The smoke signals from Armonk, NY, where IBM is headquartered, were sending their messages loud and clear even before its Chairman and CEO Sam Palmisano's plane touched down in Bangalore. On his fourth visit to India in as many years, IBM's reticent chief was to address the media for the very first time (all his earlier trips were unannounced). The scale of ramp up in the last three years was a further indication of IBM's intentions in India. A big bang announcement against this backdrop was not unexpected. But when Palmisano announced that Big Blue would invest a humongous $6 billion (Rs 26,700 crore) over the next three years, the excitement was palpable. After all, the outlay dwarfs the $3.9 billion (Rs 17,550 crore) combined investment announced by Cisco, Intel and Microsoft in the recent past. The $6 billion is on top of the $2 billion that IBM has already invested in the last three years in India.

Partha Iyengar, Vice President (Research), Gartner, a research house, points out that the announcement is an obvious attempt to shore up IBM's early start and progress in the region. "This announcement puts a big gulf between IBM and its other MNC competitors. I actually believe that the local Indian giants are insignificant or irrelevant for this scale and level of announcement," says Iyengar. Adds Alok Shende, Head (ICT Practice), Frost & Sullivan: "The investments IBM is making in India are being driven because of the competitive market situation that is evolving in the North American and European enterprise markets."

The investment will also help IBM increase its competitiveness in the crucial US and European markets as it will now be better placed to take advantage of the cost arbitrage that the Indian players enjoyed till now. India's low-cost model will also help IBM address certain markets such as BPO and mid- to low-end ADM contracts, which it was losing to Indian firms. The war for Indian talent will become even more competitive since both Indian firms and global players will try and target the same prospective base.

IBM has had reasons to feel good about the Indian experience. While Indian it companies have largely neglected the booming domestic it services market-estimated by research firm IDC at $2.3 billion (Rs 10,350 crore)-IBM has had significant success signing up long-term service deals with the likes of Tata Steel, Siemens, Whirlpool, ABB and Bharti. Its Indian hardware, software and services portfolio earned revenues of nearly $600 million; the global services division, which serves 250 international customers, is believed to earn an equal sum.

The neglect of the domestic market might come to haunt the Indian players, says Gartner's Iyengar since long-term dominance or "superpower" status in any segment of the industry cannot be achieved without a strong and dominant local presence. "Add to this the fact that the Indian domestic market has been the fastest growing in the world for the last three years running, it is even more unfathomable why the large Indian service providers continue to just cede the domestic market to their global competitors."

So, are the Indian firms worried? Sudip Nandy, Chief Strategy Officer, Wipro, isn't too flustered by IBM's proposed investment and prefers to points to Wipro's own moves. "We are beginning to compete strongly with large players like IBM and EDs and in some areas, such as engineering services with 13,500 people, we are even ahead of them. Indian companies are actually ahead of their MNC rivals when it comes to offshore delivery; it will take IBM time to match our India capabilities."

Brave words those. Palmisano for one would like to prove him wrong.

-additional reporting by Rahul Sachitanand

To Prop, Or Not To Prop?
Should the rupee's slide be checked?

Apple's Jobs: The hippie days were better

When Dalal Street gets the sniffles, Mint Street gets the shivers. Phiroze Jeejeebhoy Towers, the headquarters of the Bombay Stock Exchange (BSE), and the Reserve of Bank of India's (RBI's) nerve centre are less than a kilometre from each other as the crow flies. So when BSE's benchmark index, the Sensex, started free-falling, there were more than a few furrows on the foreheads of the central bank's mandarins. The biggest worry is how to protect an already depreciating currency and a widening trade deficit (of a little under $40 billion or Rs 1,80,000 crore in 2005-06 as against $25 billion or Rs 1,12,500 crore in the previous year).

In the last year-and-a-half, the domestic currency has depreciated by a little over 3 per cent, despite foreign institutional investors (FIIs) pumping $14 billion (Rs 63,000 crore) into the country between January 2005 to April 2006. Now with the tide reversing and FIIs on a selling spree-outflows at the time of writing had hit $2 billion (Rs 9,000 crore), the rupee looks set for some serious beating. As FIIs sold shares worth Rs 7,354 crore in May, and bought a paltry Rs 96 crore till June 5, the rupee plunged by over 2.50 per cent from sub-45.02 levels in May but recovered a bit, though still lower by 2 per cent by June 2005.

Blame the slide on rising interest rates. And it's not over yet. "June 29 will be crucial as the us Fed will again meet to consider a rate hike," says U. Venkatraman, Treasury Head, IDBI Bank. Short-term interest rates have moved from a decade's low of 1 per cent to 5 per cent in the last two years. If the rate goes up yet again, the attractiveness of the world's largest economy as a safe haven for investment will undoubtedly get a boost. Which doesn't bode well for FII inflows. And the rupee. "The rupee may remain a little weak for some time due to global factors," believes Y.M. Deosthalee, Chief Financial Officer, Larsen & Toubro.

Y.V. Reddy, Governor, RBI, doesn't have too many options. Either he lets the rupee fall or he protects it artificially by selling dollars from the central bank's reserves. But a hands-off policy might backfire, what with import costs, especially of oil, going up alarmingly. This will fuel inflation. Which in turn will force the apex bank to increase short-term rates. Result? Loans of all hues (home, personal, corporate) get expensive, and economic growth takes a hit. Currently, the reverse repo rate (the rate at which RBI absorbs excess liquidity) is 5.5 per cent and the repo rate (the rate at which it injects liquidity) is at 6.5 per cent. Artificial propping of the rupee might seem a better idea, for this will rein in inflation, as the oil bill will be less. "The RBI has to strike a balance, but the rupee will definitely face short-term spikes," believes Moses Harding, Executive President, IndusInd Bank.

-Anand Adhikari

Hello, Goodbye
Apple entered India late, and it's leaving early.

Despite its French name, Du Parc Trinity, the building that houses the soon-to-be-closed Apple India R&D centre in Bangalore, is an unpretentious complex that never seemed fit for one of the most iconic names in the technology industry. That office doesn't seem so inappropriate any more. In early June, the Cupertino, California-based company decided to shutter its India tech centre by laying off all its 30 employees at Apple Services India, offering them two months' wages as a parting gift. "We were informed by e-mail about this decision," says an employee of this centre who preferred to remain anonymous. According to this employee, Apple's centre has been at the same strength since inception in April and, despite news reports, the company has struggled to hire and retain talent for this centre. "Apple may have been able to run such a centre successfully a few years ago, but they weren't working on any critical research areas," says Kris Laxmikanth, CEO, The Headhunters, a Bangalore-based hr consultancy.

"We have re-evaluated our plans and have decided to put our planned support centre growth in other countries," was all Steve Dowling, an Apple representative would say in response to a detailed e-mail questionnaire from BT. The India ops were meant to scale from just 30 and reach 600 by the end of 2006, and a rare India visit by CEO Steve Jobs was also on the cards, but all these plans seem to have been deferred, if not shelved altogether. "We also heard that HQ was worried about rising hr costs," the employee says.

Jobs' first visit to India was in the 70s, when he was ostensibly seeking spiritual enlightenment (before he started Apple with co-founder Steve Wozniak). The quest in the marketplace hasn't proved as rewarding.

-Rahul Sachitanand

To Grow Or To Profit?
SBI Life breaks even. But it's too early to cheer.

It's a small step for SBI life Insurance, but could prove a giant leap for the fledgling industry as a whole. When the five-year-old SBI Life, in partnership with Cardiff SA of France, notched up a token Rs 2.02 crore profit for 2005-06, it became the first in the private sector to break even. The life insurance industry was opened up to private players in 2000-01. Birla Sun Life, another joint venture in this space from the Aditya Birla stable, is targeting an entry into the black by the end of the ongoing fiscal. Others such as Max New York Life and Aviva expect to wipe out losses in two years.

Yet, it's not as if all life insurance companies are falling over each other to post profits. Certainly not the big boys. Numero uno ICICI Prudential, with a hold on a little over a quarter of the market, doesn't expect to ride out of the red before 2007-08. Ditto with #2 player Bajaj Allianz Life, which is looking to break even by 2007-08. And the third-ranked in market share HDFC Standard Life, which posted a 111 per cent spurt in premium income last year, won't show profits for at least another three years.

So why are the biggies in no tearing hurry to turn the corner? The head of the business that has managed to do so has an answer. "As life business grows, there will be need for more capital. Profitability by itself will not cover the industry's growth requirement," says S. Krishnamurthy, Managing Director & CEO, SBI Life Insurance. His short point: A Rs 2.02-crore profit or a Rs 10-crore bottom line doesn't mean much for a business that requires massive doses of capital. SBI Life itself has enhanced its capital base from Rs 75 crore to Rs 425 crore in the past five years. Another Rs 250 crore will be pumped in the next two years.

Other firms are on the same track. ICICI Prudential Life, which currently has a capital base of Rs 1,200 crore, has been the most aggressive in infusing fresh capital. "There is a huge growth potential in the life business, which will require further capital," says Sandeep Batra, CFO. Adds Stuart Purdy, CEO, Aviva Life, who is now relocating to Ireland after setting up the Indian operations in 2002. "We expect to increase our capital base by another 50 per cent from Rs 459 crore in the next couple of years," adds Purdy.

With the market waiting to explode, which in turn calls for tonnes of capital, it isn't surprising if some players don't have black ink on the top of their priority lists. Growth is being traded off against profitability in a business where gestation periods are long-globally life insurance operations take seven-10 years to show profits. Penetration of life insurance products in the country is just 3 per cent, and that's exactly why even today new players like Bharti, IDBI Bank and Pantaloon are entering the arena.

Breaking even may not be the primary concern, but that doesn't take away from SBI Life's achievement. Rather, it speaks a lot about its efficient utilisation of capital by way of products as well as distribution strategy. For instance, SBI Life has chosen to focus on unit-linked insurance products, which require lesser capital than traditional endowment products, which are highly profitable in the long run (eight-10 years), but which are capital-guzzlers." We are focussing on investor friendly capital guarantee products in the ULIP space that require twice the capital of an ordinary ULIP," says Gaurang Shah, MD, Kotak Mahindra Old Mutual Life. Batra of ICICI Prudential feels endowment products call for four-times the capital needed for unit-linked insurance schemes. "We have focussed on group protection products and credit protection products where we managed the underwriting quality and also avoided high distribution expenses," says Krishnamurthy. Yet another advantage for SBI Life is the parent's 5,000-strong branch network. That reach should also come handy in casting the life insurance net far and wide.

-Anand Adhikari

Longing For Shorts
Allowing institutions to short-sell may backfire.

D-street: Inviting manipulators?

Nobody likes a bear market and that's the message from the North Block, too, which is toying with the idea of allowing institutional investors to short-sell. This means institutional investors (foreign ones mainly) will be free to sell shares without actually holding them. The measure is aimed at increasing volumes, thereby reducing volatility. But experts point out that such a move could be counter-productive at a time when markets are falling because of global factors like spiralling oil prices and interest rates as well as a bit of speculative excess. "Squaring off net positions would be difficult in today's low volumes market," says the CIO of a domestic mutual fund. What's more, the highly traded index stocks could be easily manipulated by cartels. For instance, if prices are ramped up artificially, short-sellers can be squeezed into buying back their shares at a loss. Will short-selling mean that an already overworked regulator will have even more on its plate?

-Anand Adhikari