Forget the US' roaring nineties, it may be time to celebrate India's zipping zeroes. The Centre for Monitoring Indian Economy (CMIE), part economic think tank, part statistics compiler, and definitely not part of the government's propaganda machine, recently revised (upwards) its estimate for industrial growth in 2005-06 from 7.66 per cent to 8.5 per cent. Much of this may have been achieved by a sudden activity on the part of hair oil and pen manufacturers, as a Bloomberg columnist pointed out -the country's 10.6 per cent growth in industrial production (also referred to as IIP or index of industrial production) in October 2004 was achieved largely on the strength of a sudden growth in the manufacture of pens, accounting for 4.5 percentage points of the 10.6; this figure, however, comes from the government's Central Statistical Organisation (CSO), not CMIE-but the source of this justified optimism could just as well lie elsewhere.

First, the number itself. Indian industry hasn't grown at this pace since 1996, and CMIE estimates that the industrial growth of 8.5 per cent will play its part in boosting the overall growth rate of the economy from the 6.6 per cent it had projected earlier to 6.8 per cent. One reason for the agency to revise its previous estimate, which was put out in August, may be the CSO's announcement that the IIP grew by 10.4 per cent in the April-July quarter this year. Another may be the improved performance of a few industries. "Chemical products and sugar registered much higher growth than was expected when we made the earlier forecast," says Abhik Mitra, Product Manager, Industry Analyst Service, CMIE and one of the authors of the report featuring the revised estimate. He explains that the bountiful rains in July will help increase the country's sugar production in 2005-06 from the expected 158 lakh tonnes to 180 lakh tonnes. Sugar, he points out, has a 2.2 per cent weightage in the IIP (chemicals has 14 per cent).

Not too many other agencies that monitor India's economy agree with CMIE's estimate. One Credit rating agency, CRISIL, is unwilling to spell out its forecast but maintains that its estimate of the growth in IIP will be lower than CMIE's, and another, ICRA, says it expects industrial growth to be around 8.1 per cent in 2005-06. "Most new investments are being made by established players showing that the investment climate is still hostile," says Subir Gokarn, the Chief Economist at CRISIL. The adjective may be harsh but the truth is that India continues to be plagued by poor infrastructure and rigid labour laws, things that can dampen the enthusiasm of most investors.

If there is one thing the numbers and an analysis of the structural weaknesses of the Indian economy miss, it is this. Today, India finds itself in a position the US did in the 1990s, and before that, in the two decades after WWII. This was a time when, in the US, Big Business got even bigger. Already, over the past two years, India Inc. has grown. The revenues of the country's 500 largest corporations added up to Rs 12.5 lakh crore in 2004-05, an impressive 45 per cent of the Gross Domestic Product (or the economy) in the same period. Most large corporations are in investment mode with, according to CMIE, some Rs 6,62,537 crore of public and private investment, domestic and foreign, in the pipeline (as on July 31, 2005).

Over the next few years, Big Business in India will become bigger, both within the country, and most importantly, without. The latter should help India hedge against a failure of the monsoon; agriculture still accounts for 22 per cent of the Indian economy and if the rains fail, the agricultural economy collapses and the overall growth rate in GDP nosedives. If the monsoon doesn't fail for the next few years, India could well find itself in the middle of a new gilded age. Then, to paraphrase a popular bard of modern times, you don't need to be a weatherman to know which way the wind is blowing.

-Ashish Gupta

INSTAN TIP
The fortnight's burning question.

Q. Is the Sensex headed for 10,000?

Yes, but... Krishnamurthy Vijayan, CEO, JM Financial AMC

We do not expect a runaway movement of the Sensex. However, we expect the Sensex to reach the 10,000-mark in the next three-to-six months. Strong FII inflow will be the primary reason for the rise.

Yes, it's only a matter of time. Alok Vajpeyi, Vice Chairman and Managing Director, Dawnay Day Financial Services

With the momentum in the market, it is just a matter of time that we see the Sensex touching the 10,000-mark. With the Sensex scaling higher (levels), volatility is expected to rise, but if the flow of (FII) funds is continuous, it may offset the volatility.

No, not right now. Amit Rathi, Managing Director, Anand Rathi Securities

The market is expected to consolidate and witness a gradual rise to the 10,000-mark, which will take 12-15 months. You can't run ahead of earnings, which are expected to grow by 20 per cent in the current year.

--compiled by Mahesh Nayak

Thick Skins Wanted
For foreign firms doing business in India.

Bharti's Sunil Mittal: Grounded!

Why exactly did Singapore Airport Changi Enterprises (Changi) and Hochtief AG, Germany pull out of the race for the redevelopment of the Mumbai and Delhi airports, seemingly abandoning their Indian partners, the Bharti-DLF combine and Piramal Holdings respectively, at the last minute? Even as a newspaper report suggests that Changi merely wanted more time to present its bid (the deadline was September 14), it emerges that the real reason was some terms of the tender that could have been interpreted as discriminatory by the companies. The specifics: a penalty of $80 million (Rs 352 crore) imposable through a bank guarantee (issued upfront and which can be cashed by the government when it chooses to) that the foreign partner would have to pay if it didn't meet certain operational metrics involving the handling of passenger and aircraft. All bidding consortia needed to have a foreign partner because the project called for technical expertise involving the development of airports and no Indian firms possess such expertise. While a competing bidder insists that such penalties are necessary to prevent the foreign partners from simply walking away, Amrit Pandurang, Executive Director, PricewaterhouseCoopers, insists that "the penalty is not so stiff in other markets". Then, the ability to meet these requirements would call for these companies to run the airports the way they want to, something that may not be possible given the opposition that has already been voiced by employee associations, and the fact that the Communist parties, key allies of the government, are opposed to the entire initiative. The prospect of being punished for things beyond their control may well have forced the two companies to exit.

-Kumarkaushalam

Constraining The Corpus
Much money is chasing few mid-cap stocks.

The stock market is booming. The boom looks good to last, albeit with a correction or two (how low can the Sensex go? 7,000? That's still a bit). Everyone is talking about fortunes being made on the bourses, and the interest of the characteristically coy retail investor has been piqued (never mind that she still hasn't heard the old saying about retail investors entering the market near its peak). What she has heard is that mutual funds are the perfect vehicles to invest in the market. So, why aren't fund managers smiling?

It's difficult to smile when you are on the horns of a dilemma and that is where fund managers find themselves.

The staggering success of some recent mutual fund initial public offerings (IPOs; now termed new fund offers after a Securities and Exchange Board of India direction) proves that the public is keen on funds.

In the first six months of this year (January to June), 19 funds raised Rs 11,634.12 crore from the market. Of this, five mid-cap funds (multi-cap funds that propose to invest in companies of all hues are not included) mobilised Rs 2,227 crore. Even in the secondary market, inflows into funds, at Rs 29,610 crore for the same period, exceed outflows, at Rs 24,502.5 crore, and it is likely that much of the selling is being done by corporates and high net worth individuals who always seem to know better.

The problem is, there aren't enough stocks going. Much money is chasing few stocks that are already fairly valued. As for mid-cap stocks (stocks of those companies with a market capitalisation between Rs 500 crore and Rs 2,500 crore) that were all the rage last year, there aren't too many available at prices that would interest fund managers. "Many mid-caps are running far ahead of fundamentals," admits Sameer Kamdar, National Head, Mutual Funds, Mata Securities.

Thus, any fund manager investing in mid-cap stocks that are, say, illiquid, meaning there aren't too many of the shares of these companies floating around, will increase the cost of acquisition even as he buys the stock and, consequently, lower his own returns. There's another side to this argument. Any fund manager who invests only in liquid mid-cap stocks (there aren't too many of the breed), could, if burdened with a large corpus, end up owning a large portion of a company's equity.

Most funds, both mid-cap ones such as HSBC Mid-cap Fund or all-purpose growth funds such as Reliance Vision Growth Fund (it will invest in all varieties of stock, small-cap, mid-cap and large-cap) have decided to cap their corpuses (in this case, the first at Rs 700 crore and the second at Rs 1,700 crore).

"Having too much money to invest in mid-cap stocks can push the fund manager to pick stocks in the illiquid segment if the equity of the company is small," says Ashutosh Bishnoi, Chief Business Development Officer, HSBC Asset Management Company. "This can prove harmful to the investor at the time of exiting the market."

"We plan to create wealth by investing in emerging sectors that are currently small and have therefore capped the fund at Rs 300 crore," says Naval Bir Kumar, CEO, Standard Chartered Mutual Fund. "We will open for subscription only when the fund managers feel the stocks are reasonably valued or we find growth potential in a sector."

If more funds follow suit-they are expected to-a repeat of the mid-1990s phenomenon when investors lost their little-all in mutual funds may well be avoided. That put investors off mutual funds for several years and asset management companies may actually be doing themselves a favour by capping the size of their corpuses.

-Mahesh Nayak

Whose Spectrum Is It Anyway?
That's something Telecommunications Minister Maran will have to decide. Opposing telcos are making sure he isn't short of information.

Maran: He decidedes!

Sometime in October, India's Telecommunications Minister (he also heads the it ministry) Dayanidhi Maran will sit in on a joint presentation by India's GSM (Cellular Operators Association of India) and CDMA (Association of Unified Service Providers of India) lobbies. At stake will be spectrum, bandwidth that all telcos need to grow. And the context will be set by a 142-page document put out by the Telecom Regulatory Authority of India (TRAI) earlier this year that recommends the allotment of more spectrum to the CDMA operators, and the recommendations of a four-member committee headed by the Wireless Planning & Coordination's adviser P.K. Garg, submitted in August, which more or less seconds TRAI's opinion.

Disregarding the original fact that the ground was unfairly levelled to allow telcos that provide mobile telephony services on the CDMA platform to enter the market-the unified licensing regime has sought to redress that-there seem to be merits on both sides. And not on the basis of technical arguments, of which there seem to be plenty. "A CDMA operator with 5-mhz spectrum can serve 2.38 times the number of subscribers as a GSM operator with 10-mhz spectrum," goes one, offered by the GSM lobby to show why it, and not the CDMA one, should get more of the scarce commodity.

THAT SAME OLD THING

The GSM guys say: CDMA networks are not congested at current traffic levels and allocation of surplus spectrum to them will allow these companies to actually offer 3G services We ourselves can offer 3G services only in 2007 when the IMT 2,000 2-GHz frequency will be made available to us after the armed forces vacate it The CDMA guys say: The networks will start being congested soon, not just in the top 30-35 towns and cities but elsewhere too GSM operators have cornered up to 12 MHz of the spectrum in some towns and cities, while we do not even have 5 MHz

LIMITED MOBILITY, ANYONE?

Not content to have entered the mobile telephony market through what was, essentially, a sleight-of-hand, India's telcos that use the CDMA standard have sought to have the best of both worlds by offering what they call a "fixed wireless service". These companies got away with paying no access deficit charge (only mobile telephony providers have to pay ADC). Now comes a ruling from the Telecom Dispute Settlement Appellate Tribunal (TDSAT) that fixed-wireless is the same as wireless. That's only fair.

The real issue is one of standards, and GSM and CDMA are, in effect, playing out a saga that has been played out before them by the likes of pal and NTSC. GSM seemed to be the standard in India, till the government, by allowing the entry of CDMA operators into the mobile telephony space, created a rival standard. Now, the 62-million-subscriber Indian mobile telephony market is divided between GSM and CDMA 3.8:1. And no standard exists. The thing about standards is, they are market-determined. Rather than adopt the high ground of not auctioning spectrum (on the grounds that it will increase costs to consumers; it won't; competition will take care of that), the government should go out and do just that. A telco or two may go belly up, but as long as the regulator ensures that the end-user is guaranteed of reasonable service quality and tariffs, and prevents the creation of monopolies, that will not do anyone any harm. Let free market forces have their say, Minister.

-Kumarkaushalam

Q&A
"The Race Is Just Beginning"

Frank Brown, president, MTV Asia networks, was in Mumbai in early September on a headhunting trip (specifics: find a head for MTV to replace Alex Kuruvilla and hire an entire team for children's channel Nickelodeon). He spoke to BT's Priya Srinivasan on the network's response to Nick's disappointing show and the challenges at MTV. Excerpts:

VH1 is clearly what MTV set out to be when you first came into India. That didn't succeed and MTV swiftly localised its content. So, why test the concept again?

A lot has changed (in India) in the last decade. The industry is a lot more fragmented and there are sub genres and niches; consumption patterns are in general becoming sophisticated. We believe there is an unsatisfied demand for an international niche channel. We don't expect it to be as strong a brand or as big a business as MTV in India, but it has an appeal for its target audience. We will need to market the channel better as a next step.

Your children's channel Nickelodeon is lagging behind competition. What do you think is going wrong here?

Nick has been a shelf space holder, an introduction to kids' programming in India and it's only now that we are starting to staff up for it. It will have its own investment, resources and merchandising. We have started the localisation process here. We are starting to see viewership rise but this is a marathon, not a sprint, and the race is just beginning.

Music television in India attracts a mere Rs 150 crore of the Rs 5,000 crore ad spend that goes to television. Where do you think the next big leap will come from for MTV India? The soap you launched last year (Kitni Mast Hai Zindagi) didn't quite work, did it?

We need to marry the MTV DNA with different kinds of programming and we are not afraid of failure. Kitni... brought in the viewership and was doing well for the first few weeks and then started to taper off. It was a breakout in terms of programming for us and we intend to have more lifestyle-based programming, but for it to be true to the MTV brand, we need to do it in-house. The channel's heartbeat will always be music, so it will be a balance between music and other kindsof entertainment.

The distribution end of the business for television in India is like no other in Asia and given that Conditional Access (CAS) hasn't happened, how has this affected your second revenue stream, subscription?

CAS is a unique issue, be it in Asia or the world. Affiliate revenues take different forms and there are challenges associated with it anywhere. Of course it has a unique incarnation here, but we waited out the period during the CAS (debate) since we had not yet begun to take affiliate revenues, and waited for clarity and then began an affiliate revenue stream with (Sony) One Alliance. But we are driven more by advertising revenues, so CAS is not that much of an issue. We are also just seeing the thin edge of a fat wedge on consumer products (merchandising) and digital content.

Companies of every hue across the globe are looking at outsourcing something or the other to India. What about MTV Networks, given the vantage point you have in the market?

We are definitely looking at it. In fact, we would look at outsourcing entire shows to India, shows that are not intended for airing in India at all. There is a lot of TV talent here that can be tapped for global programming.

Finally, why was Alex Kuruvilla's exit so sudden? The market has been rife with speculation on his departure from the company. What was the issue?

It was not sudden at all; it's just that whenever these things happen, they seem sudden. But he had been talking with me for a while about leaving. He did a great job while he was here and he leaves with a lot of goodwill.

A Precedent Is Set
First case filed under the IT Act, 2000, is disposed off.

C1's Agarwal: He's won Round 1 against Antares

The first-ever case filed under the Information Technology Act, 2000, has been decided. Adjudicating Officer Prakash Kumar, who is also the Union it Secretary, dismissed a petition filed by the Bangalore-based Antares Systems claiming Rs 25 lakh in damages against New Delhi-based Commerce One (C1) India for alleged unauthorised entry into its systems, theft of its source code and violation of its intellectual property rights.

The case is one of a business deal gone sour. In early 2002, Antares had teamed up with c1 to bid for an e-procurement project of the Andhra Pradesh government. But, claims Antares, c1 dumped it after winning the contract.

Antares also contends that c1 developed the required system using its source code. Incidentally, the software developed by C1 is based on Microsoft's asp and .net platforms, whereas Anatares' platform is based on Java.

The Adjudicating Officer ruled that c1 had not gained unauthorised access into Antares' computer system. The judgement says: "I also do not find any merit in the contention... that the source code was provided to the respondents." On the question of damages, the order states: "... I am of the opinion that no case is made out... Hence, the respondents are not liable to pay any compensation."

The judgement, however, did not go into the issue of copyright violation, as that is the subject matter of a civil suit between the two parties in the Delhi High Court.

Vivek Agarwal, President & COO, C1 India, says: "This victory vindicates our stand that this case has been filed to create confusion in the market." Antares officials could not be contacted for their comments.

-Kumarkaushalam