The Nifty may be readying for a short bounce but the trend is medium sharply lower, unless the budget can pull off a miracle
One of the key indicators of prosperity—salary—indicates that the future is not all that bright and it could get worse. Nomura thinks GDP will not pick up anytime soon
Salary is one of the important yet often ignored economic growth indicator. It is believed, according to Nomura, that salary growth will moderate and thereby affect consumer spending, which in turn will affect economic growth. The report stated, “According to global HR consultancy firm Aon-Hewitt, nominal salary growth in India is likely to moderate to 10.3% y-o-y (year-on-year) in 2013, down from an estimated 11.9% in 2012. Adjusted for inflation, we estimate that real salaries are likely to grow at a meagre 0.7% y-o-y in 2013 from 2.2% in 2012.” This is a scary statistic, if proved true.
The chart below illustrates salary growth over the last 10 years. As you can see, real salary growth has been in a sort of secular decline and it does not look good at all. In fact, if it goes into negative territory, it could spell trouble for the economy.
One of the key reasons, according to Nomura, has been corporates in cost-cutting mode, as they anticipate slack demand and higher inflation, going forward. The report said, “In our view, a steady decline in corporate profitability and no clear sustained demand recovery on the horizon has forced firms to rationalise employee costs.”
However, according to Nomura, this is confined to urban areas. It is not known how the situation is in the rural and India’s hinterland. If it is sounds bleak for urban areas, it is plausible that it is worse in rural areas. Nomura expects the economy to slow down. It said, “With flat real income growth and a worsening employment outlook, we expect private consumption growth, particularly in urban areas, to remain weak. Ongoing fiscal consolidation, a sluggish investment cycle and lacklustre external demand all suggest that GDP growth is unlikely to pick up quickly.”
Our policy makers seem fixated on GDP rather than addressing the real problem—inflation—which reduces the purchasing power of the masses and the middle class. With the budget around the corner, it remains to be seen what the government intends to do to tackle this problem and revive the economy though most pundits are expecting it to be populist.
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Rajeev Sawhney, who is fighting a bruising battle with H&M over the takeover of Vmoksha, alleges that the ratings agency did not look into the pending criminal case against the chairman and MD of H&M before assigning its highest rating. How independent is CRISIL’s grading of H&S?
In a bizarre piece of ‘independent’ research, ratings agency CRISIL has assigned Helios & Matheson Information Technology (H&M), an unfancied software company, its highest grading of 5/5. While the selection of H&S from hundreds of excellent companies looks fishy, the agency has overlooked several reports about a criminal case pending against the chairman and managing director of H&M, alleged Rajeev Sawhney, chairman of Vmoksha Technologies Pvt Ltd. Mr Sawhney, a US-based non-resident Indian (NRI) is fighting a bruising battle with H&M over the takeover of Vmoksha.
The Reserve Bank of India (RBI), under a Right to Information (RTI) reply to Mr Sawhney, has admitted that its permission was not sought by State Bank of Mauritius while providing a loan facility on personal guarantees of V Ramachandra, chairman and GK Muralikrishna, managing director of H&M. The RBI has already submitted a detailed note to the Enforcement Directorate (ED) in the matter.
The ED is conducting investigations against Mr Ramachandran and Mr Muralikrishna for their alleged role in the acquisition of Vmoksha.
In its reply under the RTI, the central bank while acknowledging the ‘deal’ stated that “...instead of crediting the acquisition proceeds to the account of Vmoksha Technologies maintained with HSBC Bank, the proceeds were credited to the Vmoksha Technologies account with State Bank of Mauritius at its Mauritius branch. It was then observed that this account was purportedly opened in a fraudulent manner by Pawan Kumar, the then CEO and chairman of Vmoksha Technologies with the help of two persons, i.e. chairman and MD of H&M. Pawan Kumar also applied for a loan of $13.5 million with State Bank of Mauritius at Port Louis branch in Mauritius. This loan account was immediately sanctioned by the bank against personal guarantees of two persons i.e. chairman and MD of H&M,” the RBI said.
RBI in its note sent to the ED further added that “...the issue relating to State Bank of Mauritius, Port Louis branch sanctioning loan to Vmoksha Technologies Mauritius against personal guarantees of two resident Indians i.e. chairman and MD of H&M, it was advised by the Mumbai branch of State Bank of Mauritius that through inadvertence, RBI’s prior approval for such guarantee was not obtained.”
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CRISIL has assigned H&M a strong upside from the current market price with highest grading point of 5/5. According to CRISIL, banking, finance and insurance companies (BFSI) and healthcare segment would drive future growth of IT services in India during 2013 and, H&M would get benefits from it as the company works with seven of the 20 largest global banks.
CRISIL said, “The company has a track record of uninterrupted profits for 84 straight quarters and consistent dividend distribution year on year since inception. Strong organic growth momentum has led to double-digit growth sequentially quarter-on-quarter and a 42% topline growth (YoY) in the September 12 quarter over September 11.”
For the year ending September 2012, H&M’s consolidated revenues increased to Rs451.9 crore from Rs394.14 crore, over same period a year ago. Except that the market either does not believe in the numbers or does not believe that the future is all that rosy. The stock price of H&M is down from the intra-day high of Rs267 in early 2006 to Rs50 today. Crisil’s discovery of H&S’s hidden features is remarkable given that virtually no analyst tracks this company regularly.
Moneylife had previously reported about the bruising battle between H&M and Rajeev Sawhney. The battle started in 2005 when H&M announced a $19 million buyout of Vmoksha, co-founded by Rajeev Sawhney and Pawan Kumar (former CEO of the controversial DSQ Software), with the former putting in the money and the latter running the operations. Mr Sawhney soon realised that he had been kept in the dark about many aspects of the deal.
On 11 May 2005, both the companies signed a share purchase agreement under which V Ramachandran, chairman of H&M, was to pay $19 million for the three units, out of which $4 million was to be paid to Pawan Kumar, the then chief executive of Vmoksha and also former CEO of the controversial DSQ Software, as earn out. Although, Pawan Kumar and his family members were also stakeholders in Vmoksha, Mr Sawhney later bought out their stake as well.
Mr Ramachandran was supposed to pay $13.4 million to Mr Sawhney, after paying some amount to Tapan Garg and Madhuri Garg, son and wife of Pawan Kumar for their holding. Mr Sawhney soon realised that he had been kept in the dark about many aspects of the deal. For instance, he found that instead of receiving $19 million, a bank account had been ‘fraudulently’ opened in the State Bank of Mauritius in Vmoksha’s name and used to borrow $13.5 million, using a fake board sanction and false entries. That money was remitted to H&M ostensibly for subscription of redeemable preference shares on 28 June 2005.
Earlier in December 2011, the Supreme Court dismissed special leave petitions (SLPs) filed by H&M and Pawan Kumar, the then chief executive officer of Vmoksha Technologies. Both have challenged the Bombay High Court (HC) order, which allowed the revision application of Vmoksha’s co-founder Rajiv Sawhney against H&M.
In an order passed on 6 May 2011, the HC had restored an order passed by the Additional Chief Metropolitan Magistrate (ACMM) of the 47th Court at Mumbai, to restart proceedings against the accused, including H&M's chairman V Ramachandran.