Sunday, September 27, 2009

Bharti-MTN Deal

The $ 24 billion Bharti- MTN merger deal has become an issue of international finance ,as South African Govt wants the dual listing of the merged company . The positive signals by the UPA Government like the support of Pranab Mukherjee and initiative of PM Manmohan Singh in G 20 summit can be inferred as the start of major leap in the direction of capital account convertibility. If deal goes through, MTN will hold 36 % in Bharti Airtel and Bharti will acquire 49 % in MTN.
The dual listing of the merged identity in both Bombay Stock Exchange and Johannesburg Stock Exchange requires full capital account convertibility of Rupee. This implies that the equity share of Bharti Ltd can be bought and traded in South African Rand. Till now the cross listing of companies was allowed which implied partial convertibility. The equity shares were issued to the custodians outside India, which were issued in the form of GDRs/ADRs to foreign investors. The ADR/GDRs can be converted to equity shares on the request of investors but once converted; they cannot be changed to ADR/GDRs.
What does the dual listing have implications for India Inc? Is it feasible for India to take such a major step at this stage (when the conditions laid by Tarapore Committee are far beyond realization)?

Tuesday, September 22, 2009

G 20 Pittsburgh Summit

The G20 club of rich and developing economies will hold a two-day leaders summit in Pittsburgh on 24-25th September’09.
G 20,the group of developed and emerging markets ,comprising of US, India , Argentina, Australia, Brazil, Canada, China, France, Germany, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, Britain and the EU. The group of countries accounts for 90 percent of the global output and 80 percent of world trade.
The proposed key issues to be discussed are the Doha round, management and regulation of World bodies like IMF, rebalancing of power within nations.
US meet to discuss the plan to build a more balanced developed economy, a framework to boost the savings in US and reduce the export surplus of Countries like China.
The developing countries will seek more say in world bodies like IMF, World Bank International Fin Corp. India has committed to invest up to $10 billion in the IMF to enhance its say in IMF.
Important and diverse issues are on cards. The result of the summit can hold solution to key problems looming over the world trade and growth.
And as the world leaders meet, the world watches..

Friday, September 11, 2009

India: An emerging source for FDI?

Outbound Foreign direct investment from India has increased at annual growth rate of 64 per cent in the last five years. India's FDI to the US was USD 4.5 billion in 2008 and USD 2.8 billion in 2009.Inbound FDI showed a 56 percent increase to USD 3.51 billion from USD 2.25 billion in the year-ago month.
Increasing outbound FDI establishes India as a key global player. It can be for increasing focus on geographical expansion, transfer of technology, access to raw materials and moving up the value chain. But it definitely points towards as start of reversal of power relations between countries.

Thursday, September 10, 2009


Will the most common word spoken, dreamt, dreaded, discussed, analysed, lived-“recession” will be out of people’s dictionary or stay for a long period before we could see some change in the economy and hear the most awaited word ”recovery”?

Recession is defined as “two consecutive quarters of negative growth”. The world economy entered into deep recession in the last quarter of 2008. The global trade and the industrial production saw its sharpest decline in the post world war era. Officially, recession was declared in US in December 2008 while UK announced in January 2009. What followed was a mere guess – declining production, rising unemployment, falling household consumption and declining investments.
So with the world economy showing some positive signs(green shoots), the question taking rounds is whether it will be L,U,V or W recession.

Now let me explain the meaning of alphabets in present context? V shaped recovery means economy will bounce back from recovery with a bang and recovery will be strong. In U shaped recession, trough is not well defined like V shape. W shaped recovery means sharp decline, followed by a sharp rise back to the previous peak, followed again by a sharp decline and ending with another sharp rise of output. L shape means that output does not return to its pre recession level and grow at permanently lower path.

What are the indicators? Stocks Index, Commodity prices, Industrial production, employment, growth etc.
According to Ranjeet, the magnanimous stimulus and fiscal measures that has created deep hole in government’s pocket all over the world has started showing positive signals. The industrial production in US grew by 0.5% in July 2009, the first increase in nine months. The UK economy contracted by only 0.8% in the second quarter this year much lower 2.4% contraction of the first quarter of 2.4% contraction. The French and German economies both grew by 0.3% between April-June while Hong Kong emerged out of recession posting 3.1% growth during the same period. China's economy grew at an annual rate of 7.9% in the second quarter this year up from 6.1% in the first quarter. So can we say it’s a U-shaped recession? A U-shaped recession illustrates a rather long and deep bottom with recovery being seen in about 2 years.

But Neha Bhatt rules out V shaped recession as it’s already over one and a half year since the onset of the one of the biggest recession. A V-shaped recession illustrates a steep decline, a relatively short stay at a bottom and a rapid recovery in a period of 8-10 months as was the case with the 2001 recession.
Further, Ranjeet observes that many economists reports that the signs of revival are temporal and a true revival is still far away. The households are still cautious and in savings mode delaying their consumption. The weak recovery in demand is still stopping the producers from huge capital investments. Large fiscal deficits and its debt financing leading to rise in bond rates and capital flight is causing crowding out of private investments. Given all these, it seems the recent signs of recovery are just an oasis with the true recovery still far away. The fear of a double-dip recession can thus be not ruled out in the current situation. A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession also known as W-shaped recession.

Only time will decide whether it’s a L, U, V or W-shaped recession.
What according to you will be the shape of recovery? and why?
Different indicators indicate towards different directions. According to you, which indicator gives better insight about the recovery?