Uncertainty prevailing in the Euro-zone has seen Nick Cringle, global co-CIO, RBS Wealth Management, cutting his client exposure in equities by 40-50 per cent for investors — both conservatives and risk takers. Instead, he has been parking their money in safe havens like Swiss Franc, gold, US dollar and US bonds. Talking to BusinessWorld's Mahesh Nayak, he said the European crisis would see risk assets (equities) moving further south and market momentum and sentiment would return only if sustainable policy measures like aggressive quantitative easing and short-term fiscal stimulus are introduced in the US and Europe along with credible medium-term fiscal consolidation plans. As for the Indian market, he expects it to move in line with the global markets.Excerpts from the conversation:What is your view on Indian and global financial markets?Recent events have reinforced our cautious view on risk assets as game-changing policy is still not evident and valuations are yet to reach compellingly attractive levels. We continue to be cautious due to the high level of political risk, especially in Europe, and increasing evidence of a globally synchronised slowdown. In such circumstances, it is often the case that markets only bottom when valuations become compellingly attractive, or there is some sort of positive policy hammer blow that convincingly changes the direction of markets. So far we have not seen either. We expect the Indian markets to move in line with the global markets, even though valuations appear attractive. The prevailing volatility in global markets combined with domestic high inflation, rates and earning downgrades could contribute to domestic pessimism.When do you see the clouds of uncertainty getting clear?Market momentum and sentiment will only turn if some sustainable policy measures are introduced. These would include aggressive quantitative easing in the US and Europe; a shift to explicit inflation targeting in the US; short-term fiscal stimulus in the US and Europe combined with credible medium term fiscal consolidation plans and/or a combination of monetary and fiscal stimulus in China and material currency appreciation.In the absence of such concerted policy action, risk assets can be expected to weaken further in the coming months. At some point, valuation will kick in as a driver, but before it does, risk assets will fall further in price.What are the major challenges and concerns for the markets — Indian and global?In the recent weeks, the European crisis has entered an even more serious phase, with Italian and Spanish bond yields reaching around 7 per cent level, prevented from going higher still only by ECB bond buying in the secondary market. Also, it is difficult to see how the EFSF bailout fund can remain credible. Perhaps even more worrying, the crisis has moved right into the core of the Euro Zone with the spread between German and French 10-year bond yields hitting 200 bps. Political risk at a European level is still very high, with Germany and France in open disagreement about the extent to which the ECB should intervene in government bond markets. In addition, the newly appointed technocratic governments in Italy and Greece could face immense difficulties and opposition in reforming their economies. In addition, the Euro Zone is tipping into recession, making fiscal consolidation that much harder for periphery and core Euro Zone countries alike. Leading indicators suggest the Euro Zone is already slipping into a substantial recession driven by banks' deleveraging, fiscal consolidation and the shock to business and consumer confidence that the European financial crisis has created. It is not inconceivable that one of the smaller Euro Zone countries such as Greece should attempt to leave the Euro Zone in the next twelve months as domestic populations rise up against years of fiscal austerity. Such an event would quickly lead to contagion to other European periphery markets and increase financial stresses further.Even if the ECB does eventually relent, and engage in full-blown quantitative easing (QE), this will no longer be the silver bullet that it could have been 6 or 12 months ago. Put simply, despite some improvement in the US outlook, the risks to the global economy lie firmly to the downside because of the escalating crisis in Europe. This policy coordination may have to include not only ECB QE, but also outright reversal and pursuit of fiscal stimulus in major economies like the US and China in particular.In case of India, growth is tempered by high cyclical inflation and rates combined with delay in policy decisions. Further, with heightened risks of slowing global economic growth, Euro Zone's debt crisis and concerns of contagion effects have kept the markets volatile in sync with the global equity markets and also kept external investors guarded. However, India's resilience, reflected by over 8 per cent GDP growth during the global slowdown is the re-iteration of its strong fundamentals driven by domestic consumption and investments and its minimum dependence on external trade. While this inward nature of the market would insulate partly the economic growth, we expect moderation in growth at 7.5 per cent in FY12.What would you advice investors to do in the current environment?Due to the risk factors highlighted above we believe that there will be increased volatility in equity markets going forward, with a downside bias. We have already taken action to de-risk our global portfolios in light of the above mentioned risks. From an overweight Indian equities in March'11, we have turned to underweight in three phases from Aug'11 on the back of global developments. We like defensives namely Health care and Consumer Staples, while we are underweight cyclicals namely Materials and Industrials.This would be a great opportunity for Indian investors to increase fixed income allocations, to benefit from the prevailing cyclical high yields & our belief that Interest rates are close to peaking out. Clients should look at investing in a mix of accrual & duration strategy to take advantage of this interest rate cycle.
Read More
Looking back, Rashesh Shah's aspirations of making Edelweiss India's Goldman Sachs seem like a slightly distant dream (Goldman Sachs itself is here anyway). "Things change," he says; and how they have changed. The financial services industry wields the most influence on our stockmarkets. In an interview with Businessworld's Srikanth Srinivas, Shah acknowledges that banks are a big part of that. Excerpts: After a spectacular opening, Edelweiss stock hasn't done particularly well. Why do you think the market has taken that view? What do your investors think?Stock price is always a tricky one. Ideally you should offer an IPO in the middle of a growth phase, so that you have demonstrated growth behind and created headroom for more growth. After our IPO, the world got hit by a huge credit crisis. Until then, the entire financial services sector was enjoying 50-60 per cent growth and most of us conservatively expected a 20-30 per cent growth to follow. But things changed after 2008. I think the Indian capital market business — scale and profitability — has not come back post the crisis. The current activity levels and profit pools are half to one third of 2007-8.Secondly, we have embarked on a process of restructuring of Edelweiss' business model — from a capital market company to a broad based financial services company. This has required investments, which will produce results in the future.Going retail is a big shift, even a risky one under the circumstances. What's the rationale for this strategy?The simple answer is that's where the next big opportunity, and it's a really big one. Imagine the total financial savings — roughly $400 billion a year - as being poured into the mouth of the funnel; think of large savings going in and large investments resulting from these. What comes out of the stem at the bottom as the pool of financial products? The $400 billion that is poured into the funnel goes through a series of pipes: products and services such as bank deposits, insurance, mutual funds etc.Going retail would involve focusing on the amounts that go into the mouth of the funnel, and the pipes through which they flow through to the bottom of the stem. That's a different scale, and a hugely different set of opportunities. That's what we are aiming for when we go retail; the next big growth opportunity or set of opportunities is there. That's why we are going into retail broking, insurance, housing finance, etc. Financial services companies like yours may have started off at different points, but almost all of them are building businesses along the lines you are. What makes yours different?You are right; financial services can be, and are being, commoditised. A firm creates a product, and very soon, others imitate and copy it. The same is true of services; what one bank offers, for instance, is almost identical to what others offer. Businesses - asset management, insurance, housing finance - have the same economics, even if they have different business models. So the replicability of such businesses is a given. Or in other words, product differentiation is not the only answer.But take a look at GE, or IBM: what makes them different is the organisation; that is what makes them the brand they are, that's why there is only one GE in the world, and one IBM. Organisational differentiation is the hardest thing to do: it's a combination of values, mission, business ethics and the way you conduct your business. That's what I —and my senior-most management team — spend lots of time on: how do we build Edelweiss one of the trusted brands among financial services organisations? Sooner or later, banks will probably end up having the lion's share of all the other the financial services business as well. How do you think the non-banking financial companies (NBFCs) and others respond? Currently if you look at revenue pools, banks are approximately 75 per cent of financial services; the other 25 percent a combination of NBFCs, insurance companies and capital market players. I don't think the 75:25 ratio will change significantly in the next 5-10 years. One reason is that banks still have a long runway to expand the reach of banking products for the next 10 years. A 25 per cent pool of a growing financial services market is not small.A GDP growth of 8-9 per cent and a savings rate of 33-35 per cent means that by 2020, our financial savings would be four times what we as Indians have saved in the last 40 years. So the size is enormous and will have enough room for all forms of financial services - from banks, NBFCs, Insurance companies to MFs to grow.Given your approach - creating the holding company structure, for example — is seeking a bank license the next step?A holding company in financial services is inevitable for a broad based player. As I said before, we are in the process of restructuring our business model. Currently, we are investing in our housing and life insurance businesses. This will keep us busy for the next 2-3 years, and it may not be prudent to change the business model again so suddenly. But banking is a good and large business opportunity, and every financial services firm which wants to grow, have breadth and scale will look at banking at some point; the key is doing it at the right time.
Read More
Japan's ambassador to India, Akitaka Saiki spoke to Businessworld's Shrutika Verma about the opportunities for Japanese companies in the Indian market, concerns over China's growing strength and the shift in Japan's diplomatic relationship with India focusing on cooperation in areas of defence and infrastructural development.How important is India to Japanese private sector companies. Where does it show on your priority graph?India is a growing economy and I often tell my Indian friends that this country is no longer just a 'potential' but it is a 'reality'. So we have to come into this country for business and otherwise. The number of Japanese businesses in India has almost doubled in the last three years from 365 to 725 and this number is going to increase in the coming months and years. There is a huge opportunity for Japanese to do interaction or business with this country. I am very pleased at the cooperation between the two countries at all levels in many sectors. Our two governments are operating very closely even in areas of security. We are intensifying cooperation including joint operations at the coast of Africa; our two navies are operating with each other very intensively to protect the vessels to freely travel between Africa and Asia through the Morocco state into Japan. China has always been placed higher on Japan's priority graph than India. Do you see that changing in the near future?For the time being, no, but the fact that the huge delegation from Japan business community is here indicates that they are looking at India as a very promising business partner.China is still running very fast. India too is pacing up and I am sure soon India will catch up with China because of the population growth. China may face some setback in about 15 years because of its policies. The workforce of China is going to decrease while in India, people who are in the 20s will be about 40 per cent of the population even 20 years from now and this is very important for any country or economy to sustain moving forward. I think population - young population is very important.What do you think of China's military assertiveness?We are concerned about China's military and its muscle flexing attitude in the recent months. Their naval powers are now expanding towards the south including the South China Sea and also in the neighborhood waters of India. Their active operations are a matter of concern to the countries in Asia. China insists what they are doing is clearly for their defense purpose and that they have no intentions to intimidate any of the countries in the neighbourhood but their words must be accompanied by their actions. If they want to be friends with countries in Asia, I hope they will be a little more sensitive towards the sentiments or the concerns expressed by many countries in this region including our friends here in South Asia. Does China or India as a rising power worry Japan?No, we have comparative advantage in some of the products over Chinese and Indians. Our offerings are different from theirs, so we can manage that.Japanese FDI in India is largely from auto and consumer electronics... is tough competition from Koreans in this segment a cause of concern?If you take Sony for example, they have now come back to number 1 position in the electronics market. Of course the Indian consumer firstly looks at price but they are more and more realising the importance of quality of the product. As long as we are talking about the quality of the product we are number one and we will remain number one. We have some competitive edge over Korean products and I think it is up to the consumer of India to decide what will they choose.Is Japanese economic diplomacy shifting away from consumer electronics and auto sector to other areas such as infrastructure and nuclear technology?Not necessarily. Areas such as consumer electronics we still have a lot of market share so we will continue to maintain that.Infrastructure opportunity for construction, roads, bridges and urban facilities is huge in India. There is a lot of demand for it and Japan wants to partner in constructing that infrastructure. One example is the Delhi - Mumbai industrial corridor DMIC project which with the assistance from the government in terms of ODA, Japanese private sector wants to keep participating in the project.Nuclear technology we still have the highest standard in the world. Unfortunately the Fukushima incident gave the impression that even Japan has difficulty about the safety of the nuclear power stations and we have to admit that. But we have to improve and upgrade the safety of the power stations in Japan and that I think we can still offer.Why has there been a renewed interest in India among Japanese companies?Japanese market itself is now very small and as businesses need to be expanded, they are going to the markets which are growing and India offers the best opportunity in terms of income level of people. Every year about 12 million to 15 million middle income class people are created in this country and they aspire to buy high quality electronic consumer goods and better automobiles. So we see huge opportunity. What kind of operational challenges do Japanese companies face in India? This is not just limited to Japanese investors but many foreign investors in the country face these issues. Every year a wide range of requests are sent to the government of India around the infrastructural improvements. Warehouse, port facilities, electricity and water supply are few elements need to be supplied by the host country on a stable basis. If you are engaged in manufacturing of sensitive electronic products you need to have a very stable supply of electricity. One can not work with time to time power breakdowns during factory production. An improved infrastructure will help the operations in greater roles. How big a challenge does a strong yen pose?We are concerned that yen is appreciated too highly and this is now getting reflected in fundamentals of the Japanese economy. It needs to be rectified. Yen is currently 76 - 77 to a dollar and Japanese companies are already operating around 85-90 yen per dollar. This appreciation of 10 yen is really hurting the Japanese manufacturers and that is why they have to think about shifting their manufacturing base overseas, which is going to be very negative for the Japanese employment situation. If the industries shift abroad the local employment is going to suffer. So how are we going to set the balance between the two is the challenge that the new Japanese government is facing.
Read More
Starting this week we introduce a fortnightly feature on mutual fund perspectives. We will be speaking to a number of fund managers on their views on the market's direction and drivers, and the consequent impact on mutual fund investors. With uncertainty looming over financial markets sparked off by the European debt crisis and domestic concerns over rising inflation and interest rates, investors appear to be clueless. Sankaran Naren, CIO Equity at ICICI Prudential AMC, concurs with the view that overseas markets have a greater influence than domestic concerns on market movements. Talking to Businessworld's Mahesh Nayak, his advice for investors is to look at oil markets and food price inflation that have been worrying investors across markets - retail and institutional. Excerpts from the conversation:What do you make of the overall crisis in the global economy and financial market? What is your take on the Indian equity market?The European economy consists of countries that are strong, and countries where there are debt and growth concerns. We expect the periodic shocks to continue. The only potential sustainable solution seems to be the issue of a Euro Bond backed by all countries of the European Monetary Union to fund the problem of crisis countries.The Indian market correction has been primarily a result of these concerns, which have led to FII (foreign institutional investors) selling. However, the Indian market is well poised due to the benefits of good monsoons, moderating food inflation and marginal crude price reduction with the potential to mitigate fiscal burdens. It's an opportunity to invest as markets correct.As an investor what would be your strategy?We believe that in the current environment local factors have been positive coupled. We therefore recommend that rather than focusing on global concerns, focus should be on crude price direction, which if corrected significantly, provides the opportunity to further increase allocation to Indian equity. Also, we continue to believe that there exist pockets of value across sectors to be unlocked by investors through investing in funds with value strategies.Where are you investing?I am investing in short-term debt mutual funds. However with crude oil correcting I will consider investing in equities as well as hybrid funds.What call will you take on the overall portfolio of ICICI Prudential? What will be your short-term strategy?There are pockets of valuation attractiveness across sectors and market caps. For instance there are certain large cap stocks that are attractive viz a viz peers. We therefore believe that rather than pick a sector, a bottom up stock picking strategy is what will help generate alpha. Our focus therefore is on identifying good businesses at the right prices that will help add value to our portfolioIn the current market condition what is the fund house advising clients? (As what to buy or sell)We have been advising our investors to systematically increase exposure to Indian equities with due regards for overall asset allocation discipline. It is important for equity investors to maintain their absolute levels of exposure to equity throughout the correction. This implies buying more of equity as markets correct to reach back their predetermined allocation level. We have been recommending our investors value funds like ICICI Prudential Discovery given the scenario of valuation attractiveness across sectors and market caps that can be best leveraged through the value strategy.Where do you see inflation and interest rates over medium term, do you expect a further hike in interest rates in the current financial year?Inflation numbers have a base effect which was expected to be negative for August and September. The numbers that have come in are therefore in line with expectations. However, a good monsoon has resulted in the coming off of food inflation which is a positive factor. In view of the above, we believe that we are toward the peak of the tightening curve of RBI; however, it is too early to comment on when rates are expected to come down.We should also remember that administered price hikes like that has been done in petrol is clearly positive for the fiscal scenario since the under recoveries of the petroleum sector goes up. Hence while a hike in fuel prices can lead to a spike in inflation, the long term benefit to the fundamentals of the economy outweighs the problems of inflation.How do you see the flow of money in the AMC? How has it been since March 2011?We have been clearly seeing some positive trends like increase in number of SIPs and no significant redemptions during corrections. This clearly indicates that there is been some change in investor behavior whereby they rather than panicking in case of correction have been looking at it as an opportunity to invest.In your view what will be the next trigger for the Indian equity market?It is difficult to predict direction given that a lot of influencing factors are macro in nature and are beyond control. However, volatility is clearly expected to continue and should be looked at as an investment opportunity. The upside triggers for the market will be, a correction crude oil prices and inflation which will help reduce the fiscal burden. Also stability coming through on the global front will definitely help improve sentiment. However on the domestic front, a shift towards improving investment in infrastructure and focus on the investment theme will help improve sentiment as well.
Read More
Bank of Baroda chairman and managing director MD Mallya talks about past performance, forecasts and plans with BW's Tanushree PillaiWhy do you think the Current Account, Savings account (CASA) growth for Bank of Baroda is showing a decline in 2010-11?Our CASA has grown by about 22 per cent in 2010-11. In the context of the overall pressures on CASA, which the industry has been facing for quite some time, our bank has done better than its peers. Although CASA growth has been strong, our other liabilities have grown correspondingly. So, yes, there has been a marginal reduction in CASA, as a percentage of the total deposits (at 34 per cent). CASA growth has been sustainable, which shows that the growth has been positive. A larger number of customers have been added with varied profiles, from different geographies, which shows that the bank has been able to do well in difficult conditions.Our new marketing initiatives include Business Process Re-engineering which deals with converting branches into sales outlets and removing back office functions out of the branches.We would be happy to maintain our CASA percentage at 34-35 per cent for FY 11-12.Advances' growth also slowed in 2011-11. Have there been some concerns?Advances as a whole for the industry would have grown about 22-23 per cent in FY10-11, while we grew by about 25 per cent (domestic). There have been lots of initiatives taken in credit origination, in terms of segmentation. We were one of the first ones to launch retail, SME, corporate and rural verticals. We have opened centralized hubs, branded as loan factories in our retail and SME areas. There is very strong and qualitative credit origination from these loan factories. This segmentation has been our strength as far as credit is concerned. Our asset quality continues to be strong despite challenging economic conditions and our non-performing assets are amongst the lowest in the industry.Are you facing any stress on asset quality?In a scenario where interest rates keep on increasing, there will be concerns over asset quality. So, yes, there are challenges to be faced as far as protection of asset quality goes and ensuring overall asset quality strength is maintained. Our delinquency numbers were 1 per cent in the first quarter of this fiscal. Our gross and net NPAs have been stagnant too.You seem to have a good set of credit-deposit ratio numbers too.Credit –Deposit ratio for our domestic business is about 74-75 per cent, which indicates proper utilization of the funds mobilized. We need to ensure that we have resources to lend, but we should over-mobilize resources that cannot be deployed or we cannot have a shortage of resources when a lending opportunity arises. Both our domestic and global businesses have shown good growth in deposits. Our central sales unit ensures we appropriately tap customers, not just for deposits, but for lending too. The bank has a large number of corporate relations and we tapped that to get into the corporate salary account area.We also focus on pensioners to get CASA as well as term deposits. We refrain from over relying on bulk funds, and do not offer abnormally high interest rates. We ensure that overall asset-liability is maintained and the cost of raising deposits is also moderated to the maximum extent. What's your FY11-12 forecast for credit demand?Overall credit demand in recent months has been subdued, but has been the intended outcome of the policy initiatives which the RBI has taken. The intention of the rate hikes is to restrict overall credit flow of the system. With a fall in the credit growth for the industry, our credit growth is also slightly less than last year's.We expect our domestic credit growth to be around 21-22 per cent in this fiscal, when the industry might see a 18-19 per cent growth.How has the balance sheet growth (29 per cent in FY 10-11) been for the bank?We expect a growth of 23-24 per cent in this fiscal, due to lower credit growth.Are you expecting any stress on your treasury income?Government securities have been facing interest rate pressure for some time now and we are seeing what we call an increased bias as far as interest rates are concerned. So, trading profit on sale of bonds has come down drastically. So, yes, there will be pressure on our treasury income. But, this needs to be off-set by improving other avenues of fee-based income. Profit through forex transactions has shown very good growth, fee-income related to credit related activities like processing charges, syndication charges etc. the sale of third-party products like insurance, mutual funds are also avenues that need to be explored. Our overall fee-based income is growing at 15-20 per cent per year, which is a good growth.Are you planning to raise any off-shore funds?Not at the moment. We raised one tranche of Medium Term Notes (MTN) in February 2011 when we raised $500 million. Our asset-liability situation in the overseas market has been strong, so there is no immediate need to raise resources abroad. The bank is quite liquid, and the maturity profile of resources being raised abroad are quite favorable.However, we will keep an eye on the market and if resources are available at reasonable rates, we could think of raising funds abroad. But because of the various developments in the recent past, money market situation abroad is not favorable to raise resources.How has the bank's Capital Adequacy ratio been for the bank in FY 10-11?Our CRAR as of March 2011 was around 14.4 per cent, of which Tier-I was 10 per cent, which suggests it is quite strong. Substantial headroom is available to raise Tier-II and II funds, in case of need. Last year, the government infused Rs 2,600 crore which raised its holding to 57 per cent from 53 per cent earlier.How many branches are you planning to add this fiscal?We are planning to add about 500 domestic branches this year. We had about 3400 branches at the beginning of this year, we would like to be at 3900-4000 at the end of the year. We already have RBI authorization. In the first half of the year – up to September – we have opened about 120 new branches. Overseas, we have 86 offices which include those of our subsidiaries. We plan it take it to 100 by March.Have you zeroed in on the locations?Yes. Many of these branches will be through the subsidiary route. We will have branches in Kenya (currently 11, planning to open 3 more), Botswana (currently 2, will open 1 more), Uganda (currently 12, planning to open 3 more), New Zealand (add 2 more to the current 1).We will be starting a joint-venture company in Malaysia (Kuala Lumpur), which may happen in November -December. It is a JV with the Indian Overseas Bank and the Andhra Bank, but 40 per cent will be held by us. There will be a couple of Electronic Banking Service Units (EBSU) in the gulf area.We expect the regulatory approval to come for Australia (Sydney) by the end of this year. What is your bank doing to keep a check on asset quality?Our credit origination is very strong to maintain the high quality of the assets acquired. Going forward, there could be cyclical upheavals hence it is important to continuously monitor one's portfolio, especially small ticket advances, including retail.Using technology, we reach out to retail customers in advance for their payments (like housing and vehicle loans). For mid-corporate and larger accounts, we have a credit monitoring cell which does a continuous follow-up.In case there is a need to restructure an account due to economic reasons, we do allow so. Is there any pressure on margins for you?The sector as a whole is facing a number of challenges given the current scenario - maintaining margins, asset quality and capital requirements. Our provisioning continues to be high at 83-84 per cent, and would like to maintain it above the regulatory requirement of 70 per cent.
Read More
Suresh Vaswani earned his chops, by joining a then unknown company called Wipro straight out of IIM A campus, in 1985, to sell PC hardware. In the next 25 years, Vaswani grew meteorically within Wipro first as an executive assistant to its billionaire chairman Azim Premji, to eventually become the co-CEO of the company. Unlike several of its Indian IT peers, if Wipro today gets close to a quarter of its IT revenue from the domestic market, it owes it in no small measure to Vaswani. He is credited for building Wipro Infotech, the system integration arm of Wipro Ltd, which mainly caters to India, Middle East and other developing markets. Vaswani also built several global lines of business for Wipro like testing and validation as well as Infrastructure Management Services. In January after a surprising exit as the co-CEO of the company, Vaswani was wooed by Michael Dell personally to come onboard. Dell will be hoping that Vaswani will help him in ramping up the applications and BPO business of the company as he seeks to strengthen the services arm. A keen golfer, Vaswani sat down with Businessworld's Venkatesha Babu to talk about the mandate from Dell and how he intends to execute it. Excerpts:Why Dell? What do you intend to achieve over the next few years?It is true that immediately after January I had multiple opportunities including one to head the Indian operations of another large multinational. However I was excited by Dell's vision to transform the company to become an end-to-end player offering everything under a single roof. My brief is simple: to growth the applications and BPO business of the company. I have global profit and loss responsibility for it. I am also the Chairman of Dell India. I have an 80: 20 split for this. I spend about 80 per cent of my time in my global role and the rest for the Indian market. I think the team here has done a good job of helping us become the market leaders in the PC segment in the domestic market. We have a strong play in servers too. Yes, we can do better in services. You will start seeing some of those results in the near future.Indian IT vendors including the likes of TCS, Infosys and Wipro took on large multinational players and managed to carve out a niche for themselves. Dell, while it is known as a hardware seller, isn't late to the services game? How do you intend to differentiate yourself and grow the business?I don't agree with the contention that Dell is late in the services game. We already have close to $8 billion in revenues coming from services, which is more than several India based players. Yes, some of it might be around support services around the products we sell. However I think we have a different story in the services game. We will address the mid market segment (Small and Medium Business), make our solutions open, affordable and scalable. By emphasising on IP and platforms we will ensure that revenue is not directly linked to head count growth. Dell already has C-suite relationships which are the envy of the industry and not easy for a lot of standalone services companies to replicate. From PC's, servers, software, storage to services, Dell's integrated offerings mean that customers need not worry about making different technologies talk and work with each other. We will ensure all that happens seamlessly. Because of our Perot acquisition, Dell is already the leader in certain segments of the market like healthcare and public sector/government business. We have tremendous strengths which we will leverage. We will also strengthen certain other segments such as banking, financial services, insurance, energy and utilities, telecom, IMS etc. Are you following in the footsteps of IBM and HP in stressing more on services as the business here is more predictable and profitable?I think Dell usually leads rather than merely follow somebody else's strategy. We think we have a differentiated play and a compelling value proposition for our customers.
Read More
Michael Saul Dell, 46, through his eponymous firm Dell Inc, defined the Personal Computer (PC) industry in 1984, by directly selling to customers from his University of Texas dormitory room, undercutting the middleman and in the process becoming a billionaire several times over. 27-years later, he has the chance to redefine the industry again, as it faces its biggest churn. While his biggest competitor Hewlett Packard (HP) Company has hung a 'for sale' sign on its PC business, signaling its intention to exit a high volume, low margin market, Dell is gung-ho about the prospects of the industry and his company. Dell who returned to the CEO role in 2007 to rescue a floundering company, after a brief flirtation with a Chariman's non-operational role, now seems keen on moving his firm away from being a low-cost, box pusher, to a solutions firm, which provides hardware, software, storage and services under one roof. In an in-depth chat with Businessworld's Venkatesh Babu from Dell's headquarters at Round Rock, Texas, he talked about the challenges facing the PC business in particular and the hardware industry in general, the rise of smartphones and tablets as well as the transformation journey to being a solutions company. Edited Excerpts :You were a pioneer in the PC industry. Is the PC industry dying or dead?Reports of death of the PC are greatly exaggerated. This year alone, globally around, 440 million PC's will be sold. Gartner for instance predicts that this year about 40 million tablets will be sold. I have been hearing these reports of the death of the PC at least since the mid 90's and even when the industry was selling a mere 100 million PC's. Some analysts project that by 2014, actually a billion PC's would be sold a year. Look, while nobody denies that the smartphones and tablets as a category have risen significantly in the recent past, fact is that the PC is not going to disappear anywhere. At least not in the near future. When a person buys a smartphone, it is not as a substitute to the PC. There is a continuous evolution of multiple form factors. Smartphones and Tablets are good at certain things like content consumption, while the PC would be good for content creation. In India and several other developing markets, I think the PC market is under-penetrated and there is significant room for growth. I think (the current market) can be described as PC plus rather than a Post-PC era. What do you make of HP's announcement which essentially means it is looking to sell its PC business?I personally think this is an incredible opportunity for Dell. We have a very good PC business. If HP or somebody else doesn't want to be in the business, it is just more opportunity for us. Customers of that company (HP) are concerned and confused. We have been talking to them and our channel partners. We will do all that is possible to help them to move over to Dell. We are the only player today that provides everything from the client (PC) to server, cloud and services. Every since you took charge of the company again in 2007, you have tried to move it away from a very efficient, low-cost, box pusher to a solutions company. How far do you think Dell has traversed along that path?I see this transformation as a kind of a continuum rather than changes (happening) in months and years. The key along the way has been that value has moved from hardware to software and now services. But that doesn't mean that hardware or software are going to go away. Dell has been adapting and leading some of these changes by investing and growing both organically and through acquisitions. In the last 18 months we have acquired 11 or so companies. Just in the last quarter our earnings per share grew by 71 per cent. Our offerings are open, scalable and affordable, and that is a message customers want to hear. I am happy with the progress we have made, though we have lots left to do.HP seems to be following the path of IBM in trying to strengthen its services offering and exiting low margin hardware businesses. Is that the path Dell would also eventually follow?Well, I have never been fond of stereotypes like that and won't comment on what others might or might not, be trying to do. What I can tell you about what Dell is doing, is that, unlike others, we are about open and not proprietary standards. We believe in the PC business even as we grow the smartphones and tablets space. I think you will see us approach (this transformation to be a solutions company) a little differently. Other companies might have legacy business built around proprietary standards and might not want to disrupt that. But we have no such issues and we will try and change the market in a way which is great for customers.Dell has had limited success in smartphones and tablets, at least till now. How do you plan to address this challenge?In the global $3-trillion IT industry, Dell has been very successful. Also what is worth thinking about is that each time somebody uses or accesses something on a smartphone or a tablet, they get on a network, they access servers and storage. Very high percentage of those (servers and storage) are powered by Dell. So whether it is somebody's else smartphones or tablets or ours, we still benefit. Of course we aspire to do more in the phones and tablets market. In phones we are excited about both Andorid and Windows Phone 7.In tablets, till now, only Apple has had success there. But it is very early days yet. We have certain exciting products and software in development, the results of which you will start seeing shortly.You have made several acquisitions in the recent past including Equal Logic, Compellant and Force 10, primarily to plug gaps in your portfolio. Perot at $3.9 billion was your largest acquisition. What is the strategy here.First of all if you look at the kind of acquisitions whether it is in, datacenter, storage, security or services, we have made there are a couple of common themes. Over 90 per cent of the engineers being acquired are in software. They fit into the overall theme of us being a solutions company. We have more than $16 billion in cash and depending on opportunities in the marketplace, we will use it appropriately.Recently you hired Suresh Vaswani. What is his mandate ?Suresh is a senior resource who wears two hats. One would be to grow our services business and the second as the Dell India, Chairman. India is an extremely important market for us. We have built a very good business in India where we have become No.1 (in the PC market). We are investing in the local market for the long haul. Our resources there are fantastic and key to our global success.
Read More
Global uncertainties have been the biggest cause of concern for Krishna Sanghvi, Head of Equities at Kotak Mutual Fund, who feels the issues involved particularly those surrounding the Euro-zone crisis can have a long-term repercussion on the overall health of financial market and can damage sentiments and reduce risk appetite among investor. Talking to Businessworld's Mahesh Nayak, he feels it's the right time to invest in equities as worst seems to be over for India. Though he sees inflation and interest rates likely to play out in the next 2-3 quarters, he is clueless like many others over global factors like Euro-zone and commodity prices.Excerpts from the conversation:Is the worst over for the financial markets? (Globally as well as India) It is quite difficult to say that the worst is over as the global uncertainties and the issues involved are quite complicated and any near term solution may have longer term repercussions. Equally difficult is to estimate the response of various policy makers on the global front. However on domestic front, we seem to be better placed vis-à-vis the world. We are almost at peak inflation and interest rates and hence the expected moderation in these offers an opportunity going ahead. So in Indian context we are probably at a juncture where in the absence of any major mishaps globally, economy and markets are more likely to see an upturn over next 12 months.What is your take on the Indian equity market? Are we in a bear market?Indian economy with positive demography and vibrant domestic consumption offers a unique combination of growth as well as some insulation from the global turmoil. The resilience of Indian economy has already been proven in 2008-09. We believe that this resilience will continue to stay and attract investor attention and allocations from across the world. We do not think that India is in a bear market despite the current volatility. It is more of a consolidation that is emanating from a reaction to global uncertainties and partly a cyclical response to high inflation and interest rates.Food inflation has seen a sustained rise. Even in this scenario, the RBI governor has already hinted that he may not hike interest rates. How do you view this scenario for the Indian market?Yes, the food inflation in Indian context has been rising but it is more of supply constraint driven inflation and may take a bit longer to be addressed. The RBI's guidance that it may not opt for further rate hike is partly a function of their expectation regarding moderation in overall inflation (despite high food inflation) going ahead in FY12. Also, it is based on their assessment of the impact of past hikes on the demand and GDP growth.For Indian markets, the expected pause in rate hike is a positive development. However in the near term (2-3 quarters), we would see moderation in GDP growth (expecting GDP to be around 7-7.5 per cent) as the impact of past rate hikes is felt on the demand. Post the next 2-3 quarters, we are likely to see softening of interest rates and then the growth resuming at higher levels.What are your concerns for the equity market?The Indian equity markets are currently impacted by both global economy as well as domestic economy related factors. The key concerns from a global economy perspective is how the sovereign credit issues facing some of the Euro-zone countries will be addressed; and how the losses (if any) will be borne by the investors. This is relevant as it can damage the investor sentiments and the likely reduction in the "risk appetite". Over a medium term the worries are more about the economic growth prospects in both, USA and the Euro-zone, and its impact on the global trade and the financial markets. Another key issue is whether Euro zone will continue to exist in its present form.From an India specific perspective, key worries are the high crude prices (impacting fiscal deficit and foreign exchange) and rising inflation and high interest rates (impacting growth).What is your view on the overall corporate performance of Indian Inc? Till when do you think this dismal performance will continue?The corporate earnings estimates for FY12 have seen reasonable downgrades over past 2-3 quarters. While the corporate performance on the revenue front has broadly been good it has not transmitted into profits as the profitability has been significantly impacted by the margin pressures as well as rising interest costs for many companies. Post the September quarterly results, we expect some further downgrades to earnings estimates for FY12 and similarly lower expectations for FY13.The improvement in corporate profitability requires moderation in inflation, lower interest rates and relief from higher commodity prices. We expect the inflation and interest rate to support in later part of FY13 while commodity prices remains a function of global linkages and hence difficult to estimate.In times of uncertainty where will you advice investors to invest? Currently where are you investing your own money? And why?Despite all the uncertainties surrounding the world economy, Indian economy, with positive demography and the domestic consumption as the driving force, continues to remain resilient and on track to remain among the fastest growing economies in the world even if we grow at 7 per cent. I think that individual investors should continue to remain confident about this long term growth story of Indian economic growth and the positive effects of it on corporate earnings, equity valuations and market capitalizations. In fact, it is these uncertain times that gives investors an opportunity to keep on accumulating equity assets either through mutual funds or directly based on their knowledge and time commitments. Even on a personal front, my allocation to equity markets (through Kotak mutual fund schemes) continues under systematic investment Plan (SIPs). I believe that SIP is an ideal investment avenue for investors at all times. As a fund manager what call will you take on the overall portfolio of Kotak Mahindra Mutual Fund? What will be your short-term strategy in the current market condition?The near term uncertainties in the economic environment put emphasis on portfolios with a defensive bias. The focus is on sectors/companies that have higher earnings visibility and/or healthy return ratios. Also the bias is on companies that are not highly levered and generating stable cash flows.As a fund house, we believe in the potential of equity markets creating long term wealth for investors. We believe that Indian economy offers the right growth opportunities to corporate to expand their businesses and create wealth for equity holders. Accordingly we advise our investors to keep on investing in equity mutual funds. We believe that for majority of investors, systematic investment plan (SIP) is an optimal way to participate in the wealth creation opportunity in Indian equities.In your view what will be the next trigger for the Indian equity market? And why? And when do you see it coming?The positive triggers for the equity markets are multifold. Globally it is the resolution to the Euro- zone crisis and return of investor confidence. From domestic perspective it is moderation in inflation, commodity prices and decline in interest rates and improvement in investment climate. Also, there are a few policy reforms that are expected to be unveiled over next 3-4 quarters and these can also act as a trigger. The domestic triggers of inflation and interest rates are likely to play out in 2-3 quarters while global factors like Euro-zone and commodity prices are anyone's guess.
Read More
Godrej Consumer Products MD, A. Mahendran, discusses the path ahead with BW's Suneera Tandon and explains how the company plans to double its revenues in the next few yearsPost multiple acquisitions, what is next for Godrej Consumer Products?The last three years were the years of acquisitions; 2011 will be the year of consolidating acquired business, interchanging process and policies between domestic and international businesses. 2012 onwards (i.e. 2012-2015) we will look at a long-range plan for the next three years. Our target is to double revenues in the next three years from Rs 3000 + crore to Rs 6000+ cr. Over the next year we are also looking at the organic growth of our acquired businesses. What are the most dominant categories for Godrej Consumer Products?Currently household - insecticides comprise 45 per cent of our revenues with brands such as Good-Knight, Hit and Jet; personal care constitutes close to 30-32 per cent revenues, with Godrej No1 and Cinthol as dominant brands. Hair-colour comes third with a 15 per cent share in the business, whereas non-core categories comprise 7-8 per cent. Currently hair care and household insecticides remain growth oriented categories, since the market for them is still in their growth phase. In Q1 2011 we launched two variants under Godrej expert hair colour, Care and Advanced (gel based variant). Soaps on the other hand remain a highly penetrative category (at 90-95 per cent) both in urban and rural, so it is purely a market share game (currently Godrej is behind market leader HUL in soaps with 10.1 per cent market share). In the household insecticides category, rural is a buoyant market. Currently penetration for insecticides in the urban market stands at 75 per cent while in the rural market it is 25 per cent. We are working towards developing a lowered priced product to cater to the bottom of the pyramid consumer. Good Knight remains a dominant brand both for Godrej and the market, followed by Hit (market-leader in the aerosol category). What price-hikes have you as a consumer company taken over the past 1 year?Commodity inflicted category is only 1 Vis-vis price points the most affected category has been the personal wash (ie soaps category). Since we import our palm crude oil from Malaysia, price hike has been inevitable. On an average we took a planned price-hike of 10-11 per cent across categories over the past 1 year. Since we are not the market leaders we cannot go beyond what the market leader (HUL) decides. But Q2 has seen commodity prices a softening, the trend is looking good. However the volatility of commodity price is unpredictable. Will there be any cross-pollinisation of products from the acquisitions?We have recently taken our powered hair-colour Expert (under the Renew brand) in South Africa. We are considering taking products to markets, maybe Indonesia. Vis-versa we will also look at bringing acquired brands into India.Any new product launches in the pipe-line? We will be entering the air-care category soon. For now it is a very small market at an embryonic stage. (Godrej sold rights of Ambi Pur to Proctor and Gamble last year, as part of Sara Lee selling global Ambi pure rights to P&G)
Read More
Rajiv Mody, chairman and managing director, Sasken Communication spoke to Businessworld's Venkatesh Babu about how he is fixing the company. Excerpts:While your profitability has grown, your revenues have shrunk by a fifth in the last two years. What has gone wrong over the last couple of years?Over the past 3-4 years what have changed significantly are two things. The first is network equipment companies like Nortel, Alcatel, Lucent etc. we used to pride in having great relationships with and the deep technical knowhow have undergone a lot of pain because of changing market conditions. Some of them have gone bust and others have faced challenges. They passed on the pain to us and there is no escaping that.On the devices (handsets and semiconductor companies) side, players who were market leaders have fallen, all the software standards have gone away. Symbian has faltered. All this happened within a short period of time. Texas Instruments for instance decided to exit the wireless modem business in which we were majorly associated with them. Pace of change has accelerated dramatically. It takes time to build know-how in the newer areas. What we did not see coming was the advent of applications and cloud in a big way. We were linked with some of our customers so strongly we did not see this coming. Reminds of an HBR paper which said how a company could fail by listening to customers too much also. It is not too late to fix that. Also we should have limited our dependence on certain limited verticals. That is the transition path we are on.How are you fixing these shortcomings?We are broad basing our revenues, getting into newer segments like automotive, consumer electronics, retail and other areas. We are providing solutions for Smart TV and energy management for telecom networks. We are betting big on Android and its ecosystem. We are closely working with major handset vendors in this space. We have had significant success on this front. From being just a component player we have moved to becoming an end to end system integrator. We will start seeing material impact of all this stuff during the tail end of the current financial year and only accelerate going forward. We will be back to our growth ways.(This story was published in Businessworld Issue Dated 10-10-2011)
Read More
