Masala curry over IT and more... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Masala curry over IT and more... 

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In this issue:
» India tops US in healthcare
» Will RBI walk the talk?
» India's nuclear hopes
» City gas - the new 'hot' sector
» ...and more!

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Power Crisis Imminent
Here's How You Can Benefit From It. Read On...

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00:00 India tops US in healthcare
India does have an edge over the US. Atleast in the field of healthcare. A study from Duke University published in the business daily, Mint, cites that innovative practices of Indian hospitals could offer valuable lessons to US policymakers and hospitals in providing low-cost and high-quality patient care. Healthcare in the US accounts for around 15% of its GDP, which is one of the highest in this world. Despite this, a large number of people in the country have limited access to healthcare. In contrast, while the public expenditure on healthcare has not made any significant headway in India, the private hospital players are making a difference.

The report lauds innovations in areas such as customer service, labour practices and manufacturing in Indian hospitals, which also reflect market oriented strategies and new organisational practices. Medical tourism is also gaining ground in India, as the cost of surgeries in the country is considerably lower than in the developed countries. All in all, the healthcare industry in India is at an inflection point. While accessibility to quality healthcare still remains a critical issue especially in the rural areas, a comparison with the US showing India coming out on the top probably speaks volumes about the progress that the industry has made so far.

00:45 Biofuel blending by 2017
As the OPEC continues to hold crude oil supplies at ransom, policy makers globally are taking measures to solve the problem of fuel shortage through alternate means. The Union Cabinet has approved a policy that aims to achieve 20% biofuel blending in all the auto fuels used in the country by 2017. To encourage the use of natural resource, the national policy on biofuels also seeks to ban import of certain biofuels, proposes no taxes and duties on bio-diesel, encourages free movement of the same within states and ensures a minimum price for biofuel producers. While the proposal would offer significant opportunities to ethanol producers like Bajaj Hindusthan, Balrampur Chini and Praj Industries, issues regarding implementation and price mechanism would continue to remain a matter of concern.

01:13 Will RBI walk the talk?
In 2005, RBI had laid out a road map for the presence of foreign banks in India. The first phase of the same envisages a review in 2009, of the experience gained during the implementation of the same and the scope of the second and more important phase. While the second phase perpetuated to allow foreign banks to have majority ownership stakes in Indian entities, repercussions of the same need to be examined. The central bank, interestingly has discussed this issue in length in the latest publication of 'Report on Currency and Finance'. The same, however, gives very mixed feelings of the central bank with regard to following its own diktat. The report states, "It has been a public policy concern that the foreign banks enter a country but do not deliver the benefits to the wider community on account of their largely urban-centric presence and also they tend to ignore the local factors due to a decision making structure, particularly in the area of credit, centralised at the overseas head office." One can fathom from these words that the central bank is wary of the foreign entities bringing their aggressive strategies and unhedged exposures to the domestic markets. While the report champions the cause for consolidation of Indian banking entities due to their lack of global competitiveness, it seems to be buying more time for the same.

The global pecking order...
Bank Country of origin Assets* (US$ bn)
HSBC UK 2,354
Citigroup US 2,187
UBS Switzerland 1,964
Barclays Bank UK 1,957
Deutsche Bank Germany 1,483
ABN Amro Bank Netherlands 1,300
ICBC China 962
Kookmin Bank Korea 181
Mitsubishi UFJ Japan 1,579
State Bank of India India 180
Source: RBI * Assets at the end of 2007

In the meantime, Indian bank unions have called for a two-day nationwide strike starting 24th September to protest against the proposals for bank mergers and more voting rights for foreign entities in private banks. Looks like the RBI has a tough balancing act ahead!

  • Also read - A change in guard

    02:10 In the meanwhile...
    While the key Asian markets closed in the positive today, the Indian indices were amongst the few losers despite better inflation and IIP growth numbers reported yesterday. The gainers were led by South Korea (up 2%), Singapore (1%) and Japan (1%). Indian markets languished in the red through most of the session today as the rupee continued to lose ground against the US dollar. The U.S. dollar has risen 5.5%, 13.8% and 13.0% respectively against the rupee, pound and euro so far in the current quarter. The BSE-Sensex lost more than 1% in today's trade. The US markets are expected to continue witnessing the jitters over the fate of one of the largest investment banking firms on Wall Street - Lehman Brothers. The European markets are trading in the positive currently.

    02:18 India's nuclear hopes - a solution to global warming?
    The NSG waiver for India is not just being seen as a solution to the impending energy crisis for the economy but also as a solution to global environmental woes. The world's top economic powers have declared that the world is entering a new era of nuclear energy amid rising concerns over high oil prices and global warming. The US, Canada and Italy have all re-launched construction of nuclear power plants while France and Japan are longstanding advocators of nuclear energy.

    Nuclear power, however, has faced major criticism throughout the industrial world, with some environmentalists arguing that it poses too much of a safety risk. The 1986 Chernobyl disaster that killed thousands of people is one of the oft-cited examples. Meanwhile, propagators of carbon-free environment see it as a welcome relief. The International Energy Agency has stated in a recent report that halving greenhouse gas emissions by 2050 would require building an additional 32 new nuclear power plants every year along with 17,500 wind turbines. Indian corporates are losing no time in latching on to this opportunity and expect 18 to 20 new nuclear power plants to be set up in the country in next 15 years costing Rs 1.2 trillion.

    The government on its part has revised its target of power capacity addition during the 11th five-year plan (2007-12) to 90,000 MW from the earlier estimate of 78,577 MW, despite lingering concerns over coal shortage.

  • Also read - Potential in India's power crisis

    02:51 ...and solar energy to follow
    Besides the strides in nuclear energy, India will have one more feather on her cap once Asia's biggest solar power plant is set up in Nagpur (Maharashtra) to generate 10 MW electricity for the national grid. Although the quantum of electricity to be generated is relatively small, the Indian Ministry for New and Renewable Energy believes that it will be a big leap for solar energy generation in the continent. Also, besides being environment friendly and pollution free, the plant load factor in the solar power plant will be in the range of 80% to 90% of the installed capacity, which is nearly double than in the case of wind power.

    03:05 Masala curry over IT...
    In case you are young and harboring 'Pound' dreams i.e. thinking of relocating to the UK, try appealing to the taste buds than intellect. Before you dismiss this as a figment of our imagination, let us tell you that we are, as a matter of fact, spelling out the recommendations of the Migratory Advisory Committee of the UK that has come out with a revised list of skill sets that are in short supply in the home nation and hence, would enable employers to recruit skilled workers from other countries. While the list includes skilled chefs, it has kept out professionals in the IT field as the industry is already facing a surplus. And to the further disappointment of these IT professionals, the government usually accepts these recommendations. It has to be noted that people from the Indian restaurant industry recently took to the streets in London and Glasgow to protest against new immigration measures and also made several high level representations. Going by the list, the plea seems to have finally registered in the minds of policymakers. Indeed, with increasing amount of IT work being offshored, domestic demand has come down across developed nations like US and UK, thus forcing the latter to curtail migration of IT workers. In a lighter vein, while data and software can be transferred through networks thus enabling offshoring, the same cannot be done with hot curries and chicken tikka. Atleast not yet!

    By the way, a recent data from US-based research firm Forrester Research shows that globally, over 40% of large business firms across sectors have cut their IT budgets this year due to the economic slowdown. Forrester spoke to 950 senior IT managers in the US and Europe geographies which account for over three-fourth of India's software exports. While 49% of the firms in North America have cut their IT budgets, in Europe the number was 31%.

  • Also read - Outlook on Indian IT sector

    03:46 Better start contributing...
    ...from what you earn, says the government. Nearly 80,000 Indians working on consultancy and onsite assignments in the US annually contribute over US$ 1.5 bn to the US Social Security Fund. These are mandatory pension contributions at the rate of 15% of their basic salary. But when these workers return to India, all these contributions are forfeited as the minimum period to qualify for pension benefits in the US is 10 years, which is far longer than the period for which they stay there. At the same time, foreign workers in India remit their retirement savings to their home country pension systems. This definitely seems very unjust and the Indian Employees' Provident Fund Organisation (EPFO) is working toward resolving this anomaly.

    India has decided to exert pressure on countries that are reluctant to negotiate bilateral social security pacts for workers' pension, by making it compulsory for expatriate workers to pay pension contribution here. Accordingly, 'international' workers in India, which includes Indian passport holders working abroad who return to India for an employment stint and then head back overseas, would be required to park 24% of their salaries into the three social security schemes run by the EPFO.

    04:12 City gas - the new 'hot' sector
    From an investor's standpoint, city gas distribution is one of the most promising segments in the Indian oil and gas industry. Compared to the rest of the industry, it tends to be stable, generates a decent return on investment and places a lower demand for incremental capital. Hence, the recent comments by Labanyendu Mansingh, chairman of the Petroleum and Natural Gas Regulatory Board (PNGRB) augur well for India and investors alike.

    Mr. Mansingh expects an inflow of around US$ 49 bn into the segment in the next 5 years. He sees the process of bidding for the various city gas projects beginning within a month and the chosen parties will be authorised in around 6 months. PNGRB has received 71 expressions of interest from existing city gas companies, domestic majors like RIL and GAIL and international players. Mr. Mansingh has also insisted on PNGRB being consulted before the oil ministry announces the gas allocation policy. It may be noted that the policy currently tilts heavily in favour of fertiliser companies.

  • Also read- The national gas grid

    04:33 Lessons from ICICI...
    After a 33-year stint at ICICI Bank, Ms. Kalpana Morparia who is now the CEO of JP Morgan India is not letting her learning at ICICI Bank go waste. Having been at the helm of affairs of India's largest and fastest growing private sector bank, Ms Morparia knows the tricks of the trade and is practicing all caution in her new role. While most foreign banks are targeting large-scale retail expansion, JPMorgan has no immediate plans to chase retail customers. The financial firm will get into retail banking only when credit bureaus are in place. Credit bureaus collate the credit history of individual borrowers and share them with commercial banks. In case of any default, a borrower gets blacklisted and finds it difficult to access fresh loans. Thus having witnessed some retail bad loans pile up at ICICI Bank, Ms Morparia certainly knows better this time.

    4.57 Today's investing mantra
    "The future is never clear and you pay a high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long term values." - Warren Buffett
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