'Indian cos on firm int'l turf'
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'Indian cos on firm int'l turf'

TVS is set for Indonesia and Vietnam; Volvo is in for higher outsourcing to India, writes Dr Bhaskar Dasgupta.

india Updated: Oct 06, 2003 18:35 IST

The India Babble
Another volatile week. The Sensex closed up 65 points at 4434 on Monday and it was a broad effort across all industrial sectors.

Reliance, BharatElectronics, Pharmaceuticals, and to a lesser extent, tech stocks roared this session. Indian firms reported good international news, with TVS set to enter Indonesia and Vietnam by next year and Volvo announcing increased outsourcing of manufacturing parts to India.

On Tuesday, there was a little bit of profit taking and the Sensex closed 11 points down. On the other hand, the rupee closed at a near three year high off higher investment flows. The Tata's seem to have got bitten by the expansion and international bug, as well with news of Tata Tea expanding abroad and Indian Hotels moving into the mid class segment.

Wednesday saw volatile trading and the Sensex closed 9 points up, while the rupee powered up to a three year high against the dollar. The Sensex headed in the other direction on Thursday and closed 41 points down and it was again mainly due to profit taking and the worries coming from the international markets and terrorism fears. The downward trend took a sharper turn with the markets tumbling off fears for terrorism and heavy profit taking and ended up 87 points down at 4305.

The Financial Times reported on Wednesday that the venture capital funding
inflows into India showed a sharp jump to $300 million in the past two months
and these funds have been invested in small and medium scale firms. These
have not just been in the IT sector but broad based, which is good news.

Mahindra and Mahindra's €350 million bid for the Finnish tractor manufacturer didn't work out, as a competing bid of €600 million won. What is interesting is the divergence in the bids, either M&M's investment bankers were incompetent and misread the asset valuation, or that the American company paid way over the odds. Irrespective, it's a good step for Indian companies and something which should be encouraged far more. For example, Larsen and Toubro is planning to enter into the Chinese market with its heavy engineering turnkey solutions and Asian Paints has now purchased Fiji's fourth largest paint company.

India is spending heavily on humanitarian and commercial activities in Afghanistan as well; one wonders why it is not doing the same thing in Iraq. Forget the military stuff, but helping out in the hospitals, infrastructure, simple things like turbines and sewerage systems, mobile phones, and the like, is the perfect way to get in under the radar.

An interesting article caught my eyes -After so much moaning in the British
press about jobs disappearing into the Indian subcontinent, it turns out thatfour big Indian IT companies are setting up call centres in Wales. Although the number of jobs mentioned is just 300, still this is really awesome and gives me a feeling that India is not just the dumping ground for low paid jobs, but can equally create jobs right back in the West. These are not just any odd jobs - these are high technology, high value jobs for advanced technical support. Excellent news!

On the trade front, India is right at the forefront of the G22 group of developing countries, which is fighting for the reduction of agricultural subsidies. I just have a teeny-weeny worry that it may be a wee bit too aggressive and direct. It may be a better idea to create firm coalitions, so that India is not isolated as it was during the Doha negotiations. That cost us valuable points indeed.

The Babble in the Ivory Towers
Tuomas Komulainen and Johanna Lukkarila of the Bank of Finland Institute for
Economies in Transition have written an interesting working paper entitled What drives financial crises in emerging markets? The authors examine the reasons for financial crises in 31 emerging market countries during 1980-2001. They used 23 macroeconomic and financial sector variables such as unemployment and inflation, the indicators of indebtedness, private sector liabilities and the foreign liabilities of banks.

They found that currency crises occur in tandem with banking crises. Indeed, in emerging market countries vulnerability to crisis is exacerbated by situations involving large liabilities, which permit sudden capital outflows. Increases in indebtedness follow the liberalisation of capital flows and domestic financial sectors.

Interestingly enough, the level of US interest rates heavily influences the currency crisis in the emerging economies. Furthermore, most of the countries liberalised their economies as in pumping more capital, increasing transparency and regulatory oversight, liberalising their capital controls etc.

They further found that currency crises follow approximately two years after the liberalisation of domestic financial sectors and four-and-a-half years after the liberalisation of capital flows, but interestingly the deregulation of capital inflows itself is not the cause of the recent crises in emerging markets. The key seems to be the sudden increase in financial liabilities, which allow a sudden capital outflow. From that perspective, it looks like the controls implemented by China, India and post event Malaysia seem to be much better in controlling crisis than the financial orthodoxy propagated by the IMF.

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

The World Babble
The FT 100 climbed to a 12-month high, mainly on the back of good investor
confidence and ended at 4292 on Monday. They were buoyed by good manufacturing numbers as well as another report saying that the UK economy is going to double its growth rate this quarter. The DOW closed just two points off its 14-month high, while the NASDAQ and S&P moved up higher, as well. Continental Europe moved up as well by 0.6 per cent, all driven by a combination of good economic news as well as positive broker reports on key companies.

The Nikkei 225 ended Tuesday on a 14th month high after broker upgrades on Japan, despite of machine orders dropping in July. Tuesday also saw a frisson of worry emerging from news by Nokia, that its outlook was just so-so. A contentious report that there is a SARS case in Singapore worried the markets as well. Both the DOW and NASDAQ slipped by about 0.8 per cent. Europe dropped by 1.34 per cent.

Wednesday saw a bit more circumspect trading on the markets, with Japan falling 65 points on profit taking and the reaction from the DOW's fall on Tuesday. The new Al-Qaeda tape made the equity markets dive and a flood of money went into the treasury bonds. The DOW closed 86 points down and NASDAQ down by 50.

Japan took a plunge of more than 2.86 per cent on Thursday following the terror threats. The European and American markets were subdued but made gains, the DOW and FT Eurotop all moving up a little.

Bond prices moved down again after the bad labour market numbers driven rally started off. The labour market numbers also moved the dollar down against the euro. The Footsie was a wee weaker at 0.2 per cent.

Friday saw a bit of a recovery and the global markets were treading water, the DOW ended at 9471, NASDAQ at 1855, Footsie at 4237 and the Eurotop 900, all barely nudging over their previous close.

Gold is hitting highs again after security worries spread through the world on Wednesday; I would guess it will approach $400 before the end of the year is out, given the steady risk and fear level in the Middle East. Oil prices are again moving up after fears of supply disruption. The oil prices eased on Thursday down to 27$ when the US gas inventory showed a greater than expected increase.

The illegal mutual fund issue, which allowed trading to carry on after market close, is slowly gathering steam and will hurt many going forward, Bank of America is already on the radar screen for Eliot Spitzer, the NY Attorney General. Another person on the radar screen is Richard Grasso, the head of the New York Stock Exchange, for his gobsmackingsalary package. I think he is on the way out, that remuneration package is simply just too big and indecent!

Figures emerged this week that Japan's economic growth was doing better than
the USA, the first time since 1991, mainly driven by higher capital spending. China is also going hell for leather and some estimates for this year's growth look to China growing at 9 per cent this year. The Chinese authorities are worried about asset and commodity bubbles forming, butI think many countries wish they had this problem! As another example, China is right now consuming more oil than USA, with demand growth over the past three years almost double that of USA.

The news that President George Bush has asked for an additional amount of
$75 billion dollars for rebuilding Iraq, excluding the military expenditure,
has started concerning the bond markets, as it is going to seriously start
affecting the budget deficit. While the administration is mumbling about the
spending and deficit being within limits, it is worrisome none the less.

The World Bank released a report which clearly held the governments of the
Middle East and North African region accountable for the poor growth of the
region. It was a direct indictment of their pathetic governance performance
and asked for more transparent/accountable regimes that allow greater participation in decision making.

The authors point to three factors, a preponderance of natural resources to buy allegiances, a real or perceived threat of conflict which puts countries on a war footing and support of foreign powers wanting to preserve stability in a strategic area. Brilliant, the western powers are happy that the situation is calm and the governments are happy because they remain in power, who loses out? The famed Arab street, which is diverted into insane and inane protests when the target should be their own governments, who have created the miracle of keeping them poor.

A WTO dispute settlement panel agreed with India that the EU's use of conditional preferential access to its markets violates WTO/GATT rules. While the full report has not been circulated, this decision will certainly be challenged by the EU because this itself has the propensity to dismantle vast swathes of the EU and American systems of preferential market access.

Watch this space and look out for the fireworks. An example of how factitious the WTO is getting is borne out by the fact, that in the past 8 odd years that WTO was in existence, 300 disputes have been registered. Compare this to the 300 disputes for the GATT board in 50 years! In a way this is good, this allows countries to be more explicit and aggressive in their fight for economic rights and the more disputes like this, the more the playing field levels out. We will find out more about what the WTO negotiations next week.

(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 06, 2003 18:35 IST