Financial market
RUIN & RALLY
?We had started to see the crash coming but not many were ready to face the reality of the market,? says stockbroker Arjun Mukherjee, looking back at the tumultuous year. The equity market had started touching new highs and the pace was unrelenting. There were months when the Sensex gained 1,000 points a month and the volumes, especially with purchases in the high net worth client categories, had touched Rs 8,000 crore in December 2007 and January 2008. The Sensex had crossed the 21,000 level mark for the first time in the history of the stock exchange and the broking community was joyous.
For Mukherjee it was great going. He was witnessing a golden era in the Indian equity market. And, working with Sharekhan as a relationship manager, the future only looked positive. The business was great and not many advisory calls went wrong in the hugely trending market.
?Then things started taking a turn for the worse. We saw the signs coming when the Lehman Brothers CEO was sacked,? says Mukherjee. The talk in the stock market was that India was insulated and would not be impacted. Meanwhile, rising inflation threatening to touch the 12% mark saw the Reserve Bank of India tightening key rates, caused a liquidity crisis of sorts in India as well. The spillover impact was most witnessed by the mutual fund industry, which saw massive redemptions to the tune of Rs 90,000 crore from October 2008 till December 2008.
The volumes in the HNI segment also dropped to Rs 2,500 crore a day and though the Securities and Exchange Board of India (Sebi) was vigilant, people had started getting scared of being in the market.
Meanwhile, Mukherjee joined ABN AMRO Asia Equities in December 2008. By then, things started looking tough in the advisory role that he had. It was in January 2008 that rumours of layoffs started doing the rounds. ?This was all across banks and broking houses that had created ambitious plans in the boom phase. The first step was the removal of the direct sales agents and then the sales team and steadily even the relationship managers were asked to leave,? he recalls. The advisory role had also started shifting and a lot of emphasis was being laid on building revenues and getting into the sale mode?selling insurance products, mutual funds and even structured products. ?It was February when I was told that I was no longer required,? says Mukherjee, adding, ?However, the severance was good for me and I could start my own business.?
At that time, the portfolio management and advisory services industry, which was estimated to be worth Rs 50,000 crore and expected to grow at a 25% compounded rate for the next four years, suddenly looked to shut down. There were large-scale layoffs and fresh jobs were few to come by. ?This was rather scary for a new person like me,? recollects Mukherjee. The Sensex suddenly fell from 14,000 to 8,000 in March. From nearly a trillion dollar market capitalisation, the slump saw almost half of it being wiped out. In May, Mukherjee started a wealth advisory and sub-broking business. ?It was a bold decision for me as nobody in my family had ever been in business and there was some amount of resistance,? he says.
However, his timing was right. With the global risk aversion easing and the liquidity position improving, confidence started building up. The Reserve Bank of India (RBI) also started relaxing its benchmark interest rates and reserve ratios to increase liquidity in the economy. Between October 2008 and April 2009, RBI reduced its repo rate from 9% to 4.75% and its reverse repo rate from 6% to 3.25%, which eased the pressure. Some volume started coming back to the market, improving business for the broking community.
The foreign institutional investors also came back with net investments of a staggering Rs 80,300 crore for the year, as compared to net sales of around Rs 53,796 crore in the calendar year 2008. The book on 2009 makes for generally good reading, with many fund groups posting good to excellent performance numbers and on course for record setting years in terms of attracting fresh money, says an EPFR Global report on overseas investments.
The rise in the markets could have been stronger if a certain amount of liquidity would not have gone into the strong fund-raising in the primary markets. After the tough conditions of 2008, the IPO market tried to stage a comeback during 2009. During 2009, there were about 20 IPOs, raising funds to the tune of about Rs 18,750 crore, says a study carried out by SMC Global. The indicative amount of IPOs that these companies targeting to raise is approximately Rs 28,532 crore, it adds. Which means, in the long run, investors would have more opportunities and the depth in the market would increase, benefiting the broking community.
Cash equity volumes are showing marginal signs of improvement since the bump up in May 2009, driven by the general election outcome and a global equity rally. In fact, at Rs 4,26,400 in November 2009, the monthly cash volumes are now back to pre-May levels. The broking community, however, will be looking at growth in volumes closely in the coming months.
The decline in the overall cash volumes is accompanied by similar trends in institutional volumes. Domestic institutional investors and FII volumes declined by 11.4% and 25.2% on a monthly basis, respectively, in November 2009. DII volumes largely remain unchanged from May levels, while FII volumes are down by about 27.5% from May 2009.
?At the moment, there are only a handful of stocks that we are looking at and we have been advising clients to be careful and sift through their portfolios carefully,? says Mukherjee, adding, ?For the broking businesses now, the clear emphasis will have to be on creating value.?
Agriculture
HOPE BLOOMS
Deepa Jainani ? ? ?
Economic slowdown, a deficient monsoon and finally drought. 2009 had all the ingredients of a cursed year for Indian farmers. With almost half the country hit by drought?the worst in 25 years?not only did the country?s agriculture production took a severe beating, food prices too shot through the roof following severe supply shortages. The sector was also racked by the timely unavailability of basic agricultural implements such as seeds, fertilisers and water for irrigation. Perhaps the only saving grace for poor, distressed farmers was the rural job guarantee scheme?NREGA?that helped shore up drought-hit rural incomes.
Many enterprising farmers seized the opportunity that every crisis offers to move away from just growing foodgrains to cultivating vegatables and fruits too. One such is Babloo Mishra, owner of 25 acres in Lakhimpur Kheri district of Uttar Pradesh, bordering Nepal. Inheriting Kusum Farms from his father, Babloo has been tirelessly fighting the threat of bad climactic conditions, erratic power for irrigation and the menace of blue bulls (nilgai) to generate an income of Rs 15 lakh in 2008-09.
?Apart from traditional crops of wheat/paddy/sugarcane, we have started cultivating a variety of seasonal crops such as capsicum, aonla, lemons, guavas, bananas and berries on a large scale and are marketing them in nearby areas. With the demand for fresh flowers also growing, we have started growing exotic varieties of roses and liliums. There is tremendous scope for such kind of farming, but the real bane for the farmer is not the extremities of weather and the vagaries of nature, but the indifference of the government in providing basic infrastructural and marketing support and the right price for our produce,? says Babloo.
Good infrastructure, the backbone of any growth, is also essential to agriculture. While the soil and weather conditions in Uttar Pradesh greatly support agriculture, the lack of good roads and an airport in the vicinity is hindering large-scale production. ?On a visit to New Delhi some years back, I saw the huge demand for exotic flowers such as lilium. After finding out that the weather conditions here are suitable to lilium, I tried planting them on one hectare of my plot on a pilot basis. With an investment of about Rs 60 lakh on a hectare of land, I was able to reap a profit of Rs 70,000 in two months as the cycle for lilium is just two months. But we also need some support from the government to try unconventional farming, the most important being subsidies, an international airport and good roads,? he says.
Government records show a hefty increase in budgetary allocations for both agricultural and allied activities as well as research, but the actual scene on the ground is different, with just a trickle appearing here and there. While in 2007-08, the budgetary allocation for agri and cooperative sectors was Rs 7,813.51 crore and Rs 2,337 crore for agri research, in 2009-10, it went up to Rs 11,915.22 crore and Rs 3,241.40 crore, respectively. The same is the case with subsidies in food and fertilisers. In 2006-07, the subsidy on food was Rs 24,014 crore, which went up to Rs 31,328 crores?in 2007-08 and further increased to Rs 43,627 crore in 2008-09. In the current year, too, the allocation has shown a marked increase to Rs 52,490 crore. The subsidy in fertilisers has also risen, with Rs 26,222 crore in 2006-07 going up to almost Rs 50,000 crore in 2009-10.
However, in reality, there is always a severe shortage of fertilisers and seeds and the farmer, invariably, is at the mercy of black marketers and often has to resort to rioting to obtain them.
The issue of better price recovery for crops is a big fight for the farmers annually and the
sugarcane crop is the most sensitive of them all. ?Every year, the sugarcane crop lands in controversy, with both the Centre and states fixing different prices.
This year, we had an added controversy, with the Centre replacing the statutory minimum price (SMP) with a more controversial fair and remunerative price (FRP), some clauses of which have been amended after farmers resorted to agitations. Our input cost was almost double this year while the yield was halved. The total cost on the production of every quintal of cane was around Rs 240.
?We were expecting a better price recovery this year of around Rs 280 a quintal. But we were let down by both the state and the Central governments. Since neither the state advised price (SAP), nor FRP, is anywhere near our expectations, we had to take recourse to agitations both in Delhi and Lucknow. Though we did score a victory?we are getting Rs 210 per quintal?our job is not to stage roadblocks or resort to violence. The time lost there could have been utilised on the fields instead and this flip-flop will result in an added disenchantment in the farmers towards sowing cane next year,? says Babloo.
Despite challenges, as farmers innovate, there is hope. Hope that the government?s ambitious schemes like the National Food Security Mission and the Rashtriya Krishi Vikas Yojana, launched to give incentives to states to increase investment in agriculture and allied sectors, ensure increases in the production of foodgrains in the country and add to the farmers? income.
Information Technology
Reema Jose & Shreya Roy
?The recession scared me and every day started with the uncertainty of losing my job. Lay-offs had become synonymous with the IT sector,? recalls Sudipta Banerjee, a techie who works with a leading software firm in Bangalore that did not wish to be identified by name for this story. His fears were not unfounded. Thousands of technology workers in India lost their jobs when IT companies resorted to lay-offs to trim work force and costs to survive the downturn last year. India?s software sector started feeling the heat in the second half of 2008, when the global economy gradually nosedived into a crisis. The year 2009 was born in the lap of this economic slump. Companies in the US, the biggest market for Indian IT services, and across the world cut discretionary IT spends. The first quarter of the calendar saw a sequential dip in business volumes. Pricing environment became challenging and companies were forced to offer price cuts to retain business. Adding to the woes was a fluctuating currency situation, with the rupee appreciating against the dollar, hurting realisations for IT services exporters like the firm Banerjee works for. The mood in the IT sector had begun to dip.
Top software exporters displayed cautious optimism. The largest software exporter, TCS, reported a 2.1% dip in its net profits for the January-March quarter of 2009. Other majors, Wipro and Infosys, signalled a challenging business environment, though meeting revenue targets. The industry saw across-the-board dip in business volumes during the first half of 2009, which analysts say drove margins to less than 12% in many cases.
?We did not get any salary hike this year, which was a very tough thing to digest, as I had worked hard. But I am luckier than those who lost their jobs. I started cutting corners to ensure that my bank balance never fell below a certain level, so that if I suddenly lost my job, I would be able to sustain myself for a few months. It was also very demotivating,? adds Sudipta.
To add to the IT sector?s woes, the Satyam scandal happened. Satyam, at that time, employed over 50,000 employees. Tech Mahindra later acquired Satyam Computers in April 2009 for $605-million. A labour ministry report says 34,000 jobs were cut in IT and BPO sectors during the April-June period alone. Recruiters say hiring in the sector was nil during the period between January to October 2009. A good number of IT-dependent staffing companies had already shut shop by the middle of 2009. The future never looked so grim.
It was only in the third quarter of the year that the sector witnessed the first hints of a recovery. Clients in financial services, which contribute 40% of the industry revenues, and retail began to revive IT spends on back of consolidation and mass market initiatives. Lateral hiring and project-based hiring also began picking up, though marginally. For the quarter ended September 30, top IT companies TCS, Infosys Technologies and Wipro Technologies reported revenues of Rs 7,435 crore, Rs 5,585 crore and Rs 6,940-crore, respectively.
Domestic acquisitions added more optimism. In October Cognizant Technologies acquired UBS India Service Centre for $75 million. As per a research service focused on private equity and M&A Venture Intelligence, the software industry saw 67 mergers and acquisitions involving nearly $1,371 million across 26 deals with announced values. Venture Intelligence CEO Arun Natarajan says there was a significant return of activity in BPO and IT services due to acquisition of captive centres, with Mphasis acquiring AIG Systems Solutions, Cognizant acquiring UBS India Service Centre and MindTree Consulting acquiring Kyocera Wireless. There were ?focused, outbound acquisitions (HCL Axon acquiring the SAP practice of UCS Group, KPIT Cummins Infosystems acquiring Sparta Consulting and SoftPro Systems acquiring Cura Risk Management Software) by Indian vendors. ?We expect these two segments to witness more such activity in 2010 as well,? says Natarajan.
Nasscom says the IT industry grew by 4-7% in the July-September quarter of 2009. ?Things are looking better,? Nasscom president Som Mittal says, predicting double-digit growth in 2010- 2011. Industry watchers say despite its lows, 2009 was a validation of the software industry?s resilience. ?Clients are coming back for cost and talent pool advantages. The software industry has survived the 2001 dotcom bubble bust and the economic downturn commendably,? says advisory company Tholons? VP Vinu B Kartha. The industry is now pinning hopes on next year, with a wide section predicting that a true turnaround will happen by the end of the year. ?Now, when the fears of recession are fading, I am also hopeful of getting a salary hike soon,? says Sudipta with a smile.