If yours is an independent BPO outfit, then you probably are licking your chops. Two years after Wipro bought out start-up Spectramind for a whopping Rs 470 crore, things are looking red hot in the sector again. The trigger this time around is, of course, IBM's purchase of Gurgaon-based Daksh eServices for an estimated $160 million (Rs 720 crore). But there's plenty more afoot. EDS is expected to buy out the Bangalore-based captive BPO unit of Phoenix Insurance. Accenture, another top it consulting company like IBM and EDS, has been on the prowl for the last four years. GE has been in the market for sometime now to sell its BPO, GECIs, in parts. The Citi Group wants to delist its back-office arm eServe International, and Hughes Software, itself in play, wants to acquire a presence in BPO. What's happening?

The most important reason for the industry's frenetic activity is the promise of continued outsourcing to India-be it IT or IT-enabled services. "Every single company in the US that we contact definitely wants to outsource to India," says Avinash Vashista, CEO, neoIT, an outsourcing intermediary. If demand, and consequently the anticipated 40 per cent growth in real terms in it services, is not an issue, what is? The ability to grow, answers Vashista. Not surprisingly, different companies will adopt different strategies for growth. Infosys, for example, has announced that it will no longer look at acquisitions and instead grow organically. On the other hand, players like TCS, Wipro, Accenture, or even MphasiS are looking at acquisitions.

What'll also encourage the smaller 50-odd BPOs that have a headcount in the 500s to look for buyers is the changing dynamics of the industry. For one, customers seem inclined to consolidate their outsourcing with one or two vendors. For another, as the bigger vendors bundle more of their services to a single customer, the smaller BPOs will find it harder to compete, both in terms of offerings and pricing. In any case, BPO is a difficult, minute-to-minute business with high employee attrition.

But more fundamentally, BPO seems set to become technology intensive. The recent IBM-Sprint contract is an example. Big Blue has been awarded a five-year, multi-billion dollar contract to improve the efficiency of Sprint call centres, all of which will now run on IBM's call centre platform. Sprint is also a big customer of Daksh, and just last month when this writer bumped into a few IBM researchers they said they were working on deploying technology to increase the efficiency of a call centre in India (Daksh?).

NeoIT's Vashista points out that in the long run, BPOs will have to develop their own platforms. He points out the math. A call centre seat in the US costs $80,000 and the cost of technology is $5,000. In India, the cost of a seat is just $15,000 but the cost of the technology is the same. A reason why, Vashista says, BPOs like eFunds and WNS have begun developing their own technology.

Over the next decade, the BPO market (of which call centres are a small part) is likely to be very large-in fact, several times bigger than the it services market. Why? There is a clear trend of corporations breaking themselves up into small parts such as hr, procurement, receivables etc and parcelling them out to a BPO. Currently, they are outsourcing their processes to shared service centres, which are their own divisions doing, say, accounting for all of the corporation's branch offices. Eventually, this work will be outsourced to a third-party vendor, possibly in a country like India, who'll have his own technology platforms. The Citi Group, for example, has decided to aggressively offshore processes and consolidate it all in eServe, and the confidentiality of retail banking could be forcing it to take eServe private.

So, will there be more M&As in BPO? Very likely. "But the Daksh deal has raised the expectations of valuations for other big players like EXL Services, vCustomer and 24/7 Customer, so another deal may take time," says one investment banker in Mumbai. Perhaps, but as long as the outsourcing tap continues to flow, it will always be the right time for dealmaking in BPO.

-Vidya Viswanathan

BUZZ
Is the Chase Over?

Hughes' Arun Kumar: Done Deal?

News corp's search for a buyer of its 55 per cent stake in Hughes Software System may be ending. When BT went to press, there were strong rumours that TCS had agreed to buy News Corp. out at above the market price of Rs 500, which translates into a market cap of Rs 1,721 crore. In other words, TCS should be paying at least Rs 1,000 crore. Chances of the rumour being true are pretty high. A number of other players, including Microsoft, Nokia, Actis (formerly CDC) Warburg Pincus, and Wipro Spectramind, seem to have bid and then dropped out possibly because the asking price seemed high. So why is TCS likely to have taken the bite? There's been a lot of pressure on TCS to make an acquisition and Hughes, because of its strong presence in telecom, makes a good fit. As for the financial bidders like Actis and Warburg, they would eventually have had to sell Hughes to somebody like TCS to exit. At the moment, though, the talk of a deal is mere speculation.

-Sudarshana Banerjee

SECOND
Where Will The Runaway Rupee Stop?
It really depends on the US economy revving back up. For now, expect the rupee to get dearer still.

Danger of coming apart: The post-quota boom for textiles may fail to materialise if the rupee continues its uptrend

For most treasury managers, forex dealers and exporters, life hasn't been easy the past year. Weaned on a regime of slow and steadily declining rupee, they suddenly find themselves in a new environment, where the rupee has appreciated nearly 10 per cent against the US dollar in the last one year, and still there's no sign of it easing up.

What explains the runaway rupee? Shorn of macro-economic mumbo-jumbo, the answer lies in a weak US economy and, by contrast, the booming Indian economy. International investors are worried about America's unprecedented fiscal deficit, but buoyed by the robust growth of India, where, despite an alarming deficit, inflation is stable and interest rates attractive. That explains why there's been a huge inflow of investment into the country (some $12 billion in 2003 and $2.3 billion in the first three months of this year) and forex reserves are nudging a historic $116 billion.

But what does an appreciating rupee mean for India? That all exports get that much less competitive, unless the manufacturers manage to lower their own costs. Even that is unlikely to help to any significant extent because China, by pegging its currency to the US dollar, has not allowed the yuan to appreciate like the rupee. Similarly, India's traditional competitors such as Bangladesh, Pakistan, and even Indonesia haven't seen any appreciation in their currencies and, therefore, are cutting into India's marketshare. "There are simply no takers for the increased prices since (the importers) can get these items from other countries at much cheaper rates," laments Rafeeque Ahmed, President, Federation of Indian Export Organisations (FIEO). Adds A.V. Rajwade, a Mumbai-based foreign exchange consultant: "If the rupee continues to appreciate like this, we can say goodbye to the expected textiles boom of 2005 in the post-quota regime." (The only people celebrating seem to be importers like the oil companies, which spent a staggering $17.6 billion, or Rs 77,058 crore, on foreign crude.)

So why isn't the RBI intervening? Because the central bank seems to have undergone a policy shift in its monetary strategy. In other words, it has given up its stated objective of active intervention and allowed the rupee to go for a free fall. Like it did in the last week of March (coinciding with ONGC's privatisation offer), when it allowed the rupee to climb to 43.35 from 45.30 in a week's time, a 4 per cent plus rise-something that was unthinkable even in 2003. "To me it seems like a change in RBI's strategy," says V. Srikanth, Country Treasurer, Citigroup. His point: earlier, the RBI would have pounced on a 1 percentage point change in exchange rates either way, but now is happy living with the volatility.

Others like Piyush Kaul, Head of Foreign Exchange at HSBC, aren't so sure. Kaul, for one, believes that RBI has not given up its interventionist policy, but only has decided against holding the rupee at a particular level. He points to the fact that the RBI has spent huge amounts to buy up nearly $30 billion from the market in 2003-04 to tame the rupee and has also intervened to keep the rupee at 44 to a dollar.

At any rate, most treasury managers, including Rajwade, believe that there has only been a marginal appreciation of the rupee-of around 3 per cent in real terms-because the rupee has depreciated against the Yen, the Euro and the Pound Sterling. Besides, overall dollar inflows will continue to be strong as long as the combination of a strong current account surplus, greater growth opportunities, and a weak domestic demand in the US exists.

So where is the rupee headed? According to Citigroup's Srikanth, the rupee will likely touch 42.75 to a dollar by December end and 42.50 in March next year, while Kaul believes that it will be at 42.90 by December this year. Not very encouraging signs for Indian exporters. So what should Indian corporates do to cash in on this opportunity? Simple, says Srikanth, companies should learn to live with an appreciating rupee, raise dollar funds from the overseas market, and, most importantly, hedge their currency risks and try and benefit from the lower interest rates that normally accompany a rising currency. But, then, as any CFO will tell you, that is easier said than done.

-Ashish Gupta

DASHBOARD

OUTSOURCING
A new bill introduced in the US seeking call centres to identify their location stokes the BPO backlash.

MUTUAL FUNDS
Is a scam still brewing? There was no sign of one in the second week after at least one MF was accused of offering assured returns.

IIM FEE CUT
The hearing on a PIL is postponed by the Supreme Court. So, it's truce till the elections end and a new government is formed.

MONSOON
With the met office predicting ample monsoon this year, agriculture production is projected to grow by 6 per cent.

Primetime Promises
What's the good, the bad, and the hilarious of party manifestos.

NDA
THE GOOD
Push ahead with disinvestment, allow 26% FDI in retail, and make India a global hub for manufacturing and services.
THE BAD
Resolve the contentious Ram Mandir issue through a dialogue and not through the court issue thereby creating another round of controversy.
THE HILARIOUS
Provide drinking water and electricity to every village by 2007, and eliminate poverty by 2015.

CONGRESS
THE GOOD
Broaden economic reforms, accelerate growth to 10%, and get public sector units to play venture capitalists. Set up industrial training institutes.
THE BAD
Extend reservations to economically backward sections currently outside the reservations ambit. A retrograde move that discourages merit.
THE HILARIOUS
Enact a National Employment Guarantee Act promising at least 100 days of employment at minimum wages for every rural household. Great, but how?

BSP
THE GOOD
Enact a new economic policy that will focus on the poor, the deprived and the socially backward, bring in a classless society. A bit utopian but noble.
THE BAD
Reserve 85 per cent of seats in all jobs for SCs/ STs and other backward castes.
THE HILARIOUS
Gun for 85 per cent reservation in all private sector jobs and judiciary too.

SAMAJWADI PARTY
THE GOOD
Introduce a national water policy in the country. At long last, water is being seen as a serious national issue.
THE BAD
Ban import of luxury goods, ban programmes projecting consumerism and alien culture on Doordarshan. Change India's name to Bharat.
THE HILARIOUS
Free Bharat from the clutches of the WTO, and put a limit on the expenses of politicians, bureaucrats and industrialists.

CPI (M)
THE GOOD
Increase public investment in agriculture, broaden tax base, unearth black money.
THE BAD
Make the right to strike a fundamental right, even for government officials. Ban sale of agricultural land to foreign companies.
THE HILARIOUS
Prevent takeover of Indian firms by foreign ones, ban foreign insurance companies, and allow FDI only in select areas.

TDP
THE GOOD
Complete pending irrigation projects, secure remunerative prices for farmers and generate an additional 4,110 MW of power.
THE BAD
Bring in a constitutional amendment to bar persons of foreign origin from occupying high government offices.
THE HILARIOUS
Spend Rs 60,000 crore over the next five years on agriculture and irrigation facilties, ensure 100 per cent literacy by 2006.