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Indian firms move briskly

Also, export sales of some Indian products have exceeded domestic sales by 10% over last 3 years, writes Dr Bhaskar Dasgupta.

india Updated: Nov 29, 2003 20:39 IST

The India Babble

The week started off on a high note, with Monday seeing the Sensex move up by 50 points, but then the markets turned down dramatically over the next fourdays and dived from a near high of just under 5000 to 4750 on Fridaybefore recovering in the ending session to close at 4838. The longdown-streak was mainly due to the fears over the interest or rather lack of it by the foreign financial institutions. The dollar rupee isrelatively stable over the week.

ETIG analysed sales for 550 large Indian companies for the past sixyearsand found that exports have outpaced domestic sales by 10 per centover the last three years. The top exporters are in the IT, jewellery, textiles, leather,pharma, chemicals etc. sectors. This can be taken in two ways, the firstis the optimistic view that Indian products are competing across the worldin these sectors and their export sales are now far more than their domestic sales, with all the attendant brownie points of foreign exchange earnings, quality and international competitiveness. The downside is that export markets can dry up dramatically and swiftly and this could well bea potential risk.

Not only that, Indian companies have been moving abroad briskly, therehave been more than 35 foreign acquisitions since the beginning of theyear, the latest being the potential acquisition of the Daewoo CommercialVehicle company of South Korea by Tata Motors. The total amount is nearthree quarters of a billion dollars, in countries ranging from USA,Canada, South Korea, European Countries, Australia and the like. Nicegoing there guys.

A report in the Economic Times about the cattle and milk productionsituation in India was rather thought provoking. India has the largestnumber of livestock and it also produces the biggest pool of milk in theworld. While saying that, India has barely a 1 per centof the world's dairyproducts market and you can just forget about the milk. Apparently, themilk which we produce is so far below the international standards onhygiene and production standards that it’s not even fit to talk aboutexporting this stuff. The central government is now trying to introducethese standards into the country so that producers and exporters can havea fair whack at exporting this stuff.

Talking about exporting, the Business Standard reported a fascinatingpiece of information. India is the second largest exporter of rice andseventh largest exporter of wheat in the world. Guess why? As it turnsout, the country has been exporting these food grains mainly because thegovernment is supplying the exporters with grains are prices much belowthe domestic price, out of the food reserve stocks. This is a pure subsidywhich is being given to the exporters. Now, one does ask the question,why? The subsidy bill is going up, the consumers are paying a higherprice, the exporters are gaining, and the farmers are at mercy of thegovernment and all in all, a rather silly state of affairs.

The World Babble

With a holiday week coming up, all the markets were soft, with the DOWending at 9628, down 140 points over the week, while the NASDAQ was down37 points at 1893 over the week. Mainly due to the worries arising fromthe potential trade war, investor apathy and the news from Iraqcontinuously getting people all worried about the direction. The marketparticipants do not seem to look at the week with major concern, taking itto be more of a consolidation aspect rather than serious trouble. Mindyou, the fund flows are pointing to a serious problem with the funding ofthe federal deficit and the labour market is still weak and spongy, whichdoes not behove well for the rest of the quarter. German stock dropped 3.9over the week while the French stocks dropped almost a per cent on worriesover a rising euro and threats of a trade war. London was worried aboutthe terror attacks, US Presidential visit to London and trade fears butstill, London managed to claw back 1.7 per cent, closing at 4319.

Funny thing, that Atkins Diet. It’s created such a huge craze in the USAand Europe that the bread makers of the world are getting seriouslyconcerned about the impact. Fortyper cent of American consumers are eating lessbread than last year. The US National Bread Leadership council (can thisreally exist, apparently it can in USA) states that the average Americanate 54 pounds of bread last year, the French and Italians ate about threetimes as much but were not obese. On the other hand, the fact thatcarbohydrates are out but red meat is back in means that beef sales haverecovered smartly. Truly, the food habits of us humans are real funny.

The UK government's watchdog is going to investigate local council taxhikes and this will create major issues around everybody involved inpolitics from the central government to the local government. There is amajor groundswell of rebellion in the ordinary citizenry about the counciltax rises. This is directly attributable to the current government'srather skewed view of local spending. The education and social securitypart of the local council spending is fixed by the central government andthat leaves very little which the local councils can cut or manage. Thememories of the poll tax are still fresh in the government's minds and therate of increase is shocking. Be that as it may, the pressure to reform local council funding is getting very strong now. Talking about funding,
the UK Chancellor, Gordon Brown, seems to have decided to cap the retirement pool limits to £1.4MM. Let me be blunt about this, if thiscomes in, there will be an exodus of people who will leave this countryand you can add yours truly to the list. This is unbelievable, why am Igoing to be penalised for saving too much and then get penalised if themarkets go up? Absolute robbery, I say.

The dollar hit a record low against the Euro on Tuesday as capital flows weakened sharply and the US current account deficit made the market verynervous. The Euro was trading at 1.953 against the dollar. It seems like people are less willing to invest in the US economy and thesimmering trade war between Europe and USA over steel, GM foods, foreigntrade tax credits, not to mention the other opening shot against Chinawith restrictions on some textile efforts caused the markets to worryabout how this will pan out for the American economy. This clothingdispute is causing major ructions around the world economy on Wednesday,gold went through $400 an ounce, the euro went up even more, bond pricesstaggered down and the Nikkei dropped almost 3 per cent.

An interesting news item crossed my inbox from my erstwhile colleagues at Citigroup. Apparently, Chuck Prince, the new CEO of Citigroup, the largestbank in the world, seems to have hit limits of growth. After saying thathe would not have bought Fleet Boston at the inflated prices, he said thatit is very difficult to transform Citigroup, and perhaps the only way todo it is to merge with Canada. He said, Citigroup was too big but stillsaid that he would be looking at small fill in deals to plug localdeficiencies and local markets.

The mutual fund scandal in the USA is rumbling ahead, with reports thatthe SEC has decided to charge Morgan Stanley for illegal mutual fund salespractises. Putnam is suffering heavily with major sums of money leavingthe giant mutual fund company. On the other hand, this scandal is againshowing how incompetently the US financial markets are regulated. The SECand government have just not learned anything from the previous researchscandal. It is still fragmented, and no single oversight of any industrialsector is there, which means that there are significant gaps on regulatorycoverage.

Not content with mucking up investment banking, equities and the mutualfund industry, it’s now the turn of the foreign exchange sector to be inthe criminal limelight. 47 people in the foreign exchange market werecharged this week from a staggering array of blue chip banks such as JPM,Societe Generale, UBS, DKW and even a former member of the Fed. Millionsof dollars were involved and apparently has been going on for the past 20years. I wonder when the US authorities will seriously consider that theimage of the US financial sector is taking a major hammering because ofall this and this essentially makes the homeland of capitalism totallyunfit to do business in. Confidence and trust is everything in financialmarkets, and we are already seeing that trades are being difficult to dowith the smaller American players by rest of the world.

The plan by several continental and UK building societies to launch 25year long term fixed rate mortgages is an interesting step. Unlike thecontinent and USA, most of the mortgages in the UK are variable rate whichmeans that over the short term, they are cheaper specially when the ratesare low and inflation is controlled as is now. This variabilityunfortunately makes the British economy very susceptible to interest ratechanges and as the UK chancellor pointed out, if we adopt the euro, thiswill hurt the British economy massively when the European Central Bankchanges interest rates. Unfortunately, I cannot see a way out as variableinterest rates will always be cheaper in the days of low interest rates.

Something which made me laugh long and hard. The London Underground union RMT had to postpone its strike ballot by 4-5 days. The idea is that theunion will send out strike ballots to all its members and the members willvote on the ballot whether to strike or not and post the ballots back tothe union headquarters whether they will be counted and suitable actiontaken. Unfortunately, the delay was caused because the postal workers wereon strike and the snail mail was significantly delayed. London, anyway, isa high volume market and the postal worker strike would not helpdeliveries at all. Workers of the world are not obviously united at all.For that matter, the workers of the developed world are very upset withthe workers of the developing world for taking all their nice little jobsaway.

On the trade front, things have been happening. The Free Trade Agreement for Americas is currently under discussion and because of what happened in Cancun, people are very sceptical about this entire thing. Brazil alongwith India was leading the charge to push out the farm subsidies while theUSA and Europe were resisting it. Now that they are talking about FTAA, itwas but natural that Brazil and USA will butt heads. So, at the most,expect a desultory and lightweight agreement. On the other side of thepond, Pascal Lamy, the EU trade commissioner, seems to be verging towardsdropping the Singapore issues. Good for them, finally good sense seems tobe breaking out in those dim European corridors.

(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: Nov 24, 2003 20:22 IST