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02nd Aug 2012 – 08th August 2012
IN BRIEF ECONOMIC INDICATORS
COVER STORY GAAR (GENERAL ANTI AVOIDANCE RULES) EXPLAINED
MCX GOLD (8th Aug) BSE SENSEX
17,601pts (8th Aug) PERSONALITIES OF THE WEEK
Dr. Vijay Mallya
INDIAN TELECOM INDUSTRY NEWS DIGEST… BUSINESS NEWS
Worst may be over for India’s best airlines
Corporate debt ratio has reached “dangerous” levels in China
Its Quality Walls “Frozen Desserts” now
ECONOMIC INDICATORS 2 INDUSTRY ANALYSIS 5
COVER STORY 3 NEWS ANALYSIS 6
PERSONALITIES OF THE WEEK 4 JOB PROFILE 11
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E EC CO ON NO OM MIIC C IIN ND DIIC CA AT TO OR RS S MCX Gold – ₨ 29,983 per 10 grams (8th August) Source: Moneycontrol, Reuters As a precious metal gold plays an important role in most economies. It is often used as an investment and a way to hedge risks by some. India is the largest retail buyer of Gold and as such its prices are influenced by indicators like rupee value and general business sentiment. Gold prices tend to go up as India approaches the festival season. With the dollar becoming stronger and uncertainty looming large in the Euro zone, Gold‟s price increase has slowed down a bit. This has reflected in India as well where a relatively weak monsoon has also played a part in the drop in demand. The rupee‟s situation has also become better after the veritable crash it saw which in turn has slowed Gold‟s rising price. It has been trading in the range of ₨ 29,851-30,025 in August so far. BSE 30 – 17,601 pts (1.1% higher) (8th August) Source: Reuters, Firstpost The stock market takes its cues from a lot of different factors. Global market performance, financial results of big companies, government policy announcements and even natural or man-made disasters impact the stock exchange. On 7th August, the markets rallied to a four month high as the newly appointed finance minister P Chidambaram reaffirmed his position on tackling the high fiscal deficit and hinted that he might pressure RBI into easing lending rates. As such stocks of banks like SBI saw an upsurge. Declaration of strong financial forecasts by IT major Cognizant revived sentiment in other IT stocks such as Infosys. How long the upsurge lasts remains to be seen as the overall scenario is still uncertain in EU.
C CH HA AR RT TS S& &G GR RA AP PH HS S– –B BA ALLA AN NC CE EO OFF T TR RA AD DE E ((1 19 99 99 9--2 20 01 12 2))
he balance of trade is the difference between the monetary value of exports and imports in an economy over a certain period of time. A positive balance of trade is known as a trade surplus and consists of exporting more than is imported; a negative balance of trade is known as a trade deficit or, informally, a trade gap. India reported a trade deficit equivalent to 10303 Million USD in June of 2012. Historically, from 1994 until 2012, India Balance of Trade averaged -3739.1 Million USD reaching an all time high of 491.3 Million USD in November of 2001 and a record low of -19644.0 Million USD in October of 2011. India is a leading exporter of gems and jewelry, textiles, engineering goods, chemicals, leather manufactures and services. India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for its energy needs. Other imported products are: machinery, gems, fertilizers and chemicals. Main trading partners are European Union, The United States, China and UAE.
C CO OV VE ER RS ST TO OR RY Y-- G GA AA AR R ((G GE EN NE ER RA ALL A AN NT TII A AV VO OIID DA AN NC CE ER RU ULLE ES S)) E EX XP PLLA AIIN NE ED D What is GAAR? It is a set of rules proposed to reign in tax avoidance. The government seems to have set its eyes firmly on the additional money that it can make via taxing the investments, which according to it, happen with the sole intention of tax avoidance. The proposed guidelines however have created a commotion due to their susceptibility to subjective interpretations, leaving thus, the investors at the mercy of tax authorities. What it contains? GAAR can be applied to any business arrangement if: it creates rights and obligations that are not normally created between parties dealing at arm‟s length. it results in misuse/abuse of tax law. it lacks commercial substance. it is not employed for a authentic purpose. Such an arrangement or even if a part of the arrangement is found to obtain tax benefit, the entire arrangement is termed impermissible. The vagueness of the GAAR can be best understood with an example. Consider for instance, that a person makes capital gains and invests money in bonds that qualify for a tax break. Tax authorities might argue that the whole purpose of the transaction was to avail the tax benefit which is why the person chose bonds and didn‟t invest in other equally lucrative securities. Consequently, he falls under the purview of GAAR. Equipped with GAAR, tax authorities can: disregard/combine/re-characterize whole/part of the agreement. disregard corporate structure. deny treaty benefit. re-assign place of residence/ status of assets or transaction. re-allocate income, expenses, relief etc. re-characterize Equity-debt, Income, Expenses, relief etc. FIIs seek exemption: The subjectivity of the GAAR rules have left FIIs with much to ponder about. PE funds that have routed their investments through tax havens like Mauritius to avail tax benefits under DTAA (Double taxation avoidance treaty) are particularly stumped. GAAR outlines that, while interpreting tax legislation, „substance‟ is more critical than legality. If it occurs that the sole purpose of routing investments through such tax havens is to avail tax exemptions and there is no other rational, then GAAR provisions would not allow it. Initial draft of GAAR rules went a bit far and presumed that tax avoidance is the sole purpose of an arrangement unless proved otherwise by the taxpayer. Technically it means, tax authorities on reasonable ground of belief, can accuse you of eating into taxes and then the onus lies on you to prove yourself innocent, rather than them proving you guilty. However amid loud ruckus, this provision has been removed and the onus of proof is shifted back to the tax authorities. Representatives of the Indian Private Equity and Venture Capital Association (IVCA) have put forward a three pronged test- expenditure test, employees test, and residency test- to establish this „commercial substance‟. Under the expenditure test, the average of previous two years expenses on operations should be more than $50,000. The employees test states that the overseas entity must have a full time employee who has stayed in the treaty country for at least six months, pays taxes there and is actively involved in the investment and operating activities of the fund. Residency test mandates that at least two directors should be from the treaty country, and the auditing is done by their statutory auditor. A tax residency certificate issued by the local tax authorities would also be necessary. FIIs seek exemption from GAAR if any one of these three conditions is fulfilled.
Parliamentary standing committee has recognized the gravity of GAAR and asked for an independent body for approval of invocation of GAAR by the tax Commissioner. The bottom line is that it should not affect bonafide transactions under the guise of fair taxation.
P PE ER RS SO ON NA ALLIIT TIIE ES SO OFF T TH HE EW WE EE EK K
– Current Union Minister of Finance
P Chidambaram took office on August 01, after Pranab Mukherjee was appointed as the President on India. A week after his appointment, the Finance minister has assured that India will be back on its path of recovery soon. Chidambaram has the onerous task of inducing growth in an economy marred by high inflation & interest rates, low inflow of foreign investments and policy flip flops. He has come up with a mid-year plan, which includes taking corrective actions to revamp fiscal policy & rebuild investor confidence by reducing interest rates & incorporating a stable tax regime. He is working on fine tuning tax policies that would increase capital inflow in the country and has reassured that India will see investments go up to 38% and savings up to 36% of the GDP, a target that was achieved before the 2008 economic crisis.
“Government has taken a number of fiscal & administrativ e measures which resulted in moderation of inflation to around 7%7.5% in recent months.”
Chidambaram was born in the royal family of Chettinad, Tamil Nadu. He is a lawyer by profession & acquired his MBA from Harvard Business School. After completing his education, Chidambaram joined the High court in 1968 as an advocate. By 1984, he had practiced in High Court as well as in the Supreme Court as a senior advocate. His career in politics started in 1985, when he was elected for the first time as a member of Lok Sabha. Since then he has worked his way up in the Indian National Congress. He served as the Deputy Minister in the Ministry of Commerce during Rajiv Gandhi‟s reign. He was also appointed as the Minister of Personnel, Public Grievances and Pensions. India’s Economic Reformist!!! He is one of the most respected & senior member of the Congress Party. Whenever, Congress has been in power, Chidambaram has held an important ministerial position. This is his third tenure as the Finance Minister of India. He replaced Shivraj Patil as the Minister of Home Affairs after the Mumbai terrorist attacks in 2008. Chidambaram has a proven track record of successfully implementing economic reforms in the country. He has been lauded for revamping the EXIM policy. In his first budget in 1997, he brought reforms that controlled government spending & also rolled out tax reforms that reduced the fiscal deficit substantially. He is credited for steering the economy away from the global crisis of 2008, by implementing robust reforms in the 2008 budget which also focussed on waiving off farmers debt – a move that insulated the Indian economy from the global meltdown.
Dr. Vijay Mallya
– Chairman of UB Group & Kingfisher Airlines
Famously known as the King of Good Times is certainly having a hard time saving his beleaguered Kingfisher Airlines. With mounting pressures from investors to repay a debt of over Rs.7,500 crores, he is chalking out a turnaround plan for the airlines that has never made any profits since it commenced operations in 2005. Lessors are taking away aircrafts, lenders are seeking repayments, banks have asked him to come up with a detailed turnaround plan & infuse equity; and the government is refusing to help. Until recently, he was lobbying with the Indian government for foreign investments in the aviation industry. However, there seems to be no recent developments in FDI in the aviation sector and he has finally stated that he shall “recapitalize the airlines” and is focussing on sustainable profitability of Kingfisher Airlines.
“I have been talking to people & many are interested in investing in KFA but it all depends on government policies. We are waiting & watching.”
In Good Times!!! Vijay Mallya is the son of Industrialist - late Vitthal Mallya. He has a bachelor‟s of commerce degree from St. Xavier‟s College, Kolkata. He worked as an intern to gain experience in the UK based Jenson & Nicholson and the US based chemical company Hoechst Corporation – which is now known as Sanofi-Aventis. Mallya assisted his father in revamping the Kingfisher beer brand; which spruced up the beer sales of UB Group to 2.85 million within a year. At the age of 28, he had to take over as the Chairman of the United Breweries Group after the untimely demise of his father in 1983. Soon after his appointment, he streamlined various businesses of the conglomerate group by dividing them into individually operating units and defined the corporate structure. UB group initially was into pharma, paints, food products, plastics, batteries, beverages and some other small scale industrial units. Mallya designed & implemented the strategy that focused on the core business and the company moved away from several segments it previously catered to. Currently UB group is one of the top players in the key sectors it serves. Mallya is credited for transforming the Indian conglomerate company – UB Group into a Multinational giant. UB group holds more than 40 per cent market share in the Indian brewing industry. Pursuit of Hobbies!!! Mallya is also the owner of India‟s first Formula One racing team “Sahara Force India Formula One” & IPL team Royal Challengers Bangalore. He is an avid fan of sports and promotes various sporting events across countries. He has a larger than life persona and is one of the most flamboyant Indian billionaires. He is known for his lavish product launches and has a collection of about 250 vintage cars, owns several yachts and is an excellent aviator.
IIN ND DU US ST TR RY YA AN NA ALLY YS SIIS S– – IIN ND DIIA AN NT TE ELLE EC CO OM M IIN ND DU US ST TR RY Y Overview: In 1880, two telephone companies namely Oriental Telephone Ltd. &
Anglo Indian Telephone were not allowed to start telephone services on the grounds that the establishment of telephones was a Government monopoly. Who would have thought then that Indian telecom industry would become one of the most competitive telecom industries in the world? Today, Indian telecom industry is the second largest in the world on the basis of its customer base & one with some of the lowest tariffs in the world enabled by huge competition in its market.
Reforms & Budget Telecom Network Model As a part of its policies of Liberalization-Privatization-Globalization in 1990s, government of India opened cellular sector for private companies, established the Telecom Regulatory Authority of India (TRAI) & the Department of Telecom (DOT) to oversee telecom companies & brought changes in the ownership, service and regulation of telecommunications infrastructure. In the late 90s, Government pushed FDI limit from 49% to 74% & introduced New Telecom Policy with the vision of providing telecom services to rural areas. Mobile tariffs in India are the second lowest after Bangladesh; low tariff is due to “budget telecom network model” that companies follow. This model caters to customers who only use a few calling minutes per month. This innovation rests on the reduction of transaction costs of generating and transmitting a monthly bill for prepaid customers. Low-value recharge cards, especially electronic reload; give the greatest payment flexibility making this model work.
Indian Telecom Industry: According to a TRAI report, titled „Telecom Sector in India: A Decadal Profile‟, the
subscriber base in India, stood at 943.49 million in February 2012 as against 28.53 million in April 2000. From 2001 to 2011, the total number of telephone subscribers has grown at a compound annual growth rate (CAGR) of 35 per cent. India is divided into multiple zones also called as circles. There are 22 circles allotted to telecom companies through auction, dominant players are Airtel, Reliance Infocomm, Vodafone, Idea cellular & BSNL. Indian Telecom industry can be classified into 3 categories namely Mobile, Fixed line & Internet. India is the second largest country on the basis of the number of its mobile subscribers. In the wire line market, BSNL has the largest market share of 70% followed by MTNL & BHARTI. India ranks third in the number of internet users, BSNL & MTNL dominates the market with a share of 64.8 and 7.6 percent respectively while from the private sector Bharti leads with a share of 10 per cent. Recently, Mobile number Portability was introduced & now the government is planning to remove roaming charges.
2G, 3G & now 4G: The Government raised more than $12 billion from a 3G auction in 2010. Bharti paid $2.2 billion for 3G bandwidth in 13 service areas, while Vodafone India spent $2.1 billion for permits in nine and Idea gained access to 11 areas for about $1 billion. However, 3G growth was disappointing due to high prices; only 15 mn out of 900 mn subscribed 3G services. Recently, 4G was launched by Bharti Airtel in Kolkata, the network for rolling out Airtel's 4G LTE (Long term evolution) services in the city had been built by Chinese telecom equipment maker ZTE. Analysts believe that young population & increasing income will fuel the growth of 3G & 4G services. In Aug 2012, 2G spectrum will be auctioned again. Earlier this year the Supreme Court cancelled 122 telecom licenses issued in 2008 by then Telecom Minister A Raja for showing undue favours to companies.
Emerging trends in Indian Telecom Industry Focus on Rural Market: Indian rural market offers huge investment opportunities for mobile companies & service providers; teledensity in rural India is around 40% as compared to the overall 86%. According to New Telecom Policy 2012, the Government expects rural teledensity to increase to 70% from the current 40%. Green Telecom: The green telecom concept aims at reducing the carbon footprint of the telecom industry through reduced energy consumption. TRAI initiated a consultation process in May 2010, requesting inputs from firms across the telecom value chain to provide recommendations on green telecom‟s framework and implementation. Outsourcing noncore activities: As part of the recent outsourcing trend, operators outsource functions like network maintenance, IT operations and customer service. In 2010, Bharti established a major outsourcing relationship with IBM, which gave IBM full control and ownership of Bharti‟s IT infrastructure and associated processes
Conclusion: The telecom sector is one of the highest FDI-attracting sectors in India, and has recorded FDI inflow
worth more than US$ 9 billion between 2000 and 2010. Moreover, the rural markets are expected to be the next key growth drivers for the Indian telecom sector, given rural India‟s growing population and disposable income. Indian government should also make sure that a repeat of the Vodafone tax case doesn‟t happen again & its image remains as a competent telecom industry.
N NE EW WS SA AN NA ALLY YS SIIS S 1) Videocon hires LG’s executives & adopts its strategy to regain its market share - ET IMPACT: One of India‟s largest electronics conglomerate, Videocon hired about 36 senior executives of South Korean conglomerate LG in the last four years to help the company increase its market share. Ex-MD of LG KR Kim, the man behind the success of LG in India joined Videocon in 2008. Kim brought his LG team in next few years to Videocon and applied the same strategy for Videocon that worked for LG. Videocon focussed on launching mass market products and increased its presence across the country. The strategy works on the basic principle of selling: products available in stores are sold. South Korean players LG & Samsung had stormed into the Indian market in the early 2000s by bringing out mass products with improved technology, competitive prices, good service & availability in all cities of India and acquired the majority of the market share which once belonged to Videocon & Sony. KEY PLAYERS: Videocon, LG WHY IT IS IMPORTANT? LG‟s strategy has indeed worked for Videocon whose market share has increased by up to 5%. Videocon, which owns brands like Kenstar, Sansui, and Kelvinator; currently has 26 per cent market share in television and 27 per cent in refrigerators & washing machines. The company got an advantage over LG as the latter saw a failure in its shift from the mass product market to premium segment. LG has also recently lost its top position in air conditioners to domestic company Voltas. 2) Reuters finds American premium brands being illegally sold in India – Reuters/ IBN Live IMPACT: An investigation by Reuters has found that international brands are sold in the Indian market illegally & at cheaper rates by e-commerce websites. Indian online retailers like Snapdeal, Fashion&You, Myntra & Yebhi are selling brands like American Eagle Outfitters, Abercrombie & Fitch (A&F) and Aeropostale. The spokesperson for A&F has said that Indian online retailers do not have any licence to sell A&F products. Where do these products come from? These clothes are not counterfeit but original branded apparels. Companies sell their excess inventory to distributors in Asia, Middle East, etc. These distributors sell branded apparel in countries where the demand is high. According to two Indian lawyers, the distributors are not supposed to sell the apparel with their branded labels. Some of these goods are also picked up by the online retailers from Dubai & Bangkok‟s grey markets. KEY PLAYERS: Online Retailers WHY IT IS IMPORTANT? With FDI in multi brand retail policy still under consideration, foreign brands are waiting to enter India. However, with the illegal entry of global brands into the Indian markets, it is an opportunity for the companies to create brand awareness amongst the masses and test market the product before its entry into India legally. Indian consumers are also benefitting as they are getting global brands at discounted rates. However, after these global companies enter India through FDI in multi retail policy, they shall blacklist these sites for selling their products without a license. 3) Govt relaxes its norm on land transfers which would boost infrastructure projects – HT/ Moneycontrol IMPACT: The Indian government has managed to reduce red tape by revoking its ban on the transfer of land in order to remove procedural delays in infrastructure projects. This move will, thus, enhance the public-private partnerships (PPP) in infrastructure projects. The government, last year had imposed the ban stating that there were irregularities in PPP projects. Although, the government has revived the stalled infrastructure projects, the rule is only applicable for leasing or renting of the land & not for its sale. The relaxed norm would also cover land allocation for railways. Earlier, if a power plant had received an official sanction to set up another facility on land owned by the central government; the private player had to apply to the cabinet for land clearance & after that he could start the project. This process halted many projects but now a special committee with comprehensive land transfer policy in place would speed up this process as the private player does not have to go to the cabinet ministry for land clearance. KEY PLAYERS: Government, Infrastructure Projects WHY IT IS IMPORTANT? About 70 per cent of infrastructure projects require government land. Railways & Power sector urgently require PPP for their development. The 2012 Railway budget included the modernization of the Indian Railways whereas the power sector is facing shortages in the generation of power. The relaxation of the land acquisition norm & the fuel supply agreement (FSA) which mandates Coal India to supply a minimum of 80% of the fuel contracted to the power producing company has come as a relief to the power industry.
4) Maruti in loss with non-operating Manesar plant. Mamta & Modi in a race to woo Maruti – ET/BS IMPACT: More than two weeks after the July 18 Manesar plant‟s labour unrest & violence that left several managers injured, one senior manager dead & over hundreds of workers either in prison or missing (they have left the industrial town in order to avoid arrest), the non-operating plant stands still with policemen guarding the compound. The Chief Ministers of West Bengal & Gujarat – Narendra Modi & Mamta Banerjee are currently in a race; each persuading Maruti‟s management to shift the company‟s operations to their respective state. The shifting of the entire plant will require time & resources. However, in the current situation, Manesar plant stands in a decimated condition, senior officials are not at ease to return to work & it is a big challenge to find new skilled workforce. The company is now evaluating possible solutions to the problem in hand. KEY PLAYERS: Maruti Suzuki, Narendra Modi, Mamta Banerjee WHY IT IS IMPORTANT? Maruti is facing losses as the non-operating Manesar plant has a capacity to produce up to 2,000 units a day & manufactures Swift, Dzire & SX4 models. The company has anticipated a loss of ₨2,700 crore for a month‟s closure of the plant. The passenger car sales are on the path of recovery from the last year‟s slump of 4.5 per cent growth to current 9.7 per cent growth in Q1 FY13. Also with petrol prices on rise, the demand for diesel models is high. However Maruti cannot take advantage of the situation. Moreover if the plant remains non-operational for long, the waiting period of Maruti‟s cars would increase and the customers might switch to its rivals thus affecting its revenues as well as its market share. 5) Social Media on the rise. Firms now tap consumers online – ET/TOI IMPACT: Trends in US: With huge number of Facebook & Tweeter users, companies are using social media websites for their consumer research. The traditional methods for consumer research like focus groups & trend analysis are now being replaced by simple apps on the social media sites. Companies like Frito-Lay, Samuel Adams & Wal-Mart have started using the social media space as their market research department. Frito-Lay & Samuel Adams is using this platform for the product development, wherein they have asked consumers which new product (flavour) they would prefer. In case of Wal-Mart, it used an online poll to gauge whether the consumers liked lolly-pop cakes. After it received a positive response, Wal-Mart installed the lolly-pop cakes making machine in its stores. Trends in India: A survey by the Internet & Mobile Association has found that India has third largest online population after the US & China, at 150 million internet users. With this huge population, companies are now moving towards something called “SocialCommerce”, a slight deviation from e-commerce wherein users can buy gifts from social media websites & do not have to go to the e-commerce websites for shopping. KEY PLAYERS: Facebook, Twitter, Frito-Lay, Wal-Mart WHY IT IS IMPORTANT? Currently, companies are in the process of creating their presence or expanding it on the social media platform amongst Indian internet users. Many companies have grabbed the attention of consumers on Facebook & Tweeter by organizing online quizzes & distributing coupons online. A recent study by Nielsen and McKinsey has also reported that Maruti Suzuki, Samsung, Nokia, IPL & CCD are the top Indian brands in the social media space. It will not be long wherein Indian Facebook users would select the new flavour of Frito-Lay to be launched in India. 6) Woodland becomes India’s first carbon-neutral store – FE/ Guardian UK IMPACT: Two months after the leaders of the world met at the Earth Summit 2012 for discussing sustainable economic development of the nations & protecting the environment; Woodland Shoes has proved its loyalty towards the cause and announced the conversion of its 80 retail outlets across Delhi & Bangalore into “carbon neutral stores”. The concept of carbon neutral stores is based on the company‟s ability to reduce emissions of carbon dioxide & other harmful chemicals that lead to the greenhouse effect. Woodland plans to become a “carbon neutral” retail chain by 2015. They have also designated about three per cent of the company‟s profits for environmental initiatives like planting saplings across the country. Woodland will also give its customers carbon credits for shopping in its stores. These credits are similar to Sodexho coupons, and can be redeemed for discounts on Woodland products. Global supermarket group, Tesco had launched its first carbon neutral store in 2010. KEY PLAYERS: Woodland, IBM, Tesco WHY IT IS IMPORTANT? Global warming is a concern for the world and various nations like Denmark, Norway amongst others have taken initiatives to become carbon neutral nations. Even international giants like IBM, HSBC, Microsoft and many more have pledged to become carbon neutral in near future.
7) Wadia Group charges Royalty to group companies – BS/Livemint/The Hindu Business Line IMPACT: Wadia Group Chairman, Nusli Neville Wadia, has announced that all the listed & non-listed group companies have to pay royalty up to 0.25 per cent of their yearly net sales to the parent group for using the Wadia brand name & for sharing common services. Britannia, Bombay Dyeing & Go Airlines will have to pay a minimum 0.1 per cent of their revenues from FY-13 to the parent company and this amount will go up to 0.25 per cent depending upon the usage of the group‟s brand equity & shared services. The Wadia group provides shared services like finance, IT, legal, and treasury & risk management to its group companies. MD of Britannia Industries, Vinita Bali has said that shared services have significantly reduced the company‟s cost and the amount charged as royalty is lesser than what the company would have to pay to build an in-house team for these operations/services. She has also put forth that although the brand equity of Wadia group is high in the market, it does not have any substantial effect on the consumers or their buying behaviour. KEY PLAYERS: Wadia Group, Britannia, Bombay Dyeing, Go Airlines WHY IT IS IMPORTANT? On the basis of the previous year‟s revenues of the companies, the royalty amount of 0.25 per cent stands out to be 6.7 per cent of Britannia‟s profit in FY-12. Similarly, in case of Bombay Dyeing, it acquires up to 9.4 per cent of the company‟s last year‟s profit. The major concern is that, if any company makes losses, shareholders will not get their dividends but promoters will definitely get their royalties. Tata Group also charges a royalty of 0.25 per cent of revenues, but only from its blue chip companies. 8) Worst may be over for India’s best airlines- ET/Reuters/Firstpost IMPACT: Jet Airways & SpiceJet‟s recent revenue figures indicate that the carriers might have overcome the worst crisis ever. The unexpected profits reported first by Jet Airways and then by SpiceJet have created enough positive vibes for the aviation industry which lost $2 billion last year. Though SpiceJet‟s ₨ 56 crore net profit in June quarter is partially dependent on KFA‟s failure & Air India‟s pilot strike, the company‟s strategy of focussing only on profitable routes has also paid-off. The air carrier has been able to raise ticket prices in last three months without losing on Load Factor (percentage of seat occupancy). It is interesting that SpiceJet, which now operates from 34 air terminals (compared to 22 earlier) with 300 flights has only six daily flights on Delhi-Mumbai route – the busiest in India. This is because average yield per passenger on this route is lower than others. On the other hand, India‟s second largest carrier by market share - Jet Airways - has also reported a net profit of ₨ 24.7 crore in June quarter, against a net loss of ₨ 123.2 crore in year ago period. KEY PLAYERS: Jet Airways, SpiceJet WHY IT IS IMPORTANT? Observing the signs of recovery, On Monday, Bank of America-Merrill Lynch upgraded Jet Airways and SpiceJet stocks to "buy" from "underperform". This took shares of SpiceJet 12.7% higher in intraday trading on Tuesday to reach a new 52-week high of ₨ 36.30. The bank also projected that the carriers will lower losses in FY 2012-2013 and will eventually return to profits a year later. 9) CIBIL’s plan to rate MFIs gets delayed by Adhaar implementation- DNA/BS IMPACT: The country's first credit information bureau, CIBIL (Credit Information Bureau India Ltd), seems to be struggling with delay in implementation of Adhaar – country‟s unique user identification programme. The bureau said that it requires unique IDs of Microfinance customers, which at the moment is not there. For instance, ration cards that are said to be unique are good as long as they are used within state. CIBIL alternatively uses PAN number to identify and rate borrowers. Banks and institutions are expected to provide data of their customers to the bureau, which is utilized in assigning credit score to the customers, which eventually helps other institutions in assessing the creditworthiness of the individuals. This doesn‟t work in case of Microfinance as the customers often have no ID at all. It has resulted in microfinance institutions (Banks & NBFCs) incurring heavy losses as currently 9.3 million or a third of MFI borrowers in India are defaulters. Somehow, CIBIL has managed to create a database with 45 million records of MFI customers. Meanwhile, CIBIL has also announced its plans to launch an index for corporate & business houses. The risk index will rate corporates on a scale of 5, with lower numbers meaning better creditworthiness. KEY PLAYERS: CIBIL (Credit Information Bureau India Ltd)
WHY IT IS IMPORTANT? The CibilTransUnion Score is used widely by banks and financial institutions in India for credit decisions. The score assigned to a borrower ranges from 300 to 900. A low score or being blacklisted makes it impossible for anyone to get loans from banks or other institutions in future. 10) Corporate debt ratio has reached “dangerous” levels in China- The Hindu Business Line/Telegraph UK IMPACT: Experts have warned that China‟s corporate debt ratio has reached “dangerous” levels and any government stimulus to fuel domestic demand for reimbursing falling exports, would put heavy strain on companies. In 2011, China‟s corporate debt-to-GDP ratio was a staggering 107 per cent which is the highest in the world. The data was provided by a top government committee, Chinese Academy of Social Sciences. The ratio is calculated by dividing total debt of Chinese banks from loans (or other methods such as corporate bonds) by nation‟s GDP. Data shows that by the end of 2011, Chinese banking sector owed $8.63 trillion against total GDP of $7.37 trillion the same year. KEY PLAYERS: Chinese banks, Government of China WHY IT IS IMPORTANT? It is evident that world leaders have shown greater concern for problems in the Eurozone and elsewhere, while allowing China to take care of itself. It remains to be seen if this behaviour continues for long. Though, China is a superpower with a giant economic engine, it has showed worrying signs of a slow-down lately. The country has suffered huge damages due to the crisis in Europe, which is its biggest trading partner. Hence the recent economic data about corporate debt ratio would attract attention of business community world over. 11) Cognizant topples Infosys to become No.2 IT co. in India- The Hindu Business Line/TOI IMPACT: What has been on the cards for a while has finally happened - Cognizant topples Infosys to gain number two spot in the Indian IT industry. It‟s a remarkable journey for a company, which was just third the size of Infosys a decade ago. Meanwhile TCS dominates the market with its number one position intact. In recent months, the $100billion Indian IT sector has faced challenges like increased pricing pressures due to competition, wage hikes & a steep decline in project volumes. Still, Cognizant has been able to meet its guidance of 20%, set a quarter ago. In the process it has taken a lead of $43 million over Infosys by posting revenues of $1.795 billion in the June quarter. In an interview, Malcolm Frank, who is executive VP (strategy) in Cognizant, said that the global slowdown has forced companies to reduce spending, though demand for innovation has not gone down. This is where, he adds, the company has taken a lead by providing solutions in new technologies like social media, mobile, analytics and cloud. KEY PLAYERS: Cognizant, Infosys WHY IT IS IMPORTANT? Analysts say that Cognizant‟s success is largely dependent on its transformational engagements with significant players like Philips & ING (US). Transformational deals are those in which the vendor gets incentives for completing projects with client‟s business processes in mind. More such deals are expected to be signed by the company in near future. 12) After HSBC, now its StanC’s turn to undergo US scanner- BS/ET IMPACT: It seems USA has turned up the heat on all major banks who outsourced key jobs to India, which it claims has exposed their financial system to terror funding and money laundering risks. This time UK-based Standard Chartered‟s (SCB) outsourcing to Indian shores has come under US scanner. New York State Department of Financial Services has claimed that the bank has secretly engaged in several transactions worth $ 250 billion with the government of Iran, violating US sanctions. Over a decade, this has generated millions of dollars for Standard Chartered in terms of fees. The bank has however denied all allegations. Moreover, it has come out with numbers saying that the total value of transactions not conforming to norms is under $ 14 million, which is just 0.1 per cent of total transactions done with Iran. KEY PLAYERS: Standard Chartered, New York State Department of Financial Services WHY IT IS IMPORTANT? Standard Chartered has been outsourcing jobs to India since 2001 as the bank has to provide services in 75 nations across the globe. It has been specifically claimed that back office units in Chennai were not able to filter trades relating to institutions in Iran, which in other words mean that 8500 people working there were not properly trained or informed about the process. Analysts say such process failures have happened even at their own centres. Further, they add that the concerns about violations of US sanctions due to outsourcing are misplaced.
M MIIS SC CE ELLLLA AN NE EO OU US SN NE EW WS S 13) CBI in alert mode as banking frauds took quantum jump in FY2010-11- The Pioneer/The Indian Express IMPACT: Losses suffered by PSBs (Public Sector Banks) in frauds have gone up remarkably in last few years. In 2009-10 such losses amounted to ₨ 2,017 crore. The amount increased to ₨3,799 crore in 2010-11. This year in just seven months such frauds have amassed ₨ 2,500 crore. CBI says that now it‟s developing a mechanism called Bank Case Information System (BCIS) to gauge such cases. It‟s a database containing names of borrowers, accused, and other public servants on CBI records. Bank Securities & Fraud Cell has been assigned to probe such cases. Meanwhile, CBI has also redefined what it considers as frauds, which broadly means that the cases should be above ₨3 crore. Cases below that would be handled by state police. Interestingly, CBI Director also said that some banks register wrong reports just to pressurize their borrowers, which unnecessarily burdens the CBI office. KEY PLAYERS: CBI, PSBs WHY IT IS IMPORTANT? The losses incurred by PSBs & other financial institutions points to an urgent need to form a better system to prevent such frauds. CBI Director AP Singh also raised concerns about the procedural delays in probes for such cheating cases. 14) Its Quality Walls “Frozen Desserts” now – TOI/ ET IMPACT: The Advertising Standard Council of India (ASCI) has asked Hindustan Unilever (HUL) to stop advertising Kwality Walls products as ice-creams. Kwality Walls products are made of vegetable fat and thus fall into the category of frozen desserts; on the other hand ice-creams are made of milk fat. The Gujarat Cooperative Milk Marketing Federation which owns the Amul brand had earlier filed a complaint against Kwality Walls for making misleading advertisements & selling frozen desserts as ice-creams. HUL has accepted ASCI‟s orders and has announced that it will replace the words ice-cream with frozen desserts in the advertisements. The print advertisement in concern is the “advertorial” featuring celebrities which promote the “Strawberry Cheesecake” as an ice-cream instead of frozen dessert. The market for ice-creams & frozen desserts is estimated at ₨ 1,700 crores. The major players in this market besides Amul & Kwality Walls are Cream Bell, Vadilal & Mother‟s Dairy. KEY PLAYERS: Kwality Walls, Amul WHY IT IS IMPORTANT? Last month, the Indian monitory body for advertising NAMS, had found 55 print & TV advertisements misleading. Globally, many countries are taking strict action on companies making false claims through advertisements. The Indian government is also in the process of banning advertisements that make unsubstantiated claims. Recently, an advertisement featuring Justin Bieber & Katy Perry was banned after it was found that it was misleading. 15) RBI Governor Subbarao meets P Chidambaram to discuss economy- TOI/ET/NDTV Profit IMPACT: Reserve Bank Governor D Subbarao recently had a meeting with Finance Minister P Chidambaram to discuss macro-economic situation in the country. The meeting holds importance as the country faces multiple challenges which can only be resolved if the two important institutions work in tandem. However, in recent days there have been many instances on which it has appeared that the RBI chief is not exactly supportive of government policies or Finance Ministry‟s actions. Subbarao has time and again emphasized the need to cut widening deficits. He has supported the idea of cutting subsidies, even at the cost of hike in inflation, which he predicts would be temporary. Further, government policy paralysis has also attracted his attention, which he says has slowed down the foreign investment to a great deal. Additionally, RBI in its recent policy review has cut the growth forecast for FY 2012-13 to 6.5 per cent from 7.2 per cent earlier. It has often been expected from RBI to cut interest rates to stimulate growth. However, this is not a remedy anymore as high inflation restricts any such measure. KEY PLAYERS: D Subbarao, P Chidambaram WHY IT IS IMPORTANT? The meeting with new Finance Minister will probably open new avenues for some policy changes that Subbarao has been endorsing for long. P Chidamram on the other hand has acknowledged some of these concerns and ordered a review of retrospective tax amendments & GAAR (General Anti Avoidance Rules) within a week of joining office.
JJO OB BP PR RO OFFIILLE E Part 2
Question 1: Can you give us a brief backgrounder on your experience prior to your current role?
qualifications and work
Answer: I pursued my BBM from Bangalore University via correspondence. In the meanwhile I worked with Citi Group’s retail banking unit in sales for about a year. Following this I joined HSBC BPO in the Fraud Prevention Unit. I worked at HSBC for about a year and a half before moving on to Dell where I worked for another two years. I had good communications skills and advertising beckoned. I started my advertising journey in client servicing with a small agency called the Other Side where I worked for a year. I then switched to Meridian, Ogilvy and Mather’s sister agency, where I handled retail and FMCG clients for about 2 years before joining McCann Erickson. Question 2: Can you give us a brief idea about your
primary job responsibilities
and KRAs as a Senior Project Manager with McCann Erickson?
Answer: I have two Project Managers reporting to me whom I must guide and my main job is to ensure that daily operations go smoothly. A major part of my job is doing market/product research for the brand I handle. Considering its an FMCG brand there is quite a bit of research involved which involves consumer research and also working with the marketing team client side. I must answer questions like, Is the product right? Can we move the product in the market? So I can safely say that research and competitor analysis is a major part of my job as I need to be aware of what other competitors and agencies are doing and be prepared to react to them. The rest of my responsibilities are more of an operational nature where I must write creative briefs and follow up with “creatives”, vendors and third parties. Finances, making sure they are in order and finding ways to generate more revenue through existing clients is also a major part of my job. Question 3: Can you briefly take us through an average
day at work?
Answer: My day starts at around 10 AM, where my first priority is to find the status of daily operations. The first half of the day goes in allocating tasks to my juniors and taking care of operations. My lunch hour is spent writing briefs following which I must brief the creative team on new or existing projects. This is followed by a lot of follow ups, client calls explaining creatives sent to them and the reasoning behind them and addressing concerns. The latter part of the day is spent in research and competitor analysis. I must also analyze the current portfolio of brands I handle to see what requires work. In the meanwhile I must also be on the lookout for new business opportunities which can be addressed by our business development team. Finally at the end of day I make sure that the finances are in order as that is a very critical part of my job. By the time I can call it a day it is usually 9 PM.
Question 4: What are the of your job?
primary challenges you face and which is the most difficult part
Answer: Perhaps the most basic challenge that I face is making sure that everybody and by that I mean, the creatives, client servicing and any third party stakeholders, work towards the same goal. Unfortunately sometimes there is a lot of micromanagement involved where every stakeholder needs to be managed as there are different perceptions and ways of working. Making sure we meet deadlines is another challenge. As you know, advertising is all about deadlines, a submission no matter how brilliant is useless if not on time. The underlying feeling is that everything is the responsibility of the client servicing person which makes it difficult to communicate urgency to other parties. Also making clients understand that things take time, that no good work gets done in a jiffy is a tough task. Clients also have this habit of moving things along internal hierarchies which makes decision making ambiguous and ineffective. To a certain extent it is a trust issue. As you can see the biggest challenge is people management. 5: What are the most important skill-sets & attributes, according to you, that are required to succeed in your role and in client servicing in general? Question
Answer: First of all, you need to be street smart and a really fast thinker. You need to think fast on your feet and get things done fast. The truth is that slow thinkers would find client servicing very tough. Of course, people management skills are a given without which one canâ€™t do this job. You canâ€™t treat client servicing in advertising as just another job. It requires passion and you have to understand that your work doesnâ€™t end in 8-10 hours. Your initial years will involve a lot of operational level work which takes time. Advertising needs to be your life. Question 6: What are the inherent peculiarities that are involved in your role that are seen only in client servicing in an ad agency? Answer: Attention to detail is probably one thing that comes to mind. Every full stop and space in ad copy matters. One peculiarity, rather benefit, of client servicing which I personally love is that it teaches you so much about industries across the whole spectrum. It provides you with a knowledge base on different industries which I doubt any other job provides. Post advertising this enables you to move into any industry you would like to if you have worked on it. Also, this job equips you with a lot of organizing skills as you have to manage a lot within tight parameters.
SOURCES Charts & Graphs: : http://www.tradingeconomics.com/india/balance-of-trade SOURCES FOR COVER STORY http://www.indian-share-tips.com/2012/03/general-anti-avoidance-rules-gaar.html#ixzz22lWJDugS http://www.indian-share-tips.com/2012/03/general-anti-avoidance-rules-gaar.html http://www.firstpost.com/business/gaar-proposals-too-vague-international-business-council-395372.html http://www.thinkplaninvest.com/2012/05/what-is-gaar/ http://articles.economictimes.indiatimes.com/2012-03-30/news/31261273_1_gaar-commercial-substance-capital-gains-tax http://www.thehindubusinessline.com/industry-and-economy/taxation-and-accounts/article2230641.ece http://business-standard.com/india/news/general-anti-avoidance-rulethe-burdenproof/473569/ http://www.business-standard.com/india/news/rules-for-reform/480689/ http://www.business-standard.com/india/news/foreign-investors-body-against-example-based-gaar-draft/480261/ http://www.business-standard.com/india/news/fiis-seek-full-exemptiongaar-provisions/479932/ SOURCES FOR PERSONALITIES OF THE WEEK: http://profit.ndtv.com/News/Article/why-p-chidambaram-rbi-governor-d-subbarao-meeting-matters-308868 http://www.hindustantimes.com/News-Feed/Editorials/He-s-got-off-on-the-right-foot/Article1-909909.aspx http://en.wikipedia.org/wiki/P._Chidambaram http://www.indianexpress.com/news/p-chidambaram-signals-major-course-correction/984646/0 http://timesofindia.indiatimes.com/business/india-business/P-Chidambaram-may-have-to-mend-fences-withRBI/articleshow/15398224.cms http://economictimes.indiatimes.com/news/news-by-industry/transportation/airlines-/-aviation/fdi-or-not-will-recapitalize-kingfisherairlines-vijay-mallya/articleshow/15398676.cms http://www.moneycontrol.com/news/business/many-interestedinvestingkingfisher-mallya_733317.html http://en.wikipedia.org/wiki/Vijay_Mallya http://www.theubgroup.com/group_information.aspx http://en.wikipedia.org/wiki/Kingfisher_Airlines INDUSTRY ANALYSIS http://en.wikipedia.org/wiki/Communications_in_India http://www.ibef.org/artdispview.aspx?in=72&art_id=31901&cat_id=470&page=2 http://www.ibef.org/artdisplay.aspx?cat_id=468&art_id=27956 http://www.ibef.org/download/Telecommunication50112.pdf http://profit.ndtv.com/News/Article/the-indian-telecom-saga-dream-turned-sour-308142 http://articles.timesofindia.indiatimes.com/2011-03-08/services-apps/28667958_1_telecom-sector-energy-cost-rural-areas http://telecomlead.com/inner-page-details.php?id=10700&block=News http://www.mymobile.co.in/news/indian-telecom-industry-to-follow-the-green-suit/ http://www.trai.gov.in/WriteReadData/UserFiles/Documents/AnuualReports/ar_10_11.pdf http://en.wikipedia.org/wiki/File:Wireless_telephone_market_in_India.png http://news.biharprabha.com/2012/05/now-enjoy-no-roaming-charges-across-whole-india/ SOURCES FOR NEWS ANALYSIS (1-15) 1) Videocon hires LG’s executives & adopts its strategy to regain its market share - ET http://articles.economictimes.indiatimes.com/2012-08-03/news/33020190_1_anil-arora-lg-india-indian-durables 2) Reuters finds American premium brands being illegally sold in India – Reuters/ IBN Live http://in.reuters.com/article/2012/08/02/abercrombie-fashionandyou-myntra-snapdea-idINDEE87106820120802 http://ibnlive.in.com/generalnewsfeed/news/a-shopper-walks-down-fifth-avenue-with-an-abercrombie--fitch-bag-in-newyork/1035574.html 3) Govt relaxes its norm on land transfers which would boost infrastructure projects – HT/ Moneycontrol http://www.hindustantimes.com/India-news/NewDelhi/PM-relaxes-ban-on-land-transfer-for-infra-plans/Article1-907258.aspx http://www.moneycontrol.com/news/business/pmo-land-transfer-move-to-aid-ppp-projects-feedback-infra_739718.html 4) Maruti in loss with non-operating Manesar plant. Mamta & Modi in a race to woo Maruti – ET/BS http://articles.economictimes.indiatimes.com/2012-08-02/news/33001410_1_manesar-plant-maruti-brass-rc-bhargava http://www.business-standard.com/generalnews/news/maruti-to-resume-production-soon-at-manesar-hooda/40928/ http://www.thehindubusinessline.com/companies/article3731428.ece?ref=wl_opinion 5) Social Media on the rise. Firms now tap consumers online – ET/TOI http://articles.economictimes.indiatimes.com/2012-07-31/news/32961496_1_walmartlabs-kosmix-social-media http://economictimes.indiatimes.com/tech/internet/after-e-commerce-now-is-the-turn-of-socialcommerce/articleshow/15361483.cms http://economictimes.indiatimes.com/tech/internet/maruti-suzuki-and-samsung-lead-social-media-space-nielsen-mckinseyreport/articleshow/15372054.cms 6) Woodland becomes India’s first carbon-neutral store – FE/ Guardian UK http://www.financialexpress.com/news/slash-carbon-footprint-get-discounts/982423/0 http://www.guardian.co.uk/business/2010/feb/02/tesco-carbon-neutral-green-building 7) Wadia Group charges Royalty to group companies – BS/Livemint/The Hindu Business Line http://business-standard.com/india/news/feature-royalty-at-nusli-wadia-cos-to-hurt-shareholders/181979/on http://www.livemint.com/2012/08/06224944/Wadia-group-companies-to-pay-u.html?h=B http://www.thehindubusinessline.com/companies/article3734983.ece 8) Worst may be over India’s best airlines- ET/Reuters/Firstpost http://in.reuters.com/article/2012/08/06/india-airlines-spicejet-kingfisher-idINDEE87506M20120806 http://www.firstpost.com/business/jet-spicejet-profit-doesnt-mean-aviation-is-in-better-shape-406407.html
http://articles.economictimes.indiatimes.com/2012-08-06/news/33065374_1_spicejet-jet-airways-profit http://www.moneycontrol.com/news/buzzing-stocks/spicejet-hits-52-week-highvalue-buying-rises-13_741408.html http://articles.economictimes.indiatimes.com/2012-08-05/news/33036340_1_neil-mills-kalanithi-maran-spicejet 9) CIBIL’s plan to rate MFIs gets delayed by Adhaar implementation- DNA/BS http://business-standard.com/india/news/cibil-mulls-risk-index-for-corporates/181894/on http://www.dnaindia.com/money/report_cibil-waits-for-aadhar-to-rate-microfinance-customers_1725222 http://business-standard.com/india/news/at-93-mnthirdmfi-borrowersdefaulters/468617/ 10) Corporate debt ratio has reached “dangerous” levels in China- The Hindu Business Line/Telegraph UK http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/9459263/Forex-focus-China-needs-West-more-than-the-otherway-round.html http://www.thehindubusinessline.com/news/international/article3737831.ece 11) Cognizant topples Infosys to become No.2 IT co. in India- The Hindu Business Line/TOI http://timesofindia.indiatimes.com/business/india-business/Cognizant-topples-Infy-as-No-2-IT-company/articleshow/15382942.cms? http://www.thehindubusinessline.com/industry-and-economy/info-tech/article3738785.ece http://articles.timesofindia.indiatimes.com/2012-08-07/strategy/33082607_1_malcolm-frank-client-relationships-environment 12) After HSBC, now its StanC’s turn to undergo US scanner- BS/ET http://economictimes.indiatimes.com/news/international-business/standard-chartered-lapse-not-an-outsourcing-issue-sayexperts/articleshow/15407468.cms http://www.business-standard.com/india/news/after-hsbc-stancs-india-outsourcing-under-us-scanner/482657/ 13) CBI in alert mode as banking frauds took quantum jump in FY2010-11- The Pioneer/The Indian Express http://www.dailypioneer.com/nation/86003-cbi-system-to-check-spurt-in-banking-frauds-on-cards.html http://www.indianexpress.com/news/psu-banks-frauds-nearly-doubles-to-rs-3-799-cr-in-201011-cbi/985088/0 14) Its Quality Walls “Frozen Desserts” now – TOI/ ET http://articles.economictimes.indiatimes.com/2012-08-02/news/33001289_1_ice-cream-ice-cream-kwality-walls http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=TOIPU/201 2/08/07&PageLabel=19&EntityId=Ar01900&ViewMode=HTML http://articles.economictimes.indiatimes.com/2012-06-07/news/32101344_1_advertising-standard-council-asci-code-misleadingadvertisements 15) RBI Governor Subbarao meets P Chidambaram to discuss economy- TOI/ET/NDTV Profit http://timesofindia.indiatimes.com/business/india-business/Now-RBI-blames-govt-of-policy-stasis/articleshow/15383079.cms http://articles.economictimes.indiatimes.com/2012-08-06/news/33065673_1_macro-economic-situation-retail-inflation-rbigovernor-d-subbarao http://profit.ndtv.com/News/Article/why-p-chidambaram-rbi-governor-d-subbarao-meeting-matters-308868