'Support jobs being outsourced'
The Sensex closed a rather good week at 3726, a 2 per cent jump, and showed a good rising trend over the last 3 days of the week, with a steady rise in the market, thanks to a steady stream of good earnings numbers from key firms.
State Bank of India released higher than expected first quarter results, as did Satyam Computers which reported figures which were 12 per cent up over the corresponding quarter of last year. Even better news for Satyam was that the RBI announced that foreign funds can hold up to 60 per cent of the firm’s equity. ACC was also in the news with a near doubling of quarterly profits, TISCO reported a 316 per cent jump in net profits and Maruti led the pack with 970 per cent increase in quarterly profits.
A market rumour that the authorities may delink the foreign institutional investments from the foreign direct investment limits in the banking sector made the shares of the public sector banks shoot up. Needless to say, it could well be a rumour floated by the powers that be, so that they can gauge the reaction. Well, guess what? The market loves it. Mind you, one has to be slightly concerned whether this is privatisation by the back door. Heaven only knows that the PSU banks desperately need good ownership structures as well as the government to step out of this sector. Oh! Well, one hopes this step may actually happen.
The RBI loosened the purse-strings a wee bit by raising the foreign exchange remittance limit to $100,000 from the previous derisory $5,000. The rapid rise in foreign exchange reserves has given some comfort to the reserve bank and individuals/corporates can send more money outside for education, medical treatment, and other personal requirements. One tends to suspect that this step is more concerned with the RBI’s desire to further liberalise the current account, but not by much. It is cautious and so it should be, one doesn’t want full liberalisation till the world economy, as well as our economy, is far more robust than it is currently.
On the outsourcing front, there were announcements from a range of companies about jobs moving to India from Europe as well as from USA, and we are not talking about small itsy bitsy companies, but firms such as IBM and Goldman Sachs. These companies are the crème de la crème of the western corporate world, and the jobs which are leaving are mainly the serious support - operational, technical and infrastructural jobs. Right after the great middle level manager massacre of the 80’s, and the last few years of recession driven job losses, this will barely leave the sales, marketing, production and possibly trading in the western countries, most of the white collar jobs will head off with a giant sucking sound (paraphrasing the immortal words of Ross Perot when he said years back that jobs in the USA are disappearing into Mexico with a giant sucking sound).
A pushback has begun, but, I am afraid, it will be to no avail. These countries have to invest in their education systems, but they are pumping in money into health and defence. Well, good luck to them and watch out for countries like India picking off the white collar jobs, while countries like China pick off the blue collar jobs. I guess only the collarless jobs will be left.
The Babble in the Ivory Towers
Katja Meier-Pesti and Erich Kirchler wrote a rather interesting paper entitled "Attitudes towards the Euro by national identity and relative national status". While this is not my usual hunting ground for research in finance and economics, my eyes caught sight of this paper. The researchers use social identity theory and common in-group theory in the emerging field of economic psychology, to see how common Austrians reacted to the Euro. The authors find those respondents, who thought that the relative status of Austria was lower than the other member states, as well as those respondents who identified strongly with Austria, showed the greatest opposition to the Euro. While the respondents, who thought that Austria’s status was equal or higher to the other member states, were favourable towards the Euro and surprisingly, national identity attitudes played no part in their attitude towards the Euro.
I always figured that national currencies are closely linked to the image and feeling that people have towards their country. National identity contributes to personal identity and has positive impact on people’s self-esteem if the nation is positively evaluated. National identity is influenced by the national currency and it stands for economic fitness, collective self-esteem of the nation, national continuity, differentiation and efficacy. Highly stable currencies and national wealth contribute towards self-esteem. We don’t have to go far to see the effects, the fact that the INR is pretty stable(ish) and the foreign currency reserves are increasing rapidly, has given a fair bit of optimism to the market participants.
I know I am only referring to the people in the banks and brokerages, but a perusal of the Indian business pages shows the increased optimism. Now whether this is due to the currency situation or not, I guess somebody has to research it and confirm. Still, I think that is what is driving the good feeling all over the place. Interesting to get that confirmed, I would have thought.
Details of this paper and past columns are available on
The World Babble
Well, the numbers came in looking good this week. The DOW, S&P 500 and NASDAQ all ended up about 1 per cent over the week, the DOW ending at 9284, the S&P 500 at 998 and the NASDAQ at 1730. While there were couple of dips during the week, the trend was positive and was helped by a clutch of good corporate results, some positive economic news and hey, two monsters (Uday
and Qusay Hussein) were killed off as well. Across the board, earnings were 4.5 per cent up on this quarter over last year. June’s durable goods orders were over expectations and give some faint hope that the US economy is gaining momentum and may show signs of greater life over the second half of the year. As a bell-weather sector, the financial sector is growing like a weed and showed a rise of 11 per cent comparatively over the quarterly comparison. Pretty good going, and gives an indication that the investors are coming back.
Charles Schwab reported good results, which is bearing out the premise that ordinary investors are getting interested in the markets again and the M&A sector is gathering steam. The e-business leaders, Ebay and Amazon, both reported excellent results and more importantly, gave reasonable forecasts for the rest of the year.
The Japanese Nikkei 225 closed at 9648, just above 1 per cent up, Japan is still nervous and the loss forecast by Mitsubishi Motors plus Sony’s horrendous results are not making the investors happy at all. Europe, on the other hand, was battered by news of the automakers suffering from the double whammy of miserable demand and the rise in the euro. The FTSE Eurotop 300 index 7.38 points or 0.85 per cent to end at 861.23. Oil prices slipped to end the week down nearly 6 per cent after the death of the Hussein brothers and the remarks coming out from Iraq that contracts have been signed. Gold is also middling around and ended up at $362 per ounce. The good economic news, including a surprise fall in unadjusted unemployment figures in the USA drove bond prices down, lifting yields.
The 10-year Treasury note was yielding 4.18 per cent, significantly higher compared to last week. The dollar, on the other hand, nipped down a bit to close at 1.1508 against the Euro and at 118 yen, a slip of about a yen.
Finally on the trade front, the EU is in the crosshairs of the sugar exporting lobby lead by Australia, Brazil and Thailand, who have requested the establishment of a panel to examine the EU’s sugar subsidy regime. These three countries are positing that the EU’s sugar subsidy regime is incompatible with the WTO export subsidy obligations. Needless to say, the EU blocked this request. Prima facie, one would say that the subsidies should go, but it should be remembered that the European Union has this awesomely complicated structure of preferential trade and subsidies for the ex-colonies of the old European colonial powers (remember the banana affair?). If the European sugar subsidy regime is unravelled, it will create a significant economic shock to the economies of the ex-colonies. An uncharitable thought did cross my mind, why did they not go after the American lot as well? They also have an equally odious subsidy regime, which makes sugar pretty expensive for the consumers. Oh! I am sorry; did I mean that these governments will do something good for the consumers? Bite my tongue!
(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.)