Cover Story

A tale of two states 

-- DG Prasuna, Debasis Mallik and Rajesh Kumar Singh

Two states-Bihar and Andhra Pradesh-one with a rich history and another, which is making one. The contrast becomes all the more palpable given the fact that Andhra Pradesh, for long an indistinguishable expanse on the map of India, is emerging as a contender for all that means progression. Bihar, on the other hand, with a repository of natural resources, continues to flounder earning negative encomiums. The creation of Jharkhand that has truncated Bihar has deteriorated the economy further. With meager natural resources and hardly any industries, there is little prospect for further progress. Gloom and despair is omnipresent. By contrast, Andhra Pradesh has paved its way to progress, trying to overcome all bottlenecks.

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Spotlight

GE In the line of fire

-- CSV Ratna, Team Analyst

GE's greatest strengthsits ability to deliver double-digit earnings growth consistently, expanding through acquisitions and its managementhave suddenly turned into its weaknesses. In the wake of investor disenchantment with corporate glory, as an aftermath of Enron et al., GE has landed at the center of the squall.

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International Finance

Argentina : The shadows lengthen 

-- E Kalyan Babu, Team Analyst

With Argentina teetering on the verge of a collapse, the only way out of the mess is to bring in swift macroeconomic reforms together with active participation of the common Argentine. Any further delay, the country will go past the point of no return.

A few months ago, Argentina was merely suffering from a common cold. And then pneumonia set in, followed by a severe attack of Ebola and with this, the country is now virtually on its death bed. If the country is to survive, all the bad blood needs to be drained and fresh blood pumped in, fast. But the moot question is: How?

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Perspective

Capital Adequacy Norms Primary Dealers: War with VaR

-- E Kalyan Babu, Team Analyst

The new guidelines for primary dealers are definitely a step in the right direction. Usage of Value-at-Risk models to set aside capital will reduce the risk exposure taken up by primary dealers and lead to the development of an efficient bond market in India.

The Reserve Bank of India recently issued new guidelines to banks and primary dealers for making adequate provision to cover their potential for losses in their portfolio of government securities in case of an increase in interest rates. These guidelines are based upon the Market Risk Amendment to the Basel Accord on Capital Standards (January 1996), which stressed the need to set up capital charges for covering the market risk of banks' open positions in traded debt, forex as well as equity. This additional capital charge is over and above the capital set aside for credit risk.

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Financial Services

Indian Insurance Sector Yet to evolve

-- Y Chandra Sekhar, Team Analyst

The Indian insurance sector is witnessing a slow and steady change. Though the sector is yet to come out of the Government control completely, the new entrants are hopeful of competing head-on with the state-owned monopolies and create a niche for themselves.

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Business Environment

EXIM Policy 2002-07 Implementation is the key 

- - N Janardhan Rao, Team Analyst

While the policy is designed to tap India's export potential, a lot depends on how the policy is going to be implemented.

With the dismantling of 50-year-old import restrictions, India joined the bandwagon of free world trade. It opened up a market worth $25 bn under an Export-Import (EXIM) policy. A full-fledged effort seems to be under way to make exports an effective engine for growth for the Indian economy. The Government has decided to lift all Quantitative Restrictions (QRs) on exports, improve incentives for Special Economic Zones (SEZs) and schemes like Duty Entitlement Passbook (DEPB), advance license, and Export Promotion Capital Goods (EPCG) in the new five-year EXIM Policy 2002-07. (For more information on QRs, refer our earlier articles of QR PhaseoutNew Vistas and Competition vs. Protection in Analyst May 2001).

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Gold Prices Demystifying the trends

-- Abhishek Agrawal, Team Analyst

Movement of gold prices have always fascinated traders and observers alike. Research reveals that gold prices are highly correlated with various macroeconomic parameters including inflation and dollar prices. Can they also forecast the prices of gold over a period of time?

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Family Businesses Transformation challenges

--  N Janardhan Rao, Team Analyst

Family-run businesses are moving towards third-generation ownership which is the most critical phase for their survival. To survive in the competitive environment, they must introduce best practices and lay down clear rules on governance and leadership.

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Russia vs. OPEC Storm in the oilfield

--  T Aparna, Team Analyst

Russia appears to be all set and determined to rule the oil markets again. The rising giant is giving the cartel of Organization of Petroleum Exporting Countries (OPEC) tough competition and anxious moments. The battle between the two and the ensuing drama surrounding itwith all the economics, commerce, geopolitics, diplomacy that engulf a wealth like oilwill have great ramifications in the world economy and political scene.

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Case Study

Xerox Corporation Documenting problems 

--  A Sowdeepti, Team Analyst

In the continuing saga of accounting frauds, Xerox is the latest to come to the fore. The copier giant, however, got off the hook by agreeing to pay the largest fine ever for financial fraud but without admitting or denying the wrongdoing. Xerox is now bracing itself for the tough challenges ahead while trying to portray its accounting woes as a thing of past.

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Corporate

Dabur India Ltd. Building on brands 

--  N Janardhan Rao, Team Analyst

Dabur's core competence lies in its ability to conceive, develop and market products based on herbs and natural resources. However, with growing competition from Zandu, Baidyanath and Himalaya Drugs, Dabur's monopoly in ayurvedic products is under pressure.

The Rs. 1166 crore, Dabur India Ltd. (DIL) was established in 1884 and is one of the largest Indian FMCG company dealing with ayurvedic products with interests in healthcare, personal care and foods. For more than a century Dabur has worked in active collaboration with nature to provide the best of herbal health and personal care products to its consumers.

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Financial Markets

Hedge Funds Having the edge?

--  T Aparna, Team Analyst

Hedge funds are proliferating, spurred by claims of better performance and higher returns in a presently dull stock market. They have attracted investors' attention especially with institutional investors increasing their allocation to funds but issues of transparency, disclosure and regulation are yet to be resolved.

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Catastrophe Bonds CATS out of the bag 

--  D Satish, Team Analyst

Recent disastrous events like the 9/11 incident have given the catastrophe bonds a new lease of life. They have become so popular that they are seriously being viewed as alternatives to reinsurance. These instruments are now reshaping the insurance industry.

The events of September 11 have affected businesses in more ways than one. Nowhere was the impact more intensely felt than in the insurance industry. The insurance claims were in billions of dollars and the reinsurers were counting their bills. The insurance rates surged and this turmoil seems to have given a fresh lease of life to the Catastrophe bonds.

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Industry

Global Auto Industry The balancing act 

--  Shashidar Mishra, Team Analyst

The once buoyant auto industry is facing a severe downturn today. The slump in demand, overcapacity of many automakers, and saturation of certain `evergreen' markets has placed the very existence of many a player in jeopardy. Companies for their part are reacting with discounts, cheap financing, shutting down plants and undertaking ambitious restructuring programs. These moves might permanently alter the equations in the auto industry.

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