Promoters miss stake-hike bus
Suspense over rate cut peaks as money flows
Sinha plays truant at BJP meet in Amritsar
Wipro keyed up for maiden US buyout
Vizag Steel in growth drive
Price punch for pill poppers
Tough techies get going when chips are down
Foreign Exchange, Bullion, Stock Indices

 
 
PROMOTERS MISS STAKE-HIKE BUS 
 
 
FROM SATISH JOHN
 
Mumbai, Nov. 2: 
The chips are down, but they haven’t cashed in. Most barons insecure about their grip on companies have been lying low at a time when the stock slump affords them a now-or-never chance to own a bigger slice of their ventures and fend off predators.

Shares are going for a song, but as the recent crop of numbers would suggest, the Tatas, Birlas and the Mahindras appear to be blase about takeover threats. A time like this, when shares have been clobbered by slowdown-stalked investors, is the best one to unleash a buyback or covert creeping purchases. That’s not happening.

Brokers bemoan that most of these groups have raised their stake over the past few months, by one percentage point at most; some are actually holding less.

The crash in stock prices wasn’t enough to bring barons out of the woodwork. A Securities and Exchange Board of India (Sebi) decision to raise the cap on creeping acquisition from 5 to 10 per cent did not galvanise them either. Nothing, not even the fact that this relaxation in the takeover code ends on March 31, is convincing them that time is fast running out.

Brokers say they would be surprised if these promoters increased their holding even by 5 per cent. There are others who feel it isn’t easy for raiders to strike. One of those, a merchant banker with many takeover triumphs under his belt, says it would be next to impossible to pull off a hostile takeover bid now.

“It is essentially the smaller companies who feel the heat,” he said, and puts forward two sets of companies. The first would be those like Great Eastern Shipping, where promoters have bolstered their holding through buybacks and creeping acquisitions. The other would include the likes of M and M, where the founding fathers have seen their stake shrink 0.36 per cent to 21.73 per cent in the three months to September.

Senior Sebi officials say the increase in the cap on creeping acquisitions is designed, primarily, to lift market sentiment.

Whether or not it induces promoters to build up stakes to safer thresholds is the million-dollar question. Not many are ready to answer that.

In a sign of diminished vigour, the Tatas have been mopping shares of group companies through Tata Sons — its holding firm. But, the pace at which it did so in the past is missing. “It has not taken advantage of the present situation, in which its shares are scraping the bottom.”

The Aditya Birla group, headed by Kumar Mangalam Birla, has been practically inactive in recent months. It had talked of setting aside over Rs 4000 crore to shore up promoter’s holdings in group companies. Only the market can determine whether these companies have missed the bus. A rebound above 3,000 points in the sensex would suggest that they have, but few are willing to bet on how stocks will behave tomorrow.

Some companies are expected to exercise the buyback option to shore up their stake. Unlike creeping acquisitions, where the promoter has to use his own funds, buyback requires a company to extinguish the shares bought. Market observers say this is easier for promoters who do not have deep pockets.

   

 
 
SUSPENSE OVER RATE CUT PEAKS AS MONEY FLOWS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Nov. 2: 
As the first round of CRR—cash reserves maintained by commercial banks with the Reserve Bank of India—cut takes effect tomorrow, the biggest question now is whether lending rates will come down.

While the central bank, in its mid-term review of the monetary and credit policy on October 22, lowered the cash reserve ratio (CRR), most banks, including the giant State Bank of India (SBI), have not given any indications so far of taking the cue to make loans cheaper.

However, analysts feel with the RBI setting the stage for a cut in interest rates by reducing both the bank rate and the CRR, banks are likely to go in for a ‘token reduction’ in the form of a 25-basis point cut in their prime lending rates (PLR) next week.

The cut, effective November 3, will see the CRR go down to 5.75 per cent from the present 7.50 per cent in the first phase, a measure estimated to infuse Rs 6,000 crore into the banking system.

However, most banks in fact seem to be biding their time, which gives rise to doubts whether there will be a cut at all.

“The CRR cut will be effective from tomorrow. However, the date is immaterial, what matters is whether banks are willing to cut their PLR,” quipped Sanjeet Singh, senior analyst at ICICI Securities, reflecting the anxiety among industry observers.

The apprehensions, in fact, arose soon after the initial euphoria over the CRR cut evaporated, as bankers realised that governor Bimal Jalan had withdrawn key relaxations given earlier.

Soon thereafter, a few bank chiefs even questioned the basis for a cut in PLR, since they were already providing funds for a few companies at sub-PLR rates.

Observers are also out ruling any reduction in deposit rates, going by the stand taken by most bankers on the PLR front. Most bank chiefs ruled out any change in these rates, fearing retail depositors may park their funds elsewhere.

When contacted, officials of top nationalised banks said a decision on bringing down interest rates has not yet been taken, and they would prefer to wait for market signals in the form of call money rates, before coming to a conclusion.

“We will see how the call money markets behave and how interest rates evolve after November 3. The bank will then take a decision,” a top Bank of India (BoI) official said.

Debt market circles here estimated that call rates are likely to stabilise around the 7 per cent level after the first cut in CRR takes place. However, dealers also expect the government to announce fresh auction next week, which they say may put pressure on liquidity and pull up the call rates to 8-8.5 per cent levels.

   

 
 
SINHA PLAYS TRUANT AT BJP MEET IN AMRITSAR 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Nov. 2: 
Finance minister Yashwant Sinha gave the two-day national executive meeting of the Bharatiya Janata Party (BJP) a miss which got under way in Amritsar today.

Sources say if the finance minister had turned up he would have been in for a tough time with BJP members planning to take up issues such as the double taxation avoidance treaty with Mauritius, share market scandals, the UTI fiasco, plans to sell stake mutual to foreign investors and moves to reduce the market cap of insurance companies.

BJP men who subscribe to what is described as Swadeshi point of view had planned to take up their objections to the tax treaty and how it blatantly gives FIIs a tax free run on Indian bourses thus creating a less than level field for Indian institutions.

They also planned to take up reports on two stock market scandals—which exposed manipulations in the stock markets, possibly in connivance with bourse and regulatory officials.

Also on the list was the UTI fiasco, where the giant mutual was forced to stop trading in units of its key US-64 fund after posting losses and facing huge redemption pressures from companies who seemed to know of its predicament.

Sources said these members had planned to ask these questions in the form of “innocent clarifications.”

   

 
 
WIPRO KEYED UP FOR MAIDEN US BUYOUT 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Nov. 2: 
Wipro Limited is set to acquire an unspecified US-based technology and enterprise software solution provider — the company’s first ever foreign buyout. “We will acquire the entire stake in a company already identified. Talks are under way,” chairman and managing director Azim H. Premji told The Telegraph.

Refusing to name the target, he said Wipro was looking at firms that have revenues over $ 50 million, a good brand value, strong market presence and other attributes.

The firm will be acquired through Wipro Limited and later merged with Wipro Technologies, which oversees the group’s software business that accounts for over 57 per cent of its revenues and 82 per cent of operating income. The purchase will help Wipro accelerate growth and strengthen its presence overseas.

According to Premji, the company is also on the look out for another target whose operations are in sync with Wipro Infotech.

Wipro Infotech is the group’s infrastructure solutions, professional services, communication services and business solutions provider with a strong presence in Asia Pacific and West Asia.

“This is the right time for an acquisition. But we have to be careful that it does not become a source of pain for us. Therefore, we need to buy like-minded firms. We will start a due diligence after the talks end,” he said.

Wipro is also planning to invest in enterprises which offer IT-enabled services. It has pumped in Rs 48 crore ($ 10 million) in Spectramind eServices Limited, an outfit which operates call centres.

“We have another $ 5 million for investment in IT-enabled services. We are ready to shovel that money to pick up 25 per cent in a company which runs call centres. An announcement will be made soon,” Premji said.

Talking about the infotech slump in the US—which buys 55 per cent of Wipro’s products—he conceded that the outlook was not too bright, but hoped that tough times would not last beyond six months.

“We are not only depending on US in the changed scenario. Europe is a big market for us. Germany, in particular, is a key customer,” Premji added.

Germany, Europe’s second largest IT bastion, is expected to grow to $ 92 billion by 2003. Driving the surge will be development and integration, infrastructure management services, consulting and software.

“We are opening new offices in Germany and elsewhere in Europe,” the Wipro chief said. Siemens, VDO, Deutsche Asset Management, West LB Bank and Sony are some of the company’s key customers in Germany. Of the 9,500 engineers at work, 800 are dedicated to assignments that come from Europe’s largest economy.

   

 
 
VIZAG STEEL IN GROWTH DRIVE 
 
 
BY A STAFF REPORTER
 
Calcutta, Nov. 2: 
The Visakhapatnam Steel Plant (VSP) has decided to set up its fourth coke-oven unit at an investment of Rs 300 crore. The company is in talks with the Russian major, TyazPromExport (TPE), for technical collaboration.

The steel company’s board has already cleared the proposal and placed it before the Public Investment Board for approval.

VSP sources said the proposed coke-oven will be 7-metres tall comprising 67 ovens. The other three coke-oven units are also of the same size and they are the tallest among the coke-oven plants elsewhere in the country, they added. VSP, which was referred to the Board for Industrial and Financial Reconstruction (BIFR) after making heavy losses, is now in the process of making a turnaround even though the steel markets, both domestic and foreign, are going through an unprecedented slump.

“This is the first time since inception that the company has decided to make such a huge investment and is part of our future growth strategy,” they said.

Apart from TPE, a high-level delegation from Ukraine, led by Padalko Viktor, state secretary, ministry of industrial policy, recently visited the coastal steel plant and showed interest in participating in the expansion process.

Sources added the company will be able to start making profits in the next couple of years.

VSP has registered a 24 per cent growth in its turnover at Rs 302 crore in October compared with the corresponding month last year. Sales turnover in the first seven months rose 23 per cent at Rs 2104 crore over the previous corresponding period. VSP has also recorded its highest ever productivity at 211 tonnes per man year in the first seven months of the current financial year.

Sources said the company’s effort is on to increase productivity further in order to become one of the lowest cost steel makers in the country.

   

 
 
PRICE PUNCH FOR PILL POPPERS 
 
 
FROM RAJA GHOSHAL
 
New Delhi, Nov. 2: 
Pill poppers watch out: the government plans to halve the list of drugs under price control. That spells a bout of price increase in the pharmaceutical industry that will shore up company bottomlines.

At present, the Drug Price Control Order (DPCO) covers 67 bulk drugs. B.S. Baswan, chairman of the National Pharmaceutical Pricing Authority (NPPA), says the government intends to take almost 50 per cent of the bulk drugs off the list.

At the same time, the government intends to use two new yardsticks to determine which drugs should stay on the list.

“Companies which have more than a 50 per cent market share for a particular drug and a turnover of Rs 20 crore or more will still face price controls,” Baswan said.

At present, the sole determinant for placing bulk drugs under price control is the essential nature of the drug. But now for the first time the government wants to tack on economic criteria like market share and turnover.

The new list will remain loaded against the big pharmaceutical companies with monopolies but ought to find favour of other players in the market.

About a week ago, the NPPA had submitted a report to the department of chemicals and petrochemicals (DCP) on removing certain drugs from price control.

“Our recommendation in favour of de-control is that price control results in a distortion of the market. Competition is the most effective method to ensure prices remain within reasonable levels,” Baswan said.

The draft Cabinet note is being prepared by the DCP. It will be sent to the other ministries concerned like health as well. The new list is expected to be issued by the middle of this month.

However, it may get delayed if the concerned ministries ask for more time, said Baswan.

The final order and the list will come from the DCP after it gets Cabinet approval. NPPA plays an advisory role and will implement it once the new list comes out. The authority has made a report based on the overall scenario of the pharmaceutical market. Data has been collected by the National Institute of Pharmaceutical Education and Research, Chandigarh.

The function of NPPA is to implement and enforce the provisions of the DPCO order. The DPCO list for bulk drugs has been in existence since 1995 when there were 74 drugs on the list.

This was pruned to 67 bulk drugs about six weeks ago following an order issued by the Mumbai high court. The DPCO order comes under section 3 of the essential commodities act of 1955. In the case of bulk drugs under price control, a single maximum selling price is fixed which is applicable throughout out the country.

   

 
 
TOUGH TECHIES GET GOING WHEN CHIPS ARE DOWN 
 
 
FROM HABIB BEARY
 
Bangalore, Nov. 2: 
It may be a long Halloween for US techies, but their Indian brethren aren’t worried. In fact, they are ready to ring in the festival of lights, finding in the recession an opportunity for entrepreneurs with great ideas. “It is during tough times that good entrepreneurs emerge,” Nandan Nilekani, managing director of Infosys, India’s best home-grown software company said.

This spirit pervaded throughout IT.Com 2001, a five-day technology fair that began here on Thursday.

“The slowdown should not leave us dispirited. It is a challenge that has to be accepted,” he said, adding, “I am sure that bright ideas will propel Bangalore into the entrepreneurial capital of India.”

“This is the time for genuine entrepreneurs to stand up,” state information technology minister B. K. Chandrashekhar said.

This line was endorsed at the CEO’s conclave meet, with industry leaders attempting to drive home the point that all was not lost for information technology. Chief executives of Novell, Cisco, Philips and TCS concluded that large companies like IBM and Excelsior stand to benefit more from the meltdown while the challenge for smaller companies would be to innovate and sustain clients by offering more value-added services.

Playing the moderator at the discussions, Ramesh Venkataraman of McKinsey said the key to survival lay in being ‘different.’ “Most Indian companies offer the same basket of services and talk in the same language to their clients. The challenge is to build on long-term trust-based partnerships with customers,” he said.

However, the global consulting firm cautioned that the US economy may recover only in the latter or second half of the next quarter.

“With the terrorist attacks and prospects of the war in Afghanistan dragging on till winter, the turnaround may take some more time,” he said.

Even after the turnaround, McKinsey felt the growth rate will never be what it was during the mid-90s.

“India will emerge out of the downturn and reflect a growth rate of 3-8 per cent, but not that in the boom period of 2000,” the McKinsey report said.

Smaller companies can survive the meltdown by building front-end capability in terms of branding and marketing, Nilekani said. Even among the bigger companies, the CEOs felt that those who triumph will be “those who will cut costs, retain clients and wait it out.”

Some felt India can continue to be the top-notch place for global outsourcing, notwithstanding the competition from China. “We expect a lot more outsourcing to happen in India. It is mostly done now by MNC subsidiaries but I expect large Indian corporate houses to explore this opportunity,” said Alan Draper of UTI Worldwide, a logistics major.

Nasscom’s Phiroz Vandrevala put the growth rate of the IT industry at 30-35 per cent. “We have a great story and a great future,” he said.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 47.99	HK $1	Rs.  6.05*
UK £1	Rs. 70.33	SW Fr 1	Rs. 29.05*
Euro	Rs. 43.43	Sing $1	Rs. 25.85*
Yen 100	Rs. 39.45	Aus $1	Rs. 24.05*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 4720	Gold Std(10 gm)	Rs. 4660
Gold 22 carat	Rs. 4455	Gold 22 carat	NA
Silver bar (Kg)	Rs. 7225	Silver (Kg)	Rs. 7340
Silver portion	Rs. 7325	Silver portion	NA

Stock Indices

Sensex		3052.60		+  2.80
BSE-100		1416.05		+  1.93
S&P CNX Nifty	 997.60		+  3.60
Calcutta	 102.35		-  0.19
Skindia GDR	 473.62		+  6.32
   
 

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