Interview of the Week: Surjit Mohapatra, Sr. Economist

 

It gives us immense pleasure in announcing another new feature on Businessviewsreviews.

In an exclusive interview with Businessviewsreviews, Surjit Mohapatra, Sr. Economist, discusses about the causes that led to the downgrading of the US credit rating by rating agency S&P, and its possible consequences. 

What triggered the US debt rating downgrade by S&P?

USA is the largest economy in the world with $14.56 trillion in 2010. The US Gross National Debt reached $14.58 trillion by August 2011. This is 100% of its GDP of 2010. The gross national debt has increased from 57% of GDP in 2000 to 100% of GDP in 2011 and does not seem to be decreasing in near future.

 

USA economy is still under recovery stage from the last economic slowdown. To improve the situation USA economy needs more government expenditure which will raise its total debt. USA is having a system of debt ceiling which was set after World War I to limit the government expenditure. Though the ceiling has increased several times, USA parliament increased the debt ceiling by $ 2.1 trillion on August 1, 2011 to raise it to $ 16.4 trillion approximately to avoid sovereign debt default. The parliament has cut the federal deficit by as much as $2.5 trillion over a decade. 

How will it impact the US Economy?

S&P, which has given the USA a top AAA ranking since 1941 has cut its grade to AA+ in 2011 after USA government striking the deal. The USA government may have to pay higher interest rate for its treasury bonds or public debt which will aggravate the debt situation. Mortgage rate will rise following higher Treasury bond rate which will impact real estate market. 

Do you think that the US will resort to third quantitative easing measures to combat the ongoing fiscal deficit crisis which has let it to lose its pristine triple-A rating?

 

With immediate effect, reduction in USA expenditure may further slowdown the USA economy. However, for fiscal 2012, there will be only $21 billion cut from expected spending of up to $3.7 trillion which is very small amount in a $15 trillion economy. Even the $2.5 trillion deficit cut in one decade is negligible for the US economy. In the next 10 years, if USA government does not raise revenue and reduce expenditure, the total debt may increase to 150 % of GDP which will be a big problem for the economy. The debt is accelerating in the present situation while the economy is moving slow. 

What impact do you foresee the unfolding US crisis on the rest of the global economy?

 

Looking at the exposure to USA Treasury bond, China holds largest USA bond worth $ 1.2 trillion followed by Japan with $ 0.9 trillion. In case of debt default by USA, these countries will have higher impact. Cutting of bond rating from AAA to AA+ will increase interest rate which will reduce the price of old bond. That will impact negatively on interest income of the above countries. On the other hand, government expenditure cut will directly impact on exporting countries. China is the largest exporter for USA, any cut in public expenditure will directly impact its GDP growth. This does affect Indian economy as well. However, the impact may not be so deep.  If the crisis persists, there may be problem in world currency market. However, with the debt crisis in European countries, USA Treasury bond is still an attractive option for investment.  

What are the options before the US Government to tide over the present crisis?

Being the largest economy and dollar being the major world reserve currency, USA is left with very few options in dealing with this situation. It will difficult to reduce its import significantly at the same time it has to maintain its dollar supremacy. The main option with USA right now is to reduce its expenditure and increase tax revenue. USA government can increase revenue in the future if it opts to allow tax cuts (enacted under George W. Bush) to expire as scheduled in 2013. 

What lessons it offers for India? 

India’s $229 billion external debt (22% of GDP), recorded at the end of March 2009, increased to US $297.5 billion by the end of December 2010, and went further up to US $305.9 billion (17.3 % of GDP) at end of March 2011, which is a sharp increase of 2.8% in three months. Total debt by March 2011 is approximately US $905.9, which is a sharp increase of 20.6% over the same period of 2010 (US $751.1). The gross public debt to GDP ratio is about 66.2% in 2011 which is highest in Asia region.

 

Looking at the debt structure, internal debt is higher in India than external debt and most part of the internal debt is held by banks. Hence India government does not have much problem in this area. However, taking higher risk in public debt may attract downgrading of its bonds by rating agencies. Being a developing country, where economy is growing at 8%+ per annum, India should not take the risk which will have significant impact on its economic growth.

Apple dethrones Nokia, becomes No.1 Smartphone Maker

Even as Apple gets crowned as the new global no.1 Smartphone maker it leaves many wondering as to how the once-mighty Nokia capitulated so meekly, and also so early!

Didn’t Nokia see the Apple hurricane coming its way? Was the Finnish mobile phone giant too occupied with its internal troubles that it got blindsided by the coming external shock (read: Apple iPhone)? Or, did it simply overlook the writings on the wall?

Indeed, Nokia’s shockingly spectacular slide has left many questions than answers in the minds of millions or perhaps billions of mobile phone users and analysts alike across the globe.

According to the latest data from the International Data Corporation (IDC), Apple shipped 20.3 million handsets compared to 16.7 million handsets sold by Nokia, during the second quarter ending June 30, 2011. In fact, not only Apple dislodged Nokia from the no.1 ranking, but even the South Korean electronics major Samsung too made the merry by shipping more handsets than Nokia during the said quarter, thereby further rubbing salt on the Finnish major’s wound. Samsung, riding high on the huge success of its flagship Galaxy S Smartphones, shipped 17.3 million handsets, during the June quarter. “The smartphone market crowned a new leader in 2Q11, and its name is Apple,” said Ramon Llamas, senior research analyst with IDC's Mobile Phone Technology and Trends team. He added, “Ever since the first iPhone launched in 2007, Apple has made market-setting strides in hardware, software, and channel development to grab mindshare and market share.” He further quipped, “Demand has been so strong that even models that have been out for one or two years are still being sought out. With an expected refresh later this year, volumes are set to reach higher levels.”

It was inevitable though. Ever since Apple hit the market with the revolutionary iPhone, which can easily be termed as the most innovative Smartphone the world has seen, it has just raised the bar so high that rivals have struggled to scale it till date. Surprisingly, on its part, instead of cranking up its own innovation machine, Nokia chose to rest on its past laurels and relied on its hunch of challenging rivals in the low-cost yet fast growing emerging markets such as India and China.

Awfully, and perhaps expectedly too, Nokia’s strategy seems to have doomed, at least for now. In the last few of years since iPhone debuted in 2007 while the Finnish phone maker continued to wrestle with its own internal troubles, in the Smartphone segment, top foes Apple and Samsung were attacking its turf in the US and Europe, it has been ceding ground to nimble-footed rivals like Micromax and Gfive in low-end handset segment in its traditionally strongholds like India and China.

While the iconic iPhone has driven fans crazy, the credit for soaring sales also goes to meticulous distribution strategy by Apple as it allowed the maverick Steve Jobs-led firm to lock in subscribers for long term. According to IDC, “Apple’s success can be directly attributed to its distribution (more than 200 carriers in more than 200 countries), increased manufacturing capacity, and solid demand within emerging and developed markets from both consumers and business users.”  

It’s not over, yet

However, the battle for the supremacy of the global handset market is far from being over. Given the strong demand for Smartphones worldwide, driven by rising disposable incomes and changing lifestyles fueled by new, much more powerful Smartphones, which double up as an entertainment and gaming device. Nokia still stands a chance to bounce back, provided it comes up with an equally compelling Smartphone model as iPhone or Samsung Galaxy or at least something near to that. “The Smartphone market leadership change signifies the parity that comes with a fast-growing market such as Smartphones,” said Kevin Restivo, senior research analyst with IDC’s Worldwide Mobile Phone Tracker. He added, “There is no runaway leader in the market, which means there could easily be further Top 5 vendor changes to come.”

While no one is writing off Nokia for now, it’s surely celebration time at Apple and for iPhone fans.

Apple: The New Smartphone King

Top Five Worldwide Smartphone Vendors, Shipment Volumes, Market Share, and Year-Over-Year Growth, 2Q11 (shipments in millions) 

Vendor	2Q11 Shipments	2Q11 Market Share	2Q10 Shipments	2Q10 Market Share	2Q11/2Q10 Change
Apple	20.3	19.1%	8.4	13.0%	141.7%
Samsung	17.3	16.2%	3.6	5.6%	380.6%
Nokia	16.7	15.7%	24.0	37.3%	-30.4%
Research In Motion	12.4	11.6%	11.2	17.4%	10.7%
HTC	11.7	11.0%	4.4	6.8%	165.9%
Others	28.1	26.4%	12.8	19.9%	119.5%
Total	106.5	100.0%	64.4	100.0%	65.4%

Note: Vendor shipments are branded shipments and exclude OEM sales for all vendors

(Source: IDC Worldwide Mobile Phone Tracker, August 4, 2011)

Image Source: Apple, Inc

Amit

Chief Editor

www.addonviews.com; www.businessviewsreviews.blogspot.com

LG Optimus Black: Life’s Good, Finally!

After having failed to cause any ripples in rivals’ camps so far, LG finally hits the right chord with its Optimus Black smartphone model. Yet the crown is still far, far away.

“Try harder because you’re not the no.1,” this old maxim seems to be the new driving force at South Korean Chaebol, LG, which despite making several attempts has so far struggled hard to find its place in the fast growing global Smartphone market. But LG now stands a good chance to pose some serious challenge to rivals with the sleek and refurbished Optimus Black Smartphone model.

The new LG Optimus Black is undoubtedly LG’s best effort so far in presenting any significant threat to incumbent Apple and compatriot Samsung; does any one care about Nokia at least for as the erstwhile market leader is wrestling with its own internal troubles. The Optimus Black is packed with loads of new features, which makes it irresistible and wins hands down on both external and internal features fronts.

The phone is shielded in black clamshell with edgy curvature as less as 6mm and has a thickness of just 9.2 mm, incidentally beating Apple’s iPhone by a millimeter and weighs just 109 gms.

Coming to the display, the LG Optimus Black features a 4 Inch capacitive NOVA display screen, better than the AMOLED, which is featured in most of the smartphones. The advantage of this screen is that it is less battery hungry than AMOLED, and also scores high on performance, either indoors or outdoors, the pictures are razor sharp bright and clear, even when exposed to direct sunlight, thanks again to its innovative and superior quality screen.

Our focus now shifts to its heart: the mighty 1GHz processor which runs Android 2.2 Froyo operating system, which by now, almost all the android fans would be familiar with, though upgrading to Gingerbread might have been a best option. The phone also features PowerVR SGX 530 graphics, for pumping the adrenaline of gaming lovers. It also supports OpenGL 2.0 and Microsoft Shader Model 3, which makes 2D and 3D gaming ready device. On top of it is the phone’s mighty battery of 1500 mAh that clocks 375 hours of standby time and up to 6 hours of talk time.

It seems for sure, with Optimus Black LG is not only gets 100% battle-ready but will also give tough time to Samsung, which comes with only 1200 mAh for its smartphones.

Finally, with its impressive looks, the LG Optimus Black comes with dual cameras: 2MP front-facing camera plus a 5MP auto-focus-tons-of-toggling-fun camera with LED flash on the back.

So guys wish you a happy smartphoning; a new jargon you might say!

LG Optimus Black P970 Specs:

Operating System: Android 2.2 Froyo, Upgradable to 2.3 Gingerbread

Processor: 1GHz Single Core Cortex-A8 processor.

RAM: 512MB

Graphics Card: PowerVR SGX 530 graphics

Memory Option: Internal Memory is 2Gb and microSD up to 32GB

Display Option: 4.0inch 480×800 pixels NOVA feathers multi touch (touchscreen)

Connectivity: GSM/GPRS/EDGE/HSDPA,Wi-Fi802.11b/g/n, Bluetooth 2.1, A-GPS,Micro USB, Audio

Output: 3.5mm headphones

Camera: 5 megapixel with LED Flash, Auto-Focus, Geo-tagging, Multi-shot, Smile Detector, Video recording

Video playback: MPEG4, H263, H.264, DivX, XVid, WMV

Radio: Stereo Radio FM with RDS option.

Battery Life: Li-ion 1500 mAh [375 hours of standy time and Up to 6 hours talk time]

Size: 122x64x9.2mm

Weight: 111g

Additional Features include: Call Recording Option, Java MIDP Emulator, Unlimited phonebook Entry, Digital compass.

(Images: LG) 

For priceS and features of the phone, log on to www.lg.com

Until, then its Ramana Pemmaraju, Signing Off!

Ramana Pemmaraju, is contributing author at Addonviews.com and businessviewsreviews.blogspot.com. He covers the latest from Technology and WorldWideWeb space.

People’s Choice: Tata Steel is India’s No.1 reputed firm

Tata Steel emerges as the most reputed firm in India while Infosys slips to 9th rank in the Nielsen India’s Corporate Image Monitor survey 2010.

Tata Steel has emerged as the most reputed firm in India, according to the latest Corporate Image Monitor survey (2010) by Nielsen India. Tata Steel is India’s second largest and world’s sixth largest steel maker.  Tata Motors, along with Aditya Birla Nuvo, Wipro and Bharti Airtel are the other companies which figure in the list of top five reputed companies in the study which measures the reputation of leading corporates on a variety of parameters. The other two Tata group firms which find place among the top ten list are India’s largest software exporter, TCS (Tata Consultancy Services), and Tata Power. 

Surprisingly, Infosys, which had ranked second in the 2008 survey (there was no survey in 2009), slips to ninth rank in the 2010 list while Bajaj Auto, HDFC and L&T, which featured among 2008’s top ten reputed firms, are conspicuous by their absence in 2010’ top ten list. Aditya Birla Nuvo, Tata Motors and RIL have emerged as the top 3 most innovative companies in the product category, while Wipro, Bharti Airtel and TCS are the top 3 innovators in the service sector.

The Corporate Image Monitor, which is conducted by Nielsen, a global information and measurement company, measures people’s perceptions of the image and reputation of India’s leading companies, across sectors and serves as an important indicator of the strength of the corporate brand. The survey’s participants include policy makers, influence groups, the financial community, investors, corporate executives, the corporate elite and the general public.

Service levels and product quality have major influence on people’s perception of a firm’s reputation. Besides, other parameters like financial performance, talent pool, innovation, pace of growth, and the extent of media visibility too play a part in shaping up stakeholders’ perceptions of a firm’s reputation. While these are not directly cited by stakeholders to influence reputation, deeper analysis reveals that firms which perform well on these aspects in general, tend to have stronger reputations, the study said. It also highlighted that stakeholders expect leading organizations to be strong on parameters such as vision and leadership.

But the major suggestion was regarding the Corporate Social Responsibility (CSR) as the respondents felt that corporates should give priority to issues pertaining to public health and the environment as part of their CSR agenda.

“Corporate reputation is a very critical factor that drives stakeholder’s perception about a company and thereby its sustained growth. It is evident from the Nielsen survey that most leading companies in India have a strategy in place aligned to their business needs to nurture and enhance their corporate image to boost stakeholders confidence,” said Surekha Poddar, Executive Director, The Nielsen Company.

Top 10 Corporates- Nielsen Corporate Reputation Index

2008	2010
Tata Motors	Tata Steel
Infosys	Tata Motors
Reliance Industries	Aditya Birla Nuvo
Wipro	Wipro
Tata Steel	Bharti Airtel
HUL	TCS
L&T	Tata Power
HDFC	Reliance Industries
TCS	Infosys
Bajaj Auto	HUL

Source: Nielsen Corporate Image Monitor

Amy

Cipla’s Q3 PAT: Not in the Pink of Health

Cipla, India’s leading pharmaceutical company, has said that its Q3FY11 net profit has fallen 19.5% on a year-on-year basis to Rs 232.7 crore from Rs 289 crore in the corresponding quarter of the previous year. However, its sales grew by 11.7% to Rs 1501.36 crore in the quarter ended December 2010 as against Rs 1344.16 crore during the same period. 

The decline in net profit was led by lower operating margins which fell to 21.19% in Q3FY11 from 28.26% in the same quarter of the previous fiscal year.  

You can contact the author at: businessbanter@gmail.com

L&T’s PAT rises 9% to Rs 840.6 crore

Engineering major Larsen & Toubro (L&T) has reported a year-on-year growth of 9.34% in its net profit to Rs 840.6 crore in the third quarter of FY’11 versus Rs 768.8 in the Q3 of FY’10. This also included one time gain of Rs 35 crore, the company has said while releasing its third quarter result. Its revenues grew at a much better rate at 40% to Rs 11,413 crore from Rs 8,122.2 crore, during the said period.

On the negative, though, the company clocked a lower OPM at 10.85% during Q3 FY’11 vis-à-vis 12.36%, during the corresponding quarter a year ago.

 The shares of L&T closed in the red on both the BSE and NSE, down about 1.5% at Rs. 1684.

Axis Bank Q3 PAT up 36%

Axis Bank, India’s third largest private sector bank after ICICI Bank and HDFC Bank, has announced net profit growth of nearly 36% on a year-on-year basis for the third quarter ending December 31, 2010. The lender said that its net profit rose to Rs 891 crore in Q3 of FY’11 compared to Rs 656 crore in the same quarter of the previous fiscal year. However, this was lower than the 38.28% (y-o-y) growth the bank had recorded in its net profit during Q2FY11.

The bank’s Net Interest Income (NII) too grew at a healthy 28.47% to Rs. 1,733 crore as against Rs 1,349 crore, during the same period. Here again, the growth was lower than the y-o-y growth of 41% in its NII Axis Bank had recording during the Q2FY11.

The shares of Axis Bank gained Rs. 27.40 or 2.28% to close the day at Rs. 1229 on the NSE.

Indusind Bank’s PAT jumps by 75%

Indusind Bank registered a whopping 74.76% jump in its Net profit for the Q4 ending 31^st Dec 2010, which stood at Rs. 153.86 cr. against the net profit of just Rs. 88.04 cr. in the previous quarter.

The Hinduja Group led private lender also registered an increase in its total income to Rs. Rs 1,110.86 cr. in Q4 against Rs 818.94 cr.  over the corresponding period last year. The shares of the bank were down by 0.85% to Rs. 226.70 at the BSE Sensex.

Jaiprakash Power Q3 PAT soars 35%

 

Jaiprakash Power Ventures, a part of India’s leading Infrastructure conglomerate - Jaypee Group, has said that its net profit for the third quarter of the financial year 2010-11 grew 35% to Rs 22.7 crore compared to Rs 16.8 crore during the corresponding quarter of the previous fiscal. Its total sales too grew at an impressive 51% to Rs 181 crore from Rs 119 crore, during the same period.

The company's shares were down nearly 1.30% to Rs. 49.85 on NSE at 2:48 PM.

ICICI Bank: Banking on Change

It’s a season of change at some of the big and happening companies of India Inc., from Hindustan Unilever to Axis Bank, Infosys to L&T. However, probably it is the ICICI Bank, the country’s biggest private sector lender, whose course correction has surprised more than anyone’s else and has, in fact, attracted more eyeballs (to its news on the World Wide Web), much to the envy of its (banking) neighbors, sorry, rivals.

Getting straight to the point, ICICI Bank, under its new CEO, Chanda Kochhar, has decided to reverse its famed aggressive style of banking which saw it grow phenomenally during the late 90s and the first decade 2000, however, found itself battling mounting bad debts when the credit catastrophe of 2008  hit the global banking  system hard. The worst crisis in the living memory forced banks across the globe to rethink their growth strategy. ICICI’s top brass too headed to the drawing board to chalk out new plan to spearhead bank’s growth in the new decade and amidst new ground realities that demanded banks to be more vigilant, cautious and prudent. Under the leadership of Ms. Kochar, the bank has rightly opted for a course correction. Making a quite switch over to the strategy of ‘slow yet safe’ growth, instead of chasing growth at any cost, the bank has also become more conservative in its approach. It has implemented what it calls the strategy of 4Cs components of which include: Current & Savings Account (CASA) deposit growth, Cost control, Credit quality improvement and Capital conservation. And the benefits are trickling in: the bank’s CASA ratio has increased from 28.7% at March 31, 2009 to 41.7% as on 31 March, 2010 and further to 44.0%, as on September 30, 2010. At the same time, its Net non-performing asset ratio declined to 1.37% at September 30, 2010 from 2.19% at September 30, 2009 (the bank’s Net non-performing assets decreased significantly by 30.0% to Rs. 3,192 crore at September 30, 2010 from Rs. 4,558 crore at September 30, 2009), while the CAR (capital adequacy ratio) jumped to a solid 20.2% with the Tier-1 capital adequacy at 13.8%. In another major positive, the bank’s provisioning coverage ratio improved to 69.0% compared to 51.7% at September 30, 2009. Led by these improvements, the bank’s profits after tax grew 18.8% to Rs. 1,236 crore (US$ 275 million) for Q2-2011 from Rs. 1,040 crore (US$ 231 million) for Q2-2010.

So, are we going see a changed ICICI? “Actually our next phase of growth has already started,” Ms. Kochhar said in a recent interview to the Economic Times. She pointed out the improved performances in the last two quarters, which saw a reduction of the unsecured personal book in the bank’s retail portfolio while domestic corporate portfolio grew at about 30% annualized basis, during the same time, to drive home the point. “It is going to be very focused growth. The growth that we are going to focus on will be on housing loans, car loans, commercial vehicle loans, the whole gamut of project and infrastructure finance and trade finance,” she added.

However, the runaway food and oil prices could depress demand (for consumer loans) and play spoilsport. Also, with competition heating up in the banking sector, it won’t be easy to woo customers.

For now, we hope the change delivers for this home-grown financial ‘super market.’

Starbucks in India: Get, Set, Sip!

Starbucks, the iconic coffee brand of America, is all set to storm Indian market soon.

THERE is great news for all those coffee lovers in India as soon they would be able to sip a cuppa of their favorite Iced Caffè Mocha or Caramel Frappuccino® Blended Coffee, everyday! This is no daydreaming; it is indeed going to be a reality as the iconic coffee brand, which revolutionized coffee-drinking in America, has signed a Memorandum of Understanding (MoU) with Tata Coffee, for sourcing and roasting high-quality green coffee beans in Tata Coffee’s Coorg, India facility. Besides, the alliance will also set up Starbucks retail stores in Tata Group’s retail outlets as well as luxury hotels.

Headquartered in the United States, in Seattle, Washington, Starbucks manages over 16,000 stores and operates in more than 50 countries. Starbucks sells a wide variety of coffee and tea products with a range of complementary food items, primarily through retail stores. Tata Coffee is the world’s largest integrated coffee plantation company and owns key brands such as Mysore Gold instance coffee, Mr. Bean and Coorg Pure and also owns Eight O’ Clock Coffee Company in the US.

Surprisingly, India is the major market which remains untapped for the coffee giant, which is scouting for growth outside its home market, i.e., the US, where it is experiencing stagnating growth. Starbucks which operates in 50 countries is already present in B, R, C of BRIC nations. Hence the passage to India was long over due. But the country’s stringent FDI laws related to its retailing industry caps foreign direct investor’s stake at 51% in single-brand retail format and which might have acted as a deterrent to the coffee retailer’s India entry plan.

Nonetheless, explaining his vision for Indian market, Howard Schultz, Chairman, President and CEO, Starbucks Coffee Company, quipped, “India is one of the most dynamic markets in the world with a diverse culture and tremendous potential.” He further added, “This MoU is the first step in our entry to India. We are focused on exploring local sourcing and roasting opportunities with the thousands of coffee farmers within the Tata ecosystem. We believe India can be an important source for coffee in the domestic market, as well as across the many regions globally where Starbucks has operations.”

What could work in favor of the alliance is the fact that both Tata Coffee and Starbucks have known each other for long as the former has supplied premium coffee beans to the US partner Starbucks in the past. The alliance partners are expected to open their first outlet within six months. “We welcome Starbucks entry into India because of both its unique experience with the store format and for its commitment to society, values that we share,” said R K Krishna Kumar, Chairman of Tata Coffee.

Though late to enter the fast growing Indian market, the world’s leading coffee retailer is optimistic that India would soon catch up with China. India is “as large an opportunity as there exists in the world, coupled with China,” the Financial Times quoted Schultz as saying. Coffee consumption in India though has lagged behind tea, which remains the favorite hot drink of a majority of the people, is slowing growing up. In fact, according to the data from Coffee Board of India, the domestic consumption almost doubled from 50,000 metric tones in 1998 to 94,400 metric tones by 2008, the latest date for which the data is available.

So get ready to wake wp with a sip from your favourite Starbucks Coffee.