ICICI Venture Fund Management Co Ltd (IVFMC), the investment unit of ICICI Bank Ltd, is planning to invest $250 million-$300 million over the next three years in realty, especially in the residential segment in India. At present, the company does not plan to invest in the commercial segment.
Professional services provider Ernst & Young (E&Y) has said that despite the current downturn, more than 60% of global businesses have no active cost reduction programs. According to an E&Y survey titled ‘Save to Prosper: from cost reduction to cost optimization’, almost 25% of the businesses surveyed do not have a plan for cost reduction programs and only 17% view continuous cost reduction as a priority.
“Our survey highlights that many businesses are dangerously complacent about cost reduction and are as a result not ready for the eventual economic recovery. Although cost-consciousness has become a top priority during the last year, the majority of company efforts so far have been on tactical and temporary measures, delivering no more than 10% cost reduction for most businesses. Sustainable cost reduction and optimisation need to become standard practice and be at the heart of any company’s business recovery agenda,” said Raju Lal, partner, E&Y.
The survey also revealed that the more fundamental, radical steps to cost reduction have yet to be fully addressed or implemented and realised. Only a third of companies are looking to achieve 20% or more cost savings over the next 12-18 months.
A total of 561 senior executives were interviewed for the survey, which covered 11 industry sectors in 11 of some of the largest economies. The results show that the most common reason for implementing cost reduction is ‘to ensure survival’, implying that once survival is achieved, cost reduction will be marginalised.
The report said that many businesses remain overtly concerned with maintaining or expanding market share at the expense of profitability. Smart cost optimisation, by contrast, may entail sacrificing customer numbers in pursuit of healthier margins and more fruitful business partnerships.
The survey also revealed some equally striking sector-specific results. For the question on whether the sectors regard cost reduction as a means to securing economic survival, 46% of insurance; 45% of telecommunications and oil and gas; 44% of real estate; 42% of power and utility and banking responded in the affirmative. By contrast, 34% of pharmaceuticals and consumer products and 33% of media and entertainment responded negatively.
Interestingly, the consumer products and telecommunications sectors both achieved higher scores than other industries in terms of cost savings relating to goods sold. For consumer products, 31% of companies reached 11-20% savings costs; for telecommunications 32% of companies reached 11%-20% savings cost.
The report also draws attention to the opportunities offered by innovative business models such as virtual worlds and the scope for environmental measures such as renewable energy to play a role in cost reduction. Both can improve a company’s reputation and its relationship with stakeholders.
Companies that neglect these two issues may be storing up trouble for the future and missing significant cost reduction possibilities.
“Cost reduction has to be considered as a fundamental business commitment. Companies’ focus now needs to move to beneficial cost optimisation. If companies treat it as a temporary and inconvenient phase, they risk losing out to more agile rivals. By recognising the competitive nature of the new commercial landscape, managements can ensure their businesses survive and prosper,” Mr Lal concluded.
Indian markets came under huge selling pressure after industrial production growth—though robust at 10.3%—fell below market expectation of a growth of 13%-14% for the month. The Sensex declined 70 points from the previous day’s close, ending the day at 17,119 while the Nifty closed at 5,117, down 17 points.
During the day, Reliance Industries Limited (RIL) remained flat. As per reports, RIL is in talks with IL&FS and a couple of other players for part-sale of its stake in its Haryana SEZ. New York-based hedge fund DE Shaw sold 36% stake in DLF Asset (DAL) to the promoters of DLF for $500 million, retaining only a 4% stake which it intends to sell as and when the firm lists in Singapore. DLF was down 1%. Chambal Fertilizers & Chemicals said that one of its promoter group companies revoked a portion of the shares which it had pledged earlier. The stock was down 1%.
Jubilant Organosys gained 2% after foreign brokerage houses initiated coverage on the stock with ‘outperform’ rating.
Cox and Kings (India) Ltd made an impressive stock market debut. The stock closed at Rs426, up 29% over its issue price of Rs330 per share.
As per reports, Shree Renuka Sugars has initiated talks to buy stake in Balrampur Chini. Shree Renuka was down 3% while Balrampur Chini was up 1%.
According to the latest data from global fund tracker EPFR Global, emerging market equity funds received $2.3 billion in inflows for the week ended 9 December 2009, bringing 2009 inflows to $75.4 billion. Emerging-market funds are heading for record annual inflows in 2009. The previous record was $54 billion in 2007. Among the largest developing nations, Russian stock funds saw inflows rise to a seven-week high of $181 million while Indian equity funds absorbed $128 million, EPFR said.
As per the data released by the government, industrial output jumped 10.3% in October 2009 from a year earlier, helped by stimulus measures and robust domestic demand. Manufacturing production rose 11.1% in October 2009 from a decline of 0.6% a year earlier. September’s annual industrial growth rate was revised upward to 9.6% from 9.1% previously.
During trading hours, commerce minister Anand Sharma said that the current trend in industrial output is likely to continue in the coming months. The deputy chairman of the planning commission Montek Singh Ahluwalia said that he hoped the momentum in the country’s industrial output would be sustained in the coming months.
Meanwhile Andimuthu Raja, communications minister, said that the government would conduct the auction for 3G wireless spectrum as scheduled. The auctions are slated to be conducted on 14 January 2010.
During the day, Asia’s key benchmark indices in Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan rose between 0.25%-2.48%. But China's Shanghai Composite fell 0.21%. A larger-than-expected surge in China’s industrial production and a drop in US jobless claims (to a one-year low) boosted confidence in a global economic recovery.
China’s industrial production grew more than economists estimated in November 2009, signalling a strengthening recovery in the world’s third-biggest economy. According to the statistics bureau in Beijing, factory output climbed 19.2% in November 2009 from a year earlier, the biggest increase since June 2007.
International Monetary Fund’s first deputy managing director John Lipsky warned on Thursday that economic recovery around the world remains tentative and the return to growth is still vulnerable to new shocks. He said that financial conditions have improved but are far from normal and mounting credit losses, especially in commercial real estate, could dampen the recovery in business investment and inventories. He said that the fiscal challenges in rich countries were “formidable” and changes to taxes and spending would not be easy to design or implement. He further added that reducing the debt levels would require fiscal adjustments to the order of 8% of gross domestic product figures in advanced economies.
According to Mr Lipsky, the recent surge in capital flows into emerging markets could be a “catch-up” from the previous sudden withdrawal from risk, and capital controls may be appropriate if the surge is temporary. But temporary capital controls should not be used to paper over real problems, or to avoid needed policy adjustment, Mr Lipsky added.
On Thursday, 10 December 2009, the Dow Jones Industrial Average was up 69 points while the S&P 500 and the Nasdaq Composite were up 6 points and 7 points respectively. Signs of improving trends in the job market and a decline in the US October 2009 trade deficit reassured investors that the economy was on a steady growth path.
The US initial jobless claims for the week ending 5 December 2009 came in worse than expected at 474,000. However, the continuing claims made a sharp move down to 5.16 million from 5.46 million. The consensus had called for 5.45 million continuing claims.
The trade deficit for October 2009 totalled $32.90 billion which is lesser than the $36.80 billion deficit that had been widely expected. It is also an improvement from the September numbers.
In premarket trading, the Dow was trading 53 points higher.