Retailers see FDI transforming business

Foreign direct investment (FDI) in retail and significant investments are required to transform the retail industry. Debating how the infusion of foreign funds is expected to change the landscape of the industry, Indian retailers at the IRF (India Retail Forum) pointed out the advantages of FDI in retail.

In terms of causing unemployment and competing with the kirana stores, Mr Kishore Biyani, Chairman, Future Group, said, “We sell 90,000 SKUs while the local kiranas sell just about 700 SKUs and in that sense we do not compete with them. We need money to scale up and one of the ways to do it is through FDI.”

In fact, Mr Biyani urged that the need of the hour is to create demand. At present, the consumption growth is not in sync with the GDP growth. “Consumption growth at 6 per cent is not keeping pace with the GDP growth which is at 9 per cent,” he said.

Besides, retailers such as Wal-Mart which have already tied up with Bharti Retail are looking forward to launching their own branded stores once FDI is allowed. Mr Raj Jain, President, Wal-Mart India and MD & CEO, Bharti Wal-Mart, said, “We have been in the joint venture with Bharti for the past three years and have been learning about the Indian market. If FDI opens, we are ready to open our stores.”

In fact, Wal-Mart is already using India as a sourcing base and is organising a supplier meet of Wal-Mart buyers across the world. “Later this month, we are having a supplier conference out of India where almost 40 suppliers across several countries will be coming to India.”

Bharti Wal-Mart is also in the process of launching new stores in West and South India next year. “We are targeting 15 stores in the next three years for our Best Price Stores,” said Mr Jain, who said that FDI was the best route for the country. There would be unequal distribution of GDP growth centred on the metros if FDI was not allowed, he said.

Hoping more money will flow into the industry, Mr B. S. Nagesh, Chairman, IRF, and Vice-Chairman, Shoppers Stop, said, “FDI should be allowed and anybody who has money should be allowed to invest. Retail will yield results but only in the long term.” Whether investors are willing to wait that long to make money in an emerging sector such as retail was debatable.

“Retail is a long-haul business and what we need is capital right now. We are not sure whether Indian investors are willing to wait for the long haul,” said Mr Biyani.

In fact, Mr Biyani felt that FDI should be allowed in the non-food sector rather than in the food sector. Most of the companies in the non-food segments have already entered into joint ventures through the single brand retailing route.

“The big players in the organised industry are mainly apparel and jewellery players and there is no large vote bank in these sectors,” observed Mr Bijou Kurien, CEO, Reliance Retail - Lifestyle.

Expecting significant investments would transform the face of retail, Ms Ireena Vittal, Principal, McKinsey and Co, said, “The sector needs more money and the investment can come from anywhere. It is not about the colour of the money.”

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Economy on song

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The economy has had it so good only a few times in the past; but the Government should guard against complacency and errors of judgement.

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As the first six months of this financial year come to an end, it is useful to take stock of the economic situation. All things considered, it is quite satisfactory. Overall, growth is likely to be around 8.5 per cent. The monsoon has behaved, which means that the kharif crop is fine, although for some crops, such as rice and edible oils, more was hoped for from it. This is crucial for inflationary expectations as the rise in prices which was in full bloom for almost 30 months has started to abate only recently. Food inflation continues to be high but that is partly because high growth in a poor country raises incomes and, therefore, the demand for food. The trade deficit is high for the same reason, namely, that India produces less than it needs to keep the growth in industrial output up. This latter has been behaving erratically but much of that volatility can be traced back to accounting practices, especially in capital goods. The demand for consumer non-durables has been sluggish but will probably revive when the income from the kharif crop reaches farmers. Consumer durables are doing very well. Bank credit is expanding at a reasonable pace of about 20 per cent. It could be more, of course, but not by much because of the asset bubbles that appear to be developing in both the real estate and the stock markets.

However, rising interest rates are a dampener on investment. Capital inflows remain buoyant but have not become a flood that would create absorption problems. So the current account deficit, which could go to 3 per cent by the end of this financial year, is also not a worry. Exports could be better but that can always be said about exports; it is also important to note that lower growth in exports does not necessarily mean lower profit margins for exporters. Indeed, they should complain less. Forex reserves, at around $300 billion, are adequate to meet all contingencies, except sudden and massive outflows of the type seen in September-December 1990. Thanks to the spectrum auctions and some carefully chosen disinvestment, Government revenues are also not under very great strain and, hopefully, with some sensible expenditure management, the fiscal deficit can be reduced to a manageable 5 per cent or so. Its borrowing programme for the rest of this year is also not a problem. Reform, both of direct and indirect taxes, is on course.

The economy has had it so good only three or four times in the past — and this could be the greatest cause for concern because such a confluence of favourable factors not only induces complacency and the consequent errors of judgement but also becomes an invitation to bad luck. India's good years in the past have always been succeeded by a series of bad ones, which is what the Government needs to watch out for.

-Umesh Shanmugam

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Chinese vendors catching up with Indian peers: Report

Chinese software services companies are fast learning to compete with their counterparts in India on certain verticals and may have already started to take away business from some of them. A US-based analyst firm and part of the privately-held financial institution, SIG (Susquehanna International Group), in its recent report, has said companies such as Microsoft, Samsung and Cisco Systems are moving some of their work to Chinese companies because they not only offer comparable services but also at 25 per cent discount compared with Indian IT vendors.

The report says that Chinese vendors have developed enough skills in outsourced R&D, testing and product development for them to wean away clients from Indian vendors. It says Microsoft, Cisco, Nokia and Samsung are among a longer list of technology and manufacturing customers that now outsource such services to China and some of these customers are also customers of Indian IT companies.

Pricing discount

It named two Chinese companies, HiSoft Technology (HSFT) and VanceInfo Technologies (VIT) as those who have posted year-on-year growth of over 50 per cent during the first half of 2010 for providing services such as outsourced R&D, testing and product development to Western clients. It said Wipro was one such Indian vendor which is facing “meaningful'' competition from China.

“We estimate China can offer comparable services at a 25-50 per cent discount to Wipro ($26/hour for Wipro, $16/hour for VIT / HSFT),” the report said.

Though Wipro did not respond to queries because it is going through a ‘silent period' ahead of the announcement of its quarterly results, a top official with another major Indian IT company, Cognizant, said that each of these countries brings its own capabilities to the table. “In an increasingly globalised and virtualised world, countries are not merely competing against each other, but are in fact complementing each other's strengths. While Indian IT services companies are ahead in a few areas, Chinese companies bring their own set of unique capabilities,” Mr R. Chandrasekaran, President and Managing Director, Global Delivery, Cognizant Technologies, said.

Much ahead

Looking at the potential China offers both in terms of pricing as well as talent, the Infosys Chief Executive Officer and Managing Director, Mr Kris Gopalakrishnan, had in an earlier interview with Business Line said China will become the company's biggest development centre outside India.

An analyst with KPMG, Mr Kumar Parkala, however, said India will continue to remain a preferred destination for customers. “India is quite ahead in outsourcing and many of the Indian IT companies have been around for decades,” Mr Parakala said.

The SIG report also pointed out that Chinese vendors are still new to the market and that many leading technology and manufacturing companies contract Wipro for its deep business process knowledge and domain expertise.

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Plastic waste, tyre chips to fuel cement kilns

Centre may make it mandatory for cement cos to burn such wastes.

The Centre proposes to make it mandatory for cement makers to use hazardous waste that can burn such as plastic waste and tyre chips as alternative fuel in cement kilns.

Such a move would not only help reduce greenhouse gas emissions, but also avoid creation of landfills. Besides reducing the fuel costs for cement firms, it would also help avoid investments in expensive incinerators.

“We plan to make it (use of waste as alternative fuel) mandatory for cement companies,” said Mr S. P. Gautam, Chairman of Central Pollution Control Board (CPCB).

However, he did not specify a time-line.

Companies such as ACC, Grasim Industries Ltd, Gujarat Ambuja Cement Ltd and Lafarge India Ltd have conducted various trials for co-processing or using hazardous waste as alternative fuel in kilns.

Wastes co-processed by these firms include plastic waste, sludge from petrochemical or oil refinery, waste oil, paint sludge, effluent treatment plant (ETP) sludge, and spent carbon.

“We want to make it more broad-based so that other cement companies also start using waste for co-processing,” Mr Gautam said.

In February, the CPCB had come out with guidelines on co-processing for cement industry.

“We plan to come out with such guidelines for thermal power sector in six months,” Mr Gautam said, adding sectors such as coke oven and steel were also on the radar of CPCB.

India produces about 6.2 million tonnes of hazardous waste including 0.41 million tonnes of wastes that can burn, Mr Gautam said. However, only 12 States have 27 hazardous treatment, storage and disposable facilities.

Major waste generating states include Maharashtra, Gujarat, Andhra Pradesh, West Bengal, Madhya Pradesh, Rajasthan and Tamil Nadu.

Co-processing could be a preferred mode of disposing hazardous waste when compared to expensive incinerators which cost Rs 10-30 crore each depending on the capacity, Mr Gautam said. The disposal cost of hazardous incinerable waste is estimated to be Rs 16,000 a tonne and co-processing could help the country avoid a cost of Rs 640 crore a year, he said.

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India's rich club swells to 1.26 lakh

The story of the rich Indian continues, with India adding around 50 per cent more High Networth Individuals (HNIs) to its population in year 2009.

According to a 2010 Asia-Pacific Wealth report released by Merrill Lynch Global Wealth Management and Capgemini, the total number of HNIs in India at the end of 2009 was 1,26,700 with a total networth of $477 billion.

HNIs, in the report, are defined as individuals with at least $1 million in investable assets excluding their primary residence, collectibles, consumables, and consumer durables.

“The strong economic resurgence in India has been boosted primarily by India's stock market capitalisation, which more than doubled in 2009 after dropping 64.1 per cent in 2008” said Mr Pradeep Dokania, Chairman, Merrill Lynch Wealth Management.

Year 2009 saw Hong Kong and India recording the highest growth in terms of their HNI population and wealth, despite the huge decline in the same that both experienced in 2008.

The HNI population in Hong Kong experienced a massive growth of 104 per cent this year, while the HNI population in the Asia-Pacific region grew by 25.8 per cent to touch 3 million, up from 2.4 million in 2008.

The overall increase in Asia-Pacific HNI wealth was 30.9 per cent at $9.7 trillion. For the first time, the total wealth of HNIs in the Asia-Pacific region crossed that of Europe — $9.5 billion.

Total investments

The report also noted that Indian HNIs invested as much as 82 per cent of their total investments in their home-region. The reason cited for this is the non-convertibility of Indian currency in the US market. “There is restriction for Indians investing in foreign securities. An Indian can only invest about $2,00,000 a year, which is not the case for countries such as Japan that have total currency convertibility,” said Mr Atul Singh, Managing Director, Head - Global Wealth & Investment Management, India, DSP Merrill Lynch.

However, Indian HNIs did display signs of risk aversion as they increased their investment in fixed income instruments to 25 per cent from 21 per cent in 2008. Investments in equities remained the same at 32 per cent in spite of the markets rallying in 2009. HNIs also decreased their investments in the real-estate sector.

“In 2009, Indian HNIs became wary of the real-estate bubble as the premium property prices didn't correct much despite the liquidity crisis and dropped their allocation by 3 percentage points to 22 per cent,” explained Mr Singh.

Allocation in alternative investments remained the same at 8 per cent, although it was three percentage points higher than the Asia-Pacific average. Alternative investments include instruments such as hedge funds, commodities, structured products, etc.

“We expect faster economic growth, coupled with improving business conditions, which should fuel expansion in the HNI segment as business ownership and income account for 73 per cent of all HNI wealth in Asia-Pacific, excluding Japan. Moving forward, China and India will lead the way in the region with economic expansion and HNI growth likely to keep outpacing more developed economies,” Mr Dokania concluded.

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1. Madras High Court orders closure of Sterlite's copper smelting unit in TN

2. Says company polluting surrounding areas.

   
   

   The Madras High Court on Tuesday ordered the immediate closure of Sterlite Industries' copper smelting plant in Tuticorin.

   “We are constrained to take this decision, owing to voluminous material available on record about the negative impact of running of the industry at the place and in the manner it is being run,” a Division Bench comprising Mr Justice Elipe Dharmarao and Mr Justice N. Paul Vasanthakumar said, passing orders on a batch of writ petitions.

   The petitioners included Chennai-based National Trust for Clean Environment, the Marumalarchi Dravida Munnetra Kazhagam General Secretary, Mr Vaiko, the Tuticorin district unit of the Communist Party of India, and the Centre for Indian Trade Unions (CITU).

   Placing on record that they “do not want to leave the employees in lurch,” the judges made it clear that the employees were entitled to compensation from the company under Section 25 FFF of the Industrial Disputes Act.

   The company was given permission to produce 391 tonnes of blister copper and 1,060 tonnes of sulphuric acid. The petitioners had pointed out that though the company originally wanted to set up its plant in Ratnagiri, the Maharashtra Government had cancelled the licence owing to stiff opposition from the people.

   Explaining the reasons for revoking the licence granted to the company's unit, the judges said: “The materials on record show that the continuing air pollution being caused by the noxious effluents discharged into air by the company is having a devastating effect on the people living in the surroundings. There has been unabated pollution by the respondent company, which should be stopped at least now so as to protect the Mother Nature…,” the judges observed. While the company wanted the court to take into consideration a “favourable” report submitted by the National Environmental Engineering Research Institute (NEERI) in 2003, the judges said a subsequent report by NEERI in 2005 made clear that the waste from the company had high concentration of heavy metals, arsenic and fluorides.

   “The pathetic condition that has been recorded by NEERI in its report is that the plant site itself is severely polluted and the ground samples present levels of arsenic which indicate that the whole site may be classified as hazardous waste according to Indian standards,” they said. Groundwater samples taken from the vicinity of the deposit site show elevated levels of copper, chrome, lead, cadmium and arsenic.

   The judges said that according to the NEERI report the company was located within 25 km of Gulf of Mannar, which was declared a National Park in 1986. In fact, the Tamil Nadu Pollution Control Board (TNPCB), while granting permission to the company, had stipulated that its location should be 25 km from any ecologically sensitive area.

   “The sole violation of erecting the plant within the prohibited area of ecologically sensitive area is sufficient for the Central Government to reject the proposal of the company,” the judges said.

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SMX partners with Metal Bulletin for world’s first Iron Ore Futures Contract

SMX Iron Ore Futures Contract*, settled basis the Metal Bulletin Iron Ore Index (MBIOI), is the Exchange’s first index-based derivative

 

Singapore, 29 September2010 – Singapore Mercantile Exchange (“SMX”), the first pan-Asian multi-product commodity and currency derivatives exchange, today announced its plans to list the world’s first Iron Ore Futures Contract*, settled basis the Metal Bulletin Iron Ore Index. Metal Bulletin is the leading independent premium information and pricing provider for the metals industries.

The Metal Bulletin Iron Ore Index (MBIOI) utilises daily price data from a broad spectrum of industry participants and through leading independent Chinese steel consultancy and data provider Shanghai Steelhome’s widespread contact base of steel producers and iron ore traders across China.

MBIOI’s tie-up makes it the world’s only index to-date with access to such data from a major Chinese partner. The index is a tonnage-weighted calculation of actual physical transactions, normalised to 62% Fe, CFR Qingdao and is published daily at mid-day London time.

Mr. Thomas J. McMahon, Chief Executive Officer of SMX, said: “This partnership with Metal Bulletin is indicative of our diligence towards collaborative listings with key industry participants. It is especially strategic, given that China is the world’s largest importer of iron ore and Shanghai Steelhome’s data feed. The futures market for iron ore and iron ore spot market have only recently begun to take shape and as such, both are in need of a firm reference-price mechanism. SMX is stepping into that space in the markets via a robust index upon which effective price hedging can be conducted with a strong measure of certainty.”

Mr. Raju Daswani, Managing Director of Metal Bulletin, said: “As the market leader in metals reporting globally, Metal Bulletin has been reporting prices in the iron ore markets for close to a century. With a shift to short term pricing, SMX’s decision to work with our Iron Ore Index as a basis for global benchmarking is a logical move and another significant breakthrough for the iron ore industry.”

Metal Bulletin is the premium intelligence service for metals and steel market players globally, with coverage on all global metals and steel markets including scrap through a comprehensive package of the latest news, prices, expert market commentary and statistics.

SMX went live for trading on 31 August 2010 and this listing constitutes the Exchange’s first Futures Contract with an index as the underlying commodity. Regulated and licensed by the Monetary Authority of Singapore (MAS) as an Approved Exchange, SMX offers multi-currency and multi-asset clearing, trading and pricing for international participation via multiple connectivity options with guaranteed settlement and delivery.

 

About Singapore Mercantile Exchange

Singapore Mercantile Exchange is a pan-Asian multi-product commodity and currency derivatives exchange situated in Singapore. It offers a comprehensive platform for trading a diversified basket of commodities including futures and options contracts on precious metals, base metals, agriculture commodities, energy, currencies and indices.

SMX offers market participants the benefits of market transparency, time zone convenience, price discovery and benchmarking, price risk management and multiple connectivity options. Counterparty clearing and settlement risk is effectively managed through its clearing house, the Singapore Mercantile Exchange Clearing Corporation.

The regulator of Singapore’s financial markets – the Monetary Authority of Singapore (MAS) – has granted SMX ‘Approved Exchange’ status since 2010.

SMX is backed by the world’s leading creator of exchanges - Financial Technologies (India) Limited - which has successfully established 10 exchanges across India, Dubai, Singapore, Africa, Mauritius and Bahrain.

SMX is a member of leading international derivatives industry associations, such as the Futures Industry Association (FIA), the Swiss Futures and Options Association (SFOA), the Association of Futures Markets (AFM) and the Futures and Options Association (FOA).

 

About Metal Bulletin

Metal Bulletin is the established leader in metals and minerals reporting.  It has been reporting on iron ore transactions since the first print issue of the magazine was published in May 1913. Metal Bulletin’s reporting was instrumental in the development of the original iron ore benchmark pricing system, and it was also the first publisher to track the Chinese iron ore spot market since its creation in 2004. Since its development and launch in 2008, the Metal Bulletin Iron Ore Index has impartially and accurately tracked the iron ore spot market, and facilitated the industry’s move towards transparent pricing and longer-term risk management.

The MB Iron Ore Index is a tonnage-weighted calculation of actual transactions which are normalised on value-in-use and freight to a single base chemistry and delivery point. 

Metal Bulletin's breadth of product offerings extends from online news and prices services, magazines, newsletters and online real time services, to directories and databases, books, research reports, and consultancy and the staging of events around the globe in the form of conferences and exhibitions.

Metal Bulletin Limited is a wholly-owned subsidiary of Euromoney Institutional Investor Plc, which is itself majority-owned by the Daily Mail & General Trust Plc (DMGT).  Since 2010, Metal Bulletin has been working with Shanghai Steelhome, the leading independent data provider and iron ore research house in China, to consolidate its strength in data collection.