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Thursday, June 5, 2008

Tata Group is world's sixth most reputed business group

Diversified Indian conglomerate Tata group has emerged as the world's sixth most reputed company, but the country's most valued firm Reliance Industries failed to make the grade.Tata group leapfrogged over 100 positions from last year's 124th rank in the annual Global 200: The World's Best Corporate Reputations list, compiled by US-based Reputation Institute.

The global list, which includes 10 other Indian companies, has been topped by Japanese auto maker Toyota, followed by US-based internet search giant Google, Sweden's Ikea, Italy's Ferrero and another American firm Johnson & Johnson.
The Ratan Tata-led group is joined by India's second largest software exporter Infosys Technologies in the Top-50 league at 14th position.

However, at least nine other Indian firms, which were among 600 companies considered in a survey to prepare the list, could not make it to the final 200. These firms include Mukesh Ambani-led RIL, the country's biggest by revenue among private sector firms and overall largest in terms of market value.

Other Indian companies that were considered for the list, but failed to make the cut include the biggest private sector lender ICICI Bank, top private and public sector telecom firms Bharti Airtel and BSNL, IT giant Wipro, Birla group's Grasim Industries, tobacco-to-consumer goods conglomerate ITC as well as two state-run firms -- oil refining and marketing major BPCL and national carrier Air India Ltd.

While releasing its latest Global Pulse report, Reputation Institute said that Tata group and Air India have the strongest and weakest corporate reputations respectively among the companies from India. Besides Tata and Infosys, other firms that made to the top 200 list include, Maruti Udyog (Suzuki) Ltd, State Bank of India, Hindustan Lever Ltd, Hero Honda Motors, Life Insurance Corp of India, Bajaj Auto, ONGC, Mahindra and Mahindra and Indian Oil Corp.

Both Tata and Infosys have gained over 100 spots each to join the top tier of global companies.India's Tata Group and Infosys Technologies saw their reputations increase by over 8 points in 2008, and catapulted over 100 spots in the ranking to join the top tier of global companies in 2008, in recognition of their growing role among the world's business elite," the report said.

However, the highest jump in ranking has been seen by China's Faw Group (ranked 41st with an improvement of 178 spots), followed by Norway's Coop, Canada's Sobey's and Japan's AEON, all of which have gained over 100 spots.

Maruti, the country's biggest car maker, has been ranked at 77th, SBI at 107th, HLL (now renamed as HUL) at 131st, Hero Honda at 147th, LIC at 161st, Bajaj Auto at 169th, ONGC at 186th , M&M at 191s and IOC at 199th position.

Globally, food and beverage giant PepsiCo, headed by a person of Indian origin Indra Nooyi, has been ranked 100th.
Tatas are ranked higher than companies like Walt Disney, Marks and Spencers, Xerox, Colgate-Palmolive, Sony, Honda, General Electric (GE), all of which are in the top-50.

The survey was conducted on 600 largest companies from 27 countries, out of which 200 were selected for the list. Toyota earned the highest ranking with a score of 86.53, followed by Google with 85.23 points.

Reputation Institute said that all the 200 companies earned scores higher than the global mean of 64.2 points, but despite earnings better-than-global average, the companies ranked 51-200 have significantly weaker reputations than the top tier companies.

also read : effect of increase in oil prices on indian economy

Wednesday, June 4, 2008

Indian exports to non-US markets increasing: Report

The focus of India's exports is shifting from the traditional US market to the UAE, a Dun & Bradstreet report said.

The US has traditionally been India's leading export destination. In FY 2007, US accounted for as much as 14.9 per cent of the total merchandise exports worth an estimated $ 18.9 billion, the report said.

Though US's share in India's merchandise exports declined from 20.7 per cent in FY 2003 to 14.9 per cent in FY 2007, in value terms the shipments increased from $10.9 billion to $18.9 billion.

"This is an indication of India's growing preference for trading with other emerging markets by diversifying its product group and improving its quality," the report added.

The UAE, the second-largest export market, accounted for 9.5 per cent of the country's total exports in FY 2007, while in FY 2003 it accounted for 6.3 per cent only, the report said.

The spurt in exports to the UAE can be largely attributed to a rise in shipments of mineral fuels, mineral oils and products, which constituted almost 30.4 per cent of total exports to the UAE, the report said.

UAE is also an important market for re-export in the entire Middle-East region. In 2005, the total re-export was as high as $26.4-billion.

India's exports to China have also seen a rapid growth from just 3.7 per cent in FY 03 to 6.6 per cent in FY 07.

India's export share to Singapore has gone up from around 2 per cent in FY 2001 to 4.8 per cent in FY 07.

Petrol | Diesel | Home LPG prices Up - Economic Updates

The government hiked petrol and diesel prices by Rs 5 and Rs 3 a litre respectively and that of LPG by Rs 50 a cylinder, while sparing poor man's fuel kerosene from any increase. The hike will be effective from midnight. The price of petrol, currently Rs 45.5 a litre in Delhi, will now cost Rs 50.5 or 11 per cent more, while diesel, which retails at Rs 31.5, will now cost 34.5 or 9.5 per cent more.

The Cabinet also reduced the customs duty on crude oil from 5 per cent to nil, and on petroleum and diesel from 7.5 per cent to 2.5 per cent. The customs duty on other petroleum products has been reduced from 10 per cent to 5 per cent. Inflation following the fuel price hike may rise by 0.5-0.6%.

Customs duty on other petroleum products like ATF and Naphtha has been cut from 10 per cent to 5 per cent.

The Union Cabinet chaired by Prime Minister Manmohan Singh took a slew of measures to offset the surging global oil prices that had put the national oil companies under acute pressure. The increase in prices would be effective from midnight, Petroleum Minister Murli Deora said.

The price hike would help oil companies to earn Rs 21,123 crore more.

As part of measures, the government decided to take a burden of Rs 94,601 crore for which it will issue oil bonds to state-run BPCL, HPCL and IOC which were reporting a daily loss of over Rs 720 crore.

also read : Impact of increase in fuel prices on inflation

In addition, the oil producing PSUs like ONGC would shell out Rs 60,000 crore through discounts to state-owned oil refiners and marketing companies.

Despite all the measures, there would still be a gap of Rs 29,000 crore, Revenue Secretary P V Bhide told reporters briefing about the decisions taken at the Cabinet.

When asked whether states will also be told to cap sales tax on petrol and diesel, the Revenue Secretary said there is no move from the Finance Ministry side on this issue.

However, sources said the Prime Minister's address to the nation later in the day may carry appeal to states in this respect.

With the hikes, India joins other Asian nations like Indonesia and Malaysia that are raising regulated domestic fuel prices as they find they can no longer afford to shield their consumers from the full effect of record global prices.

Petrol and diesel prices were last raised in February when the Indian basket of crude oil was at 67 dollars per barrel. Today it is at 124 dollars per barrel.

State-run Indian Oil, Bharat Petroleum and Hindustan Petroleum were together projected to lose Rs 2,46,600 crore on sale of petrol, diesel, domestic LPG and PDS kerosene in 2008-09 in absence of any price hike or duty cut.

Sunday, June 1, 2008

Inflation above 8% mark - government helpless

Inflation touched 8% mark for first time in one year and government has said that it is helpless and inflation is going out of government control.

However inflation has now become a global problem and all the developing as well as developed countries are facing it.

Governments are pretending to respond. In the UK, Mr. Gordon Brown wants to assemble experts to debate solutions. The Indian finance minister says that western nations are diverting land for producing expensive bio-fuels to replace the expensive crude oil. Surely, that is part of the problem. But that does not explain the jump in the price of rice. Rice is not diverted to bio-fuel production.

In India, the response has been to reduce import duties, impose export caps and accuse manufacturers and distributors of collusion and cartel-like behaviour. Different ministers speak in different voices. Together, these pronouncements do not constitute a policy whole.
In simple terms, prices reflect the balance of supply and demand of something. When prices go up, it is a reflection – and not a consequence – of supply going down or of demand going up or both. When it happens for just one or few commodities, it is possible to blame middle-men of hoarding or manufacturers of cartel-like behaviour. When it happens in many commodities, it is futile to blame one industry or a few producers.

Usually, the source lies in some policy measures and their implementation. To make it clear, we are not dismissing the importance of factors like climate change, diversion of land for production of bio-fuels and more importantly, stagnation or even outright decline in agricultural productivity in countries like India and China. Again, they explain inflation in food and agriculture commodities. These factors do not explain inflation in crude oil and copper, for example.

If we have to identify a single or the most important explanation for the recent development in prices of many commodities, the answer lies in examining the behaviour of global central banks.
Of course, in any broad-brush analysis or conclusions, there is the risk that we miss the exceptions who behaved differently and correctly. For example, within the constraints imposed by the political system, Reserve Bank of India has done a very good job of trying to shield the Indian economy from the cycles of boom and bust. Similarly, if the Australian and New Zealand economies still face the risk of boom and bust, it is not because of their central banks but in spite of their best efforts.

The bulk of the blame has to be assigned to the American Federal Reserve and the People’s Bank of China. In the case of China as in the case of India and in many other developing countries, the central bank is not independent. It is subject to political influence. The Federal Reserve Board of America is, in some ways, a similar predicament. It is subject to the oversight and pulls and pressures of the democratically elected Congress members. Further, since it was founded by banks actually, it ends up coming to the rescue of banks sometimes to the detriment of the public.

In 2001-2003, it cut the Federal funds rate to 1.0%. It thus rescued the economy from the collapse of the technology bubble in 2000. Thus, it replaced the stock market bubble with a housing bubble. When the housing bubble appeared to be weakening, it refused to tighten regulations and allowed it to continue. Too many loans were made to people who should not have been lent. That is the root cause of the present problem.

In order to address the resulting loan defaults, stress on banks and their balance sheets, the Federal Reserve has allowed banks to borrow at cheap rates from it. Money is available to banks in the open market but at higher cost. Some of the banks might not have survived. But, that would have also left a lesson for other banks that they would not have forgotten for a long time. Excessive risk-taking would have been curbed. Instead, the cheap money is perhaps being channelled into speculation on commodities prices. After all, banks are not going to create more mortgage loans at least for quite some time.

Somewhat different has been the behaviour of China but it achieves the same result. China has kept its currency cheap. Keeping the currency cheap requires interest rates to remain low, in comparison to other countries but also in relation to economic growth. China has done that. Low interest rates means capital is plenty. So, capital-intensive growth has flourished. That has placed tremendous demand on resources worldwide such as crude oil, coal, steel and other industrial metals. It continues to import rising quantities of iron ore, copper and crude oil. Incidentally, it has also led to China supporting many tyrannical regimes in Africa including that of Zimbabwe. Recently, it sent a shipment of arms to Zimbabwe but faced an avalanche of protest and had to recall that shipment.

Perhaps, it is possible that American banks know that there won’t be any change in China’s demand for commodities in the near future, at least until the end of the Olympics. China may be reluctant to change course fearing unknown and uncertain consequences. If so, it argues for further rise in the price of commodities. Both their behaviour and bets might be feeding off each other. That is not good news for the rest of the world.

After all, we cannot influence the Federal Reserve. So, how should policymakers respond? Unfortunately, the answer is that they should respond differently from what they have done until now. Banning exports of agricultural commodities exposes the hollowness of farmer-friendly policies. Farmers should be allowed, with appropriate guidance, to sell to the highest bidder – local or global – and derive the maximum gains from the global shortage. Such a price signal would also encourage productivity improvement in farmland and hence boost crop production. More land would be brought under cultivation.

At the same time, poor households – rural or urban – could be directly subsidised with cash transfer to be able to pay the higher price.
The same principle can be extended to the price of hydrocarbon products such as petrol, cooking gas, diesel and kerosene. Consumers and producers should receive the price signal. Without that, their respective behaviours would not change and shortages or glut would persist.
At the same time, since supply of food and other commodities would take time to respond to price signals, central banks should be allowed to restrain demand in the short-run with tight monetary policy. That means higher cash reserve ratio or higher interest rates or both. That might be unpopular or politically unacceptable. But, effective medicines never taste sweet. Only placebos do.

The chances of such sound policies being pursued are close to nil particularly as many democratic governments, including India, approach elections soon. Authoritarian governments do not care much for public opinion.
Given such a low chance for sound economic decision-making, prospects for a sustained decline in inflation should be judged remote. That is not good news as it is a stealth tax on the public and erodes their purchasing power. Consequently, it reduces affordability for many assets. As demand drops, inflation affects revenues for companies and squeezes margins through cost pressures. That does not augur well for the stock market.

The stock market in India has performed well in recent times. Many other global markets have staged a similar recovery. That is due to misplaced optimism on the American economy. As discussed above, right policies would be missing and hence the anticipated quick economic turnaround in America would be elusive. Consequently, risky assets globally would retrace their recent gains. Therefore, Indian stocks would fail to build on their recent gains. On the other hand, the likelihood of continued high global and local inflation would result in a resumption of the uptrend in gold price that has been recently disrupted. Therefore, investors who do not expect inflation to recede know exactly what they should be selling and what they should be buying.

Indian economy not likely to slowdown - Lehman Brothers

Anti-inflationary measures are unlikely to turn India into a slow growing economy, while other Asian nations could face the situation of rising prices and economic stagnation, a latest report says. "We do not believe that India would be affected significantly in a stagflation scenario and growth would remain strong in relative terms...," global research firm Lehman Brothers said in a recent research report.

However, even as the economic growth is projected to remain strong, interest-rate sensitive stocks could be adversely impacted during stagflation situation in Asia. Stagflation refers to a situation when inflation is rising and the economic growth is simultaneously slowing down. The negative impact is likely be felt by interest rate-sensitive stocks or by companies that are not in a position to pass on cost pressures to consumers, Lehman said.

Further, investment spending is unlikely to witness a substantial slowdown primarily on account of significant shortages in key sectors such as steel and power. The report pointed out that risks out of a stagflation scenario would be high for the banking sector, infrastructure, automobile and cement firms. "The risks are significant for part of the banking sector, companies with a high proportion of fixed-price contracts and companies with high energy usage without the ability to pass on increased costs," it said.

Lehman noted that in India inflation would remain on the higher side for some more time due to the base effect -- which relates to the inflation data of the corresponding week in the previous year. Given particular prices in the current week, inflation would turn out to be higher, if it was a small number in the previous year, but would be less, if it was high a year ago. In addition, the report said that inflationary headwinds would lead to increased fiscal deficit and negatively impact the country's expansion plans. "One of the major reasons for India's premium expansion has been the reduction in fiscal deficit, a process which could be derailed in the short term due to inflationary headwinds," it added.

The government has initiated fiscal and monetary measures to lessen the effects of inflation on consumers. However, according to the report, some of these measures does not reflect the "true market economics." "If the inflation period is prolonged, we expect the government to start passing on some of the suppressed price increases (especially those relating to crude oil and fertilisers) in small doses. However, we do not expect this anytime soon, given the proximity of the elections, the report pointed out.

- economic times