Curse of Indian SME’s

Over the years Indian Small Scale Sector has been able to create a significant position for itself in the Indian industrial economy. By employing around 28.3 million people it becomes the second highest source of employment in India. Apart from this it accounts for 49% of overall exports.

SME’s in India are dominant in sectors like textiles, chemicals, auto components, leather and machine tools. With the current slowdown mounting, this sector scores high rank of coming into its grip. This is evident from the fact that despite of 2 fiscal packages announced by government and easing of interest rate by RBI to infuse much needed liquidity in this sector banks are still hesitant to lend them due to their low creditworthiness.

Let’s look at the better picture of it:

Leather Industry
For instance let’s look at the case of leather industry; this sector was registering growth of about 20% in second half of 2008 but got crumpled by global slowdown. The main reason is accounted as slowdown in orders from western markets like UK & USA. The European Union and US markets contributes to about 25% to 65% of Indian export revenue.
Apart from this competition from china is becoming tough as Chinese government helping them to follow aggressive export policy which in turn helping them to bag more orders. If such scenario continues it is estimated that about 2-3 lakhs of jobs will be lost out of 25 lakhs of total workers employed and number can further increase.

Small service industry
In this aspect there is one interesting example to watch out; we all know how radio cabs industry has gained momentum in past few years. Estimates show that chauffeurs use to earn around 15000 per month around few months back, but with downfall in business their incomes have scaled down to 3000-4000 per month. This drastic decline in incomes of these chauffeurs is due to decline in number of duties on daily basis and burden of daily subscription of Rs 700 which is mandatory for them to pay.
If we need to check out an example of particular industry this one I Found out in one of the newspapers was of Chakradhar Chemicals Pvt Ltd, a medium-sized 13,000-tonne capacity micronutrient fertilizer company based in Uttar Pradesh. Company employs around 70 people and has been hard hit by rising cost of raw material and transport while salary expenses have increased by 16% on year-on-year basis.

Textile Industry
If we go 2 years back i.e. around 2007 Indian textile industry was on brink of rapid growth. However in present day the industry is pleading for urgent help for its resurrection. India is the world’s second largest exporter and consumer of cotton. In past few months cotton prices have surged nearly by 30% which has wiped of the demand for cotton textiles and garments from international markets. This has resulted in workers of textile industries to go for forceful voluntary retirement.

As discussed above major demand for Indian textile comes from US and Europe, with these countries battling the slowdown demand has been completely wiped of, this is despite of rupee depreciation, which is beneficial for exporters.
Numerical estimates show that Indian exports declined from $3.9 billion to 3.8 billion from the month of January to August, which was before US meltdown in September. The overall drop in value terms was 1.6 percent, with the drop in exports of garments a much higher 4.8 percent. The situation has worsened; total output of the textile sector has dwindled down to 10%. Study conducted in November by the Federation of Indian Chambers of Commerce and Industry (FICCI) pointed out that investments in the textiles industry were falling and so was its profitability.

I figured out few examples which have been hardly hit by this recession. While traveling by train in state of Punjab , as soon as train arrives in city Ludhiana , the recorded voice says city’s textile industries contributes about 80% of the country’s wool production. However but present day situation is different , most of the garment companies in city have suffer losses more than 50% over the last year , which creates 4,00,000 jobs in Ludhiana itself.

Remedy for This!
According to estimates of ASSOCHAM (Associated Chambers of commerce and industry of India) the SME’s were becoming tender during its first quarter with both manufacturing and hiring dwindling down to 10% and 7% respectively.

Therefore need of the hour is to restructure loan repayment plans for textile companies. According to most of the experts the medicine which can heal this bruised industry is easier terms for bank credit and reduction in taxes for textiles.

Let’s hope the new government which will form after upcoming general elections provide some respite to this beated down sector

Indian Pharma: A Dark Horse

Over the years pharmacy has grown in the form of pharmaceutical sciences through research and development processes. It is related to product as well as services. The various drugs discovered and developed are its products and healthcare it provides comes under category of services.
The Indian pharmaceutical industry is in the top rank of India’s science based industries with a vast array of capabilities in the complex field of drug manufacture and technology. This sector is categorized as highly organized sector registering turnover of $ 4.5 billion and growing at a rate of 8% to 9% annually. The Indian pharmaceutical industry is capable to meet country’s demand for any drug. The manufacturing units within the country are capable of meeting about 80% of the country’s drug requirement. There are about 20,000 production units in India with products sold at competitive lower prices than international drug prices. It ranks high in the third world in terms of technology, quality and range of medicines manufactured. From simple headache pills to complex antibiotics and complicated cardiac compounds, almost every type of medicine is made indigenously.

The Indian pharmaceutical sector is highly fragmented with more than 20,000 registered units. Drastic expansion has been witnessed in last 2 decades. The leading 250 companies control 70% of the market with market leader holding nearly 7% of the market share. It’s an extremely fragmented market with severe competition and government price controls.

Playing a key role in promoting and sustaining development in the vital field of medicines, Indian pharma industry boasts of quality producers and many units approved by regulatory authorities in UK and USA. International companies associated with this sector, have stimulated, assisted and spread head this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world.

India has 300 pharma companies of large and moderate size and another 10,000 small and tiny firms. But 70% of the production is by 100 larger companies. The industry manufactures around 440 of bulk drugs and almost entire range of formulations. About 1/3rd of India’s production – close to US $ 3.5 billion- is exported and exports are growing at 25% per annum. Exports to US fetch India about half billion dollars, while Germany, UK, Italy, Japan are among others. Large quantities of medicines are being exported from India to china, Brazil, Mexico and Nigeria.

PATENT REGIME
The signing of trade related intellectual property rights (TRIPS) agreement in 1995, which committed India to honor the WTO mandated product regime from 2005 marked the beginning of fresh chapter in industry’s evolution and India has finally transited into product patent regime from process patent. Process patent is the form of protection under which the process by which drug is manufactured is given protection. As there were many loopholes in this system companies very conveniently made very minor changes in the product and sold patented drugs at a lower price. Because of this MNC’s like Pfizer, Eli Lily was reluctant to launch their new molecules in Indian market. But under the product patent the molecule gets the protection and others cannot develop the similar molecule till the patent is valid.

POST 2005 SCENARIO
By issuing a patent ordinance, India met a WTO commitment to recognize foreign patents from January 2005, the culmination of 10 year process. In this new scenario, the Indian pharmaceutical manufactures won’t be able to manufacture patented drugs. To adapt to this new patent regime, the industry is exploring business models different from existing traditional ones.
New business models include:
1. Contract research ( drug discovery and clinical trials)
2. Contract manufacturing
3. Co-marketing alliances.

The focus of Indian pharma companies is also shifting from process improvisation to drug discovery and R &D. The Indian companies are setting up their own R &D setups and are also collaborating with research laboratories like CDRI, IICT etc.

CONTRACT RESEARCH
In 2002, the industry for clinical trials in India was $ 70 million. This market is growing at the rate of 20% per annum. According to experts, it will be industry worth anywhere between $ 500 million to $ 1.5 billion by 2010.
The global R&D is spending to the tune of $ 60 billion of which non-clinical segment accounts for $ 21 bn and clinical segment accounts for $ 39 bn. In terms of Indian prices this translates into ($ 7 bn at 1/3rd of US/EU costs) and ($ 7.8 bn of US / EU costs) respectively. This constitutes total potential for $ 14.8 billion for the Indian pharma companies.

CONTRACT MANUFACTURING
Many global pharmaceutical majors are looking to outsource manufacturing from Indian, companies which enjoy much lower costs both capital and recurring than their western counterparts. Many companies have made their plants CGMP compliant and India is having the largest number of USFDA approved plants outside USA.
The pharma companies are going for compliance with international regulatory agencies like USFDA, MCC etc for their manufacturing facilities.
Indian companies are proving to be better at developing API’s then their competitors from target markets and that too with non-infringing processes. Indian drugs are either entering into strategic alliances with large generic companies in the world of off-patent molecules or entering into contract manufacturing agreements with innovator companies for supplying complex under patent molecules.
Some of the companies like Dishman pharma, divis labs and matrix lab have been undertaking contract jobs for MNC’s in US and Europe. Even shasun chemicals, strides arcolabs, jubilant orgonosys and many other large Indian companies started undertaking contract manufacturing of API’s as apart of their additional revenue stream. The Boston consulting group estimated that contract manufacturing market for global companies in India would touch $ 900 million by 2010.


Growth Pattern of the Sector
The pharma industry has grown at 1.5-1.6 times the growth of the economy over the past couple of years. The industry has grown at a CAGR of 13 % from 2002-2007 and is expected to grow at a rate of CAGR of 16% over the period of 2007-2011. Accounting for the 2% of the world’s pharmaceutical market, the Indian pharmaceutical sector has market value of about US $ 8 billion. It ranks 4th in terms total global pharmaceutical production and 13th in terms of value. Over the last 2 years the sector’s market value has increased to about US $ 355 million because of launch of new products. According to an estimate 3900 new generic products have been launched in past 2 years. These have been by and large launched by big brands in the pharma sector. And in the year 2005 Indian pharmaceutical companies captured around 70% of the domestic market.
At present scenario only few people can afford costly drugs which have increased price sensitivity in the drug market. Now the companies are trying to capture the market by introducing high quality and low priced medicine and drugs. At present large number of Indian pharmaceuticals companies are looking for tie-ups with foreign firms for in license drugs. In 2005 6.2% of the disposable income was spent on healthcare as compare to 2.8% in 1995. Health insurance penetration is estimated at 10% in India and is expected to double in next five to seven years.

India is one of the top five manufactures of bulk drugs in the world and among the top 20 pharmaceutical exporters of the world. The value of the pharmaceutical output grew more than 10 fold from Rs 5000 crore in 1990 to over 65000 crore in 2006-07.india is now recognized a one of the leading global players in pharmaceutical industry. Europe accounts for highest share of Indian pharma exports followed by North America and Asia. The national pharmaceutical policy, aimed at ensuring availability of lifesaving drugs at reasonable prices is being finalized. Taking stock for the imperative requirement, the government has decided to set up six new institutes of pharmaceutical education and research (NIPERS) in different regions of the country. As anew initiative in pharmaceutical sector, the first pharmaceutical census of India is proposed to during 2007-08 to obtain robust database for the sector.

Pharma to emerge as Dark Horse in slowdown

In these tough times of recession [Indian] pharma sector has shown comparative resilience and has been relatively less impacted. There are two reasons for this: the domestic pharma market continues to experience healthy growth and the demand for generic (a biological equivalent of an originator pharmaceutical product) medicines is on the rise in international market.

Pharma is not completely immune to the slowdown and global economic crisis, but the impact is less severe. Over the past two years, the $8 billion domestic pharma industry has grown at a rate of more than 12%.
It is likely to see high single digit growth in 2009. The growing incidence of lifestyle diseases, rising disposable incomes, greater penetration of health insurance and expanding medical infrastructure will continue to foster growth in the domestic market. The fact is that however bad the economic environment, demand for medicines is relatively inelastic.

They will remain a hot centre for opportunity. There is also growing excitement as drugs worth $60 billion are expected to come off patent in the US in next few years. These positive trends signal a huge market opportunity for Indian pharma companies, who have over the years carved a niche for themselves, in most global markets

Investment scenario in India

Being the fourth largest economy in the world and has second largest GDP among developing countries , in purchasing power terms , India is poised for growth with macro –economic stability and by 2025 Indian economy is projected to be about 60% in size of the US economy.
Investment is the key element which has taken India on high growth trajectory. In this post we try to analyze current scenario of investment in 3 core sectors: infrastructure, education and security.
Infrastructure investment
India has emerged as land of opportunities for infrastructure sector. The potential is exorbitant as many sectors have opened up for participation and private investment. In the last few years a number of Road Projects have been taken up under ambitious National Highway Development Programme costing about US$ 12 billion, in which large number of foreign construction companies are participating. The telecom sector has moved forward at a brisk pace and power reforms have gained momentum while the disinvestments process has got underway in the Telecom and Oil and Gas sector. In order to have an integrated development of Transport system, National Rail Development Programme has also been launched in Dec. 2002 envisaging an investment of about US $3.5 billion.
India has been prominent in attracting most of the infrastructure projects with private participation in the region. For instance an important role behind the extensive growth of Indian IT sector and BPO’s is played by availability of robust infrastructure (telecom, power and roads) in the country. Relevant telecom facilities are an important prerequisite for the success of the software industry and over the years, the Government has taken steps to ensure that telecom remains a priority area.
Similarly, regular, reliable, uninterrupted power, a major necessity for running IT software and services businesses, has also received substantial attention from the Government. Recent steps to privatize the distribution of power and bring in greater efficiencies and customer centricity in the market have been welcomed by the ICT industry.
The overall roads and highways scenario in India has also witnessed major improvements over the last few years. Most cities and first and second tier towns are connected and interlinked to each other. Major investments have gone into the development of highways, both on the side of the central and state Governments. Clearly, the Indian Government has understood the importance of infrastructure to industries such as IT and created a conducive environment for its development and expansion.
Present meltdown
In the present economic crisis when all sectors are facing the heat of downturn, infrastructure sector comes with no exceptions. The major hindrance coming in way of growth of this sector is scarcity of funds. This holds true especially in the case of large scale, complex projects, as in case of hydro power projects, which have long gestation periods. The Government needs to consider introducing mechanisms/ instruments that allow efficient long-term funding of projects. In addition, limits on external commercial borrowings for such infrastructure projects should be removed.
In recently announced fiscal package by government, in order to boost investment in the infrastructure sector, the government authorized the state-run India Infrastructure Finance Co. Ltd (IIFCL) to raise Rs.100 billion through tax-free bonds by next March. Announcing a Rs.3,000-billion ($60-billion) stimulus package to pump prime the economy, a government statement said IIFCL, set up to finance infrastructure projects in the country, could use the fund to refinance port, highway and power projects, being developed under the public-private partnership model.

Scenario of investment in private education
Indian education system has witnessed an impressive growth path since independence. From just 0.1 Million in 1947, enrollments in the country have grown to more than 11 Million in 2005-06. The education system in the country saw a revolution with the emergence of a whole new class of education providers, including private institutes, distance education providers, self-financing courses in public institutions and foreign education providers.
Despite the fact of rising enrolment figures, the cumulative expenditure of states on educational services as a % of total expenditure has shown a decline of 18% in 2007-08. Inter-state differences in per capita education spending across states are widening. While per capita fund flow to education in 2005-06 was Rs 483 in Uttar Pradesh and Rs 487 in Bihar. It was Rs 1034 in Maharashtra and Kerala and Rs 1777 in Himachal Pradesh. A slowdown in government spending in key areas of education infrastructure in many of these states has happened despite a marked improvement in the fiscal performance of most of these states. This is in sharp contrast to the post -1997 periods when a fall in education spending could be attributed to shortage in government finances due to deteriorating fiscal health of states.

Aftermath of terrorism on India Inc
Recent terror attacks in financial of the country Mumbai will post short term impact on Indian economy according to many economist and analyst. Being the home of Asia’s oldest stock exchange, country’s central bank, capital markets regulator (SEBI) and India’s biggest corporate houses- Tata’s , Birla’s , Ambani’s , accounts for country ‘s $ 1 trillion (Rs 49.9 trillion) economy and contributes one third of its direct taxes. According to various economists though these attacks will affect country’s economy but deeper impacts will come from global slowdown.
National security is a critical factor that determines the level of investment — both domestic and foreign — along with conducive business environment, positive policy matrix and return on investment. Global investors apply these parameters diligently while making their decision on investment destinations.
In tough times like we are in currently, the portfolio investment and allocation decisions by certain global funds could be affected. However, investment decisions by various multinationals to enter a market for strategic reasons tend to be made with a longer term and global view in mind and should not get impacted, unless these attacks continue for prolonged period. While overall FDI flows at $17 bn were 137% higher in the first half of this fiscal year, the second quarter ended September 2008 has seen a slowdown of 30% in FDI flows compared to the June quarter. On the other hand, portfolio flows into India (FII) have already seen a massive outflow this fiscal year of over $9 bn through end of October, while FIIs had invested over $13 billion in the Indian markets last fiscal year.
The business confidence which was weakening due to current global turmoil will now bear the heat of this terror attack, with sentiments further going weak. The hardest hit industries will be hospitality, travel and tourism and luxury retail business. Already tourism sector is struggling to beat economic slowdown, now these terror attacks have added to their struggle with hoteliers are expecting large scale cancellation of bookings mostly from overseas visitors. This will in turn affect the aviation business which is already in battle with the slowdown. Another immediate victim of this attack would be luxury retail business. The Taj and Trident are home to around a dozen of luxury retailers including Gucci, Ferragamo, Jimmy Choo, Estee Lauder, Louis Vuitton and Fendi. Business would be impacted not only due to space but also sales because lot of sales comes from in-house guests. Most luxury brands prefer to operate out of five star hotels because India doesn’t have high quality luxury retail space.

Boom time for security industry
In the times when Indian industries are battling with wicked effects of global slowdown and recent terror attacks on Mumbai, the only industry poised to book high profits in future is Indian security industry. Private security in India will become a Rs 50,000 crore (Rs 500 billion) industry in four years as corporate have increased their spending on safeguards after the Mumbai terror strikes. The private security business, a Rs 22,000 crore (Rs 220 billion) industry now, would touch Rs 50,000 crore as security all of a sudden has become top priority for Indian Inc.
Terrorism now is a universal phenomenon and most countries are facing it. It is the other overwhelming factors that will affect investments. Yet, it’s imperative that we put in place a foolproof security system that can sense and eliminate these terrorist attacks. We also need to improve risk management systems and disaster recovery plans.
India’s position in the emerging financial and economic architecture is going to be substantial. Stakeholders of the growth are not Indians alone but the world community. That calls for a joint action against terrorism.

Boom & Bust of Indian Real Estate Sector

Engulfing the period of stagnation, the evolution of Indian real estate sector has been phenomenal, impelled by, growing economy, conducive demographics and liberalized foreign direct investment regime. However, now this unceasing phenomenon of real estate sector has started to exhibit the signs of contraction.
What can be the reasons of such a trend in this sector and what future course it will take? This article tries to find answers to these questions….

Overview of Indian real estate sector
Since 2004-05 Indian reality sector has tremendous growth. Registering a growth rate of, 35 per cent the realty sector is estimated to be worth US$ 15 billion and anticipated to grow at the rate of 30 per cent annually over the next decade, attracting foreign investments worth US$ 30 billion, with a number of IT parks and residential townships being constructed across-India. However current economic crises in India have made buying a home a far fetched dream for many.
The term real estate covers residential housing, commercial offices and trading spaces such as theaters, hotels and restaurants, retail outlets, industrial buildings such as factories and government buildings. Real estate involves purchase sale and development of land, residential and non-residential buildings. The activities of real estate sector embrace the hosing and construction sector also.

The sector accounts for major source of employment generation in the country, being the second largest employer, next to agriculture. The sector has backward and forward linkages with about 250 ancillary industries such as cement, brick, steel, building material etc.
Therefore a unit increase in expenditure of this sector has multiplier effect and capacity to generate income as high as five times.

Path set by the government
The sector gained momentum after going through a decade of stagnation due to initiatives taken by Indian government. The government has introduced many progressive reform measures to unveil the potential of the sector and also to meet increasing demand levels.
· 100% FDI permitted in all reality projects through automatic route.
· In case of integrated townships, the minimum area to be developed has been brought down to 25 acres from 100 acres.
· Urban land ceiling and regulation act has been abolished by large number of states.
· Legislation of special economic zones act.
· Full repatriation of original investment after 3 years.
· 51% FDI allowed in single brand retail outlets and 100 % in cash and carry through the automatic route.

There fore all the above factors can be attributed towards such a phenomenal growth of this sector. With significant growing and investment opportunities emerging in this industry, Indian reality sector turned out to be a potential goldmine for many international investors. Currently, foreign direct investment (FDI) inflows into the sector are estimated to be between US$ 5 billion and US$ 5.50 billion.

MAJOR INVESTORS
· Emmar properties, of Dubai one of the largest listed real estate developers in the world has tied up with Delhi based MGF developments to for largest FDI investment in Indian reality sector for mall and other facilities in Gurgaon.
· Dlf India’s leading real-estate developer and UK‘s famous Laing O Rourke (LOR) has joined hands for participation in airport modernization and infrastructure projects.
· A huge investment was made by Vancouver based Royal Indian raj international cooperation in a single real estate project named royal garden city in Bangalore over period of 10 years. The retail value of project was estimated to be around $ 8.9 billion.
· India bulls real estate development has entered into agreement with dev property development, a company incorporated in Isle of Man, whereby dev got subscription to new shares and also minority shareholding the company. But in recent developments indiabulls have acquired entire stake in dev property development in a 138 million-pound sterling (10.9 billion rupees) share-swap deal.
· Apart from this real estate developments opens up opportunity for associated fields like home loans and insurance. A number of global have shown interest in this sector. This include companies like Cesma International from Singapore, American International Group Inc (AIG), High Point Rendell of the UK, Colony Capital and Brack Capital of the US, and Lee Kim Tah Holdings to name a few.

Simultaneously many Indian retailers are entering into international markets through significant investments in foreign markets.
· Embassy group has signed a deal with Serbian government to construct US $ 600 million IT park in Serbia.
· Parsvanath developers is doing a project in Al – Hasan group in Oman
· Puravankara developers are associated with project in Srilanka- a high end residential complex, comprising 100 villas.
· Ansals API tied up with Malaysia’s UEM group to form a joint venture company, Ansal-API UEM contracts pvt ltd, which plans to bid for government contracts in Malaysia.
· Kolkata’s south city project is working on two projects in Dubai.
On the eve of liberalization as India opens up market to foreign players there is tend to be competitive edge to give quality based performance for costumer satisfaction which will consequently bring in quality technology and transparency in the sector and ultimate winners are buyers of this situation.
However this never ending growth phase of reality sector has been hard hit by the global scenario from the beginning of 2008. Analyst say situation will prevail in near future, and latest buzz for the sector comes as a “slowdown”.

Sliding phase of the reality sector

In this present scenario of global slowdown, where stock markets are plunging, interest rates and prices are mounting, the aftermath of this can now also be felt on Indian real estate sector. Overall slowdown in demand can be witnessed all across India which is causing trouble for the major industry players. Correcting property prices and rentals are eroding away the market capitalization of many listed companies like dlf and unitech

Reality deals in major cities like Delhi, Mumbai, Bangalore, Chennai and Hyderabad have shown enormous downfall from October 2007 – March 2008. The downfall had been cushioned by fall in stock markets as it put a stop for wealth creation, which leads to shortage of capital among investors to invest in real estate activities. Apart from this in order to offset their share losses many investors have no choice, but sell their real estate properties.
Other factors which have contributed to this slowdown are raising interest rates leading to higher costs. Due to this almost all the developers are facing serious liquidity crunch and facing difficulties in completing their ongoing projects. Situation seems to be so disastrous that most of the companies have reported 50-70% cash shortfall. The grade A developers which are facing cash crunch include DLF ,MGF , Emmar , Shobha developers , Unitech , Omaxe , Parsvnath Developers, Hiranandani Group, Ansal API, BPTP Developers and TDI Group. As a outcome of this liquidity crunch many developers have started slowing down or even stopped construction of projects which are either in their initial stages of development or which would not effect their bottom-line in near future.
Also with increasing input costs of steel iron and building material it has become it has become unviable for builders to construct properties at agreed prices. As a result there may be delays in completion of the project leading fincial constraints.
At the same time IT industry which accounts for 70% of the total commercial is facing a slowdown. Many residential buyers are waiting for price correction before buying any property, which can affect development plans of the builder.


Aftermath of reality shock to other sectors
Cement industry hitted by reality slowdown
The turbulence in the real estate sectors is passing on pains in cement industry also. It is being projected that growth rate of cement industry will drop down to 10% in current fiscal. The reasons behind such a contingency are higher input costs, low market valuations and scaled up capacity which are in turn leading to reduced demand in the industry. High inflation and mounting home loan rates have slowed down the growth flight of real estate sector which accounts for 60% of the total cement demand. The major expansion plans announced by major industries will further add to their misery as low market demand will significantly reduced their capacity utilization.
Setting up new facilities will impart additional capacities of 34 million tone and 45 million tone respectively in 2008-09 & 2009-10. This is likely to bring down capacity utilization in the industry down from current 101% to 82%. Even as it loses power to dictate prices, increased cost of power, fuel and freight will add pressure on input costs.
Ambuja Cements too is trading at a higher discount than previous down cycle, suggesting bottom valuations. However, replacement valuations for Madras Cements and India Cements indicate scope for further downslide when compared to their previous down cycle valuations.
All this has added to stagnation of the cement industry.

Dying reality advertising
The heat of reality ebb is also being felt by the advertising industry. It is being estimated that all major developers such as DLF, omaxe, ansals & parsvnath have decided to cut down on their advertising budget by around 5%. The advertising industry in India is estimated to be around 10,000 crore. This trend can be witnessed due to weakening spirits of potential buyers and real estate companies call it a reality check on their advertising budgets. A report from Adex India, a division of TAM Media Research, shows that the share of real estate advertisements in print media saw a drop of 2 percent during 2007 compared to 2006. According to Adex, the share of real estate advertisement in overall print and TV advertising last year was 4 percent and 1 percent, respectively. It’s a known fact that infrastructure and real estate companies are responsible for advertising industry maintain double digit growth rate. Therefore it’s understood that a recent slowdown in Indian reality sector has made things worse for advertising industry. The Adex report indicates that the top 10 advertisers shared an aggregate of 16 percent of overall ad volumes of real estate advertising in print during 2007. The list includes names such as DLF Group, Parsvnath, Sahara, HDIL and Omaxe group. However, the real estate had maximum share in South India publications followed by North and West publications with 32% and 26% share, respectively, during 2007.
According to many advertising agencies consultants, this phenomenon is taking a toll as all real estate companies want a national foot print and also these companies are turning into professionals. Therefore they are setting standards when it comes to advertising to sales ratio.

Falling stock markets knock down reality stocks
Reality stocks have been hard hit by uncertainties prevailing in the stock market. The BSE reality index is the worst performer having shed 51% of its 52-week peak reached in reality. The BSE benchmark index has shed 24% since January. The country’s largest real estate firm DLF scrip lost 54% while unitech lost 64% from its peak. The scrips of Delhi bases parsvnath and omaxe have lost 68% each since January.
The sector is facing a major downfall in sales volume in most markets of the country. The speculators have exit the market and Mumbai and NCR, the biggest real estate markets in markets are cladding subdued sales. In Gurgaon and Noida, which had seen prices almost treble in four years, sales are down 70%, leading to a price correction of 10-20%.

Lets us have a look how major cities are afftected by reality downfall
Top 4 metros taking the lead – in slowdown
Delhi &NCR
While bears are ruling the stock market, the real estate sector in Delhi & NCR region has started facing departure of speculative investors from the market. According to these developers based in region the selling of flats has become very complicated at the launch stage due to lack of interest from the speculators. Developers attribute this to stability in prices against the past where prices were up surging on monthly basis. The scenario has changed so much in the present year that developers are now facing difficulty in booking flats which may delay their projects and reduce their pricing power for instance a year ago, if 100 flats were being sold in month at launch stage now it has come down 30-40 per month. Till mid 2007 speculators made quick money by booking multiple flats at launch of the project and exiting within few weeks or months. But now due to the stabilization of the property prices little scope is left for speculators to make money in short term. Therefore outcome is their retreat from the sector.

Mumbai
Mumbai real estate market, which witnessed huge increase in prices in recent years, which made the city to enter in the league of world’s most expensive cities, is now feeling the heat of slowdown. Property sales that have been growing at a clank of around 20% every year have been plumped by 17% in 2007-08.
Though slowdown news of property market in country’s financial capital has been much talked about, but it was first time that figures proved the extent of slowdown. Information about residential and commercial property sales from the stamp duty registration office show almost 12,000 fewer transactions during the last financial year compared to the year before. From April 2007 to March 2008, 62,595 flats were purchased in Mumbai as against 74,555 in 2006-07.
According to reality analyst sales volume can die out further in south as developers persist on holding to their steep prices and buyers anticipate a further fall with current rates beyond reach. They further add that market is on a corrective mode and downward trend is anticipated for another 12 months.
Between 1992-96, the market ran up the same way it did during 2003-07. Post-’96, the volumes dropped by 50%. This time again it is expected to drop substantially though not so steeply. The demand is now extremely sluggish and customers do not want to stick out their necks and transact at prevailing rates.
Chennai
in past few years we witnessed reality index gaining huge heights on BSE and it also impact could be felt allover India. Amongst them Chennai was no exception. With IT boom in past few years and pumping of money by NRI’s have led to prices touching skies. Chennai also witnessed a huge boom property prices over the last few years. However in past few months it has been facing slowdown in growth rate.
Following factors can be attributed to this:
· This is one of the common factor prevailing all over India- rise in home loan interest rates , which has made it extremely difficult for a normal salaried person to be able to afford a house.
· Depreciation of US dollar , which means NRI’s who were earlier pumping money into the real estate are now able to get less number of rupees per dollar they earn in US. Therefore many of them have altered their plans for buying house in India.
· The Chennai Metropolitan Development Authority (CMDA) has imposed stricter norms for apartment construction and penalties for violations are more severe than before.
· Failure of the legal system of chennai to prevent intrusion , forged documentsand illelgal contstruction has added to the problem as many NRI’S are hesitating to buy plots in chennai.
· Apart from this tsunami of 2004 has shaken the confidence of many investors to invest in real estate.
However many analyst are quite bullish about this region. Especially in areas like old mahabalipuram, south Chennai etc because of numerous IT/ITES/ electronics/automobile companies are expected to set up their centers in these areas. Once these projects are complete and companies begin operations their, many people would like to live near to such areas and outcome will be boom in residential sector.
Bangalore
As discussed for above cities Bangalore is also dwindling between the similar scenarios. Bangalore seems to be in midst of low demand and supply. This trend is due to myopic developers , due to sudden growth in Bangalore in last few years , lot of builders have catched the opportunity of building residential houses thinking their will be lot of employment , increase in salaries and hence demand for housing. Past few years have been jovial for Bangalore as IT industry was doing well and banking and retail sectors were expanding.
However with this sudden economic slowdown, due to which Indian stocks markets are trembling, interest rates are high, jobs and recruitment put on freeze have led to cessation of investment in local property markets.
According to the developers real-estate industry of Bangalore has experienced a drop of about 15- 20% in transaction volumes. Adding to it grade A developers have faced a dropdown of 50% on monthly levels of booking compared to what they enjoyed in December 2007.

Future outlook
Indian realty sector is struggling with worst crisis in recent years with most of the companies’ balance sheets showing losses after riding on a boom in last couple of years. The impact on Indian realty turns out to be so severe that realty index on Bombay Stock Exchange, an indicator of investor mood for industry has fallen by 25% in October 2008 and 75% in the past year. According to analysts this is just an indication of long term crisis as developers went aggressive on land acquisition without paying attention to the delivery of projects.
The story of crisis also started to be reflected in second quarter results of realty sector, where company after company reported of huge losses in their balance sheets.
· Realty major DLF , which had long ago raised Rs .100 billion over ($ 2 billion) in what was then the largest ever initial public offering in India , reported of 4% drop in consolidated net profits for the July-quarter.
· In similar to this was unitech, which reported a 12% profit decline in net profit.
· Parsvnath Developers, it was a second straight quarter of decline with a dip of 78.6% in July – September period.
· Another Delhi-based realty firm, Omaxe, which is also facing turbulent times for the second straight quarter, reported an 87.3-percent decline.

However in the current scenario Indian real estate market is going through a phase of correction in prices and there are exaggerated possibilities that these increased prices are likely to come down.

In this scenario what will be the future course of this sector?
Many analysts are of view that tightening of India’s monetary policy, falling demand and growing liquidity concerns could have negative impact on profiles of real estate companies. Slowing down would also aid in the process of exit of some of the weaker entities from the market and increasing the strength of some of the established developers. A prolonged slowdown could also reduce the appetite of private equity.
Its also been projected that large development plans and aggressive land purchases have led to a considerable increase in the financial leverage (debt/EBITDA) of most developers, with the smaller players now being exposed to liquidity pressures for project execution as well as a general slowdown in property sales. Property developers hit by falling sales and liquidity issues would need to reduce list prices to enhance demand, but many still seem to be holding on to the asking price - which, would delay the process of recovering demand and increase the risk of liquidity pressures.It was being witnessed that before the slowdown phase the projects were being sold without any hook at an extravagant rate. But at ppresent negative impact is highly visible as lots of high end projects are still lying unsold. In such a scenario , there may be blessing in disguise as high profile speculators will be out making way for the actual users.
But here also sector faces trouble as correction in prices has been accompanied by increase in home loan rates by the banks which have led to erosion of purchasing power of middle and upper middle class majority of whom are covered in the category of end users or actual users.
Therefore for future of real estate sector analyst call for a wait and watch method to grab the best opportunity with the hope of reduction in loan rates.

Banks to face High NPA’s in 2009

With the commencing of 2009, Indian banks enjoying high profits, with stable credit growth and non interest income, will now have to face challenging times.
Though banks are showing high profits in their balance sheet, but main figure to impact in coming quarters will be of NPA’s (non-performing assets).

NPA’s are also called non-performing loans, are loans, made by a bank or finance company, on which repayments or interest payments are not being made on time.
In the current scenario of global meltdown, these are the real testing time for banks in terms of asset quality of their portfolio and for any new venture they are willing to undertake. The asset quality of Indian banks has shown substantial improvement in recent years—median Net NPA improved 0.73 per cent as against 0.83 per cent in ’07. However, 2008-09 and 2009-10 has the potential to reverse this trend.

As India witness slowdown in economic activity, banks will face a lower demand for loans. NPA’s will also increase on account of borrowers finding it difficult to repay loans. Credit growth is expected to fall to 14% in 2009-10 , in comparison to 22% of last financial year. Rise in NPA’s would mainly be attributed to export oriented small and medium enterprises(SME’s)which are hard hit due surging costs. The growth in credit in the industry in 2008 was in the range of 25-29 per cent on account of working capital requirements of small-, mid- and large-size industries, and the bankers expect an average 25 per cent rise in their credit in 2009. While state-owned banks were quick to respond to the recent signals from policy-makers by reducing interest rates periodically, many Private Sector Banks (PSB) are yet to follow the suit, mainly owing to pressure on their margins.

In this challenging period banks need to prevent exacerbation in their NPA’s. The challenges include: rapid shrinkage in corporate balance sheets, specifically those exposed to commodities and metals; funding of expansion and acquisition plans by highly-leveraged corporate; export-oriented firms facing a slowdown in business due to weak global demand; and volatile currency movements impacting corporate cash flows.

Fresh NPA accumulation could rise to 3.5% of total loans (on 2-year lag), which though lower than the 4.5-5% levels seen in the previous cycle (in the late 90s), may still result in a 2-3 fold jump. Defaults are expected from retail segment like auto loans.

The worst-case scenario for India, which assumes GDP growth will reduce to 6 per cent over the next few years, is likely to create a major challenge for Indian banks. Should they be focusing on growth or should they focus on keeping NPAs under control? Banks may then have to extensively rely on refurbished and dynamic credit scoring models, de-centralized decision-making based on ground level relationship assessment and increasing use of tracking MIS to control their portfolio in these uncertain times.
In comparison to global banks, Indian banks turn out quite strong from asset quality, diversified risk portfolio and low cost deposit base perspective. This is due to their effective management of the business and partly due to the conservative nature of our bankers and the regulator. The key question now facing the industry is:” Is the Indian banking system safe and sound to fight this financial meltdown”.

Biofuel Policy of India

The national government released its first ever national biofuel policy which was most notable for its mandate that 20% of all diesel demand should be met using plant based rather than fossil based diesel by 2017. The policy also stipulated that 10% of all gasoline demand should be met using ethanol compared with current mandate of 5%.
The policy also suggested removing all central taxes on biodiesel and according declared goods status to biofuels that would ensure a uniform 4% sales tax on the product across states.
With the mounting inflation it seems that root cause of it is use of food stocks in creation of biofuels. But when we analyze costs and benefits of creation biofuels, the picture turns out to be different.
The assumption that biofuel production will lead to crowding out of food production is also misleading. Jatropha plant which is the main source of production of biodiesel in India is a hardy plant which can grow on land on which traditional food crops cannot grow, which means that arable land need not to be sacrificed for fuel production. In addition to this jatropha production is estimated to utilize less than 1% of water required for traditional food crops. Similar to this other crops which are used in production of biodiesel have low inputs, meaning that even large-scale production of biodiesel will not result in a significant diversion of scare water resources from food production.


The Jatropha advantage
Jatropha is an eternal hardy shrub which can survive in arid and semi arid tropics. It grows wild in many areas of India and even thrives on infertile soil. This makes it an ideal feedstock for, biodiesel as India has more than 170 million hectares of wasteland which need revegetation. Since jatraopha is water efficient and widely adaptable, large scale jatropha plantations require for the biodiesel industry could lead to generation of these wastelands.
The yield of Jatropha oil is quite high, ranging from 1 to 5 tonnes/ ha depending upon the soil conditions and rain fall, and oil can be extracted from seeds starting from the second year. Jatropha biodiesel projects can also help in rural developments by introducing new employment opportunities in agricultural and small and medium industrial sectors. Assimilation of atmospheric carbon, to the extent of approximately 10 tonnes CO2 per hectare, can be realized by Jatropha plantations! Since India is a developing country, this can be traded under the Clean Development Mechanism (CDM). Article 12 of Kyoto protocol specifies that developing countries can benefit from CDM projects resulting in "certified emission reductions" (CERs) and that industrialized countries may use CERs to comply with their quantified emission reduction commitments. This is an additional economic advantage favoring Jatropha biodiesel projects in India.

Encouragement by government
The government is making efforts not to encourage biofuels at the cost of food grain production. The government has decided that no food grain or oilseed should be used for producing biofuels. The The idea is to prevent a repeat of the American experience where diversion of corn for ethanol production is being blamed for foodgrain price spurt across the globe. Therefore, use of even coarse grains for biofuel production would not be allowed. In the case of sugarcane too, there are concerns that focus on ethanol would lead to lower production of sugar.
Only wasteland is to be used for growing biofuel producing plants such as jathropa. While biofuel production is yet to catch up, there is growing concern over diversion of farm land pushing up price of foodgrains. The risk cannot be afforded at a time when Indian entities are looking at purchasing farmland in south America, Africa and Canada to grow pulses and oilseeds. Land has become a scare resource and disputes are raging in various parts of the country over use of farmland for other purposes, including industrial development.
Recently, some companies have started cultivation of biofuel crop on wasteland and degraded forest land. BP, IOC, BPCL, Reliance and IKF Technologies have already rolled out plantations in about 3 lakh hectares of wasteland spread across the country. The National Policy on Biofuels has set an indicative target of 20% blending of biofuel in both petrol and diesel across the country by 2017.

Advantages of Biofuels for India

Decreased emissions of harmful pollutants: Ethanol and biodiesel contain oxygenated compounds containing no sulphur. These fuels do not produce sulphur oxides which lead to acid rain formation. Sulphur is removed from petrol and diesel by a process called hydro-desulphurization. This process causes loss in lubricity which has to be rectified by producing an additive. Biodiesel has natural lubricity and thus no lubricity enhancing additive is required.
Condensation in green house gas emissions: The net CO2 emission of burning a biofuel like ethanol is zero since the CO2 emitted on combustion is equal to that absorbed from the atmosphere by photosynthesis during the growth of a plant (sugarcane) used to manufacture ethanol. Biofuel contribute significantly to climate change by reducing CO2 emissions. Biodiesel projects can qualify as CDM projects and thus can fetch in additional income through the sale of certified emissions reductions.

Employment generation: Biofuel industry in future can become major source of employment. The investment in the ethanol industry per job created is $ 11000, which is significantly less than $220,000 per job in petroleum sector. In India sugar industry which is the backbone of ethanol production is the biggest agro industry in the country. The sugar industry is the source of livelihood for about 45 million of farmers and their dependents comprising 7.5% of rural population. Another half a million people are employed as semi-skilled laborers in sugar cultivation. The first phase of the National Biodiesel Mission demonstration project will generate employment of 127.6 million person days in plantation by 2007. On a sustained basis, the program will create 36.8 million person days in seed collection and 3,680 person years for running the seed collection and oil-extraction centres.
Energy security and decrased dependence on oil imports: India ranks sixth in world in terms of energy demand. India‘s domestic crude oil production only satisfies about 25% of this consumption. Dependence on imported fuel leaves many countries vulnerable to possible disruption in supplies, which leads to physical hardships and economic burdens. The volatility of oil prices poses great risks for world’s economic and political stability, with unusually dramatic effects on energy importing developing nations. Renewable energy, including biofuels can help to diversify energy supply and energy security.

Improved social well being: A large part of population, mostly in rural areas does not have access to energy services. The increased use of renewable (mainly biofuels) in rural areas is closely linked to poverty reductions because greater access to energy services can:
· Improve access to pumped drinking water. Potable water can reduce hunger by allowing for cooked food (95% of food needs cooking).
· Reduce the time spent by women and children on basic survival activities (gathering firewood, fetching water, cooking etc).
· Allow lightening which increases security and enable night time use of educational media and communication at school and home.
· Reduce indoor pollution caused by firewood use, together with reduction in deforestation.

Lack of access to affordable energy services among the rural poor seriously affects their chances of benefiting from economic development and improved living standards. Women, older people and children suffer disproportionately because of their relative dependence on traditional fuels and their exposure to smoke from cooking, the main cause of respiratory diseases. Electricity through transmission lines to many rural areas is unlikely to happen in the near future, so access to modern decentralized small-scale energy technologies, particularly renewables (including biofuels), are an important element for effective poverty alleviation policies. A programme that develops energy from raw material grown in rural areas will go a long way in providing energy security to the rural people.

Biofuel Industry

Biofuel is any fuel that is derived from biomass. It is a renewable source unlike other natural resources, such as petroleum, coal and nuclear fuels.

Overview of the industry
With the prices of crude oil surging up to $ 150 barrel, biofuels have essential role to play in meeting energy needs for India. Most of the energy requirements are at present satisfied by fossil fuels – coal, petroleum based products and natural gas. Domestic production of crude oil can only fulfill 25-30% of national consumption and extensive demand for oil has forced India to depend on other countries for oil. This has increased risk exposure of the country to the high price of the crude oil in the international market.
India started on with its biofuel journey in 2003 with an impressive growth. Ethanol and biodiesel are gaining acceptance worldwide as good substitutes for oil in the transportation sector.
· Ethanol is currently produced in India by the fermentation of sugarcane molasses is an excellent biofuel and can be blended with petrol.
· Likewise, biodiesel which can be manufactured by the transesterification of vegetable oil can be blended with diesel to reduce the consumption of diesel from petroleum.
· Brazil uses pure ethanol in about 20 per cent of their vehicles and a 22 to 26 per cent ethanol-petrol blend in the rest of their vehicles.
· The United States and Australia use a 10 per cent ethanol blend.
· With a normal production rate of 1,900 million litres a year, India is the world’s fourth largest producer of ethanol after Brazil, the United States and China.
· Beginning 1 January 2003, the Government of India mandated the use of a 5 per cent ethanol blend in petrol sold in nine sugarcane producing states. The Government will expand the 5 per cent ethanol mandate to the rest of the country in phased manner.

Biofuels offer a number of environmental, social, and economic advantages, including lower emissions of harmful pollutants; decreased greenhouse gas emissions; increased employment; increased energy security, especially in rural areas; decreased dependence on oil imports; and good fuel properties for vehicles.

Key findings
· Ethanol dominates the world biofuel market and its production is expected to grow at a CAGR of around 6% during 2008-2017.
· Worldwide biodiesel production is expected to grow at a CAGR of over 5% from 2008 to 2017.
· Ethanol production of India is likely to attain a CAGR of slightly over 2% during the period 2008-2017.
· Increased ethanol use is expected to supersede the production during the forecasted period. Domestic ethanol consumption in India is projected to expand at a CAGR of around 6.5% during 2008–2017.
· India’s total biodiesel requirement is projected to grow to 3.6
· Million Metric Tons in 2011-12, with the positive performance of the domestic automobile industry.
· Similar to Brazil and the US, the Indian automobile industry has huge potential for the flex-fuel vehicles.