2011: Optimism In Air
India’s optimism for the upcoming year 2011 continues to surge while the New Year has been welcomed by a series rise—a rise in the inflation rate due to high price of food articles and hike in the interest rates by banks. D&B India’s BOI Survey pointed that the buoyant sentiment regarding future demand conditions is due to volume of sales and new orders, imparts confidence. Strengthening profit expectations by the Indian corporate sector during the last three quarters underscores the robustness of the confidence in the present domestic economy. Given that mounting inflationary pressures continue to be a significant downside risk to growth, how inflation pans out in the ensuing months would play an important role in shaping business sentiment. Going forward, the Reserve Bank of India’s (RBI) monetary policy stance in the next policy review and the government’s proposals for the corporate sector in the forthcoming Union Budget will play a key role in determining business expectations.
INDIAN BANKING SECTOR OUTLOOK FOR 2011
The Indian banking sector has been an integral part of the overall economy growing with and supporting the growth of other sectors. The sector has withstood the global financial turmoil with little disruption and continued to grow at a healthy pace. Some key trends are expected—
Regulatory thrust on financial inclusion
The RBI has been actively encouraging financial inclusion and the thrust to bring un-banked under formal banking net will continue this year also with a series of policies. The RBI has issued a directive to public sector banks to ensure that all these villages with population above 2000 be brought under the formal banking net by 2012 resulting in an addition of around 145 million customers into the banking network. In the process, around 50.6 million no frill accounts have been activated with an outstanding balance of Rs 53.9 billion as on FY10 and around 93.7 million Kisan Credit Cards have been issued so far with credit amounting to Rs 4277 billion.
Mobile technology to drive
The next leg of growth is expected to be driven by mobile banking technology. Mobile technology is expected to widen the reach of the banking network on one side along with providing for ease of transactions on the other. Corroborated with the business correspondent model and UID, the same is expected to making banking services accessible to very small habitations by utilising mobile technology where setting up a branch is unfeasible.
Credit growth to continue
Business in the banking sector has grown at a CAGR of around 23 per cent in 2005-2010. On account of lower capital expenditure by the industry, coupled with the apprehension of the banking sector to issue credit, the sector witnessed a slightly modest growth around 16.7 per cent in the last financial year. However, the same has witnessed a pickup in the current financial year, with a growth of around 20 per cent till October 2010. With the overall economy expected to grow at around 8.8 per cent for the financial year 2010-11 and services and industry expected to grow at a faster pace of around 10.3 per cent and 9.5 per cent respectively, bank credit is expected to continue at a healthy pace.
Take-out financing expected to be in revival mode
Take-out financing is a method of providing finance for longer duration projects (say of 15 years) by banks by sanctioning medium-term loans (say 5-7 years). It is an understanding that the loan will be taken out of books of the financing bank within a pre-fixed period, by another institution thus preventing any possible asset-liability mismatch as most of the liabilities of the banks are in the form of deposits which have tenure of less than 5 years. As per RBI data, on maturity pattern of deposits, only around 7.4 per cent of the total deposit amounts for SCBs were for more than 5 year maturity. After taking out the loans from the banks, the institution could off-load them to another bank or keep it. Although the take out financing as a concept has witnessed teething issues, the revival of the same is expected given the RBI allowing take out financing via ECBs.
INDIAN AUTOMOBILES INDUSTRY OUTLOOK FOR 2011
In the first half of 2010, the industry had recorded a sharp 32 per cent average monthly sales growth; this figure was lower, yet an impressive 25 per cent in the latter half. For this year, though the domestic sales volumes are expected to continue its upward journey, the industry may not be able to match the growth rates recorded in the preceding two years. As most of the banks have already started to increase the interest rate, tapering down of growth rate is possible. Some key trends for the sector expected—
Two wheelers growth
Two-wheelers account for about 65 per cent of exports of automobiles from India. As a result, performance of this segment has a major influence on overall auto export volumes. After recording over 30 per cent jump in exports in 2010, we expect growth in two-wheeler exports to moderate in 2011. Demand prospects for the two-wheeler market too look bright, which would be driven by healthy economic growth scenario. Higher disposable incomes in the hands of the buyers would play a key role in boosting demand in the coming year. Entry of more players in the motorcycle market, both Indian and foreign (e.g. foray of Mahindra & Mahindra and Harley-Davidson in the recent past) across segments will add more new models in the market.
Need of the hour
A stable economic environment, healthy IIP growth, favourable liquidity and availability of finance would be the chief drivers of growth in the domestic commercial vehicles market. Government spending on infrastructure development including road network development activities, strong growth in construction activities and the expected healthy performance of the industrial sector would be the other main driving forces. Although firming up of interest rates could act as a dampener, increasing consumerism, availability of credit as also discounts offered by dealers on account of stiff market competition is expected to attract more prospective customers to the showrooms. More importantly, with positive sentiments running across several industries due to a revival in economic activity and the expected salary hikes next year (particularly in the services sector) could offset, to a certain extent, any likely increase in fuel prices or cost of finance.
INDIAN IT-BPO INDUSTRY OUTLOOK FOR 2011
Over the years, the Indian IT-BPO industry has matured from offering non-core activities and in the future, the industry is expected to generate an increasing share of revenues from the emerging segments such as SMB, engineering and infrastructure management by offering cost-effective delivery options such as pay-per-use and outcome-based pricing models. The growing markets of Mexico, Ireland, Netherlands, Philippines and Brazil are expected to drive the growth in future. Some key trends expected—
Small and Medium Business’s (SMB) to emerge
Indian SMB’s have realised the long-term benefits of IT implementation for increased productivity. During 2009, expenditure on IT by SMB segment was about 30 per cent of the total IT spends valued at over Rs 300 billion. IT players are offering tailored-made easy to implement IT solutions and delivery models to SMB’s, identifying the future growth potential. For instance, Microsoft has started to offer its ERP application to SMBs through the SaaS model. Wipro followed later.
Increased government IT spending
The rapid growth in the domestic market is likely to be driven by major government initiatives such as increased spending on e-Governance and increased thrust on technology adoption/up-gradation across various government departments to bridge the gap of digital divide. The GoI has enacted a national e-Governance Plan (NeGP) which creates a big opportunity for the IT vendors to create an effective partnership. It has separately allocated USD 9 billion for investment in NeGP projects till 2014.
Rise of rural BPOs
Indian BPO companies are slowly moving towards rural areas to set up delivery centres due to rising attrition rates in urban areas and lower cost of operations in rural areas—which is also supported by growing real estate construction in rural area. As per NASSCOM, as on Febuary 2010, about 35 rural BPO centres employed more than 5,000 people across the country. Rural BPO’s are also gradually moving up the value chain in terms of service offerings from basic data management tasks to content creation and validation. 2011 could well be the year in which rural BPO operations come of age.
India’s high GDP growth against indifferent recovery mode of most Western nations has once again vindicated the country’s resilience in the time of crisis. But then economic reform was certainly not aimed at raising domestic product alone. To put differently, the country’s success in growing at a higher rate would have little to cheer for policymakers unless the benefits reach the poor strata of our society that accounts for the larger part of our population.
By Samarpita Roy