67 i chronicle


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67 i chronicle

  1. 1. ISSUEVOLUMECover Story….Let’s export our way out of troubleOpen Forum…India still out of the NetOutlook….Australian DollarInfocus….The Cyprus Iseue: Yet Another Bailout!!!Stats Watch….Emerging Countries in World TradeNews…..News on Emerging MarketsInvesteursChroniclesMarch 2013, Volume: 67
  2. 2. Figure FactsForexForward Rates against INR as on 30th March, 2013Spot Rate 1 mth 3 mth 6 mthUS Dollar 54.36 54.74 55.41 56.35Euro 69.58 70.07 70.97 72.24Sterling 82.22 82.77 83.76 85.16Yen 57.71 58.11 58.86 59.91SwissFranc57.05 57.47 58.22 59.31Source: Hindu BusinessLineLibor RatesLibor % 1 mth 3 mth 6 mth 12 mthUS 0.20 0.28 0.44 0.73Euro 0.06 0.13 0.22 0.42Sterling 0.49 0.50 0.60 0.90Yen 0.12 0.16 0.25 0.45Swiss Franc -0.001 0.02 0.08 0.25Forward Cover1 mth 3 mth 6 mthUS 8.51% 7.83% 7.42%Euro 8.57% 8.10% 7.75%Sterling 8.14% 7.60% 7.25%Yen 8.43% 8.08% 7.73%Swiss Franc 8.96% 8.32% 8.03%As on 30th March 2013 Source: Hindu BusinessLineCommoditiesCommodities Unit (1000kg)Aluminum 102300Copper 407950Zinc 101700As on 30thMarch 2013Call Rates as on 30th March 2013-→7.00%-12.14%Data from 18thMarch to 30thMarch 2013Sensex Nifty19,293.2018,835.775835.255682.55Gold (10 gm) Silver (1 Kg)29553 294775427253528Crude Oil ($/barrel) Dollar/INR109.50 110.0054.2954.39
  3. 3. Emerging countries in world trade Australian DollarThe AUD/USD had a volatile March’13 closing at 1.0418 after tumbling as low as 1.0115.Acceptance that the upcoming peak in the mining boom does not equate to a mining collapse,combined with an improving outlook for China and building expectations that the RBA will not cutinterest rates supported AUD in March in pieces. However, It is vulnerable to changing riskaversion.Monetary status quo remains the norm. The Reserve Bank of Australia (RBA) opted to keepmonetary conditions by leaving the policy-setting repo rate unchanged at the current level of 3% atits last meeting conducted on March 5th. We do not anticipate any imminent change in monetarypolicy during the first half of the year. The Australian central bank has indicated that the economyseems to be operating at a trend-growth level on the basis of recent macroeconomic data. It alsobelieves that there are signs of a gradual improvement in global economic conditions, andparticularly activity in China and the US. We project that the Australian economy will grow by 2.6%and further accelerate to 3.1% in 2014 on the back of a more consolidated global economicrebound and improving labour market conditions at home. The AUD has received favorabletailwinds from recent developments in distressed European countries, particularly from newsregarding a multilateral assistance package for Cyprus from the Troika members (IMF/ECB/EC).Following the news on Cyprus, the AUD benefitted from a surge of capital flows to higher yieldingcurrencies, somewhat offsetting the adverse effects from declining commodity prices.Australia is the largest economy in the Asia/Pacific region fully rated as an investment-gradesovereign credit.We expect the currency to trade within a range, closing the year at 1.04.Stats Watch Outlook-Australian DollarBubble- An economic cycle characterized by rapid expansion followed by acontraction, or,- A surge in equity prices, often more than warranted by thefundamentals and usually in a particular sector, followed by adrastic drop in prices as a massive selloff occurs, or,- A theory that security prices rise above their true value and willcontinue to do so until prices go into freefall and the bubble bursts.Gloss
  4. 4. Cover StoryCAD (current account deficit) is the buzzword these days. A CAD of 5.4 per cent in the second quarter of FY-13 and a record high at 6.7% of GDP in the third quarter of FY-13is reminiscent of the 1991 crisis when we were faced with a rising trade deficit, high inflation and the Gulf War.The trade deficit of over $182 billion in first eleven months of the current fiscal, inflation above 7 per cent and the crisis in West Asia are conditions akin to 1991. However,our economy is far more robust and in a position to meet such challenges.With forex reserves of over $290 billion (sufficient to cover about eight months’ imports), and with encouraging inflows through FII, FDI, ECB (external commercialborrowings) and private transfers, we are not faced with any immediate threat.Nevertheless, sustaining such a high CAD will render the economy vulnerable to global challenges. It is clear that the main culprit for rising CAD is the merchandise tradedeficit; in services as well as on capital account, we have a comfortable surplus.Given the inelastic nature of India’s imports, augmenting exports is the only option available for managing the CAD (the only option, perhaps, on the import side is curtailinggold imports through high tariff). Fortunately, the Government as well as economists are on the same side on this matter.MANUFACTURING EXPORTS HITExports must act as drivers of the economy. If the Indian economy has clocked over 7 per cent GDP growth in the last decade, much of the same was contributed by a CAGR ofover 20 per cent in exports in the same period. The fact is that Indian exports and the economy are intertwined.Manufacturing holds the key to India’s exports growth. This is because the share of manufactured products is increasing in the global trade basket. Overall exports suffered onaccount of decline in exports of main manufactured products, such as engineering, gems and jewellery, petroleum and textiles. These four sectors contribute to about three-quarters of India’s exports.Contractions in global demand, rising manufacturing cost and fall in global commodity prices have affected exports. Making manufacturing competitive should be the focus.The National Manufacturing Policy (NMP) and National Manufacturing Investment Zones (NMIZ) should add to competitive manufacturing.However, let us also seek export-oriented FDI, which brings both technology and access to markets. Another challenge that confronts manufacturing is getting a skilled orsemi-skilled workforce.MARKET OPPORTUNITIESUnlike China, we have not been able to mobilize a workforce from rural India due to lack of skill. The National Skill Development Mission has taken the lead in imparting andupgrading skill, but there has to be a greater synergy between manufacturing needs and skill development.Exports are equally affected by macro-economic variables such as inflation, world demand, non-tariff barriers and exchange rate. Except for the last factor, the rest are notfavorable to exports. However, the global demand seems to be increasing.The real-estate market in the US just saw its largest restorative growth since 2006 and the unemployment rate in the US declined to 7.8 per cent with the creation of 2,32,000new jobs in February. The deficits of some European counties are becoming smaller. And the economies in Greece and Spain are recovering slightly.Let’s export our way out of trouble
  5. 5. The economic growth of MIST countries (Mexico, Indonesia, South Korea and Turkey) is on the rise. Since exports this fiscal would be lower than last fiscal, we need to attempt a35 per cent growth in 2013-14. This is an ambitious but achievable target, provided the right mix of policies is in place.Exports can be made competitive through lower cost of credit, full rebate on duties and taxes, reduction in transaction costs and better infrastructure to reduce the deliverycycle. However, aggressive marketing plays a pivotal role.We have to be visible in the markets to get better returns. In a phase of contracted demand, return may take a longer period. Our demand for an ‘Export Development Fund’emanates from this logic, coupled with the fact that a majority of exporters hardly have the financial wherewithal to meet the requirements of aggressive marketing. A fund witha corpus of 0.5-1 per cent of exports can be a gamechanger.India is a global leader in IT, yet we are struggling with a complete electronic data interchange module for agencies involved in exports and imports. A little progress has beenmade, yet it is tardy and probably reflects the lack of will. A single window for exports, coupled with electronic flow of documents among the agencies concerned, will reduce thetransaction cost by 2-3 per cent. If that happens, a saving of $6-10 billion will be achieved in exports with no cost to exchequer.We, simultaneously, need to build on future pillars of exports which could be brands, high-technology products, e–commerce and countries or regions with potential such as Iran,China and Africa.We need to exploit the opportunities in Iran for increasing exports of pharma, gems and jewellery, auto components and white goods, besides agriculture commodities.The rising manufacturing cost in China, shifting of industries from coastal cities to distant landlocked regions, shortage of working population and a continuously appreciatingcurrency have started compelling China to shut down manufacturing in high labour intensive products, opening an opportunity for imports from India. However, a close look atIndia’s export profile with focus on value-addition will hold the key.DESTINATION AFRICAAfrica has emerged as an ideal region both for exports and investment. Consumer spending will double in Africa in the next 10 years and 75 per cent of countries in Africa willhave an average per capita income of over $1,000. There is a growing resentment against China, which needs to be exploited by us. Efforts of all agencies should concentrate onAfrica.Let us set up a mega store such as the Dragon Mall in Dubai which is spread over a km and displays all products manufactured in China. African buyers do not visit China forprocurement of goods and instead place their order in Dubai.If we provide similar exposure for Indian products at any place in Africa, it will be a huge support for Indian exports.Let us not miss the bus again and allow South-East Asian countries to overtake us.Source: Hindu Businessline
  6. 6. China and Brazil sign $30bn currency swap agreementChina and Brazil have signed a currency swap deal, designed to safeguard against futureglobal financial crises. The pact, first announced last year, will allow their central banks toswap local currencies worth up to 190bn yuan or 60bn reais ($30bn; £20bn).Officials saidthis will ensure smooth bilateral trade, regardless of global financial conditions.Along withbeing the worlds second-largest economy, China is also Brazils biggest trading partner."Ifthere were shocks to the global financial market, with credit running short, wed havecredit from our biggest international partner, so there would be no interruption of trade,"said Guido Mantega, Brazils economy minister.The agreement was signed on the sidelinesof the fifth Brics (Brazil, Russia, India, China and South Africa) summit being held inDurban, South Africa.Egypt seeks help as credit crunch bitesEgypt has hit breaking point in its ability to pay for imports of oil, wheat and other basiccommodities, forcing it to call in diplomatic favours or seek easy payment terms fromsuppliers who hope for future advantage in return. Two years after ousting Hosni Mubarak,new, Islamist leaders are struggling to win a credit line from the IMF as they try to managethe hopes of 84 million people with a depreciating currency and an economy hooked onstate subsidies but starved of tourism revenues since the political upheavals began.BRICS countries to form new development bankThe leaders of Brazil, Russia, India, China and South Africa have agreed to forma new development bank that will fund infrastructure projects anddevelopment in emerging markets. The bank is intended to fund developmentand infrastructure projects in BRICS nations and elsewhere. First discussed ayear ago, it has been described as an alternative to the IMF and World Bank fordeveloping countries.Bank of Cyprus big depositors could lose up to 60%Bank of Cyprus depositors with more than 100,000 euros (£84,300; $128,200)could lose up to 60% of their savings as part of an EU-IMF bailout restructuringmove, officials say.The central bank says 37.5% of holdings over 100,000 euroswill become shares.Up to 22.5% will go into a fund attracting no interest andmay be subject to further write-offs.The other 40% will attract interest - butthis will not be paid unless the bank performs well.It was known that thewealthiest savers at the Bank of Cyprus would take a large hit from the bailoutdeal - but not to this extent.South Korea lowers growth forecast as exports slowKorea has cut its growth forecast for the second time in three months, amid aslowdown in its exports. The finance ministry now expects the economy togrow by 2.3% in 2013, down from its earlier projection of 3%. Exports, whichaccount for almost half of South Koreas overall output, have been hit by weakdemand from markets such as the US and the eurozone. South Koreas economyexpanded by 2% in 2012, the slowest pace in three years.Emerging Markets
  7. 7. InFocusOn 25TH March, 2013, Cyprus stuck a last minute Bailout Deal aimed at preventing the Country becoming the first country forced out of the single European currency. Thatwould have sent the regions markets spinning.The deal, which also slashed the islands oversized banking sector, came as euro ministers in Brussels threatened to cut off crucial emergency assistance to Cyprus embattledbanks if no agreement was reached.Under the deal, Laiki, the countrys second-largest bank, will be restructured, with all bond holders and people with more than 100,000 Euros in their accounts facing significantlosses. The bank will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nationsbiggest lender, Bank of Cyprus which survives the axe, but faces huge restructuring.Analysts have estimated investors might lose up to 40 percent of their money.Getting the bank up to healthy EU-mandated capital levels will be made harder by the fact that Bank of Cyprus will inherit a €9bn debt Laiki had with the European CentralBank.Employment will be badly hit as thousands of staff at both Laiki and the Bank of Cyprus will lose their jobs.There will still be very tough restrictions on bank account access and the movement of cash out of Cyprus, to help prevent a bank run. The European commission said thesecapital controls will only be enacted "exceptionally and temporarily", as requested by the Cypriot authorities.The Question is whether this will be the end of Cyprus’s problems. Analysts say it is only the beginning. Cyprus has benefited for years from attracting the deposits of wealthyindividuals from around the euro zone. That business model is now broken and the country has nothing to replace it with. There is also a possibility that Cyprus might needanother bailout. The €10bn bailout raises Cypruss debt to around 143% of GDP. With GDP likely to fall dramatically over the next few years, that ratio could start to look evenmore perilous.A deal to restructure Cypruss debt by hitting private bondholders would go against EU promises that the Greek deal of that kind was an exception. All of which promptsanalysts to suggest Cypruss euro zone partners might have to get involved again sometime in the future.With their initial plan to tax all depositors, policymakers made it clear that they would, in certain circumstances, be prepared to take that money. Even though they did not gothrough with it, this is likely to shake confidence in the banks if the financial crisis re-escalates in other countries, such as Spain or Italy.Meanwhile, larger depositors and foreigncompanies with money in Spain and Italy are likely to start shifting that elsewhere, fearing that the Cyprus deal will be a model for future bailouts, further damaging alreadyweak financial institutions.It is really sad that what was once a prosperous island considered a gateway to three continents, in the near term, will be reduced to just a couple of notches above a bartereconomy.The drastic shrinking of the financial sector, the wiping out of wealth through the losses on deposits, the loss of confidence with the recent turmoil and the upcomingausterity measures all mean that Cyprus is facing tough times.The Cyprus Issue: Yet Another Bailout!!!!
  8. 8. It is ironic that despite the Internet penetration in India growing faster than most countries, 90 per cent of its population is still not connected.A McKinsey report states that there will be 330 million Indians on the Internet in 2015, making it the second largest connected population in the world. However, even withthat number, India’s internet penetration will be a mere 28 per cent.What’s more surprising is that for India to reach 40 per cent Internet penetration, a number that will match China’s penetration at that time, it will need to notch up more than500 million Net users!This is no easy task. The three biggest challenges in achieving this feat are limited access, low relevance and high cost. Adding to these challenges is India’s continued lowranking across surveys measuring impact of the Internet on job creation and contribution to GDP.Today, the Internet is primarily being used as a medium for social networking and entertainment in India, while its immense potential in enabling widespread access toeducation, healthcare, employability and access to government services is still largely untapped.We cannot be a connected nation if the large base of Internet users is not contributing towards India’s growth and development. India will truly earn the title of being a‘connected nation’ the day it realizes the benefit of the Internet to drive inclusive national growth. This can only happen if India can unleash the full potential of the Internet anddrive community and national growth with urgency in the nation.The McKinsey report states that the impact of the Internet in India is constrained by current gaps and obstacles in the Net ecosystem. While India scores well on the availabilityof human and financial capital, it rates poorly on most other parameters such as Internet infrastructure, Internet engagement, e-commerce platforms, the ease of Internetentrepreneurship, and the impact of e-governance.TECHNOLOGICAL CHANGEAs we think through what is needed to become a ‘connected nation’, there are two key things that we have to keep in mind which will impact a majority of the impendingstrategies.A majority of the 170 million additional users to reach the magic number of 500 million in 2015 will be from semi-urban and rural India, which will only happen if these userssee the real relevance of the Internet in their daily lives.By 2015, more than half of India’s Internet access is likely to be using a small-screen mobile computing device, which will make India’s Internet market very different, with theneed for a unique approach to content and design. It’s possible that a large part of these small-screen users will use low-cost feature phones with basic browsing capabilitiesand will find it difficult to browse or consume highly textual content.These factors put a very urgent need on the Government and industry to find effective ways of delivering all necessary services over small screens with basic browsing capabilities.From an industry perspective, we have to think differently about the market and what it takes to win. Status quo will guarantee failure.ECONOMIC FUNCTIONSIn my opinion, the following things are a must do for us to be called a truly ‘Connected India’.Significantly scale efforts to increase awareness about the relevance of the Internet in contextual and meaningful ways to different audiences. As we go down the pyramid, the singlemost important drivers for faster adoption of the Internet will be how its usage can boost productivity and impact livelihoods.Open ForumIndia still out of the Net
  9. 9. For instance, showing a farmer how the Internet can give him relevant details such as weather, mandi pricing and eliminate the middleman to sell his crop directly will triggerfaster adoption. The Government and industry must redesign skill training focused on relevant areas such as education, financial transactions, agriculture, healthcare, andgovernment services to demonstrate speedy action.Software and hardware innovation is imperative to enable solutions that meet the needs of the next wave of users who will largely be local language users, especially as wemove away from Urban India.Currently, none of the Indian languages feature in the top 10 languages on the Internet. Content and application in local languages, along with interface-level innovations to enablemore intuitive ways of interacting with technology, will need to be driven to simplify ease of use.The day a farmer can speak to his PC in his local language to access weather information will be when we see a real need for technology building up in rural India. The industrywill also need to think through ecosystem innovation in areas such as alternate power sources as lack of electricity is, and will continue to be, a key road block to Internet adoptionand usage.The Government and the industry should keep striving to bring down the total cost of access to broadband and computing devices. Several governments abroad have drivenspecial tax incentives or subsidies to accelerate adoption in rural, SME and education segments. These initiatives need to focus not only on the device cost but the cost ofbroadband access, which is a large component of the total cost of ownership.Also, given the need to drive inclusive growth, just depending on the low-end devices for connectivity is not going to help India. These devices will have very limited use in thedelivery of education and other key services needed for inclusive growth, given their very basic browsing and computing capabilities. The Government will need a more strategicapproach that strikes a balance between cost and usage. As per the McKinsey report, the capture of the Internet’s value can be enhanced if India also enables increased access toaffordable fixed broadband and PCs or through enhancing smartphone access.LAST-MILE ACCESSLast but not the least; we need to ensure there is last-mile access. As the Government lays out the National Optical Fibre Network providing true broadband to 2, 50,000panchayats across India, the industry has to work speedily on driving last mile. Otherwise, this will be India’s biggest missed opportunity.We couldn’t agree more with the Finance Minister’s statement in the recent Budget about inclusive growth being India’s mantra for success. The need of the hour is for a robustplan to enable large-scale Internet adoption and usage in education, healthcare, and government services that will drive personal growth for Indian citizens, leading to communitygrowth and ultimately national economic growth.This is the only way India will increase the contribution of the Internet to its GDP. India will not be a connected nation if nothing changes. We have to collectively drive disruptivechange through a well-constructed plan and get commitment from the Government, academia, industry and civil society.Source: Hindu Businessline
  10. 10. Disclaimer: InvesteursChronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world economy. Theinformation contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the information provided.Investeurs Consulting P. LimitedS-26,27,28, 3rdFloor,Veera Tower, Green Park Ext. New Delhi-110016,www.investeurs.comTeamChronicleAkanksha Srivastava akanksha@investeurs.comNidhi Gogia nidhi@investeurs.comShagun Khivsara shagun@investeurs.comHarpreet Kaur harpreet@investeurs.comAbout Investeurs Consulting P. LimitedInvesteurs Consulting Pvt. Ltd. is a business and financial advisory company, successfully serving businesses since 1994; we offer advisory and consultancy services for successful fundsyndication. We have serviced diverse businesses by arranging finance of over $6.00 billion. We are strategic advisors to our clients during the ideation phase, implementation throughstart-up phase, and trusted advisors overall.All businesses go through a similar life cycle.Once an idea is conceived and a business is established, a company requires capital to fund ongoing growth and expansion. The Capital Structurehas to be optimally structured during each phase of business cycle. Investeurs perceives the requirement and accordingly arranges funds to help companies smoothly achieve milestones inthe process.Investeurs Competency Kit• Alignment of services with client’s business• Round the year Financial assistance• Facilitator between Banks and Clients• Hassel free & on time service• Industry & Market updates