Markets And Economy

Currency crisis in the Emerging Markets

. The year 2013 has seen a global sell off resulting in the fall of currency in most emerging markets including Brazil, India, South Africa, Indonesia and Turkey. The charts below show the currency movement of the emerging nations versus the US Dollar in the last 5 years. (Source: http://www.xe.com/currencycharts )         Brazilian Real has fallen more than 14%  against the USD.       Indian Rupee has fallen about 20% against the dollar in 2013 and hit a lifetime low 68.85 per USD.       South African Rand hit the R10/$-mark for the first time since 2009, the lowest value in four years as poor economic data and labor market tensions weighed on sentiment.        Indonesian Rupiah has slid nearly 12% in 2013.           The Turkish Lira has fallen to a record low of 2 to the US Dollar, the lowest level record since 1981.   

Markets And Economy

Companies Bill 2012– Giving Voice to Minority Investors in India

  The passing of The Companies Bill 2012 by Rajya Sabha on 8th August 2013,  is a step forward towards transformation in the corporate governance practices of the country. The new bill that requires President’s assent for it to become law, replaces the Companies Act of 1956. The bill, when enacted will bring in reforms to enhance corporate governance by giving voice to the minority investors in India, strengthening the role of independent directors and expanding the responsibility on auditors. A key objective of corporate governance in India has been to strike a balance between the rule of majority shareholders and the protection of the rights of minority shareholders. The protection of minority shareholders rights is particularly critical given the often concentrated ownership of Indian companies. Unlike in the developed countries such as US & UK, where ownership of a company is widely dispersed and is generally separate from the management of the company. In India, listed companies are usually parts of a large business group, characterized by a promoter or a controlling shareholder.

Industry

Changing Global Energy Landscape with US Shale Gas – Part II

In mid- 2012, Kinder Morgan’s acquisition of El Paso for $38 billion,  resulted in a combined company called Kinder Morgan, Inc which is the largest operator of natural gas pipelines in the U.S. with 22% of the U.S. natural gas pipeline network,  connecting almost every gas field and consuming market in the U.S. The expanded pipeline network resulting from the Kinder Morgan-El Paso deal is expected to be especially significant in supplying gas to higher-priced electricity markets such as New York and Florida. The expanded pipeline network will permit the natural gas “bubble” to move downstream, in enough abundance to stimulate new products and locations. This deal was a game changer because thousands of wells drilled to produce the record-setting “bubble” now have a record-setting pipeline network to get to market. This transaction affirms the potential of the shale gas discoveries, while countering apprehensions regarding stability of the natural gas market. Sasol has announced a $10-billion facility in Louisiana to manufacture diesel fuel from natural gas, thus creating a new market for Haynesville Shale gas. That’s not all. Dow has announced plans to build shale gas downstream capacities based on ethane and propane on the Gulf Coast, and Shell has…

Industry

Changing Global Energy Landscape with US Shale Gas – Part I

In the year 2009, United States surpassed Russia to become the world’s leader in natural gas production, with production continuing to increase to 80 billion cubic feet/day in 2012. U.S. natural gas reserves are at their highest point since 1971, and year-on-year reserve additions doubled from 2010 to 2011, as a result of shale production. Shale gas, a natural gas found trapped in sedimentary rocks, made up only 1 % of U.S. natural gas production in 2000. It now amounts to 25 % of U.S. natural gas production and is expected to increase to nearly 50 % by 2035. Natural gas, cost-competitive with coal at half the carbon emissions, is becoming the fuel of choice for electricity generation. New EPA regulations on particulates, mercury, and other toxic emissions are forcing the closure or retirement of 28 GW or more of coal-burning capacity, or about 8.9 percent of total U.S. coal-burning capacity. Recent increases in coal transportation costs are also problematic for coal. In addition, demand for electricity is forecast to exhibit slow but steady growth over the next few decades. These factors, taken together, are expected to be the primary driver of demand for natural gas in electricity generation over…

Personal Effectiveness

Norms and Stereotypes in Corporate India

. India is fast emerging as an innovation base and presents a large market opportunity to companies that are creating economical products and solutions for the country. At the same time, India also has its share of challenges in terms of lack of adequate infrastructure, bureaucratic bottlenecks, complex labor and taxation regulations etc. But besides these major policy or investment constraints, there are these few other norms & stereotypes typical of the Indian corporate culture, which though are commonplace for most of us living in India, but if changed will work towards projecting a much better image of Indian businesses.

Business Zone

US Immigration Bill – impact on Indian IT industry

The Indian IT industry will be cautiously following the US immigration bill to be introduced this week by the US Senate, with the objective to provide for comprehensive immigration reform, increase visas for skilled workers; and beef up border security. Passage of the bill could be a boon to high-tech companies like Intel Corp.  or Facebook Inc., who would be able to hire more highly skilled workers from abroad. But the US immigration bill is likely to impede the operations of the Indian IT services cos. The IT services industry grew rapidly in the 1990s.  Due to the Y2K hype, businesses were apprehensive about their IT systems and so there was demand for IT service providers. Once the Y2K hype was over, the customers became conscious of their IT spending. Consequently, the suppliers had to hire overseas, particularly in India, and that paved way for the off-shoring trend that is currently seen. Indian consulting firms like TCS and Wipro introduced off-shoring by charging lower prices per consultant. These firms basically enjoyed the labor arbitrage due to large number of consultants working in India enjoyed and competed in terms of pricing. Big IT consulting houses like IBM and Accenture had to…

Markets And Economy

Markets – On the Roller Coaster

  The excessive market euphoria that was apparent in the beginning of the month has faded and has given way to apprehensions for investors worldwide. Even as the markets seemed to recover from the concerns over Cyprus bank run, tagging it a one off event, the news of political turmoil in Italy shook the European stock markets. Greece’s ATHEX Composite was off 4.8%. US indexes opened in red today. This certainly signals nervousness and dampened sentiments of investors. The Asian markets will also be impacted negatively. Bank deposits that were so far considered as safe investment options, no longer seem to be safe after the Cyprus government decided to levy taxes on deposits, in a bid to secure bailout package from the European Union. The banks have remained closed for about a week and are likely to reopen with the imposition of capital controls by Cypriot authorities.

Markets And Economy

Global Markets – Riding high on sentiments

  Worldwide markets are echoing bullish sentiments. The US Dow Jones Industrial Average index has surpassed its 2007 high and continues to make new all-time highs. The Standard & Poor’s 500 Index too is trading at post-2007 highs. Asian & European markets are rallying too based on cues from the US market. Indian markets are recovering from February lows. All this barely a week after the US sequestration set in on March 1, 2013!! The bullish markets have revived positive sentiments and created excitement, but it also warrants cautiousness.

Markets And Economy

Market Reaction to new CEO announcement

  On 21st Nov, Indian generic drug maker Cipla Ltd. announced its plans to acquire South African firm  Cipla Medpro. Subsequent to the announcement that is likely to boost its prospects in Africa, and is expected to be accretive to earning, Cipla Ltd. shares rose by more than 3 % after the announcement and were trading at Rs 390 on NSE. On 22nd Nov, Cipla Ltd announced the appointment of Mr. Subhanu Saxena as Chief Executive Officer. Mr. Saxena has rich work experience of over 25 years, in industries as varied as FMCG, consulting, banking and pharmaceuticals. Following the announcement of the appointment of new CEO, Cipla share fell down during the day while the NIFTY index showed a upward movement. Cipla share price clearly did not follow the pattern in sync with the movement of NIFTY.   This weak movement of the share price on 22nd Nov could have something to do with the announcement of new CEO appointment. Generally some market reaction is expected around the announcement day of a CEO appointment. In considering CEO candidates, boards of directors and selection committees are almost always concerned about the market reaction on the company’s share price.   At times markets tend to…

Industry

Challenges facing India’s Infrastructure Sector – Part II

In my last post, I had written about the challenges faced by infrastructure sector in India. If we were to look into the reasons behind the challenges in India’s Infrastructure sector, we see that the problems can be broadly categorized into structural or procedural in nature. Structural reasons: Faulty incentives: Government organizations as well as the concessionaire are wrongly incentivized while implementing the infrastructural projects. Government contracts are generally awarded on the basis of lowest price and this encourages private players to undercut each other in prices for winning the contracts, thus resulting in poor quality bids and shifts the focus from long term viability of the project to short term gains, while transferring the risk to debt owners or the tax-payers. Oligopoly of project proponents:  Infrastructure projects require very high capital contribution and bank funding. Since India is still young in terms of numbers and complexity of infrastructure projects executed, at present we find only a handful of companies bidding and being awarded with projects in the country leading to a situation of “managed competition” where projects theoretically can be “distributed or shared”. High cost of funding : High cost of borrowing both from bank loans and bonds, has off…

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