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Flying right

India's plan to allow foreign airlines to enter without bilateral agreement with national carriers is great, writes Dr Bhaskar Dasgupta.

india Updated: Oct 22, 2003 18:59 IST

The India Babble
The Sensex climbed 80 points on Monday and closed at 4849, helped by significant buying pressure from institutions, but Tuesday saw the market slide 67 points to close at 4782 after heavy profit taking and significant volatility. Rumour had it that the US Food and Drug Administration may change the generic drug approval process, which hit the pharma stock sector
hard.

Wednesday saw wild positive swing of 70 points with heavy foreign interest. This volatility over the past 3 days is rather interesting, as it seems there is a divergence in opinion between the domestic players and foreign players. The derivatives market is also slightly out of phase with the cash market, which this means that the volatility is going to remain for the foreseeable future. On Thursday, Reliance, Zee Telefilms and other firms reported good quarterly numbers and this pushed the Sensex up by 13 points to close at 4887. Friday saw some good numbers coming from the IT sector, which made the Sensex close 43 points up at 4930.

The Central Government has gone back to the Supreme Court to request it to reconsider its privatisation judgement on HPCL and BPCL, as it has wide implications on the disinvestment process. This can really cause ructions and something which the government would want desperately to resolve before the elections next year.

The Central Government has taken another step which seriously made me gape in wonder. Could I really be reading this right? The holiest of holy cows, the domestic aviation is going to be opened up. As an interim step, the open sky policy will be extended to all foreign airlines for 3 months, slots permitting, from December onwards. This is the peak tourist season and the foreign airlines can enter into India without a bilateral agreement with Air India or Indian Airlines. This is beyond the agreement done with the ASEAN members and opens it up to the Gulf, European and American airlines. Now we are talking!

Moody's has put India on review for a potential upgrade on its current Ba1 rating for foreign currency debt after the rise in foreign exchange reserves. The current reserves are sufficient for about 10 months of current account payments and therefore are a good cushion. Taking a page from the developments on the rating front, the Indian bond yields are approaching yields seen in developed economies, which is good news from the perspective of raising capital, but I suspect this is just irrational exuberance.

Talking about rising expectations, The Times of India reported that IBM seems to think that WIPRO is going to be one of its biggest global competitors and the only non-American one at that. A very interesting aspect of the report was that IBM is looking at Wipro from the perspective of software services which is the highest value add sector. Software and

Hardware have long become commodity products and value addition only comes from loading services on top of it. That was another reason why IBM purchased PwC Consulting to beef up its services sector. Wipro's results were quite impressive in the last quarter, with revenues and net profits growing by 15 per cent and 11 per cent respectively. Look at it reaching the Holy Grail of $1bn in revenues by next year, God willing and wind permitting.

Guess what? One of the learned judges in Calcutta had banned rallies in the state capital from 8 in the morning till 8 at night. Everybody heaved a sigh of relief and said, thank God, we can go about our business without being accosted by these rowdies. Nothing doing, another mob of protestors came barrelling out and started baying for the blood of the poor judge. These protestors belong to the CPM youth group. To paraphrase Madonna, Do cry for me Calcutta.

The Babble in the Ivory Towers
Its going to be a WTO week. A recent paper by Arvind Subramanian and Shang-Jin Wei of the Research Department of the International Monetary Fund checked out the performance of the WTO. They find that the GATT/WTO framework has had a good, strong and powerful impact on trade, if a bit uneven. Membership for industrial countries has been associated with a large increase in imports, estimated at about 40 per cent of world trade.

Unfortunately, the same has not been so for developing country members, although those who joined after the Uruguay Round have benefited from increased imports. In the sectors where the barriers are low, the performance and trade has been higher. But in the sectors, such as food and clothing, where the barriers are high, you don't see drop in prices or increase in trade.

The authors point out how this is due to the way the institutions (WTO and GATT) are setup and the sectoral based negotiations take place. The fact that the developed countries are so much against open and free trade in food and clothing industry and the developing countries are so loathe to drop their barriers makes it difficult to raise the trade levels in these sectors, where there is so much employment and the chances of making good are so high. The G-21, in the recent WTO round, shot themselves into the foot a bit, when they did stop the Cancun negotiations, but didn't follow it up with a regional free trade accord between them. Now if they had done that, the developed countries would have come crawling back to them with offers galore.

Details of this paper and past columns are available on
http://beady.blogspot.com

The World Babble
Japan was closed on Monday and the Columbus day holiday weekend kept volumes low in the USA. The DOW jumped 90 points on Monday and closed at 9764, while the NASDAQ climbed 18 points to 1933. Motorola and Honeywell reported good numbers and this is leading analysts to predict a good earnings reporting quarter for the US economy. Tuesday saw the Nikkei briefly breaking through the 11000 barrier, but fell back slightly to close at 10966, a rise of 180 points. This was mainly due to the previous day's Wall Street rise and good domestic news coming from the Bank of Japan, talking about good export
performance, and improved manufacturing sentiment.

The DOW and NASDAQ closed 0.5 per cent up at 9812 and 1943 respectively off the back off good corporate results from Intel and others, but Europe kept down because of a bout of profit taking. IBM's good results did help the tech sector, but the overall market was weak. The DOW dropped 10 points to close at 9803, while the NASDAQ was down 4 points at 1939. Retail sales fell slightly causing a bit of a weakness in the market, but over all, the market was treading water.
Thursday saw Japan's Softbank jump 17 per cent after Goldman Sachs took a 6 per cent stake in the firm and the Nikkei ended 1.15 per cent up at 11,025. Friday saw the US markets take a bit of a dive, following disappointing results from Ebay and Sun Microsystems. The corporate news dampened reasonably good economic results, which showed an improvement in consumer sentiment, good housing market and strong US equity funds inflows. The Dow closed at 9,721.79, and the NASDAQ 38 points down to round up the week at 1,912.

An interesting battle is shaping up in the USA, with the two US derivatives exchanges, CBT and CME, being sued by the European Derivatives exchange EUREX. Eurex is claiming that the CBT and CME are refusing to allow or putting hindrances in the path of Eurex to allow a fully electronic exchange to be launched in the USA. Needless to say, the arrival of a purely electronic exchange will really set the cat amongst the open outcry trading exchanges. Charges of skulduggery and underhand dealings are flying thick and fast. The battle is over the world's biggest bond and interest rate futures market. It's an interesting turnaround, the defenders of free markets complaining about competition.

HSBC's decision to move 4000 UK staff to Asian centres has sent a shock wave through the financial markets; the jobs will mostly go to existing units in India, China and Malaysia. We reported how Abbey National, BT, Prudential, Barclays are all looking for or have already migrated their customer service jobs to places like India. The difference in this case is that HSBC already has a working operation in Hyderabad and Bangalore in India and the plans suggest that most of the jobs will be relocated to these centres.

The British Government released the world's biggest environmental study on Genetically Modified crops, carried out over 3 years. The results are mixed, thereby giving ammunition to both the nay sayers and yea sayers. The white coats studied oilseed rape, maize and beet to compare their impact on local flora and fauna. The results are a challenge to interpret and depending on
your political or ideological bent, you will see what you want to see in them. To my untutored eyes, it looks like rape and beet show signs of lower weeds, lower number of butterflies, and fewer bees, while GM maize was better. These results are going to create havoc with the British, European and American GM food policy. The underlying question is whether genetic modification is bad per se' and nobody is giving a straight answer to that.

The fact that nature has been doing genetic modifications for the past gazillions of years has passed most people by, but if man tries to do it, all hell breaks loose. So is it good or bad? Can anybody give me a straight answer in 2 words or less please?

(Dr Bhaskar Dasgupta writes a weekly Monday round-up on markets and indicators. He holds a Doctorate in Finance and Artificial Intelligence from Manchester Business School and works in London in diverse capacities in the banking sector.)

First Published: Oct 20, 2003 20:01 IST