ECONOMY 2003
Will '03 Be Better?
Yes, yes, yes, and it is time you popped the bubbly.

As a people we are eternal optimists, believing, misguidedly, that when you are at the bottom, the only way to go is up. Actually, there's no limit to the depths individuals, companies, even countries can plumb, but the sanguineness displayed by economy-watchers on what's in store for India in 2003-04 doesn't, at least in this case, seem misplaced. Don't scoff at Andrew Holland, the Executive Vice President of investment bank DSP Merrill Lynch (DSPML) then, when he says, "We expect the Indian economy to grow at 5.7 per cent next year, which is likely to be very attractive in the global context." Or at stock-trading firm HDFC Securities' head of research S. Naren, who is looking forward to a 6 per cent growth in GDP in 2003-04.

Such confidence stems from a belief that things will get better in the agriculture sector-they probably will. In 2002-03, the sector will likely register a negative growth, courtesy the poor monsoon. "Even a 3 per cent growth in agriculture," argues Kirit Parikh, the Director of the Indira Gandhi Institute of Economic Growth, "will actually mean a 4-5 per cent growth, and add 2 per cent growth to the GDP." Industry, which will grow by 4.5 per cent this year, is expected to do one better next year on the back of increased activity in the roads and housing sectors. "In addition," says DSPML's Holland, "urban consumption will remain buoyant, spurred by the increasing availability of cheap credit." Evergreen services will chip in with a strong 7 per cent growth in 2003-4, and the current 11 per cent growth in India's exports indicates better things to come. Better still, the recent increase in imports of capital goods indicates that India Inc, after three to four years spent in the pursuit of efficiency, may be ready to re-enter the expansionist mode. Welcome to Xander zone.

-Ashish Gupta

BUDGET 2003
What To Expect
Here's what we will and won't see in UB 2003.

• The budget will be investor-friendly and remove the tax on dividends and long term capital gains

• It will rationalise customs duty structures to bring them in line with World Trade Organisation requirements

• It may bring down the corporate tax rate from 35 per cent to 30 per cent, the peak rate of individual tax

• It could set in motion the process to increase foreign investment caps in certain sectors

• And it will drastically increase government investment in agriculture and rural infrastructure

• But it will not attempt to cut either food or fertiliser subsidies, a political minefield

• It will not do anything that could lead to a reduction in government expenditure

• It is unlikely to remove existing tax exemptions on infrastructure and housing bonds

• It will not reduce the interest rate on small savings instruments any further than it already has

• And it is unlikely to fully de-regulate the administered pricing mechanism on petro-products

-Ashish Gupta

FM Jaswant Singh: Will it be reforms redux in '03?

REFORMS 2003
Second Gen In 2003
That's unlikely, but don't count the government out.

Nine states are scheduled to go to polls in 2003. The year after, 2004 will see the next general elections. And anti-reformist groups such as the VHP and the Bajrang Dal were the Bharatiya Janata Party's allies in its resounding victory in the recent polls in Gujarat. "I don't see any significant reforms till the elections are over," says Surjit Bhalla, Director, Oxus Research. Others, such as NCAER Chief Economist Shashanka Bhide take a cue from the recent spurt of economic legislation-some 35 bills were passed in the first 27 working days of the winter session of Parliament-and believe reforms will continue. "The government needs something to show in terms of economic results," says Bhide. Our take: wait till 2004.

-Ashish Gupta

MARKET 2003
Sensex sensibilities
There are the usual caveats, but analysts expect to ride a slow bull into 2003 and beyond.

When the market suddenly rises some 13 per cent towards the end of the year, after remaining in a bear-grip throughout, even die-hard pessimists can't help but look at the next year through hope-tinted lenses. That's exactly what happened in 2002. "I expect a slow and steady bull market in 2003," says Deepak Mohoni, CEO, Trendwatch.com, an investment advisory service, "but I wouldn't be surprised to see a new bull market high." Mohoni won't find too many backers but most stockmarket watchers do expect the Sensex to trade in the 3,500-4,000 range for much of 2003, a distinct improvement over the abyss that was 2002.

Already, signs of a rally are evident: the stocks of most companies are moving up (the proportion of stocks that gained to those that lost is steadily increasing), and the economy seems set for a better run in 2003. If there are any favourites at the 2002-03 cusp, it must be the banking, information technology, and auto sectors. Fund managers like the new-found aggression banks are showing in recovering loans. Our recommendation: pick stocks from these sectors, or from any other you deem fit, but better buckle up.

-Roshni Jayakar

ANALYSTSPEAK
Market Futures
Ten analyst predictions for the market in 2003.

GUL TEKCHANDANI, CIO, Sun F&C

SENSEX-WATCH: 3,800-4,200
SECTOR-WATCH: Technology, Banking, Auto, Pharma
MARKET-MOVERS: Market will receive a boost from low interest rates, stable forex reserves, positive sentiment, and anticipation of good corporate results

JIGAR SHAH, Head of Research, KRC stockbrokers
SENSEX-WATCH: In 2,800-3,400 range
SECTOR-WATCH: Pharma, Oil and Gas, Auto, Banking
MARKET-MOVERS: Positives include economic and corporate stability. However, concerns over the fate of reforms could offset these

MOTILAL OSWAL, Chairman, Motilal Oswal Securities

SENSEX-WATCH: 15-20 % increase from current
SECTOR-WATCH: Banking, Pharma, Auto
MARKET-MOVERS: The economy's performance is a positive, but political stability remains an area of concern

PARAS ADENWALA, Head Equities, Birla Mutual Fund
SENSEX-WATCH: No numbers, but generally bullish
SECTOR-WATCH: Pharma
MARKET-MOVERS: A lot will depend on the Budget

SASHI KRISHNAN, CIO, Chola Cazenove

SENSEX-WATCH: 3,900
SECTOR-WATCH: IT, Banking, Pharma
MARKET-MOVERS: Positives such as strong corporate results, market sentiment, compelling valuations, and falling interest rates

RAJAT JAIN, CIO, IDBI Principal
SENSEX-WATCH: 3,800 for Sensex by 2003-end
SECTOR-WATCH: Banking, Pharma
MARKET-MOVERS: Attractive valuations and interest-rate movements could drive money into equities

S. NAGANATH, CIO, DSP Merrill Lynch

SENSEX-WATCH: 3,600 by March; 4,000 in H2
SECTOR-WATCH: Banking, IT, Oil and Gas
MARKET-MOVERS: Positives such as news flow in IT sector, ongoing divestment process, and a possible market-friendly budget

MANISH CHOKHANI, Director, Enam Securities
SENSEX-WATCH: 4,000
SECTOR-WATCH: Commodities, Two-Wheelers, Banks, IT, Pharma
MARKET-MOVERS: Positives include economic fundamentals, corporate performance, and interest rate movements

KRISHNAMURTHY VIJAYAN, CEO, JM Mutual Fund

SENSEX-WATCH: In 3,200-3,600 range; possible dip to 3,000
SECTOR-WATCH: IT, Auto, Pharma
MARKET-MOVERS: Unclear political procedure could prove a dampener

SUHAS NAIK, Fund Manager, Equities, ILFS
SENSEX-WATCH: At least 3,700
SECTOR-WATCH: IT, Banking, Auto, Pharma
MARKET-MOVERS: Positives include fundamentals of the economy and impressive corporate results

STOCK-WATCH 2003
10 For Tomorrow
Analysts, fund-managers, and our own writer pick 10 stocks for 2003.

Infosys: The company bettered analyst expectations for Q2, 2002-03, on the back of an increase in volumes. Its efforts to become an end-to-end service provider to customers will come in handy.

SBI: The country's biggest bank is trying to get bigger and meaner: 2003 will mark its efforts to make it big in retail banking and reduce non performing assets.

Tata Steel: Steel prices have improved: given its product portfolio, enhanced capacity, and low cost of production, that means 2003 may be Tata Steel's year. Analysts expect a 35 per cent increase in profitability.

M&M: The success of the Scorpio and pay-offs from the company's cost-cutting measures could make people overlook M&M's hidden treasure: its telecom-software subsidiary, MBT.

Bharti Televentures: Fine, Reliance Infocomm's big-bang launch poses a threat to the company, but Bharti does boast enough operational and marketing firepower to withstand the blitzkrieg and endure.

Ranbaxy Laboratories: Its US subsidiary is in orbit, and it boasts lucrative generics and molecules pipelines.

Zee Telefilms: Broadcasting is a cyclical business. The company's flagship channel seems set to bounce back after two years in the wilderness.

Reliance Industries: With its pan-Indian telecommunications play taking off, and its petroleum marketing one set to, RIL is certainly a scrip worth watching.

Tata Engineering: 2001-02's loss became a profit in 2002-03; the Indica V2 set the streets on fire; truck sales looked up again; and operational efficiencies improved. Look forward to better things from Tata Engineering in 2003-04

TVS Motor: The company that everyone was ready to write off rebounded in 2002 with a best-selling product, Victor. With its second quarter sales up 65 per cent, TVS Motor looks set to ride into the sunset.

SCAMSCAPE
What Will It Be This Summer?
Summer is the season for scams in India. Will 2003 see another?

	?
Any guess? (clockwise from bottom left): Home Trade CEO Sanjay Agarwal, UTI's former chairman P.S. Subramanyam and broker Ketan Parekh

The year that was, 2002, passed without a major stockmarket scam. Yes, there was the G-sec (that's government securities, duh!) orchestrated by Home Trade's Sanjay Agarwal, a rogue broker, and a co-operative bank Chairman, Sunil Kedar, but it wasn't directly related to stocks-although it was widely rumoured that the money that went into non-existent G-secs actually went into equities. Public memory of Ketan Parekh may still be fresh, but the K-10's amazing run was way back in 2000-01.

The stockmarkets went through some change for the better in 2002: T+3 settlement, dematerialisation, and the introduction of some stringent norms. That doesn't mean 2003 will be scam free, just that the chances are remote. The old buzz about derivatives being the source of the next big shenanigans refuses to go away. Some brokers believe that position limits of Rs 50 crore per broker per scrip is too high when compared to marketwide limits for a scrip. For instance, they argue, an open position of 12 members could theoretically breach the Rs 58- crore marketwide limit on the Satyam Computer scrip. And the concentration of positions could trigger a crash. These arguments are backed by references to the crash of 2001, which many of these brokers believe to have been caused by the lack of any limits on the positions of lenders in the Automated Lending and Borrowing Mechanism (a securities lending product that provided a window for traders on National Stock Exchange to borrow securities to meet their payments obligations) and bless (Borrowing and Lending Securities Scheme), although there were stringent limits on the positions of borrowers.

If it isn't derivatives, it could be something else: with analysts predicting the return of a bull market-fertile conditions for a scam-the regulator better watch out.

-Roshni Jayakar

SECTORAL FORECAST/03

AUTO AND AUTO ANCILLARIES
Stepping On The Gas

Commercial vehicles sales have entered a cyclical upturn, the motorcycle segment continues to boom, and-what do you know-there actually is a market for modern scooters. Clearly, things couldn't appear better for the beleaguered auto sector. The cars segment, which has been flat for two years, is expected to grow at a healthy rate in 2003. That augurs well for the ancillaries sector, many of which are getting to work with global original equipment manufacturers. "In the near future, 30 per cent of our production will go to overseas customers," says Sona Group CEO Surinder Kapoor.

-Suveen K. Sinha

BANKING
On A Roll

Consolidation will be the theme for the banking sector in 2003. The weaker banks will be taken over by strong banks with the Reserve Bank of India acting as a match maker. A beginning has been made with Nedungadi Bank being taken over by the Punjab National Bank. Centurion Bank could be next. There could be joint ventures too with foreign banks picking up stake in some of the Indian banks as has been the case with ING and Vysya Bank. There will also be frenetic activity on the asset recovery front, as banks attempt to get rid of the non-performing assets on their books. 2003 will also be bank IPO time, what with some 11-odd bank IPOs waiting in the wings to raise Rs 2,250 crore.

-Roshni Jayakar

CHEMICALS
No Magic Potion

The $30-billion (Rs 147,000 crore) Indian chemical industry comprises petrochemicals, fertilisers, pharmaceuticals, paints, and other chemicals. However, exports in this industry are dominated by pharmaceuticals. Overall, the chemical industry is growing at 6-7 per cent and this growth rate is likely to be maintained in 2003 as well. The propped-up-by-subsidy fertiliser industry has been crawling at a 2-3 per cent growth rate. And although the government is putting pressure on the industry to improve its performance, don't expect any surprises in 2003. Imports of potassium-based fertilisers will continue, and the supply of raw materials for nitrogenous fertilisers (naphtha and natural gas) will continue to be limited, and expensive.

-Swati Prasad

CAPITAL GOODS
The Blues Won't Stop

Considered the core of Indian industry, the capital goods sector ran into heavy weather in the late nineties and has shown little sign of recovery since. In fact, the sector has further declined-2001-02 growth was 1.1 per cent, down from 1.4 per cent in 2000-01. The reasons remain the same: a differential duty structure, removal of the price preference policy in 1995, high cost finance and obsolete labour laws. And, of course, the lack of capital expenditure in the economy.

-Ashish Gupta

CEMENT
High Times Ahead

The year gone by won't be remembered by the czars of cement, Grasim's futile effort to get its foot into the door of L&T being the only event of note. And 2003 promises to be ordinary. Reason: the sector needs to be consolidated (again) fast. Perhaps L&T CEO A.M. Naik will create some excitement by finally demerging his cement business in 2003.

-Brian Carvalho

CONSUMER DURABLES
Brighter Picture

Single-digit growth in the Rs 15,000 crore, 18-20 million units durables market in the year 2002 hardly reveals the huge growth potential of the consumer durable sector, what with penetration still at abysmally low levels-refrigerators at just 15 per cent, colour televisions under 20 per cent and washing machines at just 4 per cent!

So, will things look better in 2003. Well, it is a World Cup Cricket year-maybe they should host the event more frequently-and that should do wonders for the six million units a year colour television (CTV) market in the country, and take it back to the heydays of late 1990s when it grew at an average of 23 per cent a year; it grew by a mere 9 per cent in 2001-02. That, coupled with reducing prices in entry-level refrigerators, washing machines, and air-conditioners, should propel the whole sector to an impressive 10 per cent-plus growth in 2003.Will the promos still continue? What do you think?

-Shailesh Dobhal

CONSUMER PRODUCTS
Single-Digit Salvation

The good news for the Rs 42,000-crore fast moving consumer goods (FMCG) sector is that 2003 won't be as bad as 2002, when growth dipped into the red by 2-3 per cent. Don't however expect double-digit growth. For the next four-to-five years, 5-6 per cent compounded growth per annum is more realistic. But for a Hindustan Lever or a Colgate-Palmolive, the flat growth trend in oral care, culinary products, even ice-creams, isn't the only worry. The bigger headache are the local price warriors who are gnawing their way into the big boys' turf.

-Shailesh Dobhal

FINANCIAL SERVICES
Banks Will Rule

Enter the banks, exit the non-banking finance companies (NBFCs). Most Indian banks-public, private, and foreign-have woken up to the retail asset boom. Armed with low-cost funds and savvy marketing, every bank worth its balance sheet is cashing in on the new found propensity of the Indian middle-class to borrow and spend. That's why most NBFCs have already given up the fund-based side of their business. The only survivors are Sundaram Finance and Kotak Mahindra, which will soon convert into a bank. The rest of the industry has little choice but to focus on non-fund-based services like corporate advisory.

-Shilpa Nayak

HOSPITALITY
Room For Doubt

It can't get any worse than the last two years. Or can it? for the 70,000-room-strong, Rs 15,000 crore hotels industry, the post-9-11 period hasn't brought much joy. Industry experts are predicting a turnaround of sorts, with a 3-4 per cent growth in the new year. They have their reasons. "We'll see a lot more foreign equity participation in 2003; international players are emphasising ownership, rather than mere management contracts," says Sangeet Seth, Director of Sales, Travelclick, a data solutions provider for the travel industry.

-Moinak Mitra

INSURANCE
Brand New Day

The private sector will set the agenda for the life and general insurance sectors in the coming years. Aggressive advertising and marketing will see them gain marketshare at the expense of LIC, GIC, and its subsidiaries. Even as the private pack builds up a rapidly-burgeoning network of agents (individual and corporate), another front is opening up with banks getting permission to market insurance.

Better market reach, aggressive marketing, innovative products and better service should help the new entrants step on the gas. But not all will be able to achieve viable sizes to sustain wide-reaching marketing networks. Within the private players' space, too, there will be a lot of churning.

-Shilpa Nayak

ITES
The Party Won't Stop

Business process outsourcing (BPO) will continue to enjoy heady growth. With more and more customers looking to move work to India, demand will not be a constraint. There will be a shakeout as non-focused players wind up or get marginalised. There will be issues on the hr side regarding quality people. "Most of the bigger firms will manage growth by diversification be it across locations, across domains, across customers," says Sunil Mehta, Vice President, Nasscom. Most of the IT services companies will bundle it-enabled services for managing growth during the next year. So good times are here to stay.

-Vinod Mahanta

OIL & GAS
Worst Is Over

Saddam and bush may spoil the party but, analysts are predicting growth of at least 1.7 per cent for the oil and gas sector in 2003-2004. Don't scoff at that figure: it's an improvement over last year's flat growth and the negative growth of the two years before 2001-02. One reason for that optimism is straightforward: a better GDP growth figure next year. Second reason: The likes of ONGC, IOC, HPCL and Reliance are set for improved margins once they get import parity prices for kerosene and diesel (which are heavily subsidised today). Softer crude prices (currently $28-30) will also help. Once (or if) Messers Bush and Saddam pipe down.

-Ashish Gupta

POWER
Bolt Of Hope

The next two to three years are crucial for the power sector and 2003 should finally see the Electricity Bill 2001 being passed in Parliament, paving the way for power reforms. Only last fortnight, the Parliamentary Standing Committee submitted a report on the Electricity Bill. Once the government firms up its views on the standing committee report, the bill should be tabled in the Parliament.

Once passed, the new power laws will take into account issues like theft of power (and penalisation), consumer protection and compensation to consumers. But more than the bill, state governments need to act fast on modernisation and restructuring of State Electricity Boards so that the privatisation can be undertaken in transmission and distribution.

-Swati Prasad

LIQUOR
Will Be Quicker

Bacchus will smile again. The numbers may not reflect it: Demand for the 80 million-cases-strong India Made Foreign Liquor is expected to remain pretty much the same as in 2002. But the basic duty on imported liquor should further reduce by roughly 15 per cent from the current 182 per cent. This is in line with the government's commitment to the WTO to bring duties down to 150 per cent by 2004-05.

The beer industry too could be headed for frothier times, as governments differentiate it from hard liquor. This will help open up new distribution channels and increase penetration. Growth rates should then increase from 13-15 per cent to 18-20 per cent. Cheers!

-Moinak Mitra

PETROCHEMICALS
Reliance On Monopoly

The Indian petrochemicals sector can be easily substituted by two words: Reliance Industries which, with the acquisition of IPCL last year, controls almost the entire domestic market. It ranks eleventh on the list of the world's largest polymer producers. That position will likely improve once the Ambanis expand IPCL's capacities-Reliance is understood to be looking at doubling IPCL's synthetic rubber manufacturing capacity at Baroda, which now stands at 50,000 tonnes per annum. The capacity of the Gandhar complex is likely to rise to 1 million tonnes from the current 400,000 tonnes. The juggernaut continues to roll.

-Suveen K. Sinha

PHARMA
High Times Ahead

Two thousand and two ended with some positive news emerging out two of the beacons of the Indian pharma sector, Dr Reddy's Laboratories and Ranbaxy. Dr Reddy's got a leg up when the US courts kicked out Pfizer's appeal against the Indian company application for new drug application for amlodipine malleate. This happened on December 18 and the Hyderabad-based drug innovator is headed for the gravy train, once it launches in August. The market for this drug, for which Dr Reddy's stands to get exclusive rights for three years, is estimated at $2 billion. Also set to rake in the moolah is Ranbaxy, which will receive royalties from Bayer for a novel drug delivery system licensed out to the German giant. And then there's Sun, Wockhardt, Torrent, Dabur. Clearly, the great Indian pharma success story will continue to be played out in India, and abroad in 2003.

-Brian Carvalho

SOFTWARE
Tense Times, Still

Many mirages notwithstanding, it spending hasn't yet revived. Yet, Indian software companies will see volumes increasing as the outsourcing and offshoring brings them more work. "Strategic outsourcing will favour the larger and quality names" says Sunil Mehta, VP, Nasscom. So the mega deals will be cornered by the big companies like Infosys, Wipro, TCS, and Satyam Computer. Middle-rung companies will have to fight it out for work. Prices will recover but only after two-three quarters of volumes revival. Upshot: top lines will grow but operating margins will be under pressure.

-Vinod Mahanta

TEXTILES & GARMENTS:
Women (And Kids) On Top

Volume growth has been flat, but then this is the only consumer sector that has been able to raise prices every year, resulting in value growth of 8-10 per cent. Expect a similar trend in 2003. Reason: Brands have been unable to grow unit consumption, what with consumers merely reaping the progression from tailor-wear to ready-to-wear (RTW), un-branded to branded and unorganised retail to organised retail. Women's RTW will see lot of action at the ethnic end. Currently, brands account for just 25 per cent of the Rs 13,000-crore women's RTW market and And just 9 per cent of the Rs 6,250 crore RTW market for kids.

-Shailesh Dobhal

TOBACCO:
Fag End?

The new year could well decide the fate of the Rs 12,000-crore organised tobacco industry. The tobacco usage bill, which threatens to curb tobacco-related advertising, could sound a death-knell for the industry. Although cigarettes account for just 17 per cent of tobacco consumption, they account for 85 per cent in value terms. Compounding their woes is the increasing menace of contraband packs from neighbouring countries. Life won't exactly be kingsize for cigarette companies in the days to come.

-Debojyoti Chatterjee

TELECOM
Customer is King

For most telecom service companies, 2003 promises to be another year of pain. Falling tariffs, more competition, lower average revenue per user, disputes on the terms of interconnecting networks-cellular with basic, basic with long distance, basic with international long-distance and other sundry permutations and combinations-litigation woes and continuing regulatory stiffness will all add to the existing muddle. The equipment makers-not that there are too many Indian companies in this category-will suffer too. Prices will continue to fall and margins will continue to shrink. The silver lining will be the sheer number of telephony subscribers-for basic, mobile and limited mobile services. The number is set to cross the 70 million landmark in 2003 (from 50 million currently), a good two years before the targeted 2005. Pity that won't translate into profits just yet.

-Vandana Gombar