Different Wavelength-- Vsnl
Now, this is interesting because of two reasons -one, developments for the company recently have certainly not been the best the company has witnessed , and, two, the premiums of most of the existing Indian ADRs have been shrinking of late with some of them as low as 4 per cent.
Firstly, VSNL's performance in the first quarter of the current fiscal wasn't particularly noteworthy. While sales growth was almost flat, the tepid growth of 8 per cent in earnings too was riding piggyback on a huge other income component.
More importantly, the government's decision to demonopolise VSNL by 2002 (against the earlier 2004) will certainly have a negative impact on revenues.
The end of the bandwidth monopoly will not have a major impact as a result of the company's exclusive marketing rights with the world's major bandwidth providers through submarine optical fibre cables.
However, the end of the monopoly over international voice telephony will have a major impact on revenues for the telecom major. The only solace being a compensation package including free entry into the national long distance (NLD) telephony and a waiver on revenue sharing for two years, besides getting a Category A ISP licence.
Clearly, the bad news outweighed the good ones and this was evident from the scrip's 40 per cent fall to Rs 720 over the last month. It was only the spectacular ADR debut that revived sentiment for the scrip.
Besides, the VSNL ADR's 40 per cent premium is clearly among the higher ones considering Silverline ADR's tiny premium of 6 per cent and ICICI's 4.4 per cent premium. Needless to say, VSNL's impressive debut at NYSE does surprise in the relatively lacklustre US equity market.
RBI and the rupee
The tussle between the Reserve Bank of India (RBI) and the rupee is taking a new turn with every passing day. After the central bank's heavy artillery, in the shape of hiking interest rates, failed to have any effect, the RBI has brought in another big gun.
This time around, it is the bringing back $1 billion worth of EEFC balances which is supposed to do the trick. That seems to be working, for the moment.
But $1 billion works out to a bit more than a week's exports. And if exporters do not respond to the pleas to get their proceeds back expeditiously, appeals which they have so far not shown any signs of heeding, the rupee will continue to be under pressure.
Dealers estimate that only about 20 per cent of export proceeds are coming in at the moment. And given the slide in the rupee, a rational exporter will try and delay repatriation of proceeds as far as possible.
The policy objective must therefore be to decisively change sentiment in favour of the rupee. And borrowing funds at 14 per cent plus while lending them at 8 per cent, as the central bank is doing at the moment, is not going to help.
The problem is that the RBI has stamped out speculation, and by doing so has painted itself into a corner. It is speculators who provide depth to the market and the Indian forex markets lack depth to such an extent that very small trades have the effect of moving the markets.
Also, in normal times, speculators are the ones who take a two-way view of the market, concerned as they are with essentially short-term movements. Take away speculation, and you remove one essential element which can make the rupee bounce back.
Under these circumstances, the RBI is no doubt correct that the burden of stabilising the rupee falls on its shoulders. If all exporters delay bringing back their money, the consequences for the rupee could be pretty dismal.
The point is, the way the RBI looks at things, getting corporates to bring back their EEFC balances is perhaps the right thing. But the central bank needs some follow-up measures which will decisively change sentiment. One way to do that is to oversupply dollars dramatically.
Once exporters realise that the central bank is going to keep the rupee stable, come what may, and that they're losing money by keeping their proceeds abroad, then we should see inflows normalise, taking the weight off the rupee.
Sure, selling dollars will lead to an even greater liquidity squeeze, but then clearly the rates at the short-end are currently far above market levels.
Plastic money
The residents of Mumbai would be heaving a sigh of relief following the ban imposed on the use of plastic bags. With the city dumping nearly 2000 tonnes of plastic bags everyday, plastic bags had become an eye sore.
However, not everyone seems to benefit form the cleanliness drive. Aside from bag manufacturers, plastic manufacturers will be adversely hit. Why? India consumes over 7,00,000 tonne of the material per annum.
Besides, with crude oil prices hitting new highs and with no signs of these coming down, margins of plastic producers are likely to be hit further.
Paper manufacturers however, are smiling from ear to ear. Paper bags are cited to be the ideal substitute for plastic bags as they are bio-degradable and have the requisite strength.
Furthermore, consumption of paper will be much higher than plastic in quantity terms, as much heavier paper bags will be required to meet the same strength requirements as those of plastic bags.
Also, with this year being the election year in the US (traditionally paper consumption and prices have shot up during the US election year), it looks like the scrips in the paper sector are in for good times after a really long time.
(with contribution from Mobis Philipose)