Business Breakfast -1

A Consult Club Initiative

Week in Business National-ECONOMY

• Economy PE Phenomenon

2006 -> $8.0 billion 2007(till date) $8.5 billion

Highest proportion going into infrastructure

Leaders -> Carlyle Group, Blackstone, Temasek

Forex Touched $219 billion What can be done next ?

• Investment in infrastructure • Move towards capital account convertibility ?• Lower trade barriers • Strategic Investment Abroad (China which invested in

Blackstone) • Recapitalization of banks

Week in Business National-ECONOMY

• Economy Inflation Current 4.28 % expected to come down 4.00 %

Interest rates are expected to come down in near future

Export Package for exporters to counter rising Rupee

This involves – Interest Rate Relief – Swifter Reimbursements Competitiveness VS Profitability Soaps increases profitability but affects Competitiveness Example of Germany - 8 Appreciation still 9% Export GrowthEffect on IT companies revenues

Infosys, Wipro, Satyam Affected TCS Shielded some loss Import Import of auto components and tyres killing Indian manufacturers OEM going heavily for imports

Week in Business National-INFRA• Too Much of Gas !!

– What is REL gas controversy ? – How price discovery is difficult? – What Anil Ambani has to do ?

• Telecom Spectrum Efficiency

COAL VS RCOm

RCOM 37.2 Mhz/135 Million = 3.62 Mh/Miilion China 8.5 Mhz/Miilion COAL New Measure Erlangs/Busy Hour/ Mhz/Km 15 Mhz/48.8 = 3.2 Million/Mhz (Expected 5 Times )

RCOM Acquired Yipes Entry into Enterprise Data Communication in US

Reliance + FLAG + RCOM

Erickson-Bharati Deal $ 2 billion contract for network expansion

Week in Business National - FMCG

FMCG• Wipro going for overseas shopping• Acquired UNZA• Why going overseas ? • How it will help wipro ?

Week in Business International

Sequence of news:

• Mergers & Acquisitions

• FDI

• Global Markets

Hypocrisy reigns supreme in anti-takeover defence strategies

• Countries like Saudi Arabia, China, Russia, etc have vast reserves

• Central Bank Reserves in these countries are being used as ‘sovereign wealth’ funds. These could be used for trans-border takeovers

Hypocrisy reigns supreme in anti-takeover defence strategies

• The West has always been outspoken in its support for globalisation, but has frequently opposed takeovers that affect its constituent countries

• A lot of Western countries today (EU, Canada are examples) are reviewing state policy regarding foreign ownership

• Countries like China, Russia themselves are also not far behind in interfering in the ‘free’ market

The Barclays vs. RBS Struggle for ABN-AMRO• Barclays offer of approx €67bn in mostly

stock

• RBS Consortium’s offer was of €71.1bn with relatively much more cash

• The market prefers the RBS bid– More cash– Hedge funds and speculators, who hold upto

40%, would prefer cash today

The Barclays vs. RBS Struggle for ABN-AMRO• The board prefers the Barclays bid due to

synergies• The opinion is that breaking up the bank

is not preferable• The fact that RBS says fewer jobs will be

lost doesn’t have buy-in with the board• Interestingly, Barclays has been talking of

conditional donations to the University of Amsterdam

Murdoch’s News Corp vs. Dow Jones• Internet entrepreneur Brad Greenspan

appealed to the Bancroft family to reject Murdoch’s bid to take over Dow Jones

• Proposes to fund a buyout by the family

• Says he has new media strategies to realise better capital appreciation

• But Murdoch also has a history of reviving dying organizations

Murdoch’s News Corp vs. Dow Jones• His point that Dow Jones cannot compete

by itself in this era has revived the meandering company

• A fear is that he will tilt the Wall Street Journal to serve his own political and business agenda

Wipro goes shopping In Germany; Lines Up € 500m War Chest

• Could be looking at IT businesses of companies where it is not a core business– Lufthansa (airline)– Bilfinger Berger (construction)– Gauselmann Group (gaming)

• Significant entry opportunity into Germany (80% of European revenues from UK)

Wipro goes shopping In Germany; Lines Up € 500m War Chest

• Captive IT businesses of companies chosen to obtain entry into those niches

• Possible hypothesis that these are under-valued by the parent

Unsure Starbucks defers India entry• Due to the government’s flip-flops on

regulation of FDI in retail

• Speculation is that the government might tighten franchisee regulations, which was the preferred entry method

Unsure Starbucks defers India entry• Was asked to resubmit bid in 2006 due to

‘lack of clarity’ and non-compliance with the 51% limit on FDI

• The new bid, which was to license the brand to New Horizons Retail, was also rejected

• Carrefour and Tesco also have postponed plans for entry

Stocks tumble on lackluster earnings reports

• After record-breaking day, Dow Jones Industrials fell nearly 150 points on Friday

• Disappointing results from Caterpillar and Google triggered the drop

• The index breached 14000 for the first time on Thursday

Stocks tumble on lackluster earnings reports

• Caterpillar had always been a stand-out performed among the index’s constituents

• Technology shares took a hit after less-than expected profits from Google and Microsoft

• While the Dow is a narrow index, broader indices also took a fall

Stocks tumble on lackluster earnings reports

• A number of other issues– An increase in volatility due to option expiries– An increase in expectations over the recent

past had increased possibility of such a correction

– The sub-prime lending market is unraveling slowly

China hikes interest rates to cool economy• For the third time since March

• To cool the fastest pace of economic growth in 12 years and restrain inflation

• The aim is to slow lending, and therefore, investment

• Will alleviate fears of overheating, which huge exports and investment this year have created

China hikes interest rates to cool economy• Comes after other similar measures

– Increase of stamp duty on share transactions– Increase in CRR (its Chinese equivalent)– Plans to drain cash from the economy by

selling bonds

• Effect on the markets?

The Hedge-Fund 'Clones'

• A complex new product being pitched by Wall Street

• Claims that it will mirror hedge fund returns, but with lower fees

• Very simply put, these products try to duplicate historical returns of hedge funds, using more easily traded assets

The Hedge-Fund 'Clones'

• A number of issues exist– The asset classes invested in are completely

different– The risk is reduced, therefore, so will the

returns– The over-dependence on history is a gross

mistake, given that hedge fund portfolios are rarely static

– The diversification aim of investors will not be satisfied by clones

Issue of the Week – 10 Years of South East Asian Crisis Before the Downfall What kicked the downfall How the currencies crumbled ? The various school of thoughts for analysis

– Total factor productivity – Behavioral Economics– Asymmetric Information

Why not India ?Learning for India ….should we go for capital account

convertibility ?

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