Browse Category: Eduction

Rethink your strategy

STRATEGY

strategy

I YOUR ‘STRATEGY HEEDS A STRATEGY
‘ YOUR STRATEGY : HEEDS. A. STRATEGY
strategy
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One in three public companies likely won’t be around in five years, and the spread between the highest- and low­est-performing companies has never been greater, according to new research from the Boston Consulting Group (BCG). Identifying effective corporate strategy is more important than ever before, and this is the central theme of the latest BCG book, Your Strategy Needs a Strategy. Authored by BCG senior partners Martin Reeves, Knut Haanaes, and Janmejaya Sinha, the book explores the different environments that busi­nesses currently face, identifying and matching the right stra­tegic approach to a given situation. Their framework is called

the “strategy palette”. “The book explains a simple framework that we call the strategy palette, which divides planning into four styles. Firms can chose any of these styles, according to predictability of their business environment and how much power they have to change it. Leaders play a key role in this by making sure that the strategy is vibrant, dynamic and in tune with the changing environment. With a clear under­standing of the strategic styles available and the conditions under which each is appropriate, companies can make the best out of the opportunities available to them at hand,” said Dr Janmejaya Sinha, chairman, BCG Asia Pacific.          ♦

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The                   Discovery

Channel completes 20 years in India. “Dis­covery Channel has had a life changing impact on millions of viewers in India. The tremendous affection that it enjoys in India contin­ues to fuel our passion to relentlessly push the boundaries of factual enter­tainment and uncover the finest stories from across the world. On this occa­sion of completing 20 great years in India, on behalf of the entire team, I would like to express our gratitude to the viewers and clients who have expressed their admiration through this remarkable 20-year jour­ney,” said Rahul Johri, EVP & GM – South Asia,


Honest account

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The dramatic build-up to the overnight nationalisation of 14 banks in a single legislative sweep sets the stage for No Regrets. In this book, bureau­crat extraordi­naire D.N. Ghosh offers an eyewit­ness account of perhaps the most important event in India’s banking history post-Inde­pendence, baring the manoeuvr- ings behind the enabling ordi­nance and the pickle over fair compensation for the dispos­sessed bank owners. Years later, Ghosh enters the portals of the State Bank of India as its chair­man, at a time when the stir­rings of change have just begun to be felt in the Indian economy. Anticipating the future, he goes for a paradigm shift: to rid profit of its dirty word tag and place it at the core of the bank’s operating
strategy. Gradually, he takes SBI into the capital markets, estab­lishes its credit standing glob­ally, launches India’s first mutual fund and, above all, cajoles the trade unions into accepting full com­puterisation. Post­retirement, Ghosh steps into the cor­porate world. The could-have-been- academic tills the soil for certain reputable manage­ment institutes to bloom and grow even as he sets up the credit rating agency, ICRA. Full of untold stories, No Regrets is an honest-to-goodness account of a glorious career spanning over six decades and covering some epochal events whose reverber­ations continue to be felt in the corridors of bureaucracy, bank­ing and business to this day. The book was launched in Mumbai by Arundhati Bhattacharya, chair­man, SBI, and Deepak Parekh, chairman, HDFC.

‘Capital flows would be more volatile’

We can look at this through three channels – imports, exports, and cap­ital flows. Imports have been the big­gest benefit to India, as 35 per cent of our country’s import expense com­prises crude oil and that has halved. Our import basket is commodity- heavy and most commodity prices have fallen 30 per cent, so we make massive savings on import. On the other hand, our exports, especially software services, are not likely to be hit in a major way. So, the net result is positive for India. However, certain parts of the economy – gems & jew­ellery export, agro-product exports, steel exports etc – are likely to be hit. Any production that is linked to import price is likely to slowdown. So, broadly, the winners are the gov­ernment and the consumer, while the losers are some sections of the industrial and agro production.How is the global slowdown likely to impact the Indian economy and the stock market?

The third channel – capital flows – is likely to be more volatile, owing to a weak rupee. The rupee depreciation was overdue, as it had outperformed emerging market currencies by quite an extent. Essentially, those exporting to developed countries would benefit. Even though, the Indian rupee out­performs the emerging market cur­rencies, foreign portfolio flows into the overall emerging market basket is going to get impacted and, hence, capital flows into our country will also be hit.

In the last five to six years, the Indian currency has been depreciating against the dollar. Despite that, we saw robust capital inflows. About one-third of the total foreign capital flows, that India has ever received, have come in the last three to four years…

This is true, but we must also view
the capital inflows relative to the ;ize of our GDP. In 2010, we received $29 billion because, at that time, we were close to a trillion dollar economy. Last year, despite the good election verdict we received $16 billion on a $1.7 tril­lion economy. Though $16 billion is not bad, it is considerably less than the size of the economy. Secondly, if I were to add foreign direct invest­ment to foreign institutional invest­ment and view that as a proportion to our economy, then the numbers are not big. So, India has been outper­forming emerging markets because we have benefitted in trade. Earlier we were importing $120 billion worth of crude oil and exporting software worth $80 billion. Now our crude oil expense has come down to $60 bil­lion, while our software exports have remained the same.

You said earlier that depreciation of the rupee was overdue. What level do you expect the rupee to stabilise at?

The rupee may depreciate by 3-7 per cent. If the yuan depreciates by fur­ther 5 per cent, then the rupee will weaken 7 per cent, but if both yuan and dollar are flat, then it is likely to depreciate by 3 per cent.

Do you expect further depreciation in yuan?

No. If they let their currency depre­ciate further, their macro-economic stability comes under question. Sec­ondly, the Chinese government has to maintain the holy trinity of capital flows, exchange rate and interest rate. I believe that the yuan depreciation was not only for economic growth. There were capital outflows from China in the last two months, and they were trying to prevent that and at the same time ease monetary pol­icy as well, and they had a fixed cur­rency. So, they had to let something
go. It is more of prioritising some­thing rather than aggressively saying we need export growth.

As the rupee has taken a beating against the dollar, there is a theory in the market that it makes more sense to invest in information technology and pharmaceutical stocks. Would you buy that argument as you too expect the rupee to depreciate further?

Today, we are positive on IT because of valuations and exposure to devel­oped market currencies. We are also heavyweight on pharmaceutical sec­tor. We increased our weightage in pharmaceutical sector from 6 to 8 per cent in the last two months. We are more positive on IT, as some of the pharmaceutical companies do have exposure to emerging markets and some have higher valuations. Within the defensive basket, we are relatively heavy on IT and pharma as compared to consumer staples. Generally, as a house, we believed that the rupee was too strong.

Suppose you had to start a new fund today, which sectors would be your top picks?

We believe that the structural story is in market trends, rather than indus­trial growth, because, in a growth-less world, it is difficult to make a premise on which industry would grow fast. I would prefer retail banks, information technology and insurance sector. ♦
Zee Media Corporation Limited (ZMCL) announced its intention to enter into English News Broadcast­ing with the appointment of Rohit Gandhi as editor-in-chief – english news broadcast and related con­tent. He will be heading the opera­tions of all initiatives in this space, working closely with the busi­ness head and revenue resources. He will report to Punit Goenka. ZMCL has not announced the exact date of launch of the chan­nel. Gandhi comes with over 23 years of experience across 40 coun­tries. He has managed the complete gamut of the news business and won many international awards including the Edward R. Murrow, Dupont Award, Emmy, Golden Cine Eagle, Grade Award and the Headliner Award.
English editor

Other interests

After a distinguished career of 16 years with Castrol India Limited, six of which were on the Board of Direc­tors, initially as chief operating offi­cer and subsequently as managing director, Ravi Kirpalani will be leav­ing the company to pursue other interests. Kirpalani will step down as managing director with effect from 30 September 2015 but will continue as director and whole-time direc­tor from 1 October 2015 up to 31 December 2015 to ensure a robust management of change and facili­tate a smooth transition. He will be succeeded by Omer Dormen, who has been with Castrol/BP for over 30 years in various positions globally and is currently sales director of BP Lubricants for CIS, Turkey and Cen­tral Asia. Dormen will be appointed as an additional director and managing director of Castrol India Limited with effect from 1 Octo­ber 2015, subject to obtaining all necessary approvals.

Creative offering

Lowe Lintas has named Shayond- eep Pal, executive creative direc­tor, to head the creative offering of
its New Delhi office. Pal takes over from Shriram Iyer, who was recently named NCD, Mullen Lintas. Pal will report to Arun Iyer, chief creative officer, Lowe Lintas. Pal has been part of the creative team in Delhi for more than six years and is involved in the creative execution of a number of notable campaigns for prominent clients in the region, including OLX, Micromax, Hindustan Times, Maruti Suzuki, Google, and Pernod Ricard.

Assuming charge

Kishor Piraji Kharat has recently assumed charge as managing direc­tor and CEO of IDBI Bank. Prior to the current assignment, Kharat was posted as executive director, Union Bank of India. Kharat has to his credit the honour of establish­ing a foreign subsidiary of Bank of Baroda in Trinidad & Tobago, West Indies, and headed the same as managing director for more than three years. He was also a founding member of India Trinidad & Tobago Chambers of Commerce & Indus­try, which fostered trade between the two countries. He has been a key driver for implementation of major financial inclusion initiatives and has worked closely with the RBI as well as the government of India in this regard.

New elevations

In order to elevate the integrated offering to clients and to ensure effi­ciencies and effectiveness centered around great ideas, three senior mem­bers have been added to strengthen the activation, OOH and media team at the Gurgaon office of DDB Mudra- Max. Puspendra Singh who comes in as senior VP, DDB MudraMax- OOH & Experiential will be respon­sible for client delight, while Arijit Chakrabarti, general man­ager, will be responsible for data, insights & strategy for entire DDB MudraMax including their media/ digital offerings. Bhuwan Pan- dey, general manager, will focus on driving efficiencies and partner relationships.     ♦

 

China’s pain, India’s gain

Chinas move to devalue the yuan by 2 per cent to support its export-driven economy has stoked concern amongst investors on the state of its economy. Since this announcement, yuan has fallen in excess of 3.2 per cent. Inves­tors fear this could be the beginning of a long­term depreciating trend, which could create a spiral effect in other emerging market (EM) curren­cies. The Chinese slowdown is likely to have reper­cussions across the globe, resulting in exodus of funds from a riskier asset class to a safer asset class.

Chinese economy is slowing down. The Chinas manufacturing PMI came in at 47.1 in August, con­tracting at the fastest pace in more than six years.

Stock markets across the globe have corrected sharply. Commodity prices are on a downward spiral. Crude oil has fallen to a six-and-a-half year low. Currencies across the EMs are weakening due to ongoing risk-off trades happening globally.

The fall is more dramatic for emerging economies dependent on commodities.

Since the end of 2014, China has been loosening its monetary policy to revive its slowing economy. But the liquidity generated through loosening has made way into Chinese stocks instead of going into real economy, creating bubbles in the Chinese stock markets. The Shanghai Composite Index had gained 108 per cent between 1 November 2014 and 15 June 2015, despite slowing economy. Regulators had Hang Seng to take urgent steps to restrict inflow of Taiwan Weighted hot money into its stock markets.                                                                               KOSPI

Investors fear the Chinese slowdown BOVESPA could be more severe than what is durm910_2S August reflected by government data. Chinese markets have fallen 43 per cent between 12 June and 25 August and by over 24 per cent since China devalued its currency on 10th August. Even after this correction, the Shenzen Composite Index is still quoting at a P/E of over 40 times (see table).

The exodus of foreign investors from Chinese markets is an opportunity for India to attract foreign investments. The Indian economy is on the mend and the government is determined to resolve structural issues. Earnings of companies are likely to pick up going forward. The fall in global commodities has improved Indias fiscal position and has lowered inflation. This has helped companies improve gross margins as is reflected in the June 2015 quarter results. Fundamentals of India are much stronger than most EM peers.

China is undergoing a difficult transition phase wiljr a slowing economy and high fiscal deficit. Strong multi-decadal growth funded through excessive bank credit has created bubbles in various asset classes. China lags far behind India in the robustness of its banking sector. Chinas domestic credit to private sector stood at 141 per cent of GDP, as against 51 per cent in India in 2014. As China slows down, there is a risk of rising NPAs, which will put pressure on the already fragile banking sector. This could have systemic repercussions on their economy. Indias banking system is extremely robust under rbis vigil.

As the economy slows, foreign companies with a presence in China are looking for alterna­tive investment avenues as a part of their de-risk- ing strategy. This will attract more FDI to India. The government of India is actively working to improve the investment climate in the country. India, which ranks 142nd out of 189 countries on the Ease of doing business scale, now aims to be among the top 30 on this list.

DIPP has released a framework to assess and rank states in terms of ease of doing business to encourage competition among states. The government wants to improve transparency by promoting digitalisation and cutting red-tapism. For instance, the MSME has recently replaced a 20-page long registration form with just a one-page Udyog Aadhar form.

The government is closely monitoring ongoing turbulence in the global markets. Over the past eighteen months the RBI has accumulated huge Forex reserves to face any eventualities arising from global factors. Indias Forex reserves as of 14 August stood at $354 billion, as compared to $292 billion in January 2014. The RBI is ready to intervene in the Forex markets to curb volatility as and when required. $/? closed at two-year low of 66.28, after hitting an intraday low of 67.06 on 25 August 2015.

Indian markets have fared much bet­ter than other EMs in the recent correction. The rupee has remained fairly resilient and has been one of the best performing curren­cies among EMs over last one year, booking at Indias fundamentals, once the clouds of global uncertainty disperse, India will rebound from the steep correction and come out stronger. Chinas pain could turn out to be Indias gain. ♦

Fear reigns

 

 

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The events on 24 August are unlikely to be forgotten in a hurry. Even before the mar­kets opened for trading there was a sense of foreboding. China had devalued its currency and the mar­kets were going for a free fall. And despite the distance between the epi­centre, Shanghai on the east coast of China and Mumbai on the West coast of India being more than 5,000 km, the resounding crash on Shangai impacted the Indian stock markets – as it did in markets across the globe. Opening at 26730, the market went on a free fall as panic bred on panic

Sensex

28500

 

 

with Fils continuing to press sales in a market unable to absorb the pres­sure. Fils effected a little over ?5,100 crore. But for the spirited action of the Dlls, which decided to play bull, and bought shares worth nearly ?2,750 crore, the market would have tanked even more. Something which the government could ill-afford as it was desperately seeking support from investors and institutions to ensure that its first major disinvest­ment of the year, Indian Oil, sailed through.

Besides the free fall, investors were unnerved by the rupee which

Metal Index

9000

 

 

also shed value in unison to reach a low of 66.50 to a dollar. Fears of US interest reversal policy in September also struck the investors. Such was the frenzy that even the attempts made by the government to talk up the market did not manage to stem the fear.

While the IOC issue did get sub­scribed, thanks to Life Insurance Corporation, bailing it out once again, subscribing to nearly 86 per cent of the 24 lakh shares offered at the price of ?387. However, unlike in the global meltdown witnessed ear­lier in 2010, there were not many bulk deals across the board. On NSE, Credit Suisse (Singapore), sold 72 lakh shares of Gujarat Pipavav Port at ?173.06 a share to Kotak Mahindr^. It followed a further sale of another 40.89 lakh shares on 26 August when the markets had staged a recovery, at ?188. Morgan Stanley) Mauritius) sold 86.17 lakh shares of Federal Bank at ?60.28. Merrill Lynch sold around 15.71 lakh shares of Indian Cement at ?72.61 in the aftermath session. Citi group global also sold chunks of Indiabull Real Estate.

Only slight recovery

With Thursday being the F&o set­tlement day, markets staged a smart recovery with the Sensex gaining over 500 points followed by a small recovery on the last day of the settle­ment, on 28 August. The Sensex nev­ertheless remained in the red, losing 4 per cent over the month. Even as China was unwinding and grappling with the problems of reforming from a command and direct economy to a market led one, the slowing down in its economy also impacted several sectors across the world. The chief being metals where China is the big­gest consumer and in many cases also a big producer. Steel was the worst hit with SAIL dipping below ?50 and Tata Steel losing more than 12 per cent in a session, just managing to stay above the ?200 mark, and JSW Steel dipped by 5 per cent. Hindalco which was already reeling from the global over­supply dropped to a low of 77 while ONGC in the face of the falling crude prices made a 51 week low of ?208. Several commodity prices dipped to
a 16 years low with export-led econ­omies dependent on mineral exports like Brazil, Australia and Indonesia dipping more sharply.

The severity of the fall in the metals was reflected in the 14 per cent drop in the BSE metals index, as against a 4 per cent fall in BSE. While the market did stage a recov­ery towards the end of the fortnight, fear continues to stalk the markets. And not many Bravehearts are will­ing to step in the blood to go bargain hunting. Barclays in its emerging markets weekly report Keep your seat- belt fastened, says that any rebound will be difficult to sustain in the short run.

The US government’s decision to defer the rate hike, did see global mar­kets recover to some extent. But one view is that this could well be a dead cat bounce with the pain in the mar­kets, by no means, over. One could, if it is true, see lower tops and lower bot­toms being formed over the next few weeks if not more. The RBI’s policy in September, when governor Raghuram Rajan is expected to lower the inter­est rates could provide a temporary reprieve and change sentiments. But the effect is unlikely to last.

Ultimately while hopes can buoy sentiments it is the corporate perfor­mance which will be the real game changer. And going by the results for the first quarter the trend does not seem too favourable. Care Rat­ings in its study on the corporate performance for the first quarter has observed that this is the third con­secutive quarter to have shown lower

 

52 wk hi: 7989 (31/7/15)/ low: 7561 (27/8/14) Change: 8.4% Marketcap: 50,786 crore

 

Amtek Auto

200_ ^ Share price    Turnover 8000

(7)                                (7 lakh)

52 wk hi: 7266 (12/9/14) / low: 746 (25/8/15) Change: -67% Marketcap: 1,180 crore

 

sales and negative growth in PAT. Banking sector continues to remain buffeted by NPAs and higher provi­sions have seen its PAT decline by 7.4 per cent. The sector continues to be bogged by NPAs. The gross NPA ratio has increased from 3.97 per cent last June to 4.63 per cent in June 2016.

Some hope remains

However, even during the cri­sis month of August, private sector banks are being bought by discern­ing investors. Induslnd Bank which saw its price rise by 8.4 per cent over the month, was successful in raising ?5,081 crore through a preferential cum QIP issue made at a price of over ?850. The bank which has a higher exposure to car loans is expected to gain, in case RBI lowers interest rates in September. Other compa­nies which saw a rise over a month include Amar Raja Batteries, DLF and

Tube Investments

 

52 wk hi: 7439 (10/8/15) / low: 7275 (28/8/14) Change: 6% Marketcap: 7,429 crore

 

TRF

500 4 Share price     Turnover 1000

400 (7) (7 lakh) 750
300 500
200 250
100 0

27 Jul – 27 Aug 2015

52 wk hi: 7491 (16/7/15) / low: 7185 (26/8/15) Change: -46.3% Marketcap: 228 crore

 

 

Great Eastern Shipping.

There were certain shares which were moving southwards even before the crash. TRF, a Tata group company engaged in material handling equip­ment, saw its share prices tank to a 52 weeks low of 7185 in the last week of August from a 52 weeks high of 7491 reached a month ago. Investors were a little apprehensive after the company postponed the board meeting four times in a row for considering the annual accounts. As of now the meet­ing is to be held on 31 August.

Amtek Auto saw its share prices dip to a third of its price of 7150 a month ago after it was dropped from F&o in August. The promoters admitted that there was a temporary mismatch of funds, promised to infuse 775 crore. An EGM held on 24 August also autho­rised the board to issue shares to pro­moters besides permitting it to make a fresh issue of securities.

Good news on the corporate front included Tube Investments securing a brand licensing rights agreement with Ridley bikes of Belgium. Besides India, the company will also be able to market the premium cycles in Sri Lanka, Bangladesh, Nepal, Bhutan and Myanmar for 33 years. The com­pany’s shares have notched a gain of 720 to 7401 in the last one month.

Where every crisis does throw up opportunities to buy for long term investors, one should be patient to buy in instalments – especially as the bottom is unknown.

♦ DAKSESH PARIKH [email protected]