India should get rid of fifth nation syndrome: Kalam

Missile man and former President APJ Abdul Kalam today said the country is suffering from the "fifth nation syndrome" as it is always the fourth or fifth nation to launch any mission like the space mission or nuclear programme.

He said the country should strive to occupy the number one slot.



Speaking at the foundation day programme of CSIR-Central Glass and Ceramic Research Institute here, he said the country has been suffering from the "fifth nation syndrome" as whenever it launched any major mission like the space mission or nuclear programme it was the fourth or fifth one to do so.

"Now we need to go beyond that syndrome and be number one," said the Bharat Ratna awardee, who is known for his work on development of ballistic missile and launch vehicle technology.

Speaking about the Assam violence, Kalam stressed on uniting the warring factions.

"All of us should see that they come together as the unity of mind is very important. We need a cohesive society," Kalam told reporters here.

"Assam is a beautiful state, definitely peace will come," he said.

More than 85 people have lost their lives and four lakh people were rendered homeless since ethnic trouble erupted last month in lower Assam districts of Kokrajhar, Dhubri, Chirang, Bongaigaon and Baksa.

Asked to comment on the anti-corruption movement, Kalam said, "Every home has to be clean - your home, my home, his home, every home. When every home is corruption free then India is also corruption free."

How seven traders are changing the Indian corporate bond market

Seldom do men and women in the bond market make it to front pages for the right reasons. Occasionally, news of an obscene bonus payout receives flitting attention. But in a market that is less followed, though far bigger in size, than stocks, there are untold stories of how little-known and reclusive people have taken big calls, shown risk appetite and collaborated as well as crossed swords to make money.

ET profiles seven traders redefining the bond game: AK Mittal (AK Capital), Nipa Sheth (Trust Capital), Baman Mehta (Darashaw), Shashikant Rathi (Axis Bank), Rakesh Singh (HDFC Bank), Nirav Dalal (YES Bank) and Sudershan Sharma (ICICI Bank). Together they represent a fascinating story: A few high-street banks displaying sudden aggression, brokerages emerging as big investors, old players in the market fine tuning strategies and the league table race never slowing down. Such stories stay within dealing rooms, thanks to the complexities of the bond market and the comparatively less flamboyant nature of the characters. But, a languid stock market has pushed corporates and banks to float bonds. Here's a story of how the Indian corporate bond market is slowly changing.

The young trader never met Jeetubhai in the five years he spent at the bank's bond desk. Someone from Jeetubhai's office would occasionally drop by after the dealing hours and request him to buy a bond with a promise that the security would be bought back at a decent premium. The man never broke his promise.

For the trader (now working for a fund house), it was pointless to think what kind of a bond it was, the price it was trading at, how interest rates were moving, and whether there was a risk that the paper could be downgraded - the usual stuff dealers check before putting money.

Here, the call was not on the bond: it was on Jeetubhai, the broker with an amazing clout in small, little known banks in Gujarat. It was a given that before 'parking' the bond with the trader's bank, another willing buyer - may be a co-operative bank in Ahmedabad, who would not ask too many questions have been lined up to buy the bond.

It was a quid pro quo that worked like a well-oiled machine: a trader fearing he would miss his bonus due to a few wrong calls would get a helping hand from a broker; such favours were not forgotten and when the market improved he would find a way to offer some cosy deals to the broker. In an opaque market where no one knew the 'right' price of a corporate bond, the world the Mumbai money market outside was clueless about the existence of such transactions.

A CHANGING TURF

Even after a decade, few outsiders understand the mechanics and intrigue of the market that has multiplied in size, turned ruthlessly competitive and more transparent. (In the last five years, more than Rs 7 lakh crore bonds were issued and placed with investors as against less than Rs 90,000 crore raised through equity offerings.) Jeetubhai and his men still knock on the doors of banks in Rajkot and Ahmedabad to cut deals, but they have been left behind by new players in a turf that is changing dramatically.




New firms are flexing their muscles, a few brokers have transformed into proprietary investors and counter-parties and many old intermediaries ran out of money and enthusiasm; there is a display of a sudden aggression by some and a few high-street banks are changing tack to play the game by buying out entire bond issues with ticket sizes that were unthinkable few years ago. And there are reclusive men and women behind the deals and the firms they either built or represent.

Nipa Sheth is one such face that not many outside the banking districts of Nariman Point and Bandra-Kurla may be familiar with. Rarely photographed and never interviewed by the media, Trust Capital - the firm she runs - occupies the third position in the bond league table, after ICICI and Axis (two of India's largest private sector banks), for arranging funds corporates and banks.

Very few know that Nipa also runs what possibly is the largest debt portfolio management scheme. A chartered accountant, who honed her skills in the turbulent stock markets between 1992 and 1997, Nipa set up her bond shop a little after 2000 when the great bond party (that shadowed the plunge in interest rates) was about to begin.

"What exactly are you writing?" she asked when ET called her up. She is in a business where a great contact book is as crucial as distribution and brokerage. Her source of funds are banks which charge an interest that's higher than the return on bonds that Trust may be buying for a short duration before selling them off to provident funds, corporates, wealthy individuals, and charity trusts. She can't afford to hold the bond for more than a few days (even hours) and have to quickly spot willing buyers.

THE NEW & OLD FACES

The three-way bond game entails bidding for a mandate, underwriting the issue, taking in on your books if no ready investors are around and then selling them off to other investors. The dog-eat-dog battle for mandates often pushes down the arranger's fee to rock bottom levels, but the players have no choice to play the game. "Somewhere the league table becomes important. Unless you are in the top 5 or 10, PSU issuers will not touch you," she said. Most bond guys know that this is where cultivating issuers (who give you the initial advisory business, albeit with low fee) as well as investors (who help you make money by buying the bonds) come handy.

Trust's fierce competitor has been AK Capital, lead by AK Mittal - also a chartered accountant, who relocated to Mumbai towards late '90s. Unassuming and humble, Mittal, always dressed in a white shirt and black trouser, is known for his fabulous reach in banks and PSUs. "He's a great PR who is friendly with the DGM as well as the chairman of the bank...Like Trust, he is strong in the primary as well as in the secondary market," said an investment manager with an insurance firm. Traditionally, a combination of brokerage and large prop book (where the broker holds its own investments) lend an edge as the market can't figure out whether the person calling from the firm is giving a buy/sell order on behalf of clients or firm. Trust has been associated with more than 37% of debt issues last year while AK (which is within the first 10 in the league table) has been involved in 28% of issuances. Banks and institutional bond houses may occasionally scoff at them for their so called aggressive style and cut throat ways, but it's impossible to ignore their presence.

The BIG BOYs

"Our focus is different. We deal with top corporates. Big deals are relationship entry products," said Rana Kapoor, founder and CEO of YES Bank. The private bank surprised the market this year when it took large exposures to bond deals. The questions his rivals are asking are: Is YES moving too fast? Will it find an avenue to exit the positions at a profit? The man taking the calls is Nirav Dalal, who heads the debt capital market division at YES. Dalal refused to talk, but his boss Kapoor scotched such speculation. "The bonds are held in our trading book and most of it get sold...For us it's a great relationship break through product with the best of Corporate India," he said.

The country's most valuable lender, HDFC Bank, too has been stunning the market with mega deals (like the Rs 1,500-crore Hindalco issue in April) ever since it took a decision to step into investment banking. As a powerful institution, HDFC Bank has been using a slice of its large balance sheet to aggressively big for bond mandates and underwriting issues. "We do not have a strategy to buy out, but we do pick up residual positions. During the Hindalco issue, the market was looking for a benchmark. After this, there were similar issuances.... It's our strategy to advise clients raise cheaper fund," said Rakesh Singh, the man spearheading the deals. Rakesh, who has worked with Rothschild and Morgan Stanley, said that in doing these deals the bank is not driven by interest rate views.

In the second-largest bank ICICI, with its vast treasury, innovative products and bold calls, the approach is different. In March 2011, when Tata Steel floated the first perpetual bond (a paper with no maturity date), Sudershan Sharma, general manger, proprietary trading book of ICICI, was excited. It was a call the bank never regretted. "I sensed the rich yield it was offering. Our all in cost bid was 15 basis points lower," said Sharma, a person who is closely watched in the bond market for his aggressive style. The deal set the stage for more perpetual offerings. Another Sudershan's call that foxed his peers last September was his bullish view on Air India's Rs 5,500-crore bond issue, a large portion of which was picked up ICICI. But it was an investment that the bank had to wait longer than it thought it would take to sell down.

THE NEXT PHASE

Will the big banks make life difficult for Trust and AK? Where will it leave Darashaw, the oldest intermediary and one of the most conservative firms with 86-year-old history that began with selling Imperial Bank papers to Nizam of Hyderabad and other princely states. At fifth position in the league table, Darashaw has the largest credit limit from banks. "Business has not grown dramatically since 2007-08 as there has been no major significant development in the markets. Proprietary positions have been rather flat since the past five years," said Baman Mehta whose grandfather set up the firm. Today it's run by Baman and his brother Dara. A quintessential Bombay Parsi, Baman has been handling bonds since he was in high school. "We realised the issuer wanted to raise large amounts fast while the market yet had to be educated and investors, which included mutual funds, banks and retirement benefit funds, took time to invest which led us to create this role and fulfill the needs for both the issue and these investors," said Baman who drives a Getz and occasionally borrows his bother Dara's Porsche.

Brokers, armed with their survival instinct, know that big banks can't push them out. "The entry of big firms will deepen the corporate bond market...I would rather prefer a smaller share of a large market than a bigger share of a smaller market," said Nipa Mehta. Banks and primary dealers cannot beat brokers understanding of mid corporates (a segment that large banks do not focus on), relationships with pension funds and flexibility of approach.

The entry of HDFC Bank and ICICI is a sign that more banks may join the game in coming days. Spreads will be thinner, sweet heart deals will be fewer, and more and more high net worth individuals will bet on bonds. It's a market that's slowly entering the next orbit. Many calls will backfire, some will be bruised in the league table rush, slower players will be tempted to scale up quickly, and others, waiting in the wings, will interpret every dip in the interest rate heralding the start of another bond party. "Even with zero fees, we have to be a part of the game. Else, we will lose touch with the market," said Shashikant Rathi, a seasoned bond market man, who heads the desk at Axis, the debt market's original bull. "You have to ride the cycle," said Rathi who learnt the ropes as a corporate bond dealer at the erstwhile UTI mutual fund. "After all, you can't always make money."

China has no liquidity problem. That’s a problem.

Beijing has managed to keep credit and cash growing despite falling property prices, weak corporate profits and slowing GDP growth. Such successful financial management may help it avoid the kind of liquidity trap that made the U.S. recession so painful. But it could encourage the kind of behavior that has kept Japan in a slump for so long.

China’s current slowdown was triggered by a correction in an overinflated, credit-fueled property market. When such bubbles burst, lenders typically reel in credit fast. That happened in the United States, starting a negative feedback loop of loan defaults, bank losses, lower economic output and receding credit.

On paper, China has averted such a crunch. Though annual mortgage loan growth has dropped to 12.5 percent from 53 percent in early 2010, overall loan growth has recovered to nearly 40 percent and the money supply is expanding at 13.6 percent.

But China’s banks lend how they’re told. That explains how government stimulus in late 2008 resulted in a 1500 percent jump in new bank loans, despite the slowest GDP growth in a decade. Pouring loans into an economy can slow a credit bubble’s collapse, but it delays a healthy recovery by propping up sick enterprises and crowding out more profitable ones. Japan’s asset price bubble collapsed in 1991, but banks kept refinancing struggling borrowers. It wasn’t until 1994 that lending fell.

China could be entering a similar quagmire. As domestic GDP growth slows, companies are keeping earnings off-shore, slowing growth in domestic deposits. That’s pushing lenders close to loan-to-deposit limits. Most already favor state-backed companies. Smaller, private companies are forced to seek costlier funding elsewhere.

As a result, loans are growing, but they’re increasingly short-term, with loans of more than one year maturity actually falling 25 percent so far this year. That means refinancing could crowd out new lending.

China’s population is younger and the economy is growing faster than Japan in 1991. But the credit non-crunch may make it be tougher for China’s incoming leaders to reduce the dominance of exports and of state-owned companies in the economy. Creative destruction is painful but vital.

HSBC involved with drug cartels

US prosecutors, who have launched an investigation into the money transaction by some global banks, suspect HSBC could have laundered money for Mexican drug cartels and moved cash for Saudi Arabian banks with ties to terrorists.



According to a New York Times report, Federal authorities, with knowledge of the investigation, said federal and state prosecutors are also investigating whether HSBC flouted US law by transferring money through its American subsidiary for sanctioned nations, including Iran, Sudan and North Korea.

HSBC could have to cough up nearly a billion dollars to settle the inquiry, making it the largest such settlement in history, the authorities said.

"The money-laundering accusations against HSBC so far are more extensive than the potential violation of United States sanctions that is the focus of the investigations against other foreign banks, including Deutsche Bank and Commerzbank of Germany, BNP Paribas and Crédit Agricole of France and the Royal Bank of Scotland," the report quoted the law enforcement authorities as saying.

HSBC came under the US scanner in July when the Senate Permanent Subcommittee on Investigations said the bank "exposed the U.S financial system to money laundering and terrorist financing risks" between 2001 and 2010.

HSBC bank executives had testified at the hearing and apologised for the bank's past conduct, promising reform.

A HSBC spokesperson said in a statement that the case is "not about HSBC complicity in money laundering". The spokesperson added: "Rather, it's about lax compliance standards that fell short of regulators' expectations and our expectations, and we are absolutely committed to remedying what went wrong and learning from it".

HSBC had reached out to federal prosecutors in July, hoping to resolve the matter by September. However a settlement in the next couple of weeks is highly unlikely, the officials said.

The Justice Department and the Manhattan district attorney's office are looking into HSBC records to gauge the full extent of the potential wrongdoing.

HSBC officials stress that they had strengthened controls to prevent money laundering and replaced employees tainted by the accusations, according to the law enforcement officials.

The Senate panel said in its report on HSBC that bank officials ignored warning signs and failed to stop illegal behavior at many points between 2001 and 2010.

An HSBC executive reportedly argued that the bank should resume its relationship with Al Rajhi Bank, a Saudi Arabian bank founded by an early supporter of Al Qaeda.

Ultimately, HSBC's American operations furnished the bank with at least USD 1 billion, according to the Senate report.

Federal officials had repeatedly warned HSBC to closely monitor its bulk-cash business in Mexico amid concerns that drug traffickers could seize on these operations. But HSBC officials from 2000 to 2009 gave Mexico, "a country under siege from drug crime, violence and money laundering," the bank's lowest risk rating for money laundering, according to the Senate report.

HSBC's Mexican branch became the "single largest exporter of US dollars" to its United States operations from 2007 to 2008.

Even after this, money laundering controls at the bank did not improve, the Senate investigation found.

Between 2007 and 2008, HSBC's Mexican operations moved at least USD 7 billion to its United States counterparts – a volume that law enforcement officials cautioned at the time could include "illegal drug proceeds".

In their continuing investigations, the prosecutors are examining whether the global banks violated United States law by performing transfers for nations under sanction. Since 2009, the Justice Department, the Treasury Department and the Manhattan district attorney's office have brought charges against five foreign banks – ABN Amro, Barclays, Credit Suisse, Lloyds and most recently ING.

Man gets pricked by HIV-infected syringe in Beijing taxi

A 37-yr-old Chinese man was pricked by a HIV/AIDS infected-syringe left behind at the back of a taxi in Haidan district, raising fear and concerns among commuters.

Xu Tan (name change) got pricked by a syringe while getting into a taxi in Haidan district on August 21, state media quoted the health officials as saying.

Xu felt something pierced his leg while getting into the taxi and found it to be a syringe placed in the magazine rack fixed at the back of the front seat.

According to Xu, the syringe had a needle cap, which like the syringe barrel, contained some sticky fluid.

He took the syringe to Chaoyang District Centre for Disease Control and Prevention and after few preliminary tests it was found that the fluid was HIV infected.

Jiang, a doctor at the centre's department of sexually transmitted diseases and AIDS detection, said a quick test found the fluid to be HIV antibody positive.

"Because the quick test was just preliminary the result may have been false," Jiang said.

The centre has submitted a sample to the Chinese Centre for Disease Control and Prevention for further tests.

According to Beijing News, Xu's blood test results were reportedly HIV negative. However, a publicity staff member at the centre said the hospital had prescribed him preventive

medications.

Ji Zhongcheng, Xu's friend who accompanied him, said Xu's doctor asked him to take regular tests in the first month.

The taxi company has refused to take responsibility, Ji said.

While Xu plans to sue the taxi company, the latter has refused to take responsibility.

Experts are cautiously optimistic about Xu's chances of not being infected with HIV.

Even if there are HIV antibodies in the fluid, it doesnt mean that the virus is definitely still alive, given that it was very fragile outside the human body, Jiang said.

Li Chaolin, president of the Chinese Foundation for Prevention of STD and AIDS, said the probability of Xu getting infected are slim.

"HIV has a lower chance of survival outside the body. If it has been outside the body for a long time, the virus may be inactivated. However, it is worth being vigilant. It will take three months to determine if he has got it.

"People who have potentially been exposed to the virus should go to standard medical institutes within 24 hours. Don't panic. Doctors will assess whether preventive medication is necessary," Li said.

Syringe attacks are a cause of concern in China specially after such cases reported from Xinjiang province in 2009 which witnessed ethnic strife between native Uyghurs and Chinese mainland Hans.

In bad weather, Sikhs, Muslims and Hindus make good friends

In a country where religious intolerance and communal hatred dominate the news nowadays, here is something that goes to show that all is not rotten and ugly.

Muslim residents of Joshimath in Uttarakhandoffered Eid namaaz (prayers) on Monday in a gurdwara (Sikh temple), after being invited in by its head priest, according to the local media. There is no mosque or idgah in Joshimath, a town perched above the Alakhnanda deep in theGarhwal Himalayas. Usually its 800-odd Muslim residents offer namaaz at the town's Gandhi Maidan, a public ground.

On Monday, however, Gandhi maidan had turned into slush. It had been raining heavily for several days and Eid, the festival day too dawned in a downpour. The Muslim community was struggling with the problem when the head of the local gurdwara sent a heart warming message to them- The Muslims could use the main hall of the gurdwara for offering namaaz.

So, at 9:30am, the congregation of Muslims in bright new clothes trooped down to the gurdwara and offered the ritual prayers in the big hall. After the ceremony, they embraced the Sikh community members waiting outside the hall. Some Hindus from the town were present too and offered greetings to the other two communities.

Sardar Buta Singh, Prabandhak of the gurdwara, later told media persons that he had extended the invitation to the Muslims to help them in their crisis.

Maulvi Asif was quoted by media as saying that by solving their problem, the gurdwara committee had presented an example of humanity and respect towards all religions. He said that the Muslim community was thankful to the committee.

Joshimath is located about 250 kilometers from Rishikesh on National Highway 58. It is close to two important pilgrimage centers - Badrinath of the Hindus and Hemkunt Sahib of the Sikhs.

UP’s power-starved business seeks nirvana in Modi’s Gujarat

Uttar Pradesh’s infrastructure problems, especially power and water, may just be prove to be a boon for Narendra Modi‘s Gujarat. Industrialists in Noida are weighing the advantages of moving out if infrastructure is  not improved.

Fed up with erratic power supply in Uttar Pradesh,  the Noida Entrepreneurs’ Association has  reportedly written to the Narendra Modi government asking it to provide them plots in Mehsana district so that they could begin industrial operations within two years.

“Even the big names… like Tata and Maruti have shifted base to Gujarat because the government has built an excellent environment in the state for industrial development,” The Economic Times said today, quoting NEA president Vipin Malhan.

In terms of investments, it is Advantage Modi. AFP

Riding on financial and political stability, as well as a sound industrial policy, Modi last month hardsold Gujarat as the emerging auto hub of Asia to Japanese investors. He also apprised Japanese companies about Gujarat’s new vibrant textile policy and the textile park policy. The timing of Modi’s visit was perfect. At a time when Centre was dithering and the violence in Maruti’s Manesar plan in Haryana had shocked Japanese investors, Modi’s trip had a becalming effect.

Earlier this month, China’s ambassador to India, Zhang Yan, reached out to Modi and expressed China’s interest in working together to sharpen Gujarat’s industrial and manufacturing edge. As Firstpost reported earlier, “By rolling out the red carpet for Modi, Chinese officials are making a calculated investment in the future, which they know will be well received by a leader who prides himself as an embodiment of Gujarati asmita (self-respect).”

While competition for investments is growing, Gujarat claims a share of about 36 percent in the total number of completed projects put to service delivery under the public-private partnership (PPP) model.

Of the total 227 PPP projects worth over Rs 68,000 crore under operation in India as of December 2011, Gujarat accounted for about 31 completed PPP projects worth over Rs 24,000 crore, according to a study by Assocham.

The Tata Nano project’s swift relocation to Gujarat after West Bengal ousted it earned him kudos from industry honchos. Suzuki is already looking at Gujarat for expansion. And now other Indian businessmen are looking to gain from Gujarat’s  lower power tariffs and its smooth land acquisition policy.

Moreover, companies with factories in Gujarat have quicker and easier access to markets in west and north India due the state’s policy of developing many private ports.

In terms of investments, it is Advantage Modi.

How Maruti keeps meeting India's demand & what makes Swift and Dzire so popular

For almost a year, Narendar Singh tossed the idea around in his head. The 40-year-old TCS executive wanted to buy a second car for his family. With aMaruti Swift (petrol variant) already in his garage, his wife and two children wanted him to explore other models. 

In fact he did check out a few. He test drove Ford Figo and found it smaller than the Swift. He considered VW's Polo and rejected it. He did not like i20 for its poor mileage. He liked the Nissan Micra but it was a bit pricier than the Swift. 

Last week, he finally made up his mind and booked another Swift (diesel) for the family. "On all counts, I found Swift better than the others at that price. Also, as a Swift owner, I am 100% satisfied with the car," he says. 

With the lockout at Maruti Suzuki's Manesar plant likely to be lifted by Tuesday, his wait may not stretch inexorably. However, Singh is willingly to wait for his car. "I can easily wait. I do have a car to drive," he says. 

Down But Never Out 

For almost a month now, India's largest carmaker — Maruti Suzuki — has been struggling. Its Manesar plant, which churns out the popular Swift and Dziremodels, is closed. For Maruti, the plant shutdown couldn't have come at a worse time. The sentiments in Indian car industry are down with sluggish sales even as production costs and prices are rising. 

So when the news of Maruti lockout hit headlines, the competition instantly began plotting. Closest rival Hyundai sent out letters to its dealers to push its cars. Ford, Skoda and other carmakers are figuring ways to lure away Maruti's customers. A slew of entry-level sedans — from GM Sail, Tata's Indigo Manza CS to Renault Scala and Ford Fiesta — will be launched soon to take on Maruti's Dzire. 

But so far, loyal customers like Singh have bolstered Maruti's hopes. Maruti's marketing chief Mayank Pareek says despite the uncertainty and long waiting period, they have had no cancellations and many customers continue to book their cars. Rana Motors, a Maruti dealer in Delhi, says new bookings have dipped marginally — from 43 Swift bookings in the first half of July to about 30 in August. 

"I see a marginal impact [of the lockout]. In the long run, I expect Maruti to retain its market share," says Deepesh Rathore, director, India, IHS Global Insight, a research firm. In a market where 17 carmakers with 91 models are jostling for space, Maruti's grip over the Indian car buyer — even with a lockout — is commendable. So what makes Maruti cars so compelling? 

Not Just Price Alone 

First a status update. Maruti's Manesar plant has a capacity to churn out 14,000 units of Dzire and 20,000 units of Swift every month. The models were first launched in 2005 and 2008 respectively and in the past 12 months underwent a facelift. 

"Swift has had a waiting period ever since its launch," says Pareek. Such has been its popularity that Swift continued to have a waiting period ahead of its re-launch last year — a rare phenomenon in the car industry. The slightly pricier Dzire too has been equally popular. 

The two models today average a waiting period of around five-six months. The plant is set to open soon, albeit with much lower production before returning to full capacity — which means Maruti will take some time to clear the backlog. Put this in context: if one takes into account an average six-month waiting period, it would imply about two lakh Swift/Dzire customers are wait-listed. This at a time when car companies in India are trying desperately to lure customers. 

So what makes Swift and Dzire so popular among customers? "As a product Swift is phenomenal. It offers Maruti's value for money with loads of emotions and performance," says Hormazd Sorabjee, editor,Autocar India. Maruti has always been about basic, value-for-money cars which are often boring but practical and appealed to millions of aspiring Indians looking for their first cars. 

Swift was Maruti's first attempt to stray away from that philosophy. Swift offers good performance, is fun to drive even as it packs in Maruti's value-for-money punch. It is also a very global car in its design and build quality. "Compare that to Toyota Etios which cannot be sold in Europe," says Sorabjee. 

Combine all that with Maruti's aggressive pricing — and you have a perfect offering. In the past five-seven years, many new original equipment manufacturers such as VW, Toyota, Nissan and Honda have entered the premium compact segment, Maruti's traditional bastion. 

"Despite that none of them is seriously challenging Maruti," says VG Ramakrishnan, senior director (automotive practice), Frost & Sullivan, a consultant. That is because nobody is able to bundle good price with great product as well as Maruti does with Swift and Dzire. Look at VW's Polo. The rumour is that the company is losing about Rs 50,000-plus on every Polo it sells and yet the model remains one of the pricier cars in the premium compact segment. 

And of course there is the price factor. India is perhaps the most price sensitive market in the world, says Rathore. IHS studies found that in India, over one in four customers rejected a car because of the price. In China over one in eight customers rejected a car for the same reason. This sensitivity to price makes Maruti cars very compelling for Indians. 

Reading the Market 

This isn't the first time Maruti has managed to hit the sweet spot in the Indian car market. The journey first began with the launch of Maruti 800 in 1984, much before India liberalised. The car remained at the top of the charts for close to two decades and till date remains the most sold car in the country. 

Alto has been its true successor. Upgrading with Indian customers, Maruti launched and refreshed its entry-level Alto, equipping it with better technology and interiors. Despite many launches — from a cheaper Tata Nano to an aggressively priced Hyundai Eon — Alto remains the most popular entry-level car. 

"Maruti has always been ahead of the competition in launching a model in a segment that will peak in the future," says Ramakrishnan. Swift is a great example. This was the first real premium compact to hit the Indian market in mid-2000s. Almost everybody including Honda, Toyota, Ford came much later. The aggressive Korean did time it well with Getz but got the product and pricing wrong with the result that it received very lukewarm response. 

Is Ertiga the Next Money-spinner? 

Maruti is now hoping to repeat its success with the seven-seater Ertiga. Launched in April this year, it looks like a winner. It is the second most popular multi-purpose vehicle (MPV) selling 7,600 units last month and has a waiting period of six months. 

Sometimes one wonders if this "waiting period" is a deliberate strategy on part of Maruti to create a 'pull'. Manufacturers like Honda have often leaned on this strategy (its City used to be a good example) to maintain its brand premium. Pareek denies it. He says when Ertiga was launched in April the monthly production capacity stood at 4,000. "We have scaled it up to 6,000 now. But you can only scale up that much. The demand has far outstripped supply," he says. 

Ertiga is a great example to understand Maruti's "hitting the sweet spot" strategy. There are over 18 MPVs (seven-seaters) today in the Indian market jostling for space. At one end are the cheap ones like Mahindra Bolero (the leader grosses monthly sales of over 9,000) starting at around Rs 5 lakh. 

Functional, utilitarian and lacking in aesthetics, they are mostly used as taxis and cabs for commercial purposes. At the other end are the Innova, XUV, Endeavour and Fortuner, which are aesthetically and performance wise better but are pricier (Rs 8-lakh-plus).

Amid all this, Maruti offers a well-designed and good-looking Ertiga starting at Rs 6-lakh-plus. "Ertiga has hit the sweet spot in India," says Mohit Arora, executive director, JD Power Asia Pacific, a market research firm. With large families, there was always a need for big seven-seater vehicles in the homes of middle-class Indians. But despite so many players, nobody could marry low price with good looks. Ertiga does that. 

Now, other car manufacturers too are looking at this segment seriously. A slew of launches — from Chevrolet Enjoy to Nissan's Evalia, Ashok Leyland's Stile and Hyundai's Hexa Space are all in the works. But remember, Maruti has a clear first-mover advantage. 

The MUV segment in India is currently at 16% of the total car market. But it is set to grow rapidly. In Indonesia, MPVs comprise 30% plus of the market. In China too, this segment is growing rapidly. "Their popularity seems to coincide with a changing consumer profile. Second-time Chinese buyers use their vehicles for multiple purposes like travel, family activities where MPVs serve well," says Bill Russo, president, Synergistics Ltd, a China-based consulting firm with focus on the auto sector. 

India will surely follow China in the preference for MPVs. Maruti was the first one to realise its true potential and launch a product to cater to this segment. 

Maruti's Magic Formulae 

How does Maruti manage to do it again and again? It starts with getting the product right. Every month in 20 cities, Maruti reaches out to 10% of its new customers to find out what they like and what they don't like about their cars. About 20% of the lost customers (who came for enquiries and did not buy) are also asked why they did not buy. "This gives us enormous feedback on what our customers want and what they are looking for," says Pareek. 

This is backed well by an MNC which is willing to listen and develop a car that Indian customers want. For Suzuki, unlike all other MNCs, India is the most important market and they will go the extra mile to keep its stranglehold. The next step is to get the pricing right. A senior ex-Maruti executive recalls the Alto launch in India in 2000: "We knew that the sweet spot was Rs 2.5-2.6 lakh. 

But with 40% import content, there was no way the product could have been priced below Rs 3.5 lakh." Eventually, the price was fixed at around Rs 2.5 lakh with Maruti making losses on every car. But it soon pushed for localisation making this a profitable product. "Price here was always decided by Maruti and Suzuki was always sensitive to it. This made the big difference," he says. At that price, Alto became a huge success soon overtaking M 800. 

Contrast that with Honda Jazz — a good product that flopped in India simply because it got the pricing wrong and the price correction came too late to make much difference. Maruti has the comfort of a big portfolio of cars in India at different stages of maturity. "It is this that gives Maruti the pricing power which others today do not have," he says. 

Competitors also cannot match Maruti's great network of after-sales workshops that offer cheap service and cheaper spare parts to value-conscious Indians. It is a combination of all these factors that has made Maruti so successful in India. For the 12th year in a row, Maruti topped the JD Power's customer satisfaction survey among auto companies in India, a rare feat indeed. 

What the Stars Foretell 

Will Maruti continue to cruise ahead? There are three kinds of views on this. Some like Ramkrishnan of Frost & Sullivan feel that as the centre of gravity in Indian car market moves upwards with Indian customers upgrading from small to big cars, Maruti — the king of small cars that has failed miserably in the sedan segment — will struggle. 

There is a contrarian view, however. Some feel India with a low-car penetration — 15 in 1,000 Indians own a car today — compact hatchbacks will continue to top popularity charts for a long time. And Maruti just needs to play its game better than others. 

Some analysts also feel that Maruti can easily reach out to outside experts — from designers to engines — to mix and match and offer a compelling product in the higher segment, should it put its mind to it. 

There is however a third view. Globally, small cars are back in fashion with rising fuel prices and environmental consciousness. From BMW to Mercedes to Ford to GM, almost everybody is looking at small cars to cater to this shift. Maruti cars could be in big demand not just in India — but globally — if Suzuki plays its cards well. 


Mayank Pareek, COO (marketing & sales), Maruti Suzuki speaks about Indian car buyers, consumer loyalty and Maruti's strategy 

On the Plant Lockout and its Impact 

What is most satisfying is that in these trying times I have had customers who have written to me out of the blue saying they would rather wait than buy another car. We have had no cancellation so far. Considering that each customer would have paid Rs 10,000 as booking amount, it is very reassuring for us as a company. The plant will take some time to get back to its normal production capacity. 

On What Makes Swift-Dzire Popular 

The car has a presence on the road. Our brief to the R&D team was — it should have the looks and also the performance. These cars target the third generation of Indians who have grown post-liberalisation, have the money and want to spend. And they do not hesitate taking EMIs to buy things they want to. 

On Indian Customers 

"Kitna deti hai" sums it all. Fuel efficiency and monthly maintenance are important for most, even those in living in plush homes in South Mumbai and South Delhi. 

On Expectations From Ertiga 

We started the production of the car at 4,000 units in April and have now scaled it up to 6,000. But the waiting period is still around six months. There are around 1 million A2 segment cars that were bought in the past five years. Those customers will look to buy their next car soon. Ertiga targets them. I think MPV [multi-purpose vehicle] segment has a lot of potential in India. 

On Future Launches 

I see Indian car buyers split in three categories. A third of customers are first-time buyers. A third are replacing their cars. And a third are adding second car to the family stable. In psyche, the three segments think and behave very differently. We hope to tap into sweet spots in each of these segments. We are looking at these segments very closely and our product launches will reflect that.

India and Russia going to sign biggest-ever defence deal worth $ 35 billion

India's quest for a futuristic stealth fifth-generation fighter, which will see the country spend around $35 billion over the next 20 years in its biggest-ever defence project, has zoomed into the decisive phase now. 

India and Russia are getting all set to ink the full and final design or R&D phase contract for the 5th Gen fighter by this year-end or early-2013, say sources. It will again underline India's firm rejection of the US offer of its Joint Strike Fighter (JSF) or the F-35 'Lightning-II'.

Ahead of the R&D contract, under which India wants to induct over 200 stealth fighters from 2022 onwards, a senior team of Hindustan Aeronautics (HAL) engineers and IAF experts is going to Russia within a fortnight to ensure that the "full documentation and other work" of the earlier preliminary design contract (PDC) has been completed. 

During his visit to Moscow last week, IAF chief Air Chief Marshal N A K Browne reviewed the performance of the 5th Gen fighter, called Sukhoi T-50. 

While the Indian fighter will primarily be based on the T-50, it will be tweaked to IAF requirements. 

India had inked the $295 million PDC with Russia in December, 2010. The R&D contract on the anvil is pegged at $11 billion, with India and Russia chipping in with $5.5 billion each. 

"The three Russian T-50 prototypes have flown around 180 sorties till now. HAL's Ozar facility at Nashik will get three prototypes in 2014, 2017 and 2019...they will be flown by IAF test pilots," said a source. 

"Russia has already given the draft R&D contract to us. It will include the cost of designing, infrastructure build-up at Ozar, prototype development and flight testing. So, India will have scientists and test pilots based both in Russia and Ozar during the R&D phase up to 2019. HAL will subsequently begin manufacturing the fighters," he added. 

Interestingly, after first specifying the requirement for at least 166 single-seat and 48 twin-seat of these 5th Gen fighters, India is veering around to the view that it will go in for only single-cockpit jets now. 

"Both F-35 and T-50 are single-seaters. A second cockpit will compromise the stealth capabilities by at least 15% apart from adding to the weight and reducing fuel capacity. Moreover, R&D costs could go up by another $2 billion for the twin-seater," he said. 

IAF is confident the swing-role fighter will meet its future operational needs. 

As a critical interim measure and confronted with a declining number of fighter squadrons, IAF also wants the almost $20 billion MMRCA (medium multi-role combat aircraft) project to acquire 126 French Rafale fighters to be sealed within this fiscal. 

Chidambaram's team members: Who they are & why they matter

It must have taken Palaniappan Chidambaram only a few minutes to walk to his new office from the old one. But his shift from the home ministry to finance, without doubt, was a meticulously planned exercise. After all, he did shake up the Ministry of Finance, swapping the roles of at least four of its senior officers. 

In the first fortnight of him taking over as finance minister, Chidambaram named economics wunderkindRaghuram Rajan as chief economic adviser, elevated two women tax hounds as chairmen of CBDT and CBEC and brought in Arvind Mayaram as DEA secretary. It sure was a hectic fortnight. 

The FM is yet to announce more changes. For, two out of five secretaries in the ministry will retire before he presents the Union Budget next February. And between now and then, there could be more changes on the cards. ET Magazine takes a close look at people who matter and people who don't — for PC, of course. 

FM's Deputies 




When the PM took additional charge of finance ministry for over a month, both the MoS were given more power, but that remained only in paper. Sample this: Meena was allocated the work of appointing directors in PSU banks, a job Pranab Mukherjee used to handle. But the first such appointment will happen only in April 2013.

Swapping Roles 

In the first major administrative reshuffle after taking over as FM, Chidambaram swapped the roles of two of his most senior secretaries. This was followed by assigning new roles for joint secretary-level officers.





Women Power 

For the first time in the history of North Block, both CBDT & CBEC are headed by women. As chairpersons of the tax boards, these two women tax hounds will anchor the ministry's drive to achieve a revenue target of Rs 10.7 lakh crore current fiscal. 

Poonam Kishore Saxena, Chairperson, CBDT 
1975 batch IRS-IT officer; rank of special secretary As DG (Investigation) of Rajasthan she was instrumental in a number of big-ticket raids. 

Praveen Mahajan, Chairperson, CBEC
1976 batch IRS officer, Rank of special secretary She will be leading an all-women team as other CBEC members are women. 

Only last year, Sushama Nath became the first woman finance secretary breaking the glass ceiling.


B-DAY 

Rajat Bhargava | 48 years
1990 batch IAS, Andhra cadre
As joint secretary (budget), he will be the key man putting together the final draft of the next budget. He will stay in North Block 24X7 during the last seven days of the budget preparation in February. 



Other Secretaries 

Here are 3 secretaries in the FM's team other than Gujral and Bose. Who are they, what do they do, and who among them will face early exits?