It's time for a reality check. The investment banking sector is suddenly facing a squeeze after a three-year-long dream run when mandates, commissions and profits were all in gravity-defying mode. The turnaround in fortunes was quite dramatic. The May 11 crash in the stock market forced several promoters to hold back their proposed public offers, and life has not been the same since. The worldwide rise in interest rates is also playing spoilsport. "There is a lull in the IPO (initial public offer) market and acquisitions abroad have also slowed down a bit," says an I-banker. Fees, too, are heading south. "It is as low as 1 per cent for the bigger IPOs," he adds. The now delayed Rs 13,000-crore DLF IPO was being hawked by as many as nine investment bankers-for a paltry single digit fee to be shared by all. The stock market crash led to the issue being put on hold. Result: I-bankers were deprived of their commission.

"These are temporary aberrations," says S. Ramesh, Executive Director (Equity Products), Kotak Mahindra Capital Company. "Companies are gradually coming back to the market," adds S. Subramanian, Head (Investment Banking), Enam Consultants.

Brave words! But the fact is that competition is eating heavily into margins in this space. From highs of 5-6 per cent of issue size before May 11, they have shrunk to 2.5-3 per cent now. Kotak's Ramesh admits this, but adds: "This has to be seen in the light of the meltdown in the stock market."

And compounding the problems for domestic investment banks is the entry of global leaders like Lehman Brothers, Credit Suisse and Goldman Sachs into their turf. "There is a room for everybody," says Enam's Subramanian, somewhat optimistically.

Capital market experts say I-bankers are also facing high attrition levels at both the top and mid-levels, but the domestic industry also brushes this aside as something that's part of the game. "It's nothing new, so there's nothing to worry about," says Subramanian.

I-bankers may continue to live in this state of denial and pin their hopes on a quick revival in market sentiment, but if things don't turn around soon, the going will only get tougher in the days ahead.

-Anand Adhikari

BROADBAND PENETRATION

India's broadband subscriber base touched 1.55 million at the end of June 2006. If that looks rather poor in a country with over 158 million telephone connections, there's worse to come. The growth rate of broadband penetration has been declining. For the quarter ended June 2006, the country added 0.24 million subscribers, a growth of 18 per cent. The figure for corresponding quarter last year was 120 per cent.

"There is no denying that the target for 2006 may not be achieved. Broadband growth has not kept pace with the growth of mobile phones in India," says Nripendra Misra, Chairman, Telecom Regulatory Authority of India (TRAI).

"There is a clear lack of a strategic policy on the issue," says Subho Ray, President, Internet and Mobile Association of India, a trade association representing the online and mobile content, e-commerce and the e-advertising industry. The problem, he says is that broadband is compared to mobile phones. While the former is just a medium, the latter is the end product. "We should look at broadband internet as infrastructure, and not an end user service like mobile phone services," he adds.

Misra is hopeful though. "Earlier, there was a lot of emphasis on spreading broadband through wireline connections, which restricted the business to BSNL and MTNL. But now, with private players beginning to offer wireless services, we are hopeful of reaching our target of 20 million connections by 2010," he says.

-Shaleen Agrawal

Hollywood Calling
US studios may soon produce Hindi films.

India bound: Hollywood wants a local presence

Hollywood, it seems, wants a slice of the Indian entertainment pie. News Corporation (which owns 20th Century Fox and the Star bouquet of TV channels in India), Sony (Columbia Pictures and the Sony bouquet), The Walt Disney Company (which recently bought Hungama and a 14.9 per cent stake in UTV) have already staked out their presence here. Now, Warner Brothers, too, is increasing its presence here. The company is tight-lipped about its plans in India, but has recently upgraded the position of the head of its still-small operations here to Vice President and Managing Director.

The grapevine is rife with rumours that it has set aside $10 million (Rs 47 crore) for producing Indian films and for dubbing foreign films into local languages. Blaise Fernandes, Vice-President and Managing Director, Warner Bros, India, could not be reached for comment. Andy Bird, Vice-President (International), The Walt Disney Company, is also extremely bullish. "India is an important market for us," he said while announcing the Hungama and UTV deals.

Sony Pictures Entertainment, meanwhile, is co-producing Saawariya with filmmaker Sanjay Leela Bhansali. Uday Singh, Managing Director of Sony Pictures Releasing of India, while announcing the collaboration, said: "Saawariya indicates Sony's recognition of the importance of the Indian market and its desire to team up with the film industry in India." It's a win-win situation for everyone. Says Bhansali: "Sony's involvement will give the film a wider global reach." This, incidentally, will be the first instance of a mainstream Hollywood studio getting involved in the production of a film in India.

So will Bollywood now become more professional in its dealings? That's a different story altogether.

-Shivani Lath

The Great Divide
Two Marxist CMs go their own way.

Contrasting styles: Bhattacharjee (L) and Achutanandan

They are a study in contrasts. West Bengal's reformist Chief Minister Buddhadeb Bhattacharjee may have won over the captains of India Inc., but he is unlikely to have scored any brownie (or is it red?) points with party colleague and Kerala counterpart V.S. Achutanandan.

The latter shut down business process outsourcing (BPO) firms operating in his state on Independence Day by throwing the rule book at them. "The Kerala Industrial Establishments and National Holidays Act mandates at least four paid holidays including Independence Day," says a Kerala labour department official. Reiterates the local (Ernakulam) District Collector, A.P.M. Mohammed Hanish: "These companies can work on holidays only in case of an emergency and with prior notice." The state government has threatened to prosecute senior executives of BPOs that kept their offices open on Independence Day. "Closing a 24x7 centre for a whole day is just not viable," says Meena Ganesh, CEO of Tesco Hindustan Service Centre, a BPO firm in Bangalore. Adds K.G. Babu, CEO of Infopark, a tech park in Kochi: "Closing these centres breaks the 24x7 promise made to companies in the state." In contrast, Bhattacharjee not only allowed the BPOs in his state to function normally on August 15, but also defended the decision saying: "Asking them to shut will be like shutting a power plant on a holiday."

The chasm in the thinking of the two chief ministers is also evident in their handling of the cola controversy. While Achutanandan responded by banning Coca-Cola and Pepsi-Cola in Kerala, Bhattacharjee sidestepped the issue saying: "Cola samples should be put to test by central agencies. The Centre, and not any state government, should take a call on this."

This apparent disconnect in the thinking of two Marxist chief ministers is linked to the ongoing ideological war raging in the CPI(M) over the reforms process and, indeed, over the relevance of Marxism in the globalised world. And no prizes for guessing who's on which side.

-Ritwik Mukherjee & Rahul Sachitanand

Up, Up and Up
Shipping costs are rising in India.

On the rise: After oil, its' shipping's turn now

Shipping costs to Europe have risen to $1,100-1,200 (Rs 51,700-56,400) per TEU (twenty-foot equivalent unit) from $800 (Rs 36,000) only six months ago and these are expected to increase further. Says a senior executive in a large foreign shipping line: "A steep rise in fuel costs, and charter charges are pushing up prices in the shipping industry." Also, India has emerged as a major sourcing hub for companies in Europe. This alone has resulted in a 15 per cent surge in export volumes from India. As a result, Indian ports are operating at more than full capacity. This is creating a demand-supply mismatch and pushing prices up further.

Another problem faced by shipping companies that provide the entire gamut of services from the point of pick up to the delivery centre is internal infrastructure. Road and rail transport, crucial linkages in the export chain, leaves a lot to be desired, resulting in delays and, consequently, further costs.

Also, Concor (Container Corporation of India), which has a monopoly over container rail movements in the country, has raised its charges by 20-40 per cent. This is adding to costs and is hitting the competitiveness of Indian exports.

As a result, shipping revenues have come down in the last one year. Shipping lines in India were expected to grow but that promise has also not been fully redeemed. "Costs have shot up and shipping lines are having a tough time just surviving," says another senior executive from one of the major foreign shipping lines.

However, going forward, industry insiders feel that the present scenario will definitely improve. "As infrastructure improves, these bottlenecks will ease," says the executive. But that will happen only in the long term. That means exporters have, for now, no option but to grin, bear it, and take a hit on their bottomlines.

-Ahona Ghosh

Clean-up Time
Minor corporate cases to be dropped.

The augean stables may yet be cleaned. The Ministry of Company Affairs is considering a proposal to drop 30,000 ongoing prosecutions of companies-constituting 60 per cent of all cases-to free up bandwidth to deal with the big ticket ones. This is in line with the O.P. Vaish Committee Report, which had recommended that the government settle or withdraw cases involving minor violations of the Companies Act, 1956.

Till December 13, 2002, the registrars of companies (rocs) across the country had a backlog of 45,500 pending cases against companies, the report says. This has since increased to more than 50,000 cases. The cases being dropped relate only to "compoundable" offences, and do not involve cases where the punishment may include imprisonment. The ministry takes, on an average, five years to dispose of each of these cases and incurs an expenditure of about Rs 2 lakh per case. But that's only a statistic. "But some cases last forever; 16,700 cases are pending for three to 20 years. In most of them, even the initial service of summons has not taken place," says O.P. Vaish. Many of the companies involved in these 16,700 cases are either "non-functional or untraceable".

The primary reason for the accumulation of this huge backlog of cases is the law as it stands. The existing Act bars rocs from dealing with these cases, howsoever trivial, themselves; they have to approach the criminal courts. "Despite the fact that rocs file very few cases (to avoid adding to their own workload), the government has managed to accumulate all this garbage. We are just trying to throw this garbage out," says Vaish. "The government should unburden itself and the courts of all this unnecessary baggage," adds Chandrajeet Banerjee, Senior Director, CII.

Incidentally, withdrawing or settling these cases involves only an administrative decision; there are no legal hurdles involved.

-Kapil Bajaj