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.
![](grfx/20a.jpg) |
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.
![](grfx/20b.jpg) |
![](grfx/20c.jpg) |
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.
![](grfx/22.jpg) |
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.
WIELDING THE BROOM |
»
Proposal likely to be implemented within two months
» More
than 30,000 cases to be dropped or withdrawn
» Most
cases involve a maximum punishment of about Rs 2,000
» Most
of the defendant companies are non-functional or untraceable
» Administrative
approval enough to activate plan |
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
|