India likely to remain the hot pick for world 2008

In the age of globalisation, saying no to foreign money is almost unheard of. But in a rare instance, the Indian government led by finance minister Palaniappan Chidambaram has been campaigning hard to curb foreign inflows into the Indian market. After all, foreign money has been relentlessly chasing the Indian growth story. Out of the $68 billion that foreign institutional investors (FIIs) have been pumping into India, as high as $16 billion have entered into the Indian market this year alone. Even in foreign direct investments (FDIs), about $30 billion is expected to land up in India, up from last year's $19 billion, including reinvested earnings. The forex reserves have been surging, and it has crossed $270 billion. By now, the India story is fairly well known to the rest of the world. A trillion-dollar economy with a GDP growth rate of 9% or so, India has been the hot favourite among emerging markets, thanks to its strong fundamentals, transparent policy framework and vibrant corporate sector. Yet, the highs of 2007 could result in major challenges in the year 2008. The big question here is whether India will be able to grow at the same pace while coping up with unprecedented phenomena such as appreciating rupee against dollar, flooding of foreign capital in a few select sectors, lack of capacity building in infrastructure sector and above all, unforeseen political turmoil emerging from a pre-poll milieu. ADB's managing director, General Rajat M Nag feels that no one doubts India's growth story by now. What's needed is a massive outlay in infrastructure. "The needs are huge, and the fiscal space is limited. As a sizeable amount of public resources has to be spent on education, health and other social sectors, public-private partnership (PPP) is crucial for infrastructure sector," he says. For Mr Nag, the shortage of power and lack of power reforms in the country could play a spoilsport for India story in 2008 and beyond. According to ADB's estimates, India requires $700 to $800 billion of investment in infrastructure in the next five years, which is substantially higher than the estimates made by the Planning Commission. Prof Raj Raina of Gordon Institute of Business Science, University of Pretoria, in South Africa, says that India will keep its growth story in tact for 2008 and beyond. "That India is now determined to build its infrastructure is itself a positive sign. No country in the world will spend so much money in infrastructure for the next five years as India is planning today. I am sure that India will maintain 9% plus GDP growth rate in the years to come," he says. Yes, the spending on infrastructure itself could be a big driver of growth for 2008 and beyond. According to Planning Commission estimates, $145 billion or 30% of the total investment in infrastructure will come from the private sector. The growth of PPP framework in India will enable many infrastructure companies to increase its size and scale in the coming years.

Outlook 2008: Indian Markets in a Global Economy

Highly volatile markets, but more than 40% returns in rupee terms, plus 50% returns in USD terms, plus 70% returns for midcap segment. Metals, Oil and Gas, Capital Goods and Banks were the top performers. IT, Auto, and Pharma were the laggards.

Those who stayed invested made money. Those who tried to time the markets got whipsawed by the high volatility amid dramatically heightened event risks.

Most analysts were wrong with their estimates of a 15% to 20% returns from the Indian stock markets. Most forecast a US real estate slowdown, but missed the sub prime crisis. UP and Gujarat election results had contrasting prognosis for the Central governments tenure and stability. Meantime, the economy chugged along well and the RBI did a good job in reining in inflation, while a booming tax receipts scenario helped the MOF report a low fiscal deficit despite a subsidy bill of over Rs 100,000 crore on oil, LPG, fertiliser and food.

This would be our summary of the Indian markets performance in 2007. It is time to dust off the proverbial crystal ball and look forward to 2008.

1. Indian Economy: We expect the GDP growth of 8% plus to be maintained, despite the tight monetary policy from the RBI. The key drivers will be corporate capex, public infrastructure, and fiscal stimuli from a government in its last pre election year and a booming domestic consumption class. Services will lead the pack, with manufacturing steadier and agriculture maintaining a 3.5 to 4% growth.
2. Global Economy: Fuel and food prices are stoking high inflationary expectations across the globe from US to China to Japan to Europe. We feel the global economy will avoid a recession, and will manage to limit the H1 2008 economic impact to a slowdown and with a strong up tick in H2, 2008.
3. Sub prime Crisis: This will remain centre stage for at least one more quarter; with major financial services companies announcing more write offs. However, the delinquencies will not reach the predicted levels and the US consumer will show more resilience than expected. This could lead to financial stocks, which are down around 19% in the US markets in 2007, being the outperforming sector globally in the H2 of 2008.
4. Global Stock Markets: Most markets will have another winning year in 2008. The US will see better returns than 2007 as the economy accelerates in H2, 2008. The European markets will follow. China will benefit from the Olympics effect. Japan will see another lacklustre year given the domestic problems, but the exporters will outperform in the H2, 2008 in tandem with the US economic pickup.
5. US Interest Rates: The Fed funds rate will go down to 3.5% in the first half and stay flat for a quarter at least. As economic growth picks up in the second half, we expect a slow tightening of rates.
6. Indian Interest Rates: There is a need to reduce rates to ensure the economy has adequate credit available. However, the oil and food prices have an inflationary potential, which will delay the rate cut to probably Q2 of 2008.
7. Oil: The biggest event risk to all our forecasts remains the price of Oil. At near to USD 100, oil remains the most significant threat to global growth and economic stability. We don�t expect any dramatic reduction in the oil price in 2008 given the lack of production capacity and the aggressive stance of a number of OPEC members.
8. US Politics: The US Presidential election will be hard fought with a high probability of the Democrats winning the White House as well, with Hillary Clinton becoming the first lady President elect. With the Democrats controlling Congress and the Presidency, there will be expectations of higher taxes and welfare measures which could psychologically impact the US markets in the lead up to the presidential inauguration. Iraq will remain a difficult situation to get the US out of and hence we don�t expect any 2008 impact on that front.
9. Indian Politics: Given the writing on the wall in Gujarat and Himachal, we will see a self introspective Congress Party in no hurry to push reforms that may threaten the Central governments stability. The markets have baked in a no reform scenario, so it will not impact the markets. A positive could be reforms by stealth like IPOs and FPOs of PSUs.
10. Rupee US Dollar Rate: The 11% rupee appreciation in CY 2007 has caused turmoil in export dependent sectors from textiles to IT to pharma. The measures undertaken by the policy makers to stem the foreign debt and portfolio inflows have worked. These coupled with an expected bounce back in the US dollar in H2, 2008, will mean a moderately appreciating Rupee in 2008.
11. Indian Stock Markets: If most of the above scenarios pan out, we expect another blockbuster year for the Indian markets in 2008. Most analysts are hedging their bets by 15% to 20% forecasts. However, we have seen in the last 10 years that the GDP to Corporate Earnings ratio is around 1: 3. Hence an 8% GDP growth should entail a Corporate Earnings growth of around 25%. That could lead to the markets returning around 25% to 30% .We would put our money on the higher end of this range. While in the short term, we expect continued volatility driven by global cues, we continue to positive on the outlook from a 2-3 year perspective.

The combination of continued earnings growth (20-25%) and re-rating of India, should continue in 2008 albeit with a higher bout of volatility. 2008 should be the year when the India story matures in the context of a global economy and in comparison to other emerging markets. 2008 will probably herald the arrival of India investing as a mainstream destination - 'must have' kind of feeling for global investors. In term of sectors, we would be overweight on banking, media, cement, construction and capital goods, real estate and auto/auto ancillary stocks. As in 2007, mid caps should do better. But midcap investing should always strictly be at least 2-3 year investing, as it is investing with the expectation of them converting to large caps.
 
In summary, we expect a positive global and Indian economy and markets in 2008. The advice for investors would be the same as always�invest according to your risk appetite, time horizon and financial goals, make a financial plan, diversify, invest for the long term and stay invested through the market cycles.

Happy investing and a very Happy 2008!

- Ajay Bagga

The author is CEO, Lotus India Asset Management Co Pvt Ltd.

Sensex EPS growth seen at 25% in FY08: Mirae Asset Gbl Invt

Speaking to CNBC-TV18, Gopal Agarwal, Senior Fund Manager- Equity of Mirae Asset Global Investment Management (India) said that they are looking at around 25% Sensex EPS growth in FY08 and around 19% Sensex EPS growth for FY09. He added that markets will remain robust in the next 2-3 months.  

Excerpts from CNBC-TV18�s exclusive interview with Gopal Agarwal:

 

Q: Is the F&O figure giving you a feeling, alongwith other evidence, that the first quarter of 2008 could see some extraordinary level of bullishness?

 

A: The liquidity levels in the market are likely to be very good for the next 3-4 months, as a lot of NFOs in the market are likely to mop up nearly USD 3 billion and insurance companies are also going to get good money in the next 3-4 months. This means that in the next 2-3 months, the market will remain very robust.

 

Also, some indication of the Q3 results, which have come in, in terms of advance tax numbers, show that we are going to see very healthy Q3 results. Considering that factor, the market is seeing some robustness.

 

Q: What kind of liquidity are you expecting from the FII quarter. One has seen a tapering of liquidity in November and a decent performance in the first half of December, not carried out in to the second half. In the past, January has seen huge FII flows. Do you think that would be replicated?

 

A: Definitely, we will see some of the FII interest returning back to India, because the Indian market offers you reasonable value. Our market is currently trading at 17 times FY09 earnings, considering the embedded value in the system. We also offer the highest visibility, in terms of earnings growth, amongst all the emerging markets. So, definitely FII interest will come back to the Indian market.

 

We may not be sure whether we will see that kind of inflows we have seen in 2007. But certainly, FII interest will come back to the Indian market. 

 

Q: What is the kind of Sensex EPS growth, that you are projecting for FY08 and FY09?

 

A: For FY08, we are looking at around 25% EPS growth and around 19% EPS growth for FY09 basis. In terms of that, we would look at around Rs 990 of EPS for FY09. There are around 3,200 points of embedded value, which the market is factoring for the businesses, which are still not making profit or are still not commercial.

 

Q: Sectorally speaking, which are the broader themes, which you would be looking at very closely, as a fund manager and investing in? What would your strategy be on IT, pharmaceuticals and autos ?

 

A: In the pharmaceutical sector, it is totally on a company-to-company basis, because there cannot be a very broad strategy on the pharma sector. So, we are analyzing clearly on a company specific basis. Therefore, we will be investing into these companies, based on the developments in a particular company.

 

In the IT sector, we are underweight. It does not mean that we can completely negate the sector. At a particular price point, it offers you great value. The companies are showing good volume growth. Our expectation is that the rate of rupee appreciation will decline going forward.

 

If the billing rate is going to increase, it will take the pressure off, on the cost side and it will be very positive for the IT sector. So, we would be looking forward for the quarterly results trend and also the billing rate, going forward, which will give us a very good sense on the IT sector.

 

As far as the automobile sector is concerned, we are more bullish on the four-wheeler sector. Definitely, we have some bets on the commercial vehicle and passenger vehicle.   

 

Q: In January to March, what would be the sectors that you would be comfortable with?

 

A: In the January-March quarter, we are going to witness that the mining sector will continue to do very well. Also, we will see some activity coming in the energy sector because a couple of IPOs are planned.

 

Definitely, there will be some action in the energy sector. We also have to see how the banking sector performs because till the year to date, credit growth is not as good as what we have seen in FY07. So, a clear trend will emerge in the next quarter of how the banking sector is going to perform from here.

Fidelity bullish about Indian markets

Expects Asia to perform better in 2008

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Growth story

Fidelity feels that India's long-term growth remains intact, though 2008 is likely to see more volatility in the markets.

Corporate earnings outlook is expected to be reasonable though there could be slight dip in earnings growth in 2009.

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R.Y. Narayanan

Coimbatore, Dec 25 The Fidelity group, one of the largest investment groups globally, is confident that the Indian stock market would do well in the coming year, in spite of increased volatility.

In fact, the group feels that Asia would be a better bet for the global investors during the next year.

According to Mr Sandeep Kothari, Fund Manager, Fidelity Equity Fund, Fidelity Tax Advantage Fund and Fidelity India Growth Fund of Fidelity Mutual Fund, "India's long- term structural growth story remains intact although 2008 is likely to see increased volatility in the Indian markets", on the backdrop of developments in the international markets.

Looking into the coming year, he said the economic data was still robust and the Government was on course to spend about $400 billion on infrastructure and the consumer spending also was high. He said the outlook for corporate earnings was reasonable though the market expected slowdown in earnings growth for fiscal 2009 to about 16 per cent compared to 18 per cent in fiscal 2008. This lent credence to the view that the valuations, though high, would not lead to any bubble, he said in a release issued by the fund here.

Increased volatility

Summing up the market trend in the coming year, he said "while the long-term fundamental story is still intact and the domestic consumption and capex themes continue to be strong", because of global market developments and high valuations, the Indian market might see increased volatility and hence it would be important to "focus on companies with earnings visibility, quality management and execution capability".

Mr Michael Gordon, Head of Investment Strategy at Fidelity International, was of the view that 2008 could be one of the most interesting for equity markets this decade since "at least two of the three pillars that have propped up the equity bull markets of the West since March 2003 – leverage, consumer spending and corporate earnings – could be missing in 2008".

He said leverage that underpinned much of the rise in the markets was no longer available on attractive terms and "the era of easy credit is over". The private equity houses were on retreat and their "absence from the market – and more particularly, their willingness to buy assets – means that the traditional investment fundamentals such as earnings growth will need to take centre stage next year". The declining home prices in the US would dampen consumer spending that could affect business confidence.

Inflation worries

He expected inflation to capture the centre stage and there were early signs that economic growth and corporate earnings are being eroded by inflation, due to the rampant consumption of energy and commodities in Asia. He felt that investors in the equity markets of the West would however earn profits in 2008 if they are choosy about their stock selection and did not allow to be led by the main stock market indices.

He felt that diversification would be important and moving away from leveraged asset classes will be needed. In his view "Asia is the best place to see market exposure without leverage".

Conceding that share prices in Asia have gone up sharply in important markets like China, he said the story for investors there has been one of pure growth, not leverage. He said the region's "rising importance in global economic terms – and the continued growth there - to be reflected more in equity markets".

He expected the global monetary conditions to remain supportive. Interest rates continue to be low by historical standards and "central banks are more likely to cut the cost of borrowing than raise it, particularly if economic growth does stutter". He believed that shares would offer positive returns – "provided that investors are choosy about stocks and are less influenced by the make-up of benchmark indices".

Indian insurance sector to become Rs.2 trillion by 2010

New Delhi, Dec 24 - India's thriving insurance sector is all set to grow from Rs.500 billion to Rs.2 trillion ($50.7 billion) by 2010, says the Associated Chambers of Commerce and Industry of India (ASSOCHAM).The main reasons for such a major growth would be the coming of private players and aggressive marketing, the industry chamber said.The industry, which has seen a compounded annual growth rate of around 175 percent in the last couple of years, is likely to throw up several new avenues of business potential.The private sector insurance business is likely to achieve a growth rate of 140 percent as against the public sector's growth rate of 35-40 percent.'On account of intense marketing strategies adopted by private insurance players, the market share of state owned insurance companies have come down to 70 percent in the last four-five years from over 97 percent,' said Assocham president Venugopal N. Dhoot.Assocham also indicated that the role of private players would increase significantly in rural areas as it has enormous growth potential.Insurers should develop viable and cost-effective distribution channels and build consumer awareness and confidence, it said.

Feeling Good About Indian Economy

As another year draws to an end, extracts from two speeches delivered this year — one by an ex-finance minister (who happens to be the current Prime Minister) and another by the current Finance Minister. Both the speeches were delivered to a foreign audience and the extracts reproduced here cover only the hard facts, not the political rhetoric and the palaver.

Let us begin with Dr. Manmohan Singh's address to the Japanese Business Delegation, on 20 August 2007 -

Today, the Indian economy is in a position to sustain GDP growth rates that are close to 9%. Foreign Exchange reserves stand at over US$ 200 billion. We expect to receive Foreign Direct Investment of about US$ 30 billion this year. Our savings and investment rates are close to 35% of our GDP. Our foreign trade constitutes 33% of our GDP, which is a testimony to India's growing integration into the global economy.

On cue is the speech by Finance Minister, P. Chidambaram at the Norwegian Nobel Institute, Oslo on 'India's Socio Economic Agenda: Development with Democracy' delivered in October 2007.

The India growth story has been told and retold many times and all of you are familiar with that story. Allow me, however, to narrate some highlights of that story and bring you to the present day. GDP at market prices has increased from US$ 20 billion in 1950-51 to US$ 912 billion in 2006-07 and is expected to cross a trillion dollars in the current year. In terms of purchasing power parity, India's GDP at US$ 4 trillion in 2006-07 accounted for 6.3 per cent of global GDP. Average annual economic growth, which had been constant and tardy at 3.5 per cent during the first thirty years of Independence, increased to 5.7 per cent during the 1990s and, since 2003-04, the average rate has increased further to 8.6 per cent. 2006-07, in particular, was a splendid year with the GDP growing at 9.4 per cent. This growth has not been jobless growth. During 1999-2000 to 2004-05, India added to its workforce about 12 million people each year. During this period, the rate of growth of employment was 2.9 per cent per year. India, after China, is the fastest growing economy of the world, and together with Brazil, Russia and China is the locomotive driving world growth.

The proportion of people living below the poverty line in India has declined from 51.3 per cent in 1977-78 to about 22 per cent in 2004-05. But in absolute terms they still number around 250 million. More than one third of our 1.1 billion people live on less than one dollar a day.

…we have achieved an enrolment ratio of 95 per cent in primary education. Of the children in school, 73 per cent are now reaching Grade V.

We have managed to provide drinking water to 83 per cent of our rural population and sanitation coverage has gone up in the last decade to 22 per cent from a dismal rate of 3 per cent.

Farm loans have more than doubled in three years from Rs 869 billion in 2003-04 to Rs 2032 billion in 2006-07. Loans to students have trebled from Rs 45 billion at the end of March 2004 to Rs 142 billion at the end of March 2007. It is not widely known that India runs the largest micro-finance programme in the world. At the end of August 2007, 2.93 million self-help groups, an overwhelming number comprising women alone, had been provided credit by the banks. The total amount of outstanding credit is Rs 181 billion.

One-third of the population is below the age of 15 years. India is the only large country in the world where the size of the working age population will grow – and will exceed the number of dependent children and old persons – until 2025, the year up to which projections of population have been made, and perhaps even beyond till 2045.

While the critics sharpen their knives (and you read the comments to this post), savour the moment and feel good about the Indian economy. And do join me in wishing the Indian Economy another great year ahead — 2008.

Dial D for diversification

Check out the speed. After charting out a high-octane growth curve, India Inc is changing gears and getting into a diversification mode, spotting the booming business domains. In fact, in an aggressive hunt for growth areas, many Indian companies of various sizes and scales have made a serious attempt to join the bandwagon and branch out to new businesses.

The hot and happening sectors are a few in numbers. Backed by encouraging government policies and strong future outlook, sectors such as telecom, power, roads, financial services, retail and education have taken a lead in India's new chapter on diversification. Already, the companies with sound track records in raising capital both from equity and debt markets, have spotted those buzzing sectors which in turn may help their top-line to grow on a sustained basis at least for a few more years.

The realty players' foray into the infrastructure space is a classic example of the new twist to the diversification story. None of the companies such as Unitech, Omaxe and Parsvnath, which have recently unveiled ambitious plans to enter the telecom, road and other infrastructure space, were big names in corporate India until recently. Another realty major Ansal API has stated its ambitions to explore in education sector.

Says Sanjay Chandra, MD, Unitech, "The potential in India's economy is phenomenal. Every sector is seeing double digit growth and especially the infrastructure sector is booming. It is expected to be on a high for a few decades. It is, therefore, obvious for established industry players to diversify into such sectors."

In fact, new players of corporate India are moving towards sectors with a better future outlook. As the defence sector is expected to place orders worth $120 billion in the next 10 to 15 years, several bigwigs such as L&T, M&M, Ashok Leyland, Bharat Forge and Godrej are making a serious bid to receive a fair portion of the pie.

Similarly, big boys of India Inc — RIL, Bharti, and Aditya Birla Group— have entered into retail space which is expected to grow at 35% a year. Whereas pharma company Ranbaxy entered into the business of financial services, Indiabulls which began as a financial services company, made a foray into the booming realty sector.

Prior to the liberalisation process of 1991, diversification was largely limited to big players, as they could operate in multiple segments. The recent trend has shown that players with various sizes have diversified, thanks to their availability of raising requisite fund.

Frank Hancock, MD, corporate finance, ABN AMRO Asia, argues that diversification can make a big difference to the top-line of a company. "The rapid growth in a sector can ensure good returns which were previously not exploited. It can be effective in terms of balancing the risk of a downturn in a particular sector," he says.

PricewaterhouseCooper's executive director and leader in advisory services in India Ashwani Puri argues that most companies diversify not because of risk mitigation or for pure hedging, but for seizing business opportunities in emerging sectors. "The boom areas today include knowledge industries, telecom and related services, infrastructure, financial services etc. Most players diversify not because of risk mitigation, but for seizing new business opportunities," says Puri.

Anil Kumar, founder and managing director of Virtus Global Partners, a US-based investment banking firm, says that diversification strategies are being used by Indian firms to expand their operations by adding markets, products, services, or stages of production to the existing business.

The Great Indian Retail Story - Differentiation !!

Retail is one benchmark sector growing at a second fastest rate after the IT industry in the last couple of years. Retail is the new sunrise sector being recognized by Indian corporate bigwigs and entrepreneurs alike as the best investment to give promised returns on a much higher scale vis-à-vis the other conventional modes of investments. The Retail industry in India has been growing at a Compounded Average Growth rate of 46.64% in the last 3 years. It is slated to grow at a CAGR of 40% in the next few years. The astounding growth has attracted everyone from multibillionaire Giants like the Future Group, Mukesh Ambani Group, Bharti group and TATA's to the medium size ventures like RPG's Spencer, Aditya Birla Group or SPINACH group of hypermarts making them jump on the fast moving retail wagon. The Indian Retail industry is about 2% of the worlds organized retail market which is valued at around USD 25 Billion. Retail has an expected growth rate forecasted at a whopping 25% every year which makes it one of the most promising industries in the ever growing Indian economy. India is said to cross the USD 21.5 Billion mark by the year 2010.

This rapidly growing retail sector has made entrepreneurs pump in money make investments haphazardly without any proper planning or focused business outlook, this is forever true in terms of medium size retailers like Subhiksha who just rapidly expand in metro cities after setting up shop without realizing the potential demand or forecasted supply chain requirements specially in cities like Mumbai which have grown along the length and not on the sides. Unavailability of basic FMCG at Subhiksha stores last month in Mumbai shows the growing need for retailers to consolidate their expertise and grow with focused planning and implementation. The haphazard growth has cost retailers to skip many vital learning curves in the product life cycle of the retail sector costing them more than just opportunity cost of operations with valuable experience in running a retail operation in the unexpected and diverse consumer markets of India's nook and corners. There are certain cities like Pune and Gurgaon which have more than 3-4 outlets in a given area of 5 square kilometers which has continuously increased the choice of shopping destinations for target customers not only from that area but also from nearby areas. With an increasing growth rate of the sector per se as well as increasing choice, there is a huge demand driving the reins of the retail sector these days – DIFFERENTIATION!! A need to differentiate has made the retailers to constantly find newer avenues for making themselves more visible to customers so that they stand out among the crowd and attract a sizeable amount of the potential targeted customers.

Keeping the above mentioned aspect in mind, my FIRST TOPIC is on researching LAYOUT STRATEGIES currently employed by retailers as a means of differentiation. When consumers have a humongous choice, the Layout Grids of a given Hyper Mart plays an important role in converting walk-in customers into impulse buyers, managing the customer traffic on busy days and thus increasing the profit potential per footfall of the store. A Layout Strategy would include everything right from product placement / display, planning of corridors and design of grids so as to provide maximum visibility for all nooks and corners of the store. Layout Design would play an important role in impulse buying decisions as well as traffic flow of a store (the flow should be in such a way that customers walking in should pass out of the exit after having seen all products displayed in the store).

Anticipating such significant importance of Layout Strategies for current and future retail developments, there is an urgent need (among other needs); to concentrate and apply a push towards existing LAYOUT STRATEGIES employed by retailers.

Innovation driving India�s growth story

Confederation of Indian Industry (CII), organized a Conference �India � The Knowledge Hub� Focussing on technology enabled innovation in Process Industry at Hyderabad today.   

In her inaugural address, Dr J Geeta Reddy, Minister for Sugar, Industries & Commerce, Export Promotion, Government of Andhra Pradesh said that in India, the rapid growth of ICT services has fuelled the services industry.  Trade openness, institutional quality, financial sector reform favorable business environment infrastructure, well designed education policy etc are some of the factors which determine high productivity growth through human capital formation.  She said that Innovation in the Process Industry, through Technology applications will enable the industry to operate more economically.  The combination of state-of-the-art infrastructure and highly qualified manpower ensures that India is poised to be the next Global R&D hub.  

Mr.Malay Mukherjee, Group Management Board Member, ArcelorMittal spoke on the rapid strides that India has made over the past decade, fuelled by increasing foreign investments, availability of low cost advantage, quality workforce and growth across the industry.  IT, Telecom, Service sectors have been major contributors to this phenomenal growth.  With the advancement in IT Hardware and Software, the industry must adapt to the changing landscape of the industry for providing world class services. 

Mr Ramalinga Raju, Founder and Chairman, Satyam Computer Services Ltd, in his address shared his experiences in the formative years of his career and his movement from manufacturing industry to the process industry.  He also highlighted the transformation in India that has been brought about through access to technology.  Demystification of technology is important to provide access to technology for ordinary people. He was of the opinion that the present generation is having the advantage over all other past generations due to the increase in access to knowledge.   

In his introductory address, Mr Subu D Subramanian, Chairman, CII (SR) ICT Forum said that Process Manufacturing Industry has been enjoying high growth over the past five years. He highlighted that India is already the leader in technology led services. There is an urgent need for innovation in up-gradation of technology in the Process Industry which would help ensure development of newer and better products. 

Dr Geeta Reddy also launched the Satyam Process Manufacturing Centre of Excellence on this occasion.  

Mr M K Patodia, Past Chairman , CII Andhra Pradesh delivered the vote of thanks.

The conference was also addressed by Mr Sharat Kumar, Global Head � Process Manufacturing, Satyam Computer Services Ltd; Mr C Ravi Chandra Mouli, Secretary, FAPSIA; Prof N Viswanadham, Clinical Professor & Executive Director Centre for Global Logistics & Manufacturing Strategies, Indian School of Business; Ms Nora M Denzel, Former Senior Vice President, Hewlett Packard;  Mr  Shivam Mittal, Solution Architect, SAP India; Mr Sanjiv Varma, Vice President, Soft Infrastructure Group - Satyam Computer Services Ltd.

Small, medium units set to post 65% growth in 2 years

Bangalore, Mumbai emerge top spots for operations in Dun and Bradstreet study

Our Bureau

Coimbatore, Dec. 21 A Dun and Bradstreet study on IT SMEs in India shows that this sector is poised to achieve 65 per cent growth in the next two years surpassing the growth rate of 43 per cent in the last two years.

The study entitled 'Emerging IT SMEs of India 2007' covered 244 companies with an annual turnover of less than Rs 10 crore as on March 2007. These companies were chosen from 437 locations across the country.

Bangalore and Mumbai emerged as top locations for operations with 18 per cent and 17.6 per cent of the profiled companies operating from these two cities.

Overseas presence by 28 per cent of the sample encapsulates the changing trend in the SMEs perspective. These are now willing to cross borders to pursue growth.

Companies in the Rs 1 crore to Rs 5 crore revenue bracket accounted for close to 50 per cent of the profiled companies.

Manpower shortage

"Despite the strong growth prospects, the IT SME sector is witnessing several challenges such as acute shortage of skilled manpower, faced to a large extent by the companies located in the Tier II and III cities," says the COO of Dun and Bradstreet, Mr Kaushal Sampat.

Key insights

Some key insights further revealed that 32 per cent of the companies offered both IT services and software products, custom application development and IT consulting were the two popular software services, more than 50 per cent of the companies had difficulty in getting funds, 36 per cent looked at Tier II cities such as Nagpur, Surat and Guwahati to establish centres, and withdrawal of tax sops by 2009 for the IT, ITeS and BPO industry could have a significant impact on the growth story.

The respondents expressed concern about salary hike and withdrawal of tax sops.

The study also revealed that a bulk of the IT SMEs revenue was from the domestic market. Only 35 per cent of the companies were involved in exports.

India Investing: From Great to Merely Good

A strong rupee is putting a damper on exports, but domestic spending should give stocks a lift

by Nandini Lakshman

This Issue

Dec. 31, 2007/Jan. 7, 2008

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Bombay's exchange had a stellar 2007. Don't expect fireworks in '08 Gurinder Osan/AP Photo

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Investors who barely thought of India five years ago piled into Indian stocks in 2007. The Sensex, the Bombay Stock Exchange's index of 30 top stocks, rose almost 40% over the year. The India story—China-class powerhouse, 9% GDP growth, expanding consumer class—was an easy sell for brokers.

But is 2008 the year of the great Indian cooldown? The strong rupee is pinching exports, and valuations have gotten quite high by Indian standards: The price-earnings ratio for the Sensex is about 26, compared with an historic average of 15. Throw in the risk of a U.S. slowdown, rising inflation, and political gridlock in Delhi, and you have a case for getting out of Indian stocks.

Plenty of market pros, however, think Indian equities could still have a good, though not great, year. The Sensex could rise 15% in 2008, says Bharat Iyer, research head at JPMorgan Chase (JPM). Overall corporate earnings should be up 18%—not the same blistering rate as before but pretty good. Says Ridham Desai, managing director at Morgan Stanley (MS): "India is one of the few emerging market countries experiencing upward earnings revisions, which should provide comfort to investors."

If India bulls through, it will be because of its domestic economy, not red-hot exports. Indians are borrowing to buy homes in record numbers, purchasing more cars than ever, making billions of cell-phone calls, and calling for the government to fix the country's creaky infrastructure. Consumer spending should keep growing at a 6% rate, and auto loans should balloon by 50% in two years, to $17 billion annually.

This domestic focus provides a guidepost for stockpicking. ICICI Bank (IBN), with more than 500 branches, is a powerful retail franchise that is spending heavily on information technology to boost service and improve efficiency. Its estimated p-e ratio is pricey at 30, but earnings look set to advance more than 30%. Cellular operator Bharti Airtel boasts an operating margin of 22%, while its estimated p-e ratio is a more approachable 26. Sobha Developers is building luxury developments in Bangalore and fast-growing cities like Pune. Morgan Stanley thinks it's a good value.

India's continued transition to a market economy offers some opportunities as well. The government has been steadily shedding its holdings in big, old-line companies. Far from diluting these shares, the exit of the government as a shareholder has in the past sent stocks in privatized companies soaring. This game should continue: The government is expected to decrease its stakes in both $4.4 billion power-equipment maker Bharat Heavy Electricals and $8.7 billion Steel Authority of India.

Even tech stocks such as Infosys and TCS, which were hammered in 2007 as the rupee affected exports, could win back investors in 2008. Their 30% earnings growth is still high, and they are diversifying into other markets to reduce their reliance on the U.S. Best of all, their p-e ratios of 20 represent a discount to the market. The tech stocks, like other Indian equities, won't deliver the thrilling ride of 2007. But much of the India story should stay solid.

Investment in health, education, a must

---

The policies and investment strategies of the last five decades

need a serious rethink. There is inadequate investment in the real economy as well as health and education, and lack of accountability

among those charged with the responsibility of designing

and implementing the policies.

---

G. Chandrashekhar

"Thani Oruvanukku Unav(u)ilaienil, Jagattinai Azhithiduvom' was the war cry against hunger the celebrated Tamil poet Mahakavi Subramaniya Bharathiar unleashed almost a century ago. Loosely translated, it means, "Even if a single person goes without food, we shall destroy the world". One can well imagine the fervour the maverick poet-patriot brought to the subject of poverty and hunger.

What has the world come to in the last many decades? Despite tremendous advances in science and technology, huge gains on the economic front and, more recently, a globalising world, today, one out of every six in the world or close to 1.25 billion are mired in poverty and hunger.

A large majority of the world's poor (typically earning less than $1 per day) are in developing countries, concentrated mainly in Africa and Asia. India is home to a large number of poor. Most of India's poor are homeless, under-fed and under-clothed.

Admittedly, Asia's contribution to poverty reduction has been noteworthy. Rapid economic growth in some key Asian countries (led by the world's most populous nation China) and pro-poor policies have, no doubt, combined to reduce the number of the poor; yet, income disparities have considerably widened in this region. Struggling to cope with the challenges thrown by this disparity, governments are constantly exploring ways and means to raise the living standards of those at the bottom of the pyramid.

Impressive growth numbers

In each of the last four years, India registered robust GDP growth (in excess of 8 per cent a year, with the highest recorded at 9.4 per cent in the last fiscal 2006-07). In the Ninth Plan (1997-98 to 2001-02), the annual average GDP growth rate was a decent or not-inconsiderable 5.4 per cent.

These impressive growth numbers should have automatically translated to more widespread income generation among populations across the country. But it has not been the case, unfortunately. The benefit of economic growth has not flowed evenly to the entire population of the country.

Look at the composition of growth. Both the industry and services sector have registered double-digit growth. Income in the hands of those engaged in these two high growth sectors have risen and continue to rise.

However, these two sectors employ only one-third of the country's workforce. In other words, income in the hands of a third of the workforce continue to rise fast. It is this section of the population (representing some 60 million families or about 30 per cent of the 195 million families at present in India) with higher disposable income, which is now driving the demand for goods and services — be it food, clothing, housing, health or education. A majority of these families is concentrated in the urban and peri-urban areas.

Rural income growth tardy

What is the fate of the other two-third of the population? Most of them are engaged — directly or indirectly — in agriculture and related activities, and live in the rural areas. While industry and services sectors both demonstrate impressive growth, agriculture has languished. Annual average growth in farm and related activities in the last ten years — 1997 to 2006 — was a woeful 2.3 per cent. In other words, income in the hands of a vast majority of rural population has grown at an extremely modest rate. This tardy income growth has crippled their financial capacity to access goods and services.

While India's overall growth story unfolds impressively and the world watches with amazement the dazzling economic performance, the soft underbelly of the economy — agrarian distress — goes largely unnoticed. Even top government functionaries look uncomfortable talking about the poor and hungry. Whether the discomfort is out of ignorance or indifference or guilt is hard to tell. The media continues to chase sensational stories relating to the glamour beats of the stock market (the rise and rise of the Sensex), wealthy corporate moghuls, foreign investor interest, high fashion and entertainment and so on.

Symptoms of malaise

How long can this lopsided growth story go on? It is slowly but surely reaching unsustainable levels. There is simmering discontent among the masses, especially the poor — small peasants, small traders, artisans, the unemployed. Protests in different parts of the country from time to time — against organised retail, for instance — are but symptoms of a deeper malaise.

The deeper malaise is the lopsided or non-inclusive nature of current growth. If left unchecked, this trend is sure to first precipitate into a crisis and then snowball into a major socio-political upheaval.

Fortunately for the government, Indians generally are fatalistic. Believing in destiny, they blame themselves (and their past sins — Karma theory) for their present woes. But how long will they remain fatalistic? The government cannot take them for granted any more and cannot remain a mute witness to their worsening plight.

As Swami Vivekananda said, "It is futile to talk philosophy to a person whose stomach is empty". It is time to fill the empty bellies of the poor, not through charity, but by building capacity among the poor to get out of poverty and hunger. The national policies of the last five decades and, importantly, their implementation have failed to deliver adequately. The policies and investment strategies need a serious rethink.

There is inadequate investment in the real economy (agriculture and allied activities) and there is utter lack of accountability among those charged with the responsibility to design policies and implement them in public interest. This needs to change.

Demographic Dividend

Policymakers and researchers have begun to talk about favourable age profile of the country's population and how today's young India would reap demographic dividend in the coming decades. India is an old country, currently inhabited by a young population. Nearly 40 per cent of today's population of 110 crore is said to be less than the age of 30. Over the next 20-25 years, this young population is expected to unleash its productive forces and contribute to economic activity as producers, consumers, entrepreneurs, investors and so on.

However, for the country to benefit in future from today's latent energy, the young population of today needs to be equipped. We need to build capacity among the young people — to become good producers, consumers, investors, entrepreneurs etc. — so as to be able to contribute to economic activity and growth of the future. This calls for investment today in the future of the young generation — investment in health and education.

Nutrition security

One of the most sinister aspects of the country's current state of affairs is pervasive malnutrition and under-nutrition, especially among women and children. As important as food security is nutrition security. The country is slowly turning nutrition insecure. This is because a significant number of people have inadequate access to adequate quantities of food. There has been a decline in per capita foodgrains availability.

It is the question of access and affordability. Access to food is restricted as the public distribution system does not cover the entire universe of poor or financially vulnerable people. Rising food prices of recent years — due to shortages, market distortions, high international prices — further reduce the quantum of food intake. Those in whose hands incomes are rising — about a third of the population — are in a position to consume more because they enjoy both access and affordability. It is not the case with poor people.

'A sound mind in a sound body' is a dictum more relevant to the country today than at anytime. In addition to food and nutrition, the young population of today needs education. Again access to and affordability of education will determine the mental quality of the young population in the years to come. Therefore, investment in education, training and development of skills is the need of the time.

Shortage of skill sets

There is already evidence of a creeping shortage of skill sets. Those with skills will come at a price; and those without it will languish. There may develop a situation when there will be a large number of unemployed but they will all be 'unemployable' because of the lack of skills.

It is only through investment in health and education that the young population of today will acquire physical and mental capacity to become agents of change and engines of economic growth.

If India Inc. desires to declare a dividend (demographic dividend) at a future point of time, it must make profits; and profits come only through timely investment and innovation.

Record valuations for financial services

Record valuations for financial services

Edelweiss Capital, a financial services company, debuted on the stock exchanges on Wednesday last with a large market capitalisation of over Rs 11,000 crore. On the same day Reliance Capital divested about 5% stake in its 100%-owned asset management venture Reliance Capital Asset Management to a foreign investor for Rs 501 crore, valuing the mutual fund company at Rs 10,000 crore.

These are not isolated cases of over-the-top valuations. Instead, these are the latest instances of what has merely become the norm across the financial services spectrum. Brokerages, corporate finance/advisory, securities or portfolio management firms are all enjoying enormous investor response on the bourses.

The re-ratings are largely driven by the enormous growth potential in both corporate and retail segments. The retail participation in equities, directly or through mutual funds, is abysmally low — only 5% of household financial savings are in stocks and debentures. The strong bull market in equities is, however, driving more household savings to stock markets.

The brokerages and the asset management companies stand to gain the most from this rising retail interest. On the corporate side, the vibrancy has thrown up many corporate finance and transactions advisory opportunities in the universe of small and medium companies. Since the big foreign investment banks usually do not enter this segment, this business is going to the local investment banking firms.

This re-rating of financial services would give another boost to the valuations of financial services conglomerates such as HDFC, ICICI Bank and Reliance Capital. All the large players have asset management, securities and insurance business. Some public sector banks, such as SBI, also have a full-fledged investment banking and corporate advisory subsidiaries. Even a minor dilution in these businesses could yield good returns for the shareholders.

UTI Asset Management, which is likely to come out with a public issue, would be another significant beneficiary of the better valuations. Of course, one can still question the valuations, but high valuations are good for the spread of financial services. These valuations would enable securities firms to raise funds easily and invest in spreading their reach.

Limited Partners bet big on India

PRIVATE EQUITY WATCH

Reena Zachariah / Mumbai December 18, 2007

The India growth story has not just lured the big Wall Street banks and private equity funds.

Now, Limited Partners (funds that are known to invest in private equity funds) are lining up big-ticket investments into India-specific PEs, buoyed by multiple returns from the Indian markets.

A recent Emerging Markets Private Equity Association (EMPEA) LP survey said: �LPs� strong overall preference for country funds in Asia was driven largely by interest for country funds in India and China. The cited drivers for increasing interest in EMPE included better performance and risk-return profiles and increased market maturity and more credible track records.�

In India, the risk-return is expected to be between 25- 40 per cent per annum compared with 15 per cent from developed economies such as the US and western Europe.

Early this month, in one of the private equity conferences, some of the LPs expected that Bric countries-focused private equity funds will be delivering substantially higher returns in five years.

However in India, one of the largest LPs is the insurance behemoth, Life Insurance Corporation of India, that has been investing in reputed private equity funds since 2000. But it has been majorly active only in the recent years.

LIC has invested less than 0.50 per cent of its total assets under management (about Rs 5,00,000 crore) into private equity funds (Rs 2,500 crore).

�When we invested in the beginning, we have got very good returns out of it. Since the valuations are very high now, we will wait and watch before making further investments,� said an LIC official.

Some of the LPs are global pension funds, endowment funds, university funds and family offices. Since these funds manage billion of dollars globally, they do not have the time to focus on smaller funds and so they usually prefer to invest into fund of funds or directly into private equity funds.

Just like PE funds, these LPs also play a very active role in the funds that they invest into.

Bala Deshpande of ICICI Ventures, one of the country�s largest private equity firms with funds under management in excess of $2 billion, said: �One of the most important roles they play is give us a global perspective as they tend to see an underlying trend going forward such as the verticals we should look at investing. Safety of the return and not just returns is a critical factor for LPs to decide.�

LPs are on the supervisory board of PE funds and usually meet at least once a year. They also introduce the GPs (General Partners are the ones who actively manage the fund) to other LPs and to some strategic partners if they are looking out for an M&A.

Infra, legal & tax system key to India's growth

What needs to be done to position India as a center of excellence and what could hurt the India growth story? CNBC-TV18 spoke to a wide array of experts.

GK Pillai, Secretary, Ministry of Commerce & Industry: Initially we did not have the small size constraints but unfortunately, we had a number of unfortunate incidents which focused on the fact that the future of the new R&R policy and other has come into being, you will find possibly government even thinking of relaxing the upper limit for Special Economic Zones.

I think labour laws as I said was an issue, which we thought could have some flexibility but parliament in its wisdom, felt that labour laws should not be relaxed in the special economic zones. Though we have certain relaxations by the state government where they feel that in special economic zones some labour laws could be relaxed, the state themselves have the powers to do it and they go ahead and do it.

Edward J Zander, Former Chairman & CEO, Motorola, USA: We need to focus on some of the indirect taxes and some of the things that maybe difficult in future and third is the eco system around the area of figuring out how to incorporate the world and job creation and training and skill sets.

Rajat M Nag, MD-General, ADB: I think Montek Singh Ahluwalia is absolutely correct about the need to be realistic in the projections one makes about going from 6% to 9% by the end of the planning period. But our estimates show that if anything, that is going to be much on the lower side. Our numbers show that the investments might have to be as much as about 10.9% to 12.5% of GDP including of course, about 2% for maintenance and replacement. But let us not quibble about the numbers. The fact is India needs to invest very heavily in infrastructure; the infrastructure deficit is the most pressing challenge and needs to be met if the 9%-10% growth is to be achieved in this country.

Rahul Bajaj, Chairman, Bajaj Auto Ltd: Indian industry wants to be competitive, we want to compete, we are buying big and small companies abroad, we do not want protection, we do not need protection; let the inefficient die. But two things have to be noted, the competition has to be fair, there must be a level playing field and I am not talking of protection, it cannot be that the other side whether it is China or the developed world can do what they want for whatever reasons and we are expected to carry the torch for freedom or things like that.

So Indian industry wants to grow in a fair manner; we do not want to be competed against unfairly; that is a policy we would like our government to follow.

Rise of Indian American execs tracks the power of India's growth

By Ellen Simon

THE ASSOCIATED PRESS

NEW YORK: The ascension of Indian-born leaders like Vikram Pandit, the new CEO of Citigroup Inc., tracks the economic rise of their home country, once seen by U.S. business as a large market and a source of low-cost technology workers, now viewed as a business power that rivals the U.S. in some industries.

The change is visible on the board of the U.S.-India Business Council, once comprised only of executives from U.S. companies doing business in India. Now, the board includes executives from global companies with business in India, Indian-Americans heading global businesses and Indian companies with interest in the U.S.

Board members include Arun Kumar, head partner at KPMG International, Indra Nooyi, CEO of PepsiCo Inc. and Lakshmi Narayanan, vice-chairman of Cognizant Technology Solutions, an outsourcing company that bills itself as ``the best of both worlds.''

ArcelorMittal has grown into the world's largest steelmaker, offering US$1.65 billion Friday for the remaining shares of Chinese steelmaker China Oriental Group Co. it doesn't already own. While the company is based in the Netherlands, its Indian CEO and founder, Lakshmi Mittal, controls nearly half its shares.

India's outsourcing companies have grown to take on more valuable contracts, pitting them against U.S.-based giants such as IBM Corp. and Accenture Ltd.

For instance, India's Tata Consultancy Services Ltd. in October announced a $1.2 billion contract from American market research firm Nielsen, the largest outsourcing order ever won by an Indian company and one that includes services from information technology infrastructure management to payroll processing.

And India's Tata Group has expressed its interest in buying troubled Ford Motor Co.'s Jaguar and Land Rover units.

``It's harder to see the borders now,'' said Gregory Kalbaugh, director and counsel of the U.S.-India Business Council.

As the Indian economy has been on a tear, clocking six to eight per cent annual growth, Indian and U.S. political leaders have viewed business ties as a way to bring the countries closer.

U.S. President George W. Bush and Prime Minister Manmohan Singh handpicked members of the US-India CEO Forum, launched in 2005, to plan increased partnership and co-operation.

Meanwhile, U.S. businesses, increasingly dependent on foreign trade, have intensified their interest in promoting an international group of executives. Nearly half of sales for 238 of the largest U.S. companies was from outside the U.S. for fiscal year 2006, up from one-third of sales in fiscal 2001, according to Standard & Poor's.

At the same time, Indians who came to the U.S. to study 30 years ago have worked their way up the ranks of American companies. The latest round of promotions includes Shantanu Narayen, who joined Adobe Systems Inc. in 1998 and was appointed CEO this month.

Others have been in their jobs far longer, such as Ramani Ayer, chairman and CEO of Hartford Financial Services Group Inc., who has led the company since 1997.

Some of the rising stars:

_K.S. (Sonny) Kalsi, managing director and global head of Morgan Stanley's real estate investing business, which has $88.3 billion in assets under management

_Meena Mutyala, vice-president of engineering and product management for Westinghouse Electric Corp.'s nuclear fuel business worldwide.

_ Sheila Hooda, senior managing director, strategy at $437 billion investment company TIAA-CREF, who was previously a managing director in the investment banking division at Credit Suisse.

The rise of Indian-born executives such as Pandit, who on Monday was named CEO of Citigroup, the world's largest bank, follows by more than a decade the advances of Indian business consultants.

A handful of Indian-born academics, especially Ram Charan and C.K. Prahalad, long-ago established themselves at the upper echelons of business consulting; consultant and author Charan was reportedly the first outsider Jeffrey Immelt turned to for advice when he became CEO of General Electric Co.

Rajat Gupta, who joined McKinsey & Co. in 1973, was elected managing director of the management consulting firm in 1994, then re-elected to two more three-year terms in 1997 and 2000. Gupta is leaving McKinsey at the end of this year to concentrate on his board positions.

One of Gupta's latest gigs: Special adviser on management reform to the Secretary-General of the United Nations.

Women set to grab half of all IT jobs in India by 2010

Bangalore: India's booming IT and IT-enabled services industry is a favourite destination of job-seeking women, whose employment in the industry is set to rise dramatically to 45 per cent in 2010 from the current 30 per cent, an industry survey said.

A survey by National Association of Software and Services Companies (Nasscom), the representative organisation of the Indian software firms, says this is due to the inclusive human resource policies of Indian IT firms, which recruit, train, retain and promote women employees as a strategic business plan.

"As the IT-ITeS sector moves up the value chain, more women are joining the industry. The male-female ratio is expected to improve to 65:35 by this year-end from 76:24 in 2005," outgoing Nasscom President Kiran Karnik said on Wednesday.

"Even as the industry braces up to achieve this healthy gender ratio, the job trend indicates more and more educated young women, including housewives, are joining the industry due to its progressive and flexible HR policies," he added.

"For empowering the women workforce and creating conducive environment to grow equally at their workplace, we have commissioned Indian Institute of Management at Ahmedabad (IIM-A) to conduct a fresh study on the status of women employees in the IT industry and avenues for their growth in the value chain," Karnik told about 300 women delegates participating in the Nasscom-IT Women Leadership Summit 2007.

The study, expected to be completed in the next five-six weeks, will focus on additional measures to be taken by the industry to empower women employees and create opportunities to absorb more of them increasingly.

"It is a survey of what the IT industry does and can do more in terms of attitudes, perception and best practices for an inclusive growth. Women are a key and vital part of a progressive industry, which promotes gender diversity and empowerment," Karnik pointed out.

The study will also quiz women employees across the industry to ascertain their assessment of the existing HR policies, work conditions and workload, how sensitive their male counterparts were towards them, and scope for professional advancement in their respective organisations.

The Urban Land (Ceiling and Regulation) Act - Finally Repealed!

The Urban Land (Ceiling and Regulation) Act - Finally Repealed!

Poonam Bhana

December 10, 2007

The Maharashtra Assembly, last week, repealed the Urban Land (Ceiling and Regulation) Act (ULCRA) that was introduced in 1976 with the intention of preventing concentration of land in the hands of few and ensuring that lower/middle income groups have access to housing facilities in cities.

The abolition of the Act will:

Make the Maharashtra Government eligible to receive Rs. 110,000 million under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) - The Centre, which repealed the Act in 1999 put a pre-condition to the state governments to repeal the State ULCRA before being eligible for funding under JNNURM. The funds will be used to develop infrastructure and real estate in Mumbai.

• Free up land for development - The Maharashtra government has acquired over 30,000 acres (about 3000-8000 acres located in Mumbai) under ULCRA. This could lead to additional housing development for lower/middle income groups.
• Stabilise (if not lower) land prices - Prices will be affected in areas where land becomes available. However, it will take about 3-5 years before about 4000 acres becomes available in Mumbai. In the short-term, the Act will have some psychological impact and prices will remain stable.
• Faster approval of projects - Developers will be able to commence projects faster by saving about 3 months (earlier required for ULC clearance). They will also save funds spent for the clearance amounting to about Rs 100 per sq foot.
• Simplify land acquisition

ULCRA

The Act covered Mumbai, Thane, Pune, Nasik, Solapur, Nagpur, Kolhapur and Sangli. It restricted private ownership of land in these regions to the ceiling limit while any excess land was acquired by the State Government. This made private players reluctant to develop their land banks and they continued to use them for industrial purposes to avoid implications of the ULCRA.

The repealed Act stipulated the following city-wise ceilings:

Category	Ceiling sq. meters	Cities/Population
A	500	Mumbai, Delhi, Kolkata, Chennai
B	1000	City population > 1 million
C	1500	0.3 million < City population > 1 million
D	2000	0.2 million < City population > 0.3 million

The Maharashtra government has failed to meet the objectives of the Act, and allowed influential builders to obtain land that was released for development. The Act distorted the land market by creating artificial shortage of land, and restricted growth of private developers and increased growth of slums.

Beneficiaries

Several players holding large tracts of land in Mumbai will benefit from the abolition of the ULCRA. These include Godrej, Wadia Trust, Hiranandani, Birla, Ajmera Builders, Wadhwa Group etc.

Also, Maharashtra State bodies like MSRDC (Maharashtra State Road Development Corporation), MHADA (Maharashtra Housing and Area Development Authority) and MMRDA (Maharashtra Metropolitan Region Development Authority) will be able to start projects with fresh money from JNNURM.

Issues

• Clarity on whether the abolition of the Act will be prospective or retrospective.
• Possible reservation for housing development for lower/middle income groups
• Vacant land penalty, on surplus land if unused by developers for housing development for lower/middle income groups, to remain
• Lack of clarity on the quantum of land that will become available. Currently, a lot of this land is either locked in legal battles, lies in Forest/Coastal Region/No development zones or is illegally encroached upon.

Overall, we expect the abolition of the ULCRA to be positive in the long-term. Compared to Mumbai, other cities will benefit faster, while in Mumbai, the suburbs will benefit faster than down town areas as most of the land in Mumbai will be freed up in the east central suburban areas. This should help stabilise the rapidly escalating real estate prices in the medium term. The short term impact might be limited, as it is not clear how much land will become available, and how long it will take to develop this. However, the impending increase in supply will make speculators cautious and should help (even if only slightly) reduce housing prices.

For the real estate and business communities, those with large tracts of land will obviously benefit in the short run. In the long term, the entire industry will benefit as the removal of ULCRA will reduce the hassles (and costs) of getting building permissions.

This is a much overdue step, and now we are hopeful of further reform in the real estate sector - particularly the repeal of a similarly outdated "Rent Control Act", which has hampered supply of new housing stock in large cities, especially Mumbai.