The Navhind Times I Monday February 29, 2016

Magazine for
Business &
Consumers

navhindtimes.com

vox populi

Make in India is stumbling

over labour laws
By Abhik Ghosh

hats the one assurance investors

want before setting
up manufacturing
base in India? The
ease of making workforce adjustments in line with changing
market conditions. In this area,
Indian labour laws are among
the most restrictive.
The Industrial Disputes Act of
1947 has two provisions in the
way of workforce adjustments.
Chapter VB of the Act requires
prior approval of the appropriate government before resorting to any layoff, retrenchment
or closure in establishments
employing 100 or more
workers.
The draft Labour
Code on Industrial Relations currently in circulation seeks to raise the
threshold to establishments employing 300
or more workers, but
it is still work in progress.
Another major
contentious
provision
is Section
9A of the
Act which
mandates 21
days notice
before affecting any change in established
conditions of service of any
employee, including any change
necessitated by rationalization,
standardization or improvement
of plant or technique. This is
anathema for investors, particularly in this age of fast changing
technologies and manufacturing
processes.
Contract labour is yet another major area of concern. Investors would surely want to know
if engaging workers on temporary contracts would run afoul
of the law. The Contract Labour
(Regulation and Abolition) Act,
1970, as the name suggests, is
enforced to regulate the practice
and abolish it in certain cases. In
other words, the practice is not
prohibited. Engaging contract
workers for temporary, intermittent or seasonal work is allowed but using them for work
of perennial nature violates
the letter and spirit of the law.
Why would investors want
to engage workers on tempo-

rary contracts in the first place?

To meet surges in demand for
goods and services requiring urgent workforce adjustments. Immediate deployment of regular
workers is not always feasible
and pruning them alongside falling demand often meets legal
obstacles. Moreover, regular
workers are increasingly becoming less productive and more
expensive.
The central government has
yet to initiate any action in this
area. Rajasthan has taken the
early lead, raising the threshold
for applicability of the law to
cover industries or contractors
engaging 40 or more contract
workers, up from the original
20. Other state governments
are expected to follow suit. The
move has been welcomed by
employers and criticized
as anti-worker by trade
unions.
But changing the applicability clause is like
nibbling at the edges.
Plunging into the core,
the status of temporary workers must
be redefined
and extended
beyond
the
present
limit of 240 days
in a year. That
should take care of
persistent demands by the traditional trade union movement
for regularization of all contract
workers.
The big question is: How soon
can the central government
bring about meaningful changes
in the existing laws to facilitate
quick workforce adjustments?
For investors, this is the major
sticking point. Can the government drive the labour reforms
agenda through the legislative
route and achieve desirable outcomes?
Labour reforms are critical to
the Make in India campaign. Investors have been waiting with
anticipation. Brand India cannot
afford to disappoint. IANS

Latest
BSE Sensex

23,154.30

Nifty

7,029.75

Re/ US $

68.62

Rs/ UK Pound

96.38

farm produce prices

Vegetables Retail rates at GOA STATE
HORTICULTURE Corporation Ltd. (Rs per kg)*
hLadyfinger 33.80
h

hCauliflower
h
(piece)

hCabbage
h

hChilly 47.00
h

9.80

12.60

hCluster
h
Beans

26.10

hOnion
h

15.65

hFrench
h
Beans

24.00

hPotato 21.75
h

hCarrot
h

26.00

hTomato 11.80
h
*Rate as on Feb 27 2016

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The fact is the PSU banks are in deep trouble. Their

unrecoverable loans are estimated at Rs 4 lakh crores

The Great Bank Heist

By Tensing Rodrigues*

o,I am not talking about

the popular game some of
you may be fond of. I am
talking about your neighbourhood nationalised bank
branch, you have unreserved faith in.
That bank may be in danger not from
masked robbers brandishing WW2
vintage Berettas but from itself and its
ways and the ways of the politicians.
The fact is the PSU banks are in
deep trouble. Their unrecoverable
loans are estimated at Rs 4 lakh crores
and if we take into account the loans
that are likley turn bad in the near future the figure zooms to about Rs. 8
lakh crores. That is about three times
their market value. This is for every
Rs 10,000 parked in shares of PSU
banks, you carry the burden of Rs
30,000 as bad loans. That is indeed
horryfying.
Of course this has not happened
overnight. It is a legacy of several
decades. Well the motive behind
nationalisation was to bring the resources of the banks under the control of the government. We all know
that is a double edged sword; nation
building is a lofty goal; but there is much green
grass between the goal and the centre mark for
the goats to graze on.
As a union minister of state for finance in
the Rajiv Gandhi cabinet in 1980s Janardhan
Poojary shot into fame for his loan melas for
the farmers. According to RBI old-timers Manmohan Singh, the RBI governor then, scoffed
at the melas but did pretty little to stop them.
Poojary justified himself on the ground that
the total lendings to the farmers will be a small
percentage of the lendings to the politically favoured big business which too was defaulting.
Very likely that was true. Bereft of all political cross arguments, the fact is that over the
last few decades the capital of the PSU banks,
SBI included, has been squandered away imprudently. The fact that both at RBI and the
finanace ministry had very low standards of

financial governance then only

helped to make matters worse.
There is nothing to be
ashamed about such hankypanky state of affairs in the corridors of the North Block. It was
not much better in the US in the
decades preceding the sub prime
mortgage scam and the eventual
financial crisis and I do not think
it is any better now. Several of
the Fed Chairmen in US have
been financial wizards from the
private sector better known as the masters of
the universe. Knowledge and skill has never
been scarce among them. But the fact remains
that exactly the same happened there too.
The resources of the public sector financial
institutions were used to further political goals.
Even Poojary perhaps would not have had the
courage to order the bank chairmen to lend to
those who you know cannot repay. But some
sins when they are too big are always pardonable.
But RBI Governor Raghuram Rajan is not
in a mood of winking at the non-performing
assets or bad loans of the PSU banks. It is but
natural that he should be so stubborn. He had
seen the US crisis first hand and kept on pointing out the dangerous path that was being
trodden till he was proved right by the events.
He would not like the history to repeat in India.

Our banking system is safe in his hands.

But he is ready to be patient he would
not like casualties on the operating table
so he and the government are ready to
inject fresh blood into the anaemic PSU
banks. Indradhanush is the governments plan to bring the banks back to
health.
Government proposes to pump in extra capital of Rs 1,80,000 crores for the
next four years up to 2019. The strategy
is that such an infusion will improve
valuations which coupled with value unlocking from non-core assets as well as
improvements in capital productivity will
enable PSU banks to raise the remaining
Rs. 1,10,000 crore from the market.
As of last year (third quarter 201516) a partial sick list of PSU banks reads
as follows (PSU Bank / NPA as % of total assets)
Syndicate Bank / 2.38 per cent, Canara Bank
/2.42 per cent, Bank of India / 2.50 per cent,
SBI / 2.80 per cent, IDBI Bank / 3.05 per cent,
Corporation Bank / 3.27 per cent, Dena Bank /
3.33 per cent, Central Bank of India / 3.58 per
cent, Oriental Bank of Commerce / 3.68 per
cent, Andhra Bank / 3.70 per cent, Punjab National Bank / 3.82 per cent, Allahabad Bank /
3.89 per cent, UCO Bank / 4.25 per cent, Indian
Overseas Bank / 5.52 per cent.
How does this state of affairs affect you as
a bank depositor? Depositors do not need to
worry about the NPAs as such unless the level
reaches the point where the bank bleeds so
much that it is unable to pay back the deposits.
In such a case, the Deposit Insurance Corporation and Credit Guarantee Corporation, a
fully owned subsidiary of RBI covers deposits
up to Rs. 1 lakh; the rest depends on the solvency value of the bank. But that is an extreme
case; and I do not feel you should worry about
it at all. But you need to be cautious do not be
carried away by banks offering inordinately
high rates of interest that is probably where
the danger lurks.

*The author is an investment consultant.

Readers can send their comments and queries to investment.ideas.shop@gmail.com

Possible deficit revisions in upcoming budget

ndia should review its midterm fiscal strategy, a government report urged on Friday,
in a possible indication that
Finance Minister Arun Jaitley
may have to borrow more to
raise pay for government employees and bail out banks.
The report called India a
haven of stability in a gloomy
international landscape but, as
Group of 20 finance ministers
gathered for talks in Shanghai,
warned too of possible currency
turmoil in Asia after Chinas recent devaluation.
The Economic Survey, which
sets the scene for Jaitleys third
budget on Monday, forecast the
Indian economy would grow by
between 7.0 percent and 7.75

percent in the 2016-17 fiscal

year that starts on April 1. That
would be in line with this years
expected outturn of 7.6 percent
but below earlier expectations
that growth would accelerate to
over 8 percent.
Although Asias third-largest

economy has overtaken Chinas

as the worlds fastest-growing,
weak business investment and
a growing bad loan problem will
compel Prime Minister Narendra
Modi to keep the spending taps
open to deliver on his promise
of jobs for Indias 1.3 billion

people. Modi needs to cover the

estimated $16 billion annual
expense of a once-in-a-decade
pay and pension hike for federal employees.
The report also put the total
cost of recapitalising banks at
$26 billion in the coming years.
The government will stick to
its budget deficit target of 3.9
percent of gross domestic product in the year now drawing to
a close, but the coming year will
be challenging from a fiscal
point of view.
The report, written by economic adviser Arvind Subramanian, said that credibility and
optimality argued in favor of
sticking to next years deficit
target of 3.5 percent of GDP phrasing that left room for an
upward revision. Reuters

investors guide

Union Budget
to dictate
sentiments

ll eyes glued on the Union Budget as market

participants are expected to react strongly
to the eventon Monday. Everybody is
hoping for some concrete steps from the
government to boost investors sentiment.
Finance Minister Arum Jaitley is expected to
provide a
roadmap for
rationalisation
of the
corporate tax
exemptions
in his Budget
proposal.
Jaitley in the last Budget had announced
phased reduction in corporate taxes over four
years to 25 per cent from present 30 per cent
and also simultaneous withdrawal of corporate
tax exemptions. Investors also want to see if the
government is able to keep spending on areas
such as building rural roads, houses and other
infrastructure, without letting its fiscal deficit
targets slip.
On the global front data on manufacturing
PMIs for China, Japan, Eurozone and US among
others for the month of Februarywill be unveiled on Tuesdaywhich will indicate health of
manufacturing activity in the respective regions.

weekly
market
outlook

- Vijay Singhania, founder-director, Trade Smart

Online.

sector watch

scrip tip

Recovery still
not in sight

Structural growth story

he third quarter of the year continued to remain

challenging for the consumer sector. Weak rural demand scenario coupled with lack of pick up in urban
consumption is clearly visible in the operating performance. Companies declared modest increase in net sales
and profits. On the positive side, operating margins expanded on the back of lower commodity inflation.
Rural demand which till few quarters ago was growing at about two times urban demand has
corrected sharply and is now growing
in line with urban demand. Two years
of continuous drought and lower support prices have had a severe impact on rural families
dependent on agriculture. Rate of increase in rural wages
too has been the lowest in past many years, thereby
impacting a large consumer base. Normal monsoon and
favourable announcements in the forthcoming budget
would be the key factors to watch, in our view.
While few companies like Asian Paints and Marico
surprised positively on volumes, most of the other companies in the coverage universe reported modest growth
rates during the quarter. Asian Paints reported an impressive 15 per cent volume growth however the companys growth has been volatile across quarters. Marico
surprised with 10 per cent volume growth on the back
of strong performance bySaffolaand value added hair
oils. While Titans jewellery business reported strong 28
per cent growth in the quarter mainly due to postponement of festive season from second to third quarter.
On the other hand Dabur, Colgate, GSK Consumer,
were some of the poor performers. In terms of valuation while stock prices have corrected in the past couple
of quarters, it has also been followed by cut in earnings
estimates for most of the companies in the sector. As a
result, the valuations continue to remain high.
Reliance Securities

FMCG

I Industries posted a marginal revenue growth driven by 9

per cent increase in custom synthesis manufacturing (CSM).
On the other hand, the domestic agriculture business declined
by17 per cent due to severe drought. Better cost management and
favourableproduct mix (CSM segment contributed 71 per cent of
revenues) helped the company topost improvement in OPM and
satisfactory net profits.
In future, viz. from 2017 onwards the outlook for agriculture and
CSM segments will improve assuming normal domestic monsoon
(the forecast of La Nina by two MET departments) and favourable
weather condition in export markets. Hence, we continue to prefer PI
Industries with unique business model and a structural growthstory.
The recent correction in the stock price provides good opportunityto accumulate the stock. The company has maintained a strong
growth of around 20 per cent and will maintain margin in the range
of 20-22 per cent over the next couple of years. Cash generation is
going to be robust and the debt: equity ratio remains low. Capital expenditure of Rs150 crore in the next two years is likely to be funded
Sharekhan
by internal accruals. 

Unique business model

nfinites unique business structure and focus on adding new

clients helping the company to grow with higher growth rate.
ICSL has multiyear contracts with fortune 500 companies
which guarantee consistent performance in the future. It has
88 active customers and added 32 new clients in past three
quarters. Almost 91 per cent of the total revenue is coming
from top 10 clients. On the back of demand environment in
technology and telecom & media verticles, robust pipeline,
quality of deals signed, other favourable factors, improving cost
efficiency and economies of scale, ICSL is a good buy.

Karvy

BUY
Target Price

` 800

Current Price

` 520.55

PI Industries

buy
Target Price

` 237

Current Price

` 184.75

Infinite Computer Solutions