Stability breeds comfort--and hard decisions. Emboldened by the constancy of its coalition, the National Democratic Alliance Administration announced a slew of hard-nosed decisions, ranging from an expression of its willingness to privatise several profit-making public sector units to the slashing of subsidies on a range of products.

The decision to reduce--or do away totally--with the subsidies on fertilisers and foods was indicative of the government's willingness to let its policies be guided by pragmatism rather than populism. And the government's decision to start the process of reducing its holding in nationalised banks to 33 per cent could well be interpreted as the first tentative move towards bank-privatisation.While the mid-point of the month witnessed the most pragmatic of these measures, Budget:2000, the rest of the month wasn't without its policy-related highlights.

In a move to integrate India's commodities markets with the international markets, the Atal Bihari Vajpayee Administration announced the creation of a Panel on Commodities that would seek to classify commodities the way they are coded elsewhere in the world. And the government's understanding of the drivers of the New Economy was evident in its decisions to create a single policy for the Net and broadcasting--which will address all the regulatory issues related to convergence--and treat venture capital funds at par with the mutual funds for purposes of taxation.

However, protectionism raised its head when the government decided to retain the 49 per cent ceiling on Foreign Direct Investment (FDI) in telecom companies engaged in the business of basic or cellular telephony. Given that most foreign investors have used Special Purpose Vehicles (SPVS) to achieve a distinction between economic- and management-control, the retention of the ceiling does not, however, really make a difference.

In a move aimed at pleasing its political constituencies, the government agreed to put the recommendations of the Dave Committee on the restructuring of the provident funds and pension schemes on hold. What this means is that the Committee's suggestions regarding the investment of part of these funds in government paper, corporate bonds, and the equity market will not be implemented--another labour-sector reform thwarted at the altar of populism

The government also continued to drag its feet over attempts to attract investments into the infrastructure sector, or frame a coherent competitive policy. And apart from setting up a commission to review government expenditure, the finance minister did not appear overly concerned about the fiscal mess. Still worse, Budget:2000 will result in additional tax revenues of a mere Rs 6,904 crore. Clearly, the second generation of reforms are still a generation away.

Come Together
India Inc. continued to witness merger mania, as CEOs strove for consolidation.

Restructuring, privatisation, and acquisition were the leit motifs of the month that was. The Union Cabinet approved a Rs 8,454-crore recovery-package for the ailing public sector steel-manufacturer, the Steel Authority of India Ltd (SAIL), which visualises hiving off several of the PSU's non-core businesses into joint ventures. 

Acquisition and consolidation continued to be the theme of the private sector. The deal of the month was the Kerry Packer promoted Consolidated Press Holding's acquisition of a 10 per cent stake in Himachal Futuristic Communications for Rs 1,039 crore. SmithKline Beecham Consumer Healthcare, the owner of the Horlicks brand, acquired 2 brands, Viva and Maltova, from Jagatjit Industries for Rs 86.25 crore. The Housing Development and Finance Corporation picked up a 7 per cent stake in Lafarge India. And while Tata Communications and Birla at&t announced a merger, the Jhawar-promoted Usha Martin articulated its desire to divest its entire stake in Usha Martin Telekom. Meanwhile, with Ceat and JK Industries withdrawing their bids for Modi Rubber, Continental ag's chances of bagging the 44 per cent stake in the company, currently held by the financial institutions, improved.

Then, NRB Bearings acquired SRF's 45.78 per cent stake in Shriram Needle Bearing Industries for Rs 82.65 lakh. ISPL, a subsidiary of the US transnational, Gillette, announced the merger of 2 of its subsidiaries, Duracell India--which manufactures an eponymous brand of alkaline batteries--and Wilkinson Sword India. And the Tata Group's efforts to go global continued: after Tata Tea grabbing Tetley, it was the turn of Indian Hotels to set its sights on properties in the US.

And Net mania continued to rule, with the BSES buying indbazaar.com for Rs 40 crore and Walden investing $2.3 billion in the Hindi portal, webduniya.com, while Morgan Stanley Dean Witter picked up a 7 per cent stake in the portal Indiainfo.com for $11.5 million. Go Web, young man.

-Dilip Maitra

February 29, Black Tuesday
The Union Budget forces it all come crashing on the markets.

It was up; it was down. The Bombay Stock Exchange (BSE) Sensitivity Index not only yo-yoed between highs and lows but also displayed a high level of intra-day volatility. Contributing to this schizoid behaviour was the strange reluctance of foreign institutional investors (FII)--who were supposed to pump even greater amounts of money into the market consequent to the ceiling on their stake in a company being raised from 30 per cent to 40 per cent--to continue their frenetic pre-Budget buying. Thus, the quantum of FII-investment till March 7, 2000, was a mere Rs 355 crore as compared to Rs 3,127 crore in February, 2000.

Infotech stocks continued to boom, but most other stocks went south. According to a report by K.R. Choksey Securities, the market is in a state of indecision and could fall further. With the number of declines increasing, the market seems to be in the grip of a short-term bear-hug. But the industrial recovery could mean that the bulls will, eventually, triumph.

-Roshni Jayakar

S T O C K   M A R K E T S
T+5: Settlement Day
The SEBI's decision to introduce a rolling settlement system raises hackles.

The motives were right. So was the timing. But the best-laid plans of the Securities & Exchange Board of India (SEBI) did go wrong. In a move directed at curbing price-volatility and speculative trading--both symptoms of an immature market--the SEBI introduced the T+5 rolling settlement for 10 scrips in early January, 2000. This meant that an investor would have to square his position either on the same day the trade is executed, or the fifth day. This is a radical change from the traditional cycle, where there is only one settlement a week, and a transaction executed on any day of the 5-day settlement-period has to be settled only on the last day.

Stockbrokers were the first ones to protest, claiming that the move would impact their volumes. But SEBI refused to budge. Its line of reasoning: a rolling settlement creates a safer market by reducing the risks involved, and is a globally-accepted practice. To back its decision, it added 156 scrips to the initial lot of 10. The choice, however, proved to be its undoing: 74 of the 156 companies it selected are those that had changed their names in an effort to look like infotech companies; 31 are NBFCS listed on the Bombay Stock Exchange, but whose applications for certificates of registration had been rejected by the Reserve Bank of India, and 34 were companies that are part of the compulsory demat trading list, and do not have a carry-forward facility. In effect, 140 of the 156 scrips the SEBI added to the rolling-settlement category were dubious scrips.

That exacerbated things. Explains V. Raghunathan, 45, Professor, Indian Institute of Management, Ahmedabad: "By including dubious scrips, the SEBI has, unwittingly, sent out a signal that the rolling settlement is meant to be some sort of penal system for the riff-raff of the market." Even if the move was aimed at disciplining rogue scrips, SEBI would have done well to introduce a derivatives trading system before launching a rolling settlement system. That would have offset the liquidity reduction that the latter will cause. Time, perhaps, to roll it over.

-Roshni Jayakar

C I T I E S
The Real Cyber City
While Bangalore and Hyderabad slug it out, Pune could become India's newest tech-city.

The tussle between Bangalore and Hyderabad to be the most preferred destination of infotech companies could see an unlikely winner: Pune. In 1999, 22 infotech hot-shops put down roots in the city. And all the space in the 150-acre infotech park that is coming up at Hinjewadi, on the outskirts of Pune, has been taken. The occupants: organisations like Infosy, Wipro, KPIT Systems, Cognisant, and Mahindra BT.

Indeed, Pune Software Technology Park, which set up the Hinjewadi facility, believes that the dedicated earth-station (capacity: 80 mbps) it built may not be enough to meet its customers' bandwidth needs, and is contemplating another. Pune Software Technology Park is also acquiring an additional 400 acres of land to accommodate more companies. Boasts Sushil Gupta, 50, CEO, Pune Software Technology Park: "Every day, we receive at least 1 enquiry from a company that wishes to set up shop in Pune. " This rush is expected to boost software exports from the city from Rs 1,200 crore in 1999-2000 to Rs 2,000 crore in 2001. What attracts companies to Pune? Answers Shirish Deodhar, 40, President, Veritas (India), which is building its national headquarters at Hinjewadi: "The cost of doing business in Pune is low, the telecom connections are great, and there are 5 good engineering-colleges in the city." In combination with the clement climatic conditions in the city, and its proximity to the commercial capital of the country, these constitute an impressive 

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