Let me ask you three questions.

• Question 1: Do you have high savings?
• Question 2: Do you save at the expense of putting off critical purchases?
• Question 3: Do you think that is good for the economy?

Well if the answer to the questions is yes, yes and yes, then you might find this piece very interesting.

In the 1940’s John Maynard Keynes pulled the world attention to a theory that had been around since biblical times. The theory states that

“The paradox is, narrowly speaking, that total savings may fall even when individual savings attempt to rise, and, broadly speaking, that increase in savings may be harmful to an economy.”

The first reference to this theory came from the The Fable of the Bees: or, Private Vices, Publick Benefits (1714) by Bernard Mandeville, the title itself hinting at the paradox, and Keynes citing the passage:

As this prudent economy, which some people call Saving, is in private families the most certain method to increase an estate, so some imagine that, whether a country be barren or fruitful, the same method if generally pursued (which they think practicable) will have the same effect upon a whole nation, and that, for example, the English might be much richer than they are, if they would be as frugal as some of their neighbors. This, I think, is an error. (Source: Wikipedia)

Now how is that possible one might wonder? But to Keynesian economists the answer is very simple. In an ideal scenario total income would be equal to total expenses and the savings would match the investments. So in other words total savings would equal investments.

This equation holds everything in balance with all other factors being normal.

Total Income: Total expenses = Total Investments: Total Savings

In other words If the savings is increased then the equilibrium shifts against investments at a lower value, which finally affects the total income leading to a weakening of the economy.

So that is the theoretical logic, let me try to explain with an example.

In the 70’s and 80’s, Japan was at the forefront of world economy winning the war. From electronics to Automobiles the Japanese brands could do no wrong. Soon Japanese brands like Toyota and Sony were household names across the world. Japanese management practices were being copied and there were many best sellers on the rise of Japan. Hollywood also made some very funny anti-Japanese movies.

But then in 1990’s the Japanese juggernaut stalled. Sales and exports declined and Japanese economy went into recession, a recession that lasted almost a decade. The reason for the recession was that Japanese being very cautious on the economy curtailed spending. As the exports were falling, the Japanese consumers increased the saving rate, to brace themselves for the tight days ahead. This led to lesser spending in the local economy and further loss of business for the local Japanese establishments. So now not only the exporters were facing loss of sales but also the local businesses were losing business. This led to further recession something that lasted for more than a decade.

India faced a similar challenge during the peak of the 2008 recession. Luckily for us domestic demand picked up at the right time and bailed India out of the jaws of the recession.

Are savings good? The answer is yes, but as excess of anything is bad, the same holds true for savings.

It is best to view expenditure as investments and invest in local businesses as that would drive the economy and help sustain growth.

Related posts:

1. Yes Bank hikes Savings deposit rate to 7% – Has your bank obliged?
2. 5 things you really need to understand to enhance your savings!
3. China – Saving Grace for World Economy!

While doing business in India may not be the easiest (this doesn’t in anyway mean that India cannot improve its business friendly policies and initiatives), but it definitely is a place to be in for the future. And as business is a game of return on investment, India over the long term offers unique advantages, which cannot be overlooked for a long period of time. Despite its share of woes, those businesses that walk in and stay enjoy healthy returns over a period of time.

What India has to offer?

The Economy of India is currently ninth largest in the world by nominal GDP and the third largest by purchasing power parity (PPP). According to some reports, the most significant increases in share of world GDP at MERs (Market Exchange rates) are projected to be achieved by India. In 2009, India’s share of world GDP at MERs was just 2%. By 2050, this share could grow to around 13% according to these analysis.

Even for 2011-12, when global recession is still playing havoc, Indian growth story continued (@7% GDP growth estimates) as the second best after China among the major economies. India’s growth trend is expected to overtake China’s trend growth at some point during the coming decade due to India’s significantly younger and faster growing working age population than China and it is also having more potential for growth as it is starting from a lower level of economic development than China. The working age population in India will grow through 2030 to have the highest % of working age population (of total population) amongst major economies, giving it a significant productivity advantage.

According to some estimates, particular priorities for India will be maintaining a prudent fiscal policy stance by further extending its openness to foreign trade and investment, significantly increasing the investment in transport and energy infrastructure and improving educational standards particularly for women and those living in rural areas. In the course of this process, the drivers of growth are likely to change. India is likely to become less dependent on outsourcing and more on manufacturing exports by building on its strong engineering skills and rising levels of education in the general population over the next decade.

Consumer markets in major Indian cities will also become increasingly attractive to international companies as the size of the Indian middle class is growing rapidly over the last few years.

According to another report, India’s investment in infrastructure during 2007-12 is expected to be around $500 billion as the expected level of infrastructure investment predicted in the 11^th five year plan is 2.36 times that of the 10th plan. Furthermore, this is expected to almost double for the 12th five year plan (2012-17).

• The report, also pointed out that about 97 million jobs are likely to be created over the next 10 years across different sectors in the country.
• Due to this huge increase in jobs, India may need to potentially build an average of 8.7 billion sq ft of real estate space every year, adding up to a whopping 95 billion sq ft between 2010 and 2020, RICS said.
• In 2020, the workforce participation rate will increase to 42% with 585 million working population, implying net increase of 97 million people.
• The study, however, said there is a huge shortfall of skilled manpower (Training & Development Opportunities) in the infrastructure sector that needs to be addressed with urgency.
• As per estimates, only 27,000 civil engineers are added every year against an annual demand of 4.27 million for the next decade. India’s current total strength of civil engineers is about 5,33,000. A sustained period of shortfall in annual supply coupled with an increasing year-on-year demand could result in a cumulative demand of nearly 40.2 million civil engineers over 2010-20, with a shortfall of 39.4 million civil engineers over the same period, the report highlighted.
• Similarly, the country is likely to witness a total shortfall of 3.64 million architects and 1.1 million planners during 2010-20 period.

Infrastructure is just one of the aspects of the Indian growth story but there are many opportunities to mention such as education, infrastructure (Airports, Seaports, Railways, Power), healthcare, tourism & travel and oil & gas. So, not many economies can foresee such opportunities going forward.

Are foreign companies investing in India?

An annual FDI inflow indicates that FDI went up from around negligible amounts in 1991-92 to around US$9 billion in 2006-07. It then hiked to around US$22 billion in 2007-08, rising to around US$37 billion by 2009-10. In other words, the stock of FDI has jumped by almost US$100 billion since 2006-07.

For 2011 calendar year, the FDI is expected to be more than 30 billion US Dollars (a continuous rise) confirming the interest and promise India holds and delivers. While these numbers may be small in absolute sense compared to some other economies, the trends indicate a strong positive bias.

According to the World Investment Report 2009, issued by the UNCTAD (United Nations Conference on Trade and Development), there is a total of 3,057 multinational companies (MNCs) in India. From 2004 to 2009, the number of Indian-based MNCs decreased nearly 50%, while the number of foreign affiliates increased 90%.

The expansion plans of some of the global companies indicate their confidence in future based on their past success in India. It also indicates that they have adjusted to the business environment and operations in India very fairly & easily and are gaming to play this at a larger scale. They have progressed on the learning curve quite rapidly and feel well entrenched to capitalize on the strong base they have built up. Almost all the major companies like Coca-Cola, Pepsico, Nestle, Siemens, ABB, GM, Honda, Toyota, Samsung, Vodafone, Intel, AMD and many more have recently expanded or are planning to expand their operations in India.

These MNCs are helping diffuse technology and innovation in key sectors such as Pharma, solar energy, agriculture, biotech, nuclear and defense. The MNCs and the Indian industry are gaining a lot from each other. The MNCs are bringing in and adapting global best practices to help solve local problems and help India get linked in a better way with the global economy.

It’s a win-win; these MNCs have become growth partners and have a major role to play in India’s development. MNCs are investing with long term horizon to help India realize its potential in new areas and in the process to scale up their operations and business results as well.

While there is scope for improvement in policy and environment around business setups and operations, the situation on the ground does offer lot of hope.

How do existing foreign firms performing in India?

Most of the global companies in India have a market leadership position based on their product/ service portfolio strengths. Whether it chemicals, power, infrastructure, industrial, consumers, health, entertainment or telecom, these companies have a strong brand acceptance and market share. They give a run for the money to the local counterparts and have a history of strong growth in the country. This clearly signifies: India is a market for equal opportunities and doesn’t differentiate by where are you from. In fact, in certain areas, it is a big advantage to be non – Indian.

Conclusion

World is becoming a challenging place for business with the uncertain times ahead. For global firms, the familiar markets may be getting mature and the challenge would be for growth in these markets. The emerging markets may be lucrative but unknown and possibly accompanied with an uncertain climate, the challenge could be around entry barriers or business policies.

So, to a business, both markets offer challenges of a different kind. Some companies may want to wait for the business environment to improve significantly before moving in while others will move in and learn as they grow (contribute in the improvement process in their own ways) and leap ahead.

As far as India is concerned, second course of action might be more desirable and the experience of so many existing global companies doing so well in India underlines this fact. So, hop in and enjoy the ride into the exciting future with all its twists and turns and look forward to reaching to the next level.

[This post have been written Rohit Chaturvedi, Founder & Managing Director at Expand in India, having close to 20 years experience in business consultancy, industrial management, strategic planning, marketing, operations, team building, leadership and six sigma process orientation. You can join his LinkedIn Group or follow his blog. ]

No related posts.

NTT Communications Corp. Japan has acquired 75% equity in Netmagic Solutions, a leading Indian managed IT hosting services company operating seven datacenters in India. This acquisition is subject to approval from various relevant Indian authorities.

The investment amount has not been disclosed in the press release sent to us. This looks like a  strategic investment, where Netmagic will not only get much needed funds infusion but will also be able to leverage NTT Com’s global network and datacenter footprint for customers. 

Sharad Sanghi, who will remain the CEO of Netmagic Solutions said,

This alliance will help Netmagic to leverage NTT Com’s global network and datacenter footprint for customers. The partnership will also help us strengthen our growth plans in the Indian sub-continent and globally, while NTT Com’s global customers in India can benefit from Netmagic’s expertise and leadership position in the managed IT hosting and cloud services market

Netmagic Solutions has a roaster of over 1000 customer across the globe and has been the leading provider to global enterprises from multiple locations and has been awarded the ’Datacenter Service Provider of the Year 2011’ by Frost & Sullivan.

From NTT Communication’s perspective, this acquisition will further their status as a Global provider of ICT services to Enterprises worldwide. This acquisition is in line with their vision of providing one-stop ICT services, including the managed operation and maintenance of networks, datacenters, servers and applications.

Nexus Venture Partner exits from Netmagic

Nexus Venture Partners had invested in Netmagic 4 1/2 years back and with the NTT acquisition, they have completely exited from Netmagic. Sharad Sanghi has sold only a minor stake and will be fully involved in the growth of company henceforth. All other investors have exited from Netmagic.

Nexus has had a good run over last couple of years with this exit being their 5th exit in 18 months. Nexus’ other exits were in OLX, which was acquired by Naspers, Dimdim by Salesforce, Cloud by Citrix and most recently Gluster by Red Hat.

Related posts:

1. Another Takeover – Indian company acquires a Glasgow-based Scotch giant !
2. New Age Indian Entrepreneurs: Think Exit Strategy first !
3. Nexus Venture Partners gets into Seed Investment!

In 2008, Government introduced Limited Liability Partnership firms to be formed in India. Globally, LLPs are one of the most popular way to form a company, however, in India it is not taken off as was expected.

In short, LLP is a sort of firm that combines the benefits of a Private Limited Company and a partnership firm. Unlike regular partnerships, an LLP partner is not responsible or liable for another partner’s negligence.

According to ET news, RBI has now agreed to notify FDI rules in limited liability partnership firms. Last year, Govt. had allowed allowed foreign investors to pick up stakes in LLPs through the 100% automatic FDI approval route but the proposal did not come into effect as the RBI did not notify the rules under the Foreign Exchange Management Act.

Here is the PDF of directive released by Government last year for Approval for FDI in Limited Liability Partnership firms. Following are the high level guidelines that Govt. had set for the same.

The FDI in LLPs will be implemented in a calibrated manner, beginning with the ‘open’ sectors where monitoring is not required, subject to the following conditions:

1. LLPs with FDI will be allowed, through  the Government approval route, in those sectors / activities where 100% FDI is allowed, through the automatic route and there are
   no FDI-linked performance related conditions.
2. LLPs with FDI will not be allowed to operate in agricultural / plantation activity, print
   media or real estate business. 
3. LLPs with FDI will not be eligible to make any downstream investments.

According to me, this should help lot of start-ups in India, who want to start a company with a foreign partner. Also, given that 100% FDI is allowed, foreign investors can now easily put in money in LLP startups.

I am not really an expert in this field – so cannot comment much. Would love to hear readers comment on this who have more knowledge about it

No related posts.

2011 was not a very Happy year for investors in Indian Stock Markets – Indian as well as international investors lost money to the tune of lakh’s of crore rupees. Benchmark Index lost over 20% from the start of the year.

This year though, Government is taking steps to turn around – The new year has started on a happy note for Indian Stock Markets with Central Government allowing Qualified Foreign Investors (QFIs) to directly invest in Indian equity market. This  will help Indian stock markets to widen the class of investors, attract more foreign funds, and reduce market volatility.

It is a great sign that Government is bringing in reforms to open up Indian capital markets – Till now, Foreign Institutional Investors (FII’s) were only allowed to invest in mutual funds . Though, this is a significant news, somehow investors don’t seem to have taken it in a very positive way – At the point of writing this, Sensex as well as Nifty are both trading marginally in red.

Here are salient features of the new Scheme:

• RBI would grant general permission to Qualified Foreign Investors (QFIs) for investment under Portfolio Investment Scheme (PIS) route similar to FIIs.
• The individual investment limit for QFIs shall be 5% and 10% respectively of the paid up capital of Indian company. These limits shall be over and above the FII and NRI investment ceilings prescribed under the PIS route for foreign investment in India.
• QFIs will be allowed to invest only through SEBI registered Qualified Depository Participant (DP). A QFI can open only one demat account and a trading account with any of the qualified DP.
• DP shall ensure that QFIs meet all KYC (Know your Customer) and other regulatory requirements, as per the relevant regulations issued by SEBI from time to time. QFIs shall remit money through normal banking channel in any permitted currency (freely convertible) directly to the single rupee pool bank account of the DP maintained with a designated AD category – I bank. Upon receipt of instructions from QFI, DP shall carry out the transactions (purchase/sale of equity).
• DP shall be responsible for deduction of applicable tax at source out of the redemption proceeds before making redemption payments to QFIs.

With most of the stock Analysts and experts being under-weight on Indian equities currently, we may not see much participation from QFI’s. However, when the tide turns, I am sure this new reform will help bring more money into Indian capital markets.

Would love to hear your views on this.

[Suggested Reading - Dear FM, are reforms only for foreigners or Indians, too? by R. Jagannathan]

Related posts:

1. The unbelievable amount of investment in India by Foreign Investors
2. Recession or No Recession, India Continues To Woo The Foreign Investors
3. 70 percent of Foreign Investors have achieved profit targets in India!

‘Market is supreme in itself’ – this cache reaffirms my faith in the functioning of the equity markets that no one can manipulate it by way of its size and quantum of funds.

If this is too generalized a statement for you to digest, it must suffice to convince you that even the FIIs, the so-called ‘hot money’, went cold in the year 2011 in terms of returns on their equity investments.

You heard it right – foreign investors are estimated to have lost a whopping Rs.2 lakh crore during last calendar year on their investments in the emerging Indian markets, as per a media report. That’s a staggering piece of statistical data, isn’t it?

Usually, a general perception is that FIIs brings in lots of money in a short span of time, prop up stocks, jack up markets and sell at profits (and make markets crash) before fleeing to other lucrative investment destinations. Thus, almost every body agrees that they are the bad boys of the world of finance. FDI inflows are more reliable source of long-term funds.

However, there’s other side to the story as well – for which we need to look at Indian markets in 2011 from FII’s point of view; and you could soon realize that there is no godfather where money and emotions work in synch with each other.

In fact, the quantum of losses suffered by FIIs ballooned to $380 million worth of Indian shares with benchmark indices slumping by 25% in 2011 to log its first annual fall in 3 years; as sky-high inflation, high interest rates and slowing growth took a toll.

Firstly, FIIs poured in money when Indian markets were testing waters of its last bull market peaks (roughly between Sensex 18 -21k), at a time when Rupee value was stable in a broad range of 42-45 against a dollar. Later on, the sovereign debt crisis in the Euro zone has worked wonders for the bear cartel to tighten the snooze on big money.

As soon as the foreigners realized that this could well be a long-drawn bear market in the making, they started shifting to safe haven investment destinations. By then, the Indian markets had almost corrected by 15-20%; dragging down along with it the rupee value by almost a fifth to stare at a record low of 52 per dollar..

By now, it was a no brainer to conclude that FII’s could have well lost almost a third of its investment value in India, stung by a steep appreciation in the dollar index and global crisis situation.

Thus, this time around, it’s not only the domestic retail and DIIs who incurred losses, but FIIs as well. In fact, DIIs in my view wouldn’t be big losers this year. My justification for the same being – domestic institutions sold when FIIs were buying, and they are buying when FIIs are selling. Also, there was no erosion on account of currency fluctuation for domestic players. The worst faring part in the flock is inevitably FIIs.

So, will FIIs recoup their losses in 2012? or will apprehension continue to overwhelm the investment sentiment in the new year?

Related posts:

1. The Best Money Managers show which country they will invest in !
2. How (NOT) to make money from Stock Markets
3. Weekly Wrap-up: India Auto story, 2011 recap, mobile subs, Free Healthcare, Social Media statistics & more…

Here is the snapshot of all the Funding, Mergers & Acquisition deals happened in India for the week starting 12^th December. We also somehow missed to cover the funding deals prior week to last, so we will cover it in this edition itself.

Funding, M&A Deals of the Week [Nov12^th 2011 to Dec 25^th 2011]

You can check out coverage of all the previous Weekly Funding & M&A deals round-up here.

Note: Even though we try our best to bring you all the funding / M&A deals of the week, there are always ones which go un-reported. Most of the deals which we put up here are published on multiple websites, and we do refer them to provide the accuracy of deal in question. If you know of the any that we have not covered, please let us know and we will be more than happy to add it to the list!

Related posts:

1. Indian Funding, M&A deals of the week [12th - 18th Sept 2011]
2. Indian Funding, M&A deals of the week [19th - 25th Sept 2011]
3. Indian Funding, M&A deals of the week [3rd Oct - 9th Oct 2011]

This investment should bring some cheer to the online publishers and bloggers – According to press release sent to us, Accel Partners has completed ‘Series A’ investment in Trivone Digital, a Bangalore-based digital media and content company behind sites like www.techtree.com, www.channeltimes.com and www.cxotoday.com.

The details of funding have not been disclosed. According to Trivone’s promoter veteran journalist L. Subramanyan, the proceeds of the investments will be utilized to build several Digital media properties in specific verticals and increase its presence in the Digital Media landscape in India. The release states that this funding will also enable them to offer managed services to clients.

Of the Trivone’s 3 portfolio websites currently, Techtree.com is relatively popular in Gadgets and Technology space in India. According to Google Ad planner report – Techtree gets about 400k unique visitors with about million pageviews a month.

Techtree Traffic details according to Google Adplanner

The other 2 portfolio sites of Trivone – Channeltimes and CXOtoday do not seem to have significant traction as of now.

However, being a publisher myself – I am glad that VC’s are now open to putting in money and believe in growth of online properties in India.

Do you think we will see more investment in online media publishing space?

Related posts:

1. Komli Raises USD 15 Million from Norwest Venture Partners!
2. Rural Market is The Way To Go, Walden invests in CoOptions technologies
3. Pune Based NextLeap Lands Series A Funding!

Early this week, we enlisted top 5 out-performing stocks – HUL, ITC, Ambuja Cement, Bajaj Auto and Kotak Mahindra Bank – amongst the Nifty 50 stocks in 2011. While the benchmark index settled for a negative return of 21% from the start of the year till date, these winners yielded positive returns to out-perform the markets.

However, we can not ignore the list of laggards during so-called disappointing year 2011 for the equity investors. In fact, you would be surprised to know that the worst performers of this calendar year have lost almost 50% from their year opening quotes.

Exactly! If you had invested your hard earned money in any of the below listed stocks, your principal money would have halved by now, leave alone the lost opportunity of garnering interest on such amount from any fixed interest asset class. Over here, we enlist top 5 under-performing stocks in the Nifty index during the year 2011:

SAIL (-56%)

Maha-navaratna PSU Steel Authority of India has emerged as the worst performer in the year 2011 with a negative return of 56% since January 2011. The stock prices of most of the metal players, including Sterlite, Hindalco and SAIL, have been under pressure due to relatively muted volume growth and higher raw material costs.

Moreover, this state-owned steel company has clearly stated that the growth in India’s steel consumption is likely to slowdown to 6% this fiscal year on account of weak economy affecting demand.

Reliance Infrastructure (-55%)

ADAG company Reliance Infrastructure is the next worst performer from the elite list of Nifty constituent stocks. This infrastructure company is one of the biggest casualties in the ailing sector marred by delayed project roll out, stalled government spending and lower margins in the business.

One reason for the depressed stock price is also said to be the group’s alleged involvement in routing money raised through overseas bonds to the stock markets few years back, indicating regulatory overhang on the group.

Reliance Power & Reliance Communications (-50%)

The third spot for hugely under-performing share prices has been shared by two other companies from the same ADAG companies operating in the telecom and power sector.

While the commissioning of Reliance Power’s Sasan ultra mega power project has been delayed by over 12 months, the power sector is struggling with fuel linkages for their respective power projects and debt restructuring to meet their liabilities.

On the other hand, the share price of Reliance Communications slumped on poor subscriber growth after implementation of MNP, alleged involvements in the 2G scam and quarter on quarter losses; tarnishing the image of the Group.

Sesa Goa & Hindalco (-48%)

Not surprisingly, the investor’s favorite stock Sesa Goa has been hammered out-of-shape this time around, largely attributable to mining ban in Karnataka, discontinuing of operation in Orissa and planned reduction in inventories.

Besides, Hindalco also fared disappointingly on the bourses hit by falling aluminum prices, weaker demand for the metal on account of recession hit economic growth globally, higher input costs and under pressure operating profits.

List of other under-performing stocks in 2011:

• Sterlite Industries -47%
• BHEL -44%
• J P Associates -44%
• IDFC –43%
• L&T – 41%
• ICICI Bank -39%
• SBI -36%
• Tata Motors -32%
• Jindal Steel -28%

Related posts:

1. Top 5 out-performing stocks in 2011 !
2. Markets betting on Ambani Brothers truce – ADAG Stocks Rally Hard
3. Top 10 stocks to pick up in this falling market!