GM’s China partner can drive the fortunes of GM India. The ramifications can be huge for the auto sector—and the country—at large
General Motors, GM, is slated to give up a crucial 1% stake of its China passenger-car venture to its partner SAIC, the state-owned Chinese automaker. Simultaneously, the two companies have launched a 50-50 joint venture based in Hong Kong for Asia Pacific region. So how does the new joint venture with China’s SAIC impact the position of General Motors in India? As usual, behind the complicated manoeuvring lies a simple truth—General Motors India (GMIL) will now be—plain and simple —under Chinese control. The new venture will take over GM's India assets and be able to sell small cars and light trucks in the world’s fastest growing car market after China. It is clearly apparent to anybody who understands the dynamics of the Chinese automobile industry that SAIC have used their considerable clout to twist General Motors USA (GM) into accepting a position that leverages the tenuous and shaky position GM has in China into letting the Chinese dominate in India.
China is now the world’s largest automobile market, and the way joint ventures are structured in China, GM would be extremely reluctant to put their JV with SAIC in China at risk. Better to let SAIC have a share of the GMIL pie, and in the bargain pick up some cash to try and repay the US government. So this is how it looks to us in India:
General Motors India is no longer under General Motors Asia-Pacific (DAT), Australia. Instead, it will now be part of a 50/50 joint venture between SAIC and GM. And SAIC shall call the shots, since SAIC has a majority shareholding here. This is in no way to be compared to the IBM-Lenovo deal. This is an outright entry by a Chinese automobile manufacturer into India.
In a slightly related move, GM has bought out Suzuki from a 50/50 JV in Canada. This will have an impact on Maruti Suzuki India Ltd—which is not very clear as yet.
Indian automobiles are rapidly acquiring a reputation for quality in neighbouring countries, while Chinese vehicles are, to put it gently, much cheaper, but not quite there yet. The introduction of extremely low cost Chinese vehicles into the Indian domestic market will probably spin off dynamics which can not be predicted, and GMIL will have to protect the carefully nurtured image that it has with great difficulty managed to build over the last few years.
GMIL was just about beginning to hit the market-share numbers in India. And now comes this news of them becoming a Chinese joint-venture under Chinese control. GMIL will need to be extremely careful about how they go forward here. Otherwise the whole house of cards could collapse, given the sad reputation some Chinese goods have acquired in India.
The Indian government is also sure to have a view on this development. Chinese trucks from India facing up with Chinese trucks from China on a disputed road in Kashmir is just one part of it. Wait and watch. And anticipate a Chinese-driven price war in the automobile market very soon.
General Motors seems to be racing ahead with new vehicle launches in India under the Chevrolet brand. A few months ago it was the diesel-engined Cruze taking the Honda Civic and Toyota Corolla head on. Then it was the turn of the electric Spark. Last week the motoring media was treated to a preview of their small hatchback, the 1.2-litre petrol engine Beat. With the Tavera a runaway success in the people mover category, and a decent 4WD in the Captiva, the reasonably successful Optra, GM's portfolio now needed an ultra-luxury car and some more commercial vehicles in the small- to medium-size ranges. Unconfirmed rumours about the Cadillac coming to India usually sink without a trace. Massive changes in the structure of the Board at General Motors in the US don’t really make headlines in India either. GM’s IOU to the US government now exceeds $52 billion, and the burn rate is not slowing down. All these were the key issues about GM in India. All that pales in comparison with the latest development of the JV with China.
Talks of boost in government spending uplift Indian market sentiment
The Sensex gained 245 points from the previous day’s close, ending the day at 17,228, while the Nifty closed at 5,148, up 81 points.
Reliance Industries Limited (RIL) is reportedly in talks with more than a dozen banks to club together a war chest of $8 billion-$10 billion for the acquisition of LyondellBasell, the world’s third-largest petrochemical company that has filed for bankruptcy in the US. The stock rose 2%.
Tata Steel rose 2% after the company said its sales rose 34.5% to 498,000 tonnes in November 2009 over November 2008.
Larsen & Toubro rose 1% after the company said that it had received an order worth Rs844 crore from the Nuclear Power Corporation of India for construction work at an atomic power project in western India.
Kiri Dyes & Chemicals has executed a purchase agreement for acquisition of DyStar Group and its selective assets. The stock shot up 9%.
New Delhi Television has entered into a conditional agreement with Turner Asia Pacific Ventures for the sale of most of its indirect stake in NDTV Imagine, which is held through its subsidiary NDTV Networks Plc. The total transaction size is $117 million and involves a sale of 76% of NDTV Imagine for a consideration of $67 million together with the subscription to fresh shares in NDTV Imagine by TAPV for $50 million. The stock was up 3%.
Gammon Infrastructure surged 7% on reports that the company would buy 24% stake in Indira Container Terminal and would increase the stake to 50% over three years.
Mahindra Systech said that it would consolidate Mahindra Ugine, Mahindra Forgings and other unlisted companies. All five companies will be consolidated under one company. Mahindra Ugine gained 5% and Mahindra Forgings shot up 10%.
During trading hours, the government said that it will seek Parliamentary approval to spend an extra Rs25,725 crore ($5.5 billion) for the fiscal year to end-March 2010. The gross additional expenditure would be Rs30,943 crore, of which Rs5,217 crore would be met through savings, the government said.
The government will spend an extra Rs3,000 crore on fertiliser subsidies and Rs3,460 crore on food subsidies. The government would also spend Rs800 crore on an equity infusion in State-run carrier Air India.
According to finance minister Pranab Mukherjee, the government will complete share sales through public offers in three State companies by the end of March 2010. Divestment of 5% each in NTPC and Rural Electrification Corp and 10% in unlisted Satluj Jal Vidyut Nigam is under implementation and there is a need to adhere to fiscal prudence as early as possible, he said.
As per media reports, Reserve Bank of India (RBI) governor D Subbarao said that measures to control capital inflows into India could not be ruled out in case there was a surge in foreign funds that had to be contained. The RBI governor said that he was not willing to debate at this time on the instruments or timing, as this would depend on how the situation evolves.
Meanwhile, the government has partially lifted the ban on rice and wheat exports by allowing organic varieties of these grains for overseas sale, as per reports.
According to the Manpower Employment Outlook Survey, India Inc is all set to step up hiring in the last quarter this fiscal as employers are more optimistic than their counterparts in other nations. The survey said brisk hiring is anticipated by Indian employers during the upcoming quarter.
It further added that with 38% of employers expecting total employment to increase, 2% forecasting a decrease and 53% predicting no change, the net employment outlook is a robust 36% and once seasonal adjustment is added to the data, the outlook stands at 39%.
India’s employment outlook in January-March is better than bigger economies including Australia at 19%, Canada at 13%, China at 11% and the US at 6%.
During the day, Asia’s key benchmark indices in China, Hong Kong, Japan, South Korea, Taiwan and Indonesia fell by between 0.09%-1.18%, as US Federal Reserve chairman Ben Bernanke’s comments on the outlook for the economy prompted investors to stay cautious.
The Japanese government unveiled a 7.2 trillion yen ($81 billion) economic stimulus package.
On Monday, 7 December 2009, the Dow Jones Industrial Average was up 1 point while the S&P 500 and the Nasdaq Composite were down 3 points and 5 points respectively after Mr Bernanke said the economy faced “formidable headwinds.”
In premarket trading, the Dow was trading 16 points higher.
Both the BSE and NSE recently announced their own MF trading platforms, immediately after SEBI gave its nod for introducing stock exchange based trading platforms for MFs (first reported by Moneylife). This has come as a delight to the broker community as they now stand to gain from another revenue stream.
Interestingly, however, many brokers do not even have the mandatory qualifications to be eligible to deal in MF products.
Moneylife had earlier pointed out that, for brokers, switching over to the complexities of MF schemes will involve a huge learning curve, given that their expertise lies in dealing with equity instruments. MFs represent a broadly different line of business altogether. This gap can only be bridged by passing the necessary Association of Mutual Funds in India (AMFI) test that would make them eligible to buy and sell MF units on behalf of clients.
Chandrashekhar Layane, senior vice president, FairWealth Securities said, “I think almost all the brokers would qualify to trade MF units on behalf of their clients; it is not that difficult to pass the AMFI distribution module. It depends ultimately on the broker’s business model. Apart from equity and commodity business, if he finds good opportunity in this platform, then he will surely get it done to qualify.” He recalled that in the past, brokers were hesitant to pass the NCFM exam introduced by NSE to run authorised trader terminals at their branches or franchisee locations. Now it has become a practice and almost all employees of the brokers are NCFM qualified.
The success of an MF trading platform would hinge on the ability of brokers to give quality advice to clients, tailored to their specific individual requirements. In such a scenario, brokers’ lack of expertise in MF products would only further alienate an already miniscule retail MF investor base. Mr Layane is of the opinion that absence of AMFI certification won’t hinder the implementation of MF platforms. “Many of the brokers who don’t have the AMFI distribution module certification will hire those candidates who have passed this exam to qualify to trade in MF units,” he added.
It is the responsibility of the Securities and Exchange Board of India (SEBI) to ensure that all terminal operators possess the necessary qualification before giving them the green signal.