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On the Crossroads

Indian markets remained subdued; institutional investors are waiting to buy on declines

The week started off positively on the back of strong manufacturing activity in December 2009, and exports in November 2009. Indian markets remained weak on the last two trading days following weak global cues. However, institutional buyers are waiting to buy on declines. During the week, the Sensex gained only 75 points.

On Monday, 4 January 2010, the Sensex was up 94 points from Thursday’s (31 December 2009) close, ending the day at 17,559, while the Nifty closed at 5,232, up 31 points. As per the HSBC Markit survey, the rate of growth in manufacturing rose for the first time in three months in December 2009, with activity reaching its highest since May 2009 on sharp rises in new work and output. The HSBC Markit Purchasing Managers’ Index (PMI), based on a survey of 500 companies, rose to 55.6 in December from 53 in November. The reading was the strongest since May’s 55.7, which was the strongest in 2009. A reading above 50 means activity expanded during the month.

According to the commerce ministry, India’s export sector has bounced back with outward trade growing by 18% in November 2009. The export figures turned positive after staying in the red for 13 months. The value of exports in November 2009 jumped to $13.19 billion compared to $11.16 billion in the year-ago period.

On Thursday, 31 December 2009, KC Chakrabarty, Reserve Bank of India’s (RBI) deputy governor said the apex bank would review interest rates at its next policy review scheduled for 29 January 2010 and not before. He further said that the credit growth will rise to 17%-18% when GDP growth reaches 8%-9%.

Meanwhile, on Saturday, 2 January 2009, C Rangarajan, chairman of the Economic Advisory Council to the prime minister, said that the economy will expand 8% in 2010-11 after growing between 7% and 7.5% in the current fiscal year to end-March. He also said that the economy would return to an annual growth rate of 9% in the fiscal year to end-March 2012 on the back of an improvement in the world economy and global trade. On Tuesday, 5 January 2010, the Sensex was up 128 points from the previous day’s close, ending the day at 17,686, while the Nifty closed at 5,278, up 46 points. {break}
As per the EPFR global funds tracker, emerging market equity funds posted a record $64.50 billion in inflows in calendar year 2009, helped by record flows into the BRIC countries, comprising funds in Brazil, Russia, India and China. The Chinese economy’s return to robust growth also boosted Asia (excluding Japan) equity funds, which posted record inflows of $19.10 billion. Emerging market bond funds attracted record inflows of $8.20 billion.

According to the finance ministry, direct-tax receipts during April-December 2009 rose 8.51% from a year earlier to Rs2,50,000 crore. Corporate-tax receipts were up by 13.47% at Rs1,67,000 crore, while income-tax paid by individuals declined by 0.41% at Rs83,178 crore, it said. The Union government has allowed duty-free import of raw sugar to tide over the domestic production shortfall. In the 2008-2009 season ending October 2009, domestic sugar output fell 42% to 15 million tonnes, causing retail sugar prices to more than double. At present, in retail stores, sugar is being sold at Rs42-Rs43 a kg. On Wednesday, 6 January 2010, the Sensex was up 15 points from the previous day’s close, ending the day at 17,701, while the Nifty closed at 5,282, up four points.

According to an HSBC survey, business activity among Indian services companies expanded at its fastest pace in 15 months in December 2009 and helped create more jobs, but the outlook for 2010 is wary. The HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to 57.41 in December, its highest since September 2008, after slowing to 55.20 in November. However, the business expectations sub-index slowed for a second straight month to 65.56 in December, to its lowest level in 10 months. It stood at 71.58 in November. The degree of positive sentiment fell sharply since November, as a greater proportion of companies reported that they expect activity in 12 months’ time to be broadly similar to current levels, HSBC Markit said in its report.

A big decline in pending home sales, which fell in November for the first time in nine months, increased concerns over the housing market. As per US media reports, pending home sales tumbled 16% in November 2009, much steeper than the 5% drop expected and the 3.7% gain logged in October 2009. But factory orders rose 1.1% in November, more than double of what was expected.

On Thursday, 7 January 2010, the Sensex ended the day 85 points down from the previous day’s close, closing at 17,616, while the Nifty closed at 5,263, down 19 points.

According to data released by the government, the food price index rose 18.22% in the 12 months to 26 December 2009, lower than an annual rise of 19.83% in the previous week.

On Friday, 8 January 2010, the Sensex ended the day at 17,540, declining 75 points from the previous day’s close, while the Nifty closed at 5,245, down 18 points, despite positive global cues.

As per reports, prime minister Manmohan Singh said that the economy is expected to grow at 7% this year and may soon return to a sustained high growth path of 9%-10%. Mr Singh pledged that his administration would work to address key constraints in the infrastructure and the agriculture sectors as these were priorities for the government. During trading hours, finance minister Pranab Mukherjee said that the economy could grow at 7.75% in the current fiscal year to end-March.

According to reports, the government may introduce legislation in the budget session of Parliament to make necessary Constitutional amendments and facilitate the launch of the Goods & Services Tax (GST) although the rollout of this comprehensive indirect tax reform from the scheduled date of 1 April 2010 seems unlikely.

HSBC’s Emerging Markets Index climbed to 56.1 in the December-ended quarter from 55.3 in the third quarter, with measures for manufacturing and services output in the period expanding at their fastest pace in eight quarters.

HSBC said that the pace of the recovery appeared to be easing, as the gain in the index was “considerably weaker” than the 4.6-point advance registered in the third quarter. The index is calculated on 19 manufacturing- and service-sector purchasing manager indexes across 14 countries.


Piracy severely impacts growth of gaming industry in India

Grey market, piracy and higher taxes are affecting the growth of the gaming industry in India

The existence of a thriving grey market in the country (with almost 70%-80% of games being sold through this channel) coupled with high customs duty on gaming consoles are severely impacting the growth of gaming in India, said a study.

According to a study conducted by the Internet & Mobile Association of India (IAMAI) and IMRB International (formerly known as Indian Market Research Bureau or IMRB), the high customs duty, about 25%, not only makes games out of reach for the majority of consumers, but also encourages the grey market as it is able to sell gaming consoles cheaper after avoiding duties and taxes.

"Like with any content business, piracy is a key problem area that affects the growth of the Indian gaming industry. While it seriously restricts the sales of many international game franchises, it completely jeopardises the possibility of the Indian game development industry which may be interested in creating Indian intellectual property (IP) content, with dependence on a captive audience in India for initial success," said Atindriya Bose, country manager, PlayStation, Sony Computer Entertainment Europe.

The Internet is the driving force behind the gaming market in India. Gamers constitute 41.2% of the total active Internet users in India, a whopping 89% increase from 2007.

The population of gamers is also on the rise and this is attributed to the rapidly rising number of mobile subscriptions in India and high-profile launches of the Microsoft Xbox 360 and Sony's PlayStation (PS) 3 in the country. The report said that by 2010, it expects the gaming industry to generate revenues of Rs575 crore from consoles and Rs812 crore from mobile gaming.

However, there has been a significant shift in demographics of gamers, with college and school going students accounting for almost 50% of the total gamers in India. Many of these students are unable to afford high-priced games and often tend to get them duplicated from friends. This is a major reason for piracy in India.

Sudeep Shukla, who runs a gaming blog, said, "As games are initially released in the US and other foreign countries and are not released in India, pirates are easily able to create pirated CDs and sell them in the country.” The gaming industry needs to price its games at a lower cost and launch its products as early as possible in order to curb piracy, he added.

Again, the buyer may face problems if he wants to turn in a game CD for replacement from an authorised dealer. In the gray market, however, you get replacement of any faulty CD, without any question and within minutes, said Mr Shukla.

Prices of new game titles are usually very high in India compared with other countries due to a variety of reasons, including high taxes and duty. Dealers often sell old game titles at a discounted price, which disappoints earlier buyers as they may have paid a higher price for the same.

"While making prices more accessible for DVDs may help, it needs to be done with a business perspective. Piracy control needs a dual approach of making products more accessible and acceptable to end consumers, along with using regular steps against people indulging in selling of pirated products," said Mr Bose.

Earlier, while speaking at a Confederation of Indian Industry (CII) conference in Panaji, Harish Dayani, chief executive, Moser Baer India, had said that film piracy industry in India is worth Rs1,500 crore and its profits are being used to fund terrorism in the country.

“The rate for each pirated DVD is Rs25 and the cost of a raw DVD is a mere Rs11 to Rs12. Imagine the profits they are reaping in,” Mr Dayani said, adding that Moser Baer was forced to come up with a 'revolutionary pricing strategy' to popularise film CDs and DVDs in the face of piracy.

Moser Baer has been selling CDs/DVDs of popular Hindi movies at very cheap rates or for just a few rupees more than the prices of pirated ones. A blogger picked up a legal copy of a movie and compared it to its pirated version. He said, "At Rs34, the price (of an original DVD title) is the real killer. This price cannot be beaten. Why buy pirated stuff anymore?"

"You will not be tempted to buy pirated copies as you can never be assured of the quality of pirated movies," added another blogger.

The same low pricing method can be applied for game titles as well. "They (the gaming industry) need to take the approach like that of the film industry where Moser Baer has joined hands with film producers to sell cheaper DVDs for the audience," Mr Shukla concludes.



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