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lesJanuary 2011, Volume: 10

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INSIDE

Current Chronicles Cover Story – Cloud

Computing Open Forum – Indian

Pharma Industry Emerging Markets Outlook -Indian

Rupee Financial Q In Focus – Indian

Premier League

Starbucks is finally coming to India. The world's largest premium coffee retail chain today announced that it has entered into an agreement with Tata Coffee for a strategic alliance. Under a non-binding MoU, Starbucks will explore setting up stores in the Tata group's retail outlets and hotels, besides sourcing and roasting coffee beans at Tata Coffee's Kodagu facility. More…

US-based iGate has acquired nearly 63 per cent stake in country's sixth largest IT firm Patni Computer Systems for $1. 22 billion.iGate will buy 45.6 per cent of the shares of the three founders of Patni -- Narendra Patni, Gajendra Patni and Ashok Patni-- along with the 17.4 per cent stake of private equity firm General Atlantic. The deal is expected to be completed in the first half of 2011, after acquiring all the regulatory approvals. More…..

 In the single largest aircraft deal in global aviation history , no-frill carrier IndiGo will acquire 180 A-320s worth an estimated $15.6 bn from European plane manufacturer Airbus. Of these planes, 150 would belong to the eco-efficient 'neo' series, which are yet to be produced, and the remaining 30 are the standard A-320s. They are expected to be delivered between 2016 and 2025. More…….

Infrastructure, Leasing & Financial Services (IL&FS) will be the new promoter of Maytas Properties, the cash-strapped company owned by family members of disgraced Satyam founder Ramalinga Raju. The Company Law Board (CLB) today approved a Maytas proposal to allow IL&FS to infuse Rs 20 lakh as equity into the company and become an 80 per cent shareholder. The Raju family will hold the remaining 20 per cent.

More…

Inflation shot up to 8.43 per cent in December, from 7.48 per cent in the previous month, as prices of certain food and non-food items continued to show an upward trend.and vegetable, like onion, and other protein-based items became expensive. With the inflation showing no signs of moderation, it is widely expected that RBI will raise the key policy rates during its quarterly monetary policy review on

January 25. More…….

Industrial growth has plummeted to an 18-month low of 2.7 per cent in November. The lower year-on-year rise in the official Index of Industrial Production (IIP) in November — compared with 11.3 per cent for the same month of last fiscal — poses a major dilemma for policymakers, already under siege from rising prices. Any further monetary tightening measures aimed at inflation control now also run the risk of derailing growth. 

More…

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Cloud Computing has become a buzzword today. Is it a significant technology trend ready for noticeable deployment in near future reshaping

IT processes & IT market places or a storm ready to devastate the organizations globally, is what we seek to examine closely in this article.

To start with, let’s first understand what Cloud Computing as all about.

Cloud computing is a metaphor for giving Internet users a growing collection of computer system resources and associated software

architectures to provide application services. The applications include processing and application integration, storage, and communications

services. Often, what the user sees is an application instead of a particular computer. Thus, the fundamental concept of cloud computing is

that the computing is "in the cloud" i.e. that the processing (and the related data) is not in a specified, known or static place(s). This is in

opposition to where the processing takes place in one or more specific servers that are known.

Benefits of Shifting Towards Cloud Computing

ON-DEMAND SELF-SERVICE: A consumer can unilaterally provision computing capabilities, such as server time and network storage, as

needed without requiring human interaction with each service’s provider.

UBIQUITOUS NETWORK ACCESS: Capabilities are available over the network and accessed through standard mechanisms that promote

use by heterogeneous thin or thick client platforms (e.g., mobile phones, laptops, and PDAs).

LOCATION INDEPENDENT RESOURCE POOLING: The provider’s computing resources are pooled to serve all consumers using a multi-

tenant model, with different physical and virtual resources dynamically assigned and reassigned according to consumer demand. The

customer generally has no control or knowledge over the exact location of the provided resources. Examples of resources include storage,

processing, memory, network bandwidth, and virtual machines.

Cloud Computing:

Silver Lining or storm ahead?

Cover Story Cloud Computing: Silver Lining or Storm

Ahead? PAY PER USE: Capabilities are charged using a metered, fee-for-service, or advertising based billing model to promote optimization of

resource use. Examples are measuring the storage, bandwidth, and computing resources consumed and charging for the number of active user

accounts per month.

Risk & Concerns

Though the benefits accrued from Cloud Computing are many we cannot ignore the security risk and challenges of this next big thing. Enterprises

have a ton of sensitive data that requires access monitoring and protection. Data is the life blood of many enterprises and the loss of control will not

be acceptable. By moving the data into the cloud, enterprise will lose some capabilities to govern their own data set. They would have to rely on the

service providers to guarantee the safety of their data. The question is how many service providers are ready to commit to safeguard the precious

data; probably not many at the nascent stage. There are many such concerns that are worrying IT professionals across the globe. Let’s look at some

of these:

MANAGEABILITY: There are some great IaaS/PaaS out there, including Amazon’s web services (S3, EC2, EBS, etc), Google’s App Engine,

Salesforce’s Force.com, Joyent, etc. However, most of these are raw infrastructures and platforms that do not have great management

capabilities.

However, throughout computing history, raw capabilities have generally appeared on the market first, and then management of these raw

capabilities became a differentiator when competition started building up. We believe Cloud Computing will be no different. In fact, many

startups have recognized the need for management early on and have built management capabilities on top of the existing cloud

infrastructure/platforms. RightScale is one of the early pioneers in this space. Their solution solves many of the management issues such as

Monitoring: Monitoring, whether is for performance or availability,

is critical to any IT shop. We are not talking about just how much

CPU or memory the machines are using. We are talking about

performance of transactions and disk IO and others. CPU and

memory usage are misleading most of the time in virtual

environments. The only real measurement is how long your

transactions are taking and how much latency there are. According

to a recently published report:

Amazon found every 100ms of latency cost them 1% in sales.

Google found an extra .5 seconds in search page generation

time dropped traffic by 20%. A broker could lose $4 million in

revenues per millisecond if their electronic trading platform is 5

milliseconds behind the competition. So who’s tackling this problem?

Hypernic’s CloudStatus is one of the first to recognize this issue and

developed a solution for it. They started with monitoring of Amazon’s

web services, then recently added monitoring for Google App

Engine. In addition, RightScale’s solution can also provide monitoring

for the virtual machines under their management.

Reliability and Availability: I won’t beat the dead “Gmail down,

EC2 down, etc down” horse here. But the truth of the matter is

enterprises today cannot reasonably rely on the cloud

infrastructures/platforms to run their business. There’s almost no

SLAs (Service Level Agreements) provided by the cloud providers

today. Even Jeff Barr from Amazon said that AWS only provides SLA

for their S3 service. Can you imagine enterprises signing up cloud

computing contracts without SLAs clearly defined? It’s like going to

host their business critical infrastructure in a data center that

doesn’t have clearly defined SLA. As such no one is tackling this

problem as far as I know. Maybe some startup will come up with

clever idea to provide SLA as a third party vendor Or maybe the

cloud providers will grow/wake up and actually do something to

Cover Story Cloud Computing: Silver Lining or Storm

Ahead? Virtualization Security: Security is a huge area that encompasses

many different things, including the standard enterprise security

policies on access control, activity monitoring, patch management,

etc. On top of that, virtualization security is something that most

enterprises are just starting to grasp but don’t fully understand. Many

IT people still believe that the hypervisor and virtual machines are

safe. Recent presentations from Blackhat have demonstrated that we

shouldn’t sleep so tight at night. As IT shops get more educated on

the virtualization security issues, it will become one of the factors

they will consider when they move into the cloud. Access control and

monitoring of the virtual infrastructure will be on top of their mind.

There are quite a few startups like Reflex, Blue Lane and Catbird that

are creating privileged VAs that claim to protect the VAs running on

VMware’s ESX servers.

Despite all the risk and challenges, Cloud computing is still growing and

many government bodies and organizations already use this type of

network for their businesses. This type of computing allows them to

focus on what matters and not to worry about technology side of things.

The most attractive feature of this new technology deployment is the

prospect of converting large, upfront capital investments in IT

infrastructure into smaller, manageable 'pay-per-use' annuity payments.

This feature has sparked a high degree of interest and debate amongst

technology vendors, users and channel partners alike. Thus, Cloud

computing is here to stay. It will be the next big wave and will be

adopted by enterprises. However, the industry as a whole needs to

answer some of these challenges and eases the enterprises’ concerns.

Open ForumIndian Pharma Industry: Capitalizing on the new avenuesPost liberalization era saw India tapping on the soaring IT requirements

around the world, & in a period of less than two decades has emerged

as one of the IT capitals of the world. Another Indian industry which has

been showing similar signs of late is the Indian pharmaceutical industry,

currently riding high on generics & projected to continue same streak in

biosimilars.

GENERICS

Generics are reverse-engineered, cheap versions of branded patented

drugs.

Value of the global generics market is around USD 124-billion and is

growing at a CAGR of 11 per cent since the last three years. India has

expanded its share in global generics market by about 8%. India tops

the world in exporting generic medicines worth $11 billion and account

for 20% of the worldwide generics production. 

What accounts for such meteoric rise of Indian companies in generics

arena is their expertise in contract manufacturing. This means low

manufacturing, & R&D costs, but not at the expense of quality of the

end product. Manufacturing costs are almost half to that in the

European markets, while R&D costs are one seventh of the EU. With

such cost advantages in its side, Indian companies are projected to

make most of the external opportunities.

While, the key markets for generics are the EU nations, USA and several

Latin American countries, almost all of which remain under-penetrated.,

the most prominent, & promising market of them, for Indian companies

is the US Generics market. It commands half of the global share in

generics. Around $70 billion worth of drugs are expected to go off

patent in the US over the next three years, and India is capable of

manufacturing a substantial share of the product to support the

resulting generics opportunities.

The Indian companies, like Sun Pharma, Aurobindo Pharma, Glenmark,

Cadila Healthcare, Wockhardt, Ranbaxy command a 33.17 percent

share or 142 of 428 ANDA approvals in 2009.

Generics industry is projected to gain further momentum by spurt in

demand from inclusion of generics in treatment as being vouched by

several Medicare, & insurance companies around the world.

BIOSIMILAR

Another highly lucrative, yet untapped avenue is of biosimilars. They

are derived from living organisms such as bacteria or mammal cells

engineered to produce specific proteins the body needs. Though, cut

price biosimilars could bring about a substantial cut in healthcare costs

in the developed countries, yet, the western regulators shy away from

them, & prescribe far more elaborate tests for them compared to the

chemical generics. Another hurdle is complicated manufacturing. For

instance, Cresp took five long years from the lab to market. Still another

challenge is tinkering with the process to improve yields — the amount

of protein — without compromising on its quality. The smallest change

can have an effect on the end-product.

Open ForumOutlook

Road ahead, though promising, is set with certain critical

pullbacks. Biggest bottleneck is abysmal state of infrastructure in

the country, given the importance of energy and transportation

for the pharmaceutical sector. Compliance is another issue and

as the market expands regulatory compliance will require

attention with robust programmes, vigilance and improved

policing to ensure that patients and India’s reputation are

protected.

However, India offers some attractive tax benefits for pharma

companies such as R&D credits and income tax exemptions in

special economic zones (SEZs).

To summarize, bright export prospects are in sight for India. One

on the back of a large number of best-selling drugs going off

patent in the developed countries, in next few years offering a

golden opportunity of $30 billion up for grabs for a generics

player like India. Other factor is the fast developing biotech

industry in the country, which appears adequately capable of

tapping the biosimilars opportunity.

Clinical trial, or the testing of new drugs on human beings, is

another area where India will emerge as a key player. The fact

that India has such a broad spectrum of patients coupled with

low costs makes it an obvious candidate for clinical tests. But

evolving appropriate quality and ethical standards remains a

challenge.

Second half of the last decade saw a lot of activity in the pharma

sphere in India. Coming decade is poised to be even more vital

for the shaping of this industry, & its contribution to the Indian

These impediments kept a good number of Indian generics firms at bay

until recently. But with India’s developing biotech industry and cost

advantages, Indian companies seem to be all set to foray in to this field.

A big stride has been taken on this front through the deal struck by

Biocon with Pfizer which has the potential to go up to $350 million.

Prominent appeal of biosimilars lie in its lower price erosion compared

to generics. Unlike generics that result in a 90 per cent drug price

erosion upon patent expiry of drugs in, biosimilars may herald only a

30-50 per cent drop. Hence, beginning from 2012 biosimilars market

will add an estimated $10 billion in incremental revenues each year till

2020.

Emerging Russia - 4G Tenders Planned for This

Year

Tenders for frequencies for fourth-generation

communications networks, or LTE, could be

announced in the second half of the year,

Communications and Press Minister Igor

Shchyogolev said on 13.1.2011. It depends

on whether the big three mobile operators

and Rostelecom manage to draw up "a

digestible scheme" for converting military

frequencies, he said.

Brazil Sets Reserve Requirements for

Currency Positions to Stem Real Rally

Brazil's central bank set reserve

requirements on short dollar positions held

by local banks in its third attempt since

October to stem a rally in the currency. The

real fell as much as 0.8 percent after the

announcement. Starting April 4, Brazilian

banks will need to deposit in cash at the

central bank 60 percent of their short

positions in U.S. dollars above $3 billion or

their capital base, whichever is smaller. The

reserves will not earn interest.

South Africa- Jobs doldrums persist in

December

Jobs in the retail sector received a boost

from festive spending, but overall

employment was down in December,

according to the monthly Adcorp

Employment Index released on 10.01.2011.

Temporary work increased by 0.07% and

agency work was up 3.84%. Overall, the index

declined by an annualized 0.13%.

Barclays hikes 2011 inflation forecast to

4% for Philippines

London-based Barclays Capital revised

upwards its inflation forecast for the Philippines

to four percent this year instead of 3.6 percent

on the back of rising energy prices. Barclays

Capital economist Prakriti Sofat said in a

research note that the investment   bank  sees a

higher inflation this year but this would still fall

within the target range of three percent to five

percent set by the Bangko Sentral ng Pilipinas

(BSP). “Looking ahead, we believe the near-

term risks to the energy component of the CPI

are biased to the upside owing to elevated oil

and coal prices. For the Philippines, we are

revising up our 2011 average inflation forecast

to four percent from 3.6 percent previously,”

Sofat added.

Russia -Capital outflows hit $38.3 bln in

2010

Russia's private net capital outflow in 2010

amounted to $38.3 billion compared to $56.9

billion in 2009, while the fourth quarter net

capital outflow totaled $22.7 billion, the central

bank said on 13.01.2011. In 2008, Russia faced

a record high net capital outflow of $129.9

Brazil Finance Minister Mantega warns

of trade war

Brazil has warned that the world is on course

for a trade war because of what it says is

currency manipulation by China, the US and

others. Finance minister Guido Mantega said

Brazil was preparing moves to prevent

further appreciation of its currency. He said

Brazil's trade with the US had slipped from

an annual surplus of about $15bn (£9.6bn)

to a deficit of $6bn because of US efforts to

revive its economy through loose monetary

policy.

OutlookThe Indian Currency has been stable in past

few years despite rising current account

deficits, high inflation, & low interest rates

dominating most part of the period. The

period of March 2007 to April 2008 saw

maximum strengthening of the Indian rupee

on the back of massive foreign portfolio

investment of U.S. $27.4 billion. However,

period from April 2008 to March 2009 saw a

net outflow of portfolio investment to the tune

of U.S. $14.03 billion, & predictably Indian

rupee lost 25% of its value.

In the current fiscal period, performance of

the Indian currency against the dollar at 4 per

cent (to December 23) is much lower than

that recorded by its other emerging market

peers. Infact, Indian Rupee is one of the worst

performing Asian currencies against US$ this

fiscal, along with South Korean won. Thai Baht

and Malaysian Ringitt were the top gainers

against the greenback with 10.5 and 9.9 per

cent gain respectively. Other currencies such

as South African Rand, Singapore dollar, and

Taiwanese Dollar gained between 6 to 9 per

cent during this period. Going ahead, journey

for the rupee doesn’t seem tranquil either.

Crude prices threatening to rise to $100 is the

imminent threat since India imports over

three-fourths of its crude oil requirement.

Another head wind is the widening current

account deficit which threatens to negate the

positive impact of portfolio inflows in to the

India's current account deficit in the

September quarter widened to a record high

of $15.8 billion as booming domestic

consumer demand sucked in imports and

service sector exports suffered from weak

global demand. This situation is expected to

get further aggravated by developed countries

limping back to recovery, resulting in flight of

funds from emerging markets to them, rightly

so, since, investors are wary of high valuations

in stocks of emerging markets.

Another economic fundamental working

against rupee is high inflation in the country.

India's food inflation accelerated to a 10-week

high in mid-December on rising prices of

vegetables.

Nevertheless, all is not negative for rupee

prospects. Strong economic growth forecast

for the Indian economy in next couple of

years, relatively stable banking system along

with higher interest rate return of rupee will

prolong currency’s charm for the international

investors.

Hence, outlook on rupee appears to be mixed

for this year, with some expecting a huge

foreign funds inflows in 2011, & others

anticipating depreciation due to worsening

current account deficit, and high inflation. As a

result, rupee is expected to remain in the

range of 44.50 to 46.50 in the year 2011.

Call Rates as on 14th January 2011

5.50%-6.40%

Commodities

Aluminum (1 kgs) 112.15

Copper (1 Kg) 439.20

Zinc  (1 kg) 109.90

Steel (L) (1000kg) 29300.00

As on 14th January 2011

Forex

Forward Rates against INR as on January 14th 2011

Spot Rate 1 mth 3 mth 6 mthUS 45.34 45.63 46.13 46.81Euro 60.64 61.02 61.67 62.54Sterling 71.90 72.36 73.13 74.16Yen 54.76 55.14 55.75 56.60Swiss Franc

46.89 47.22 47.75 48.48

Source: Hindu BusinessLine

Libor Rates as on January 14th 2011

Libor % 1 mth 3 mth 6 mth 12 mthUS 0.26 0.30 0.46 0.78Euro 0.70 0.94 1.19 1.49Sterling 0.60 0.77 1.07 1.52Yen 0.12 0.19 0.35 0.57Swiss Franc 0.14 0.17 0.24 0.52Forward Cover % as on January 14, 2011

1 mth 3 mth 6 mthUS 7.78% 7.07% 6.57%Euro 7.22% 6.75% 6.28%Sterling 7.61% 6.88% 6.34%Yen 8.22% 7.26% 6.78%Swiss Franc 8.30% 7.35% 6.83%Source: Homefinance.nl

Rupee Outlook

Financial Q1. Who developed the 'Equity Theory' of job

motivation in the 1960's?

2. What is the name of Ingham and Luft's model and

theory which deals with hidden and open areas of

knowledge about a person?

3. One of the most effective and efficient forms of

marketing is abbreviated to the initials WOM;

what is it?

4. The financial ratio which divides a company's

'liquid assets' by 'current liabilities' is known by

what popular term?

5. If you can't beat them, join them. Which Indian

Clock Company decided to shift base to China so

that it remains competitive?

6. We all know what bulls and bears do. What would

sheep do in the stock market? 

7. The useful thumb rule in Economics, "Bad money

drives out the good" goes by what name?  

8. Lord Raj Kumar Bagri was the first non-Briton

Chairman of what mercantile organization?

9. Which newspaper baron started his career by

launching the "Adelaide Herald" when he was just

23years old?

10.What useful and innovative computer accessory

did Douglas Engelbert invent in 1968? 

In FocusIndian Premier League

Indian Premier League is already becoming so hot and powerful. During the two-

day long IPL auction in Bangalore, the BCCI announced the draw for the

tournament's 2011 season that begins on April 8.

Season 3 was under the leadership of Lalit Modi , however Season 4 is going to be

under the leadership of Chirayu Amin. IPL Season 4 is going to have 10 teams, 74

matches and 45 days of action.

The latest development in this season is that The Board of Control for Cricket in

India (BCCI) has decided to give 10% of foreign players’ fee to the respective

national boards. Total salary cap per team- Rs 45 crore (9 million USD) Franchises

can retain 4 players with a maximum of 3 Indian players. No player can play more

than 14 matches.

The 52 Indian players were auctioned off for a total price of nearly $44 million,

followed by Australia, who had 38 players auctioned for close to $15.5 million.

South African and Sri Lankan players were also host buys, while New Zealand,

England and West Indies, together, had a total of just 15 players auctioned.

.

(1) N R Narayana Murthy (2) International Monetary Fund (3)

Hedging

(4) The Netherlands (5) James Macgregor burns (6) Capitalist Answer of Quiz: 8Answer of Quiz: 8