$ 2.3 bn in FY08. Of this, IFC projects accounted for approximately US$ 2.2 bn. In fact, the Tata Power project along with another project in the Philippines together account for 33% of total World Bank Group fossil-fuel financing for the year.

    00:54 Software products to churn US$ 12 bn by 2015
    Rather than relying on the software services space that is witnessing intense competition, Indian IT majors are increasingly looking at getting a larger share of revenue from the software products segment. Increasing competition, pressure on billing rates and increasing commoditisation of lower-end application development and maintenance (ADM) services are among the key reasons forcing the Indian software industry to make a fast move up the software value chain.

    As per software industry body, Nasscom, the next decade will play a crucial role in bringing about a change in the revenue share of Indian IT companies. As per the study conducted by the quasi-government regulator for the Indian IT sector, revenue from Indian software products has the potential to grow 10 times its current size and touch anything in the range of US$ 9.5 bn to US$ 12 bn by 2015, from US$ 1.4 bn in 2008. The study points out the recent trends in the Indian software product businesses that are now approaching an inflection point in their evolution and notes that by 2015, Indian software product business revenues would be more evenly balanced between domestic and export based sales. The share of revenues from the domestic market is projected to increase from 32% in 2007 to an average of 41% by 2015.

    01:30 Easing rules for non-government PFs
    The Indian government is reportedly planning to ease rules governing pension funds (PFs). In this context, as reported in a leading business daily, the government may allow non-government PFs to invest upto 10% incremental flows in the stock market, up from the current mandate of 5%. The revised norms are also likely to allow PF companies cut exposure to low-yielding government debt and invest in rupee bonds offered by multilateral agencies such as the World Bank. While no measure exists of the size of the corpus owned by non-government agencies' PFs in India, government estimates indicate that some funds have a minimum size of Rs 1 bn. Time for some bang for the buck from the hard earned pension money for millions of salaried Indians?

    02:04 MNCs losing charm in India's 3G dreams?
    A leading business daily reports that global telecom majors might stay away from the Indian government's auction of 3G (third-generation) telecom spectrum. These companies have in fact lowered their interest on the back of steep financial and regulatory barriers and uncertain environment for new entrants. As a matter of fact, companies like NTT, AT&T, Deutsche Telecom and Etisalat had shown interest in India's mobile market. Now, reports of absence of these global telecom giants from the bidding process could threaten the government's ambitious plans of netting up to Rs 400 bn from the auction of 3G spectrum.

  • Also read - India goes live with 3G

    While the telecom department's 3G plans sound reformist for the sector as a whole given that this has the capability to make communication even faster, there are several big questions that operators will face once they commercially launch such services. The minimum price for a pan-India 3G license has been set at US$ 470 m (Rs 20 bn), almost double the US$ 250 m minimum price recommended by TRAI (Telecom Regulatory Authority of India).

    Secondly the policy, in giving preference to state-owned service providers - MTNL and BSNL - indicates that only two private operators, alongside these PSUs, will get licenses for New Delhi and Mumbai because of the shortage of spectrum there. In the country's remaining telecom circles, while five operators will be permitted initially, including a state carrier, the count could rise to up to 10 later.

    02:54 Soaring sugar prices - Reality or speculation?

    India's domestic sugar demand is estimated at 22 million tonnes (MT), while supply is pegged at 26.5 MT for the sugar season 2007-08. Even if we export 4 MT of sugar this year, it does not indicate a demand-supply mismatch. However, the domestic prices have risen to Rs 18 a kg from 14 a kg last year. The reasons attributed for the rise are:

    • Sugar output in India for sugar season 2007-08 is estimated at 26.5 million tonnes (MT). This is lower by 7.5% from 28.5 MT in the last season and 13% from the earlier estimates of 30 MT for the current season. However, India continues to be the second largest producer of sugar after Brazil.

    • Global output has declined on account of heavy rains and higher crude price (sugar being diverted to ethanol) in Brazil and closure of a sugar mill of CSR Ltd., (which produces about 40% of the country's annual sugar cane crush) in Australia, the world's third-largest shipper.

    • Estimates of lower sugar production in India in the sugar season 2008-09 to 19 MT on account of lower rainfall.

    Though the government is taking measures to tame the soaring prices, is there an element of speculation showing up?

    03:38 India's gold imports decline in July
    Gold might have not shone so brightly for Indians as it did yesterday, when the country won its first ever individual Olympic gold medal. However, when it comes to overall consumption of the yellow metal, the same seems to have slowed down. As reported by Reuters, India's gold imports in the month of July 2008 declined by almost 56% YoY. This is on the back of drop in retail sales due to surge in price of the yellow metal. These imports were however higher by 25% as compared to June 2008, when the country imported 24 tonnes of the metal.

    03:54 In the meanwhile...
    Asian markets closed weak today, led by decline in commodity stocks. This was seemingly on account of plummeting prices of gold (on the back of receding inflation expectations) and oil (on the back of demand slowdown). Stocks in India, Hong Kong, China, Japan and Singapore all closed in the red. The Indian benchmark index, the BSE-30 was in fact among the leading losers, down almost 300 points. Markets in Europe are also treading weak currently.

    As reported on the Bloomberg, gold prices have dropped 4.2% to US$ 828.3, the lowest since December 24, 2007. Crude oil prices have slumped 21% from the record levels of US$ 147 a barrel they were trading at exactly a month back.

    On the currency front, the rupee weakened against the US dollar for a second day today. As reported on the Bloomberg, the rupee's fall could be attributed to speculation that refining companies increased purchases of dollars to buy cheaper crude oil. Decline in crude oil and gold prices have also impacted the US dollar, which is at a 6-month high against the Euro and a 7-month high against the Yen. Signs of a slowdown in Europe and Japan have also led to the dollar's rise over the past few months.

    04:22 Big 3's cash problems
    It is not only the Wall Street banks where the loud reverberations of the credit crisis is being felt, the autobahns of Detroit are having the same sinking feeling too. As per the Economist, US auto's big three viz., GM, Ford and Chrysler are witnessing cash disappear from their balance sheets faster than a magician could cast his spell. In fact, there is a competition among analysts and industry observers on the exact number of months these companies would survive if things continue to stay the way they are.

    GM, the biggest of the three is burning cash at the rate of US$ 1 bn per month and unless things improve, the company will have to resort to asset sale or further leverage its already 'over leveraged' balance sheet to raise the much needed funds. Rival Ford is believed to be in a relatively better position as it is sitting on a higher cash reserve of US$ 26 bn and is burning less cash than GM, thus giving it enough headroom to fashion some sort of recovery. It should be obvious to anyone that these companies' survival hinge upon the speed with which they start producing smaller cars and sell the same to Americans, who in view of the galloping crude prices, have increasingly started buying smaller and more fuel efficient cars. What is surprising though is how two of the biggest car makers in the world lost sight of this fact and did not prepare for it in advance.

    04:55 Today's investing mantra
    "Before you invest, investigate." - Warren Buffett.

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