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TRENDS: LEADER Fear Is The Key The war in our backyard will almost certainly retard the mainland's healthy growth.
Caught in the cross-fire will be world economies, including India's. The Sensex, fearing the worst, took a 1.7 per cent knock, losing Rs 3,586 crore in market capitalisation. Industry captains expect consumer confidence to sink too, affecting the demand for goods and services. ''Now a 6 per cent or more growth seems achievable only by 2003, and not in the first quarter of next year as was being expected,'' says S.S. Bhandare, an adviser to the Tata Group. The war only makes worse the downturn in the economy. Exports in the first six months of this fiscal are down to $1.71 billion from $1.75 billion the same period last year. The rupee has sunk to a new low and breached the Rs 48 mark. Lower foreign exchange earnings and a steep depreciation in the rupees value will add to India's repayment problems. Oil imports-India imports nearly three-fourths of its oil requirements-will become more expensive. The sectors worst hit are tourism and aviation. Says Bhupinder Ahuja, Vice President, Deutsche Bank-Alex Brown: ''The travel ban from September 11 to 14 has potentially eliminated at least four of the 20 billable business days this month. And with the war on, individual companies could extend the ban even further.'' Already, domestic carriers are reporting 10 to 20 per cent drop in traffic. Sure, India's external vulnerability is relatively low. It remains predominantly a domestic economy, and its export dependency is just about 9 per cent of the GDP. Thus, while a depressed US economy will have some impact on India's export industries such as software, textiles, pharma, leather, gems and jewellery, the fundamental impact on the economy will be contained. Says Shanti Ekambaram, Chief Executive Officer, Kotak Mahindra Capital: ''Will the economy be impacted? Yes. But will it slip into a crisis? I think not.'' Ahuja also believes that companies having something to do with the capital markets, the transportation and hospitality, media and entertainment, consumer cyclicals (such as automobiles) and possibly insurance, could experience some near-term work pauses or stoppages. But the economy will still grow. Another positive note comes from institutional investors. While uncertainty in the US will inevitably slow the flow of capital into India's stockmarket's, it will not be seen as the foreign investor's vote on market fundamentals. ''If the war proves to be short and swift, we should have investors back (soon) and, consequently, stock prices will rebound.'' says Ravi Mehrotra, a Mumbai-based analyst. But how quickly and how much the economy recovers will depend on the fight being contained in Afghanistan. If it spills over into neighbouring countries, or there's another round of retaliatory strikes in the US by terrorists, the world may edge closer to a global war. No prizes for guessing what that will mean for world economies. -Ashish Gupta and Moinak Mitra TAKING STOCK Date: October 8, 2001, the day after attacks by the US and Britain on Taliban strongholds in Afghanistan. The Hong Kong Stock Exchange's Hang Seng Index closed 3.01 per cent down at 9,967.83; the Singapore Stock Exchange's Straits Times Index, 2.63 per cent down at 1,349.01; the Bombay Stock Exchange's Sensex, 1.69 per cent down at 2,765. The NASDAQ Composite Index, closed 0.04 per cent lower at 1,605. And the Dow Jones Industrial, 0.57 per cent down at 9,067. If that doesn't satisfy your doubts about whether, or not, markets around the world move in sync, just take a look at the line graphs at the bottom of this page, each tracking the performance of a major global index since November last. Oops! And since September 11, the level of sync has increased. Forget fundamentals, trash technicals, this is how markets move when there's a crisis looming. This is how they moved when the Gulf War broke out in 1991, and this how they moved when the problems ailing American hedge fund Long-Term Capital management threatened to send global financial markets into a tailspin in 1998. Does this mean the Indian stockmarket is inextricably linked to other markets around the globe? Not quite. After all, the Indian stockmarket has been in a bear phase since early 2001 and the turn of events since March-the bear run post the budget, the stock scam, and lá affairé UTI-have only made things worse. Most other markets have tumbled only since September 11. ''The Indian markets are integrated with the global markets to some extent. This is a fallout of globalisation and the technology boom,'' explains Narender Nagpal, Head of India Products, Indosuez W.I. Carr Securities. Indeed, in the heydays of the tech boom it was common for brokers on Dalal Street to track the Sensex during the day and the NASDAQ at night. But with the tech bubble bursting on NASDAQ in April 2000, this link has grown weaker. However, with almost 10 Indian companies listed on the NASDAQ and the NYSE, sentiments in those markets are bound to impact the prices of these stocks in both the Indian and the US markets. And that could affect the prices of other stocks traded on BSE. Then, there are Foreign Institutional Investors (FIIs), 488 of them who have, between them, invested Rs 54,000 crore in the Indian stock market since 1993. Their investment decisions are driven by happenings on global markets. Thus, when they sold heavily after September 11, the Sensex plummeted. Still, the Indian stock market isn't as integrated with global markets as, say the Japanese or the Hong Kong markets are, explains L. C. Gupta, Director, Society for Capital Markets Research and Development. ''In the absence of full convertibility, it is a one way street. The FIIs can invest in India, but Indian investors can't invest overseas.'' Will the period of perfect sync last? No, say most analysts. Over the next six months, if the Indian economy picks up, the linkage will become tenuous. If it doesn't? Well, there are three levels to hell... -Roshni Jayakar ENERGY
As a company desperate to wind up its troubled operations, Enron India must have been thrilled at British Gas's offer to buy out the American utility's 30 per cent stake in the Tapti gas field and Panna-Mukta oil and gas fields (combined capacity: 300 million cubic metres of gas and 29,000 barrels of oil per day). Yet, it looks like the $388-million offer, made on October 2, this year, won't sail through. Apart from getting government approvals for the deal, British Gas will have to win the support of the other partners in the JV: state-owned Oil and Natural Gas Commission (40 per cent stake), and Reliance Petroleum (30 per cent). Here's the rub, though: Earlier in September last year ONGC itself had put a $350-million bid to buy out Enron India's share in the JV. But then British Gas came along with a higher bid, which Enron accepted.
Unless the two Indian partners agree, British Gas cannot be an operator in the field. And Nigel Shaw, CEO of the Indian subsidiary, has made it clear that unless British Gas is given operating rights, it will walk away from the deal. But what's the big deal about a clutch of oil fields? Energy analysts like Partha Bardhan, Executive Director, Energy Sector, PricewaterhouseCoopers, believe that the demand for gas will double in the next 10 years, making it one of the world's fastest growing energy markets. And once the pipelines like the ones in central Asia become operational, gas from the refineries will replace other fuels like furnace oil and naptha. Moreover, the entry of additional gas will not only fill the existing supply-demand deficit, but will also create a marketplace in advance and that will prevent the entry of liquefied natural gas (LNG), another important fuel. -Ashish Gupta POLICY
Sales of Rs 1,54,238 crore ($32.8 billion), net profit of Rs 9,076 crore ($1.9 billion), and a workforce in excess of 88,242-the merger of Indian Oil Corporation, the Oil and Natural Gas Commission, and the Gas Authority of India Limited does look promising on paper. The first is the market leader in the business of refining and marketing oil, the second is the heavyweight in the oil exploration and production domain, and the third is the only significant player in piping gas. A merger could create a vertically integrated energy behemoth that will rival the likes of TotalfinaElf (sales of $105 billion), and ExxonMobil (sales of $220 billion), especially once the administrative price mechanism is dismantled in April 2002. There's something exciting about an energy company, an Indian energy company, that straddles every link of the energy chain from exploration to production, refining to marketing, and shipping to the downstream production of petrochemicals. ''A merged entity would be cost competitive,'' says a consultant at consulting major PricewaterhouseCoopers. But the move to merge the three comes a little too late, and at a time when vertically integrated energy companies are going out of fashion. ''There is little synergy,'' explains Sandip Biswas, a partner at consulting company Accenture. ''Creating a monolith will only add to the problem of restructuring-a must to improve productivity in the sector.'' Talks about this merger surface too, at a time when most oil companies are veering around to the opinion that it makes sense to buy crude from the cheapest source rather than from a captive back-end which could, because of inherent internal efficiencies, end up being an expensive proposition. By the time Exxon and Mobil merged in 1999, both were highly efficient operations. Neither IOC nor ONGC can claim to be that. A merger could help the new company retain its marketshare in a deregulated market post April 2002, but it certainly won't make it competitive. -Ashish Gupta NEW CHARGE
First the bad news: the court's decision doesn't make the project, from which Daewoo Power India Limited pulled out in August 2000, any less dead. But, here's the good part, it does send out a positive signal to independent power producers. First, the specifics: in August 2000, DPIL pulled out of the Rs 5,000 crore, 1070 mw Korba power project (ABB and dpil were 50:50 partners in the venture) when the Madhya Pradesh Electricity Board (MPEB) reneged on the terms surrounding the escrow cover granted to the project.
Then, the board refused to return DPIL's security deposit of Rs 107 crore (2 per cent of the cost of the project) claiming the money had been invested in fixed deposits and that the receipts had been pledged with the State Bank of India. DPIL approached the Jabalpur High Court, which has now directed HPEB to return the deposit. Given the state of its finances, the board will almost certainly challenge the ruling in the Supreme Court, but independent power producers are already celebrating. ''It reassures IPPs that the courts will come to their aid if the SEBs (State Electricity Boards) refuse to honour their agreement,'' says Harry Dhaul, Director General, Independent Power Producers Association of India. Meanwhile, DPIL is hoping the newly created state of Chattisgarh, where Korba falls, will be more receptive to the revival of the project. -T.R. Vivek
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Finally,
the sky over Afghanistan lit up last fortnight, as the US and its ally,
the UK, sent in their planes to smoke out Osama bin Laden and other
terrorists. That an already jittery world business community was even more
nervous became apparent within hours of the first air strike. The US
stockmarket bellwether, the Dow Jones Index, fell 52 points, wiping out
several billions in market value. Crude oil prices jumped up 32 cents a
barrel, and the demand for more bankable assets such as gold shot up,
sending the yellow metal's price soaring to $1.69 per ounce, a 55-week
high.
