Libor rate-fixing scandal: Most banks under investigation by authorities

More than a dozen banks are under investigation by authorities in Europe, Japan and the United States over the suspected rigging of the London interbank offered rate, a key interest rate used in contracts worth trillions of dollars globally.

Some 16 banks contributed to the setting of dollar Libor rates in 2008, the period at the centre of investigations.

So far, British lender Barclays has been the only bank to admit wrongdoing.

Following is what is known about the involvement of the 16 banks.

BANK OF AMERICA

Bank of America is among the banks being investigated, a person familiar with the matter told Reuters last year. The bank did not comment in its 2011 annual report.

It is one of 11 banks accused of conspiring to manipulate Libor in two lawsuits filed by discount brokerage and money manager Charles Schwab.

BARCLAYS

The UK bank has been at the centre of a very public storm since US and British authorities fined it more than $450 million last month for its part in manipulating Libor.

The ensuing backlash cost chief executive Bob Diamond and chairman Marcus Agius their jobs. The pair have appeared before a parliamentary committee to testify about what went on at the bank, in a scandal which has drawn in British central bankers and government ministers.

BTMU

The Swiss Competition Commission said in February that Bank of Tokyo-Mitsubishi UFJ was among those it was investigating on suspicion of conspiring to manipulate rates. The Japanese bank did not comment on any probes in its 2011 annual report.

This month, the group suspended two London-based traders as a result of a probe into manipulating interbank lending rates, but the bank said that was not to do with their conduct at BTMU. They had previously worked at Dutch lender Rabobank.

CITI

Citigroup said its subsidiaries had received requests for information and documents as part of investigations in various jurisdictions. The US bank said it was cooperating.

The bank is also subject to a number of private lawsuits filed in the US against banks that served on the Libor panel.

In December, Japan's financial regulator said it would penalise the Japan securities units of Citigroup and UBS after finding that an individual who worked at UBS and then moved to Citi had, along with his boss at Citi, attempted to influence the Tokyo interbank offered rate (Tibor).

CREDIT SUISSE

Credit Suisse is one of 12 banks being investigated by the Swiss Competition Commission about alleged collusive behaviour among traders to influence the bid ask spread for derivatives tied to Libor and Tibor as well as the rates themselves. Credit Suisse said it was cooperating fully.

DEUTSCHE BANK

The German bank said it was cooperating with investigations in the United States and Europe in connection with setting rates between 2005 and 2011.

It has had civil actions filed against it in the United States related to the setting of Libor.

Germany's market regulator has launched a probe into the bank over suspected manipulation of interbank lending rates, sources have said. Results are expected in mid-July.

German magazine Der Spiegel reported, citing no sources, that two Deutsche Bank employees have been suspended after external auditors examined whether staff were involved in manipulating rates.

HBOS

The bank, now a subsidiary of Lloyds, said it was cooperating with investigations. It has also been named in private US lawsuits related to the setting of Libor.

HBOS said it in its 2011 annual report it was not possible to predict the scope, outcome or impact of the investigations and lawsuits.

HSBC

HSBC has said it received demands from regulators for information in connection with Libor investigations and it was cooperating. It has also been named in lawsuits related to Libor in the United States.

HSBC said in its 2011 annual report that it could not predict the outcome of the investigations and lawsuits.

JPMORGAN

JPMorgan said it was cooperating with regulators and government bodies investigating the setting of Libor, Euribor and Tibor rates, mainly in 2007 and 2008.

It has also been named as a defendant in private US lawsuits over Libor.


LLOYDS

Lloyds said it was cooperating with investigations. It has also been named in private lawsuits in the US related to the setting of Libor.

It said it 2011 annual report that it could not predict the ultimate outcome of investigations or lawsuits.

In May, the bank said two derivatives traders had been suspended following an investigation into possible interest rate manipulation.

RABOBANK

Rabobank said it was cooperating with investigations into possible manipulation of Libor rates. It has also been named as a defendant in a number of civil lawsuits in the United States. Rabobank said it was confident the claims would be held unfounded and was conducting its defence as such.

RBC Canada's largest bank did not make any comment in its 2011 annual report on its involvement in regulatory probes into possible manipulation of interbank lending rates.

RBS

Royal Bank of Scotland said it was cooperating with investigators, who had requested information.

RBS said members of its group had been named as defendants in a number of lawsuits in the United States. The bank said it had substantial defences to these claims.

Following a newspaper report last month that it faced a 150 million pound fine, RBS said there could not be any certainty as to the timing or amount of any fine or settlement.

UBS

The Swiss bank said it had been granted leniency or immunity from potential violations by some authorities, including the US Justice Department and Swiss Competition Commission, in return for its cooperation in the Libor manipulation probe. It did not specify what information it was providing.

In December, Japan's financial regulator said it would penalise the Japan securities units of Citigroup and UBS after finding that an individual who worked at UBS and then moved to Citi had attempted to influence Tibor.

It has also been the subject of US lawsuits.

WEST LB

The German bank was among those being investigated, a person familiar with the matter told Reuters in March last year.

The bank made no mention of the probes in its 2011 annual report. In July last year it was dropped, at its request, from the panel of banks contributing to daily fixings of Libor for US dollars.

NORINCHUCKIN

The Japanese bank did not mention the investigations into possible Libor manipulation in its 2011 annual report. In April last year it was one of 12 banks sued by Vienna-based asset manager FTC Capital, accused of conspiring to manipulate Libor.

Purulia case: India to scale down diplomatic ties with Denmark

India has decided to scale down its diplomatic ties with Denmark after that country's refusal to appeal in their Supreme Court against a decision of its lower court rejecting the extradition of Purulia arms drop case accused Kim Davy.

Upset over Copenhagen's refusal to act on New Delhi's consistent request to appeal in their apex court to facilitate Davy's extradition to India, government has issued a circular directing all senior officials not to meet or entertain any Danish diplomat posted in India.

"It is against all civilised norms to harbour a terrorist. Despite being a signatory to many UN conventions, Denmark refused to act against the prime accused in the Purulia arms drop case," a senior government official said.

Denmark even did not pay any heed to a special request of external affairs minister S M Krishna who wrote to his Danish counterpart requesting to appeal in their Supreme Court against the lower court order rejecting Davy's extradition.

India has failed to understand the reason behind the stubborn attitude of Denmark despite its promise to put Davy in a special jail if extradited.

Earlier, Copenhagen cited poor living conditions in Indian jails for their reluctance to extradite Davy to India. "It smacks of racism," the official said.

Interestingly, citing Denmark laws, three law firms, hired by India to pursue its case against Davy, have suggested that there are enough provisions to appeal in the Supreme Court against the lower court order.

The Danish authorities have so far not agreed to appeal in the Supreme Court against the decision of the high court despite efforts by Indian agencies to convince them, official sources said.

They said the authorities conveyed that the prosecutor is not under the control of Danish government and his decision is considered final. Initially, Denmark had accepted India's request for extraditing Davy but it was challenged by him in a city court in Copenhagen which rejected the extradition.

The Danish authorities challenged the decision in the high court which also rejected their plea citing poor prison conditions, including overcrowding, alleged torture and human rights record of India.

The Danish legal authorities then decided not to pursue the matter further and refused to file an appeal in the Supreme Court there against the high court decision.

Sources said Indian authorities are not a party to the case and cannot directly intervene. They said the courts were not considering the merits of the alleged crime but on the prison conditions and human rights issues in India.

Infosys promotes 20,000 people; utilization, retention high at TCS

Infosys has promoted another 4,000 people taking the total number of promotions this year to 20,000, effective July 1, 2012. This is about over 13% of the company's total strength of 1,51,151 as on June 30.
 
"We have done the promotions and progressions as we talked last time, we have done 20,000 across the corporations," Infosys CEO S D Shibulal said.

The company had earlier said it would review the wage hike decision depending on the company performance. However, with lower-than-expected earnings and forecast, in dollar term, the company will not lift its freeze on salary hike any time soon.

Infosys and its subsidiaries added 9,236 (gross) people in the first quarter of FY'13, while the net addition during the period stood at 1,157 employees. The rate of attrition during the quarter was marginally higher at 14.9% against 14.7% in the January-March quarter of 2011-12.

"Typically, attrition in the first quarter (of a fiscal) goes up because people tend to go for higher studies. About 30% of our attrition was due to this reason," Shibulal said.

Meanwhile the country's lead tech player Tata Consultancy Services has continued to hire to support business growth. With campus trainees joining the company from the beginning of July-September quarter, lateral hiring accounted for 75% of total hiring in Q1. There was a total gross addition of 13,831 people (net addition of 4,962), taking the total employee strength of 243,545 on a consolidated basis.

The utilization rate (excluding trainees) was at 81.3% and that including trainees was 72.3%. The attrition rate (last twelve months-LTM) was 12.0%.

"We have been able to effectively increase our retention rate in the first quarter to over 88% and increase our utilization rates further. The on-boarding of current year's trainees has begun," said Ajoy Mukherjee, executive vice-president and global head, human resources.

TCS has a target to hire 50,000 people this year while Infosys will hire 35,000 people, which includes 13,000 jobs for its BPO operations.

What BSNL Can Do With CDMA 800MHz Spectrum

State owned Bharat Sanchar Nigam Ltd which runs a CDMA network country-wide alongwith much used GSM /3G network is planning to hire a consultant firm to take suggestions on What to do for its CDMA network?

According to industry sources, BSNL is on the way to explore the options to utilize Pan India CDMA network on 800MHz band. But Chairman and Managing Director or BSNL, RK Upadhyaya confirms that the company has no plan to close CDMA services and it will continue with CDMA and EVDO services.

Currently BSNL has only 4.8 million CDMA customers compared to 93 million GSM / 3G customers and running CDMA business with low profile specially in rural and remote area with voice services but EVDO coverage is quite inadequate compared to other CDMA players like MTS India, RCom and TTSL. For private dual technology players like Reliance Communications (Rcom) and Tata Teleservices (TTL) are pushing GSM /3G instead of CDMA and both are intending to use CDMA network for data only in coming days.

Even another state-owned player Mahanagar Telephone Nigam Ltd (MTNL) has decided not to invest in its  CDMA network whcih has CDMA spectrum and license with limited mobility in Mumbai and Delhi (MTNL has some license issues to upgrade to EVDO and offer data roaming, but offers Unlimited 1X data usage for Rs. 75/month – cheapest in the industry) MTNL is India’s first 3G mobile service provider and pushing 3G – GSM Mobile services only.

But for BSNL CDMA network is very important, mainly for two reason – their 3G-GSM (UMTS/WCDMA/HSPA) network is quite poor in tems of bandwidth coverage on 2100MHz band. But BSNL EVDO network on 800MHz offers more coverage. Secondly BSNL already plans to return WiMAX spectrum and thus EVDO and 3G will be the only way to provide wireless broadband.

1. Aggressive EVDO coverage expansion with ZTE

Though BSNL has quite good coverage in the metro and urban areas, on sub-urban areas especially tier II and III cities BSNL has less than 20% EVDO coverage, where private players have coverages.

As now BSNL entered into equipment supply agreement with ZTE, which is one of the world’s top CDMA supplier, BSNL should take care of EVDO expansion via ZTE.

2. Investing on EVDO Rev B network

Instead of investing EVDO rev A (3.1 Mbps downlink), BSNL must go for EVDO Rev B technology, preferably Rev B Phase II (supports upto 4.9Mbps per 1.25MHz channel).

3. Starting trials of LTE on 800MHz band on 1.4MHz channels

LTE can be deployed in channel widths as small as 1.4 megahertz, and in low spectrum bandwidth, for example, LTE’s very high spectral efficiency and edge of cell performance means that even in a 1.4 MHz channel LTE provides close to the average sector throughput performance of an HSPA 5 MHz carrier. NTT Docomo has already started some trials on LTE over 1.4MHz channels. BSNL can either do their own trials or wait for global LTE roll out on this way.

4. On voice & text front BSNL can offer all voice and text (in home & roaming to any network in India) rate at flat 30 paisa per minute, similar to MTS’s recent offerings. With such offer and a bit good promotion BSNL can grab some new CDMA voice customers. Also BSNL can tie up with ZTE for bundled CDMA smartphones and tablets.

BSNL currently offers cheapest Unlimited Wireless Broadband over EVDO – Rs. 750/month. With rapid expansion of EVDO network, BSNL can not only compete with 3G/EVDO players but also win the game.

Why are super-rich Indians buying helicopters and why they are different from their counterparts in West

f death is the great leveller, Exhibit 'B' is traffic jams. Chock-a-block roads are the accidental, yet inevitable, meeting places of bicycles and BMWs, motorcycles and Mercs, autorickshaws and Audis. Like it or not, their riders and occupants spend many uncomfortable minutes, even hours, together.

As if on cue, this is where helicopters enter. Choppers ensure that traffic jams are for labourers, the salaried and the rich - they restore parity to the super rich and the powerful around the world and in the process, present a veritable boon for their makers. India, it turns out, is no different.

Steve Estill, who has spent the last decade selling helicopters, experienced first hand this "enormous" potential in the Indian market about four years ago. Estill, vice-president, strategic partnerships at US helicopter maker Sikorsky Aircraft Corp, was stuck in a five-hour traffic snarl en route to his hotel from the Mumbai airport. "I prayed for a helicopter to rescue me," he recalls.

No helicopter emerged on the horizon for Estill, but his company has had better luck. Sikorsky has sold six helicopters to "very rich" Indians, as one would expect, since Estill's ordeal. It is in talks with five state governments and corporate houses to sell more.

"We have been successful in a small way selling the S-76s [the VIP model can carry up to eight people] in India," says Estill. "But this is an exciting and dynamic marketplace," he says.

Buzzing Market 

Sikorsky's antenna in India has been turned to its mainstay military market - one of its helicopters participated in the ill-fated attempt to capture a Somali warlord in 1993 in what became known as Black Hawk Down - and it is a late bloomer in the Indian civil market. But sales of rivals have been humming in India.

AgustaWestland of Italy has sold 50 civil copters in India this past six years. Market leader Bell Helicopter of the US has found 104 buyers since 1996 while Eurocopter Group, a Franco-German-Spanish venture, is said to have around 30 clients in India.

Still, these are early days to say "it's a bird... it's a plane... no it's a chopper". The country has only 280 commercial choppers for a population of 1.3 billion. Arvind Jeet Singh Walia, executive vice-president, India and South Asia at Sikorsky, says a city like Sao Paulo in Brazil with around 35 million people has nearly 700 helicopters. Helicopters are almost used as taxis there to fly from one building to another, he says. 

The "meagre" number of choppers in India is surprising given that these machines have been around since 1953. But India's growth has been largely moderate, says K Sridharan, head of The Rotary Wing Society of India (RWSI), a not-for-profit umbrella organisation of helicopter stakeholders.

From 1953 to 1986, the commercial use of helicopters in India was limited to small aviation companies involved in communication and crop-spraying roles. Even the early years of Oil & Natural Gas Corporation's oil and gas exploration work - most Indian customers are from this segment - was supported by the Indian Air Force and foreign-charted helicopters.

In 1986, the government formed Helicopter Corporation of India (now known as Pawan Hans Helicopters) with a fleet of 42 helicopters. It turned out to be the first booster to the industry, but did no wonders to growth.

Yet, if people in some parts of India at least think there are more choppers buzzing overhead than previously, they are right. Chopper sales have nearly doubled between 2005-06 and 2010-11, according to RWSI. The market has been growing at 12% since 2007

The chopper boom in India has coincided with the spectacular growth in the rise of the incomes of the people who can afford them. India is home to 57 billionaires, according to Forbes. The combined wealth of India's 100 richest, though down 20% from a year ago, was a staggering $241 billion in 2011.

Soaring Sales 

Ravi Menon, executive director of Airworks, which does maintenance and repair work for Bell and AgustaWestland machines, says the number of choppers sent to his company has doubled this past five years.

Indeed, a comatose market is finally showing signs of life, according to experts. Dhiraj Mathur, India leader for aerospace and defence at audit and consulting firm PricewaterhouseCoopers International, estimates 250 more copters will be purchased in India by 2017.

The sharp uptick of helicopters does not surprise him. The civil aviation sector is highly correlated to the economy, he says, adding that as corporates make more money and the number of billionaires rise, more copters will be bought.

Helicopters cost between $1.2 million and $15 million, depending on the size and type of machine. An hour of flying a chopper, accounting for insurance, landing fees, fuel and maintenance costs, and again depending on whether it has single or twin engines and its seating capacity, could set back its billionaire owners by `50,000 to Rs 1.75 lakh. Peanuts, as our finance minister would say. 

In any case, as BS Singh Deo, managing director of Bell Helicopter India says, expenses related to helicopters are more than offset by cutting down the travel time.

Pradeep Srivastava, a helicopter pilot, says almost every day he encounters people wishing to buy copters. "They are taken aback only for a moment when they hear the price."

That's not to suggest they are reckless investors. "When Indians make an investment, they want to be sure it pays off," says Estill. "They look at the value they are getting. They want proof that the copter will operate as per the promised costs. They want to know how we will support the copter. They want us to train their personnel," he says.

Different Customers 

Helicopters, from the accounts of Estill and his colleague Mick Maurer, president of Sikorsky Military Systems, offer a peek into the vanities and quirks of their owners. Maurer says one of his customers - a head of state from West Asia - wanted a shower in his copter. "When he came off the copter to meet people, he wished to be refreshed and clean. I said: 'Yes sir, you want a shower, you got one'."

Chopper Clients: Some of the private helicopter owners in India 

Sikorsky has a customer in the UK who goes hunting with friends to Scotland in a chopper. Another client flies from building to building in a chopper for fear of kidnapping, says Maurer. Sikorsky, says Maurer, is never short of such "interesting" clients. With bankers and celebrities in New York, the imagination can run wild with interiors, he says.

Indians are not as demanding. Nor have they embraced choppers except to save time and for convenience. Their needs are limited to a television, a refrigerator and video games for the children.

One of Sikorsky's clients happens to be India's richest man, Mukesh Ambani, the chairman ofReliance Industries. Ambani's new home, Antilia, has three helipads. Sikorsky executives say Mukesh's wife Nita Ambani was very involved with designing the interiors of the two choppers. "We customised the interiors the way Mrs Ambani wanted," says Walia.

The interiors can also be configured for comfort with leather-clad seating accompanied by a drinks cabinet, a la luxury sedan of the skies. If these are unexciting demands compared with the West, they are a testament to a still fledgling market.

Diverse Clientele 

The typical chopper client in India hails from businesses as diverse as petroleum and real estate. The majority belong to the offshore oil business like Reliance Industries' Mukesh Ambani and the Ruias of Essar. RWSI's Sridharan says at least 25 copters are being used daily to reach offshore oil platforms. Oil has long been the primary segment, but now corporate travel is driving sales.

Big business groups like the Ruias rely on choppers to fly top managers for strategic meetings. "Everybody is running a tight schedule," says a spokesman. Even smaller companies hire copters from charter companies for factory visits. 

Chopper activity, says Airworks' Menon, is no longer confined to Mumbai, Surat and Hazira. It has moved to places like Bhuvaneshwar and Guwahati, he says. "In a sense, copters are driving industrial growth," he says.

Companies also use choppers for medical evacuations. An AgustaWestland copter was used to provide air ambulance cover at the inaugural Indian Formula 1 race last year. Still, copter use boils down to time and convenience.

The super affluent have the money, but lack time. They might want to fly to 3-4 sites a day. They have to be back for a business meeting or return home by evening. How long would that take by road?

Helicopters are, in that sense, godsend. They save time with their twin engines, plane-like streamlining and a top speed of around 350 kmph. Choppers can fly at night, bad weather, over open water and across built-up areas.

Easy Go, Easy Come 

The important thing to note, according to Walia, is that people are going from point A to point B, completely bypassing the road network. "So if Mr Ambani is going from Mumbai to his refinery in Jamnagar in a copter, he can have people with him, he can have his meeting and by the time he reaches after an hour and a half... he's already got his feedback, he's already made up his mind about a decision."

Not only is there plenty of room on board to do business - there's enough leg space so that you don't have to knock each other's knees, says Walia - the interiors of a chopper have been "made quiet" so that people can talk without having to shout.

As jets have come to be, choppers are no longer a status symbol, but a necessity. Walia says choppers offer a leg up over jets because to fly the latter, one needs a runway. There is also the matter of long delays over clearances to fly because of the chaos at airports.

With a chopper, you can land pretty much wherever you want - on top of buildings and on land - as long as it's safe and you have permission. "All you want is area of 25 square metres that is cleared off obstructions," says Srivastava, who has been flying Samajwadi Party scion Akhilesh Yadav to campaign for the Uttar Pradesh election.

But both machines are complementary. Mukesh's brother Anil Ambani, who is regularly seen in the corridors of power in Delhi, is said to fly to the capital in a jet and commute on a chopper. He can step off a jet, whirl around Delhi and spare himself the rush hour.

Convenience apart, buying choppers also turns in monetary benefits. Owners can lease choppers to charter companies. There is no shortage in that department with companies such as Global Vectra, Mesco Airlines and Million Air Executive Jet Service. Owners typically use choppers for around 400-450 hours a year and turn them over to charter companies for the remainder.

The other big growth driver happens to be elections. "People spend big bucks on copters but recoup the amount in 3-4 months. It's a jackpot,"says Sridharan. They also pass copters to politicians for favours during elections, he says.

Identifying owners at times can be difficult in such cases. There are many fly-by-night operators, says Sridharan. "It is difficult to draw a line between the good and bad in this business," he says.

The only downside in the seemingly unstoppable growth of copters in India appears to be the spate of deaths of users in recent years. Former Andhra Pradesh chief minister YS Rajasekhara Reddy and his Arunachal Pradesh counterpart Dorjee Khandu died copter deaths. Between April 19 and June 19, 2011, there were four big accidents involving civil helicopters in India, according to RWSI. Twenty-seven people were killed. 

But chopper makers are not worried because they say 99% of the accidents were due to weather and not machine or engine failure. The new choppers have enhanced safety features, offering technology that assists pilots to land in unprepared surfaces, help them see through dust digitally and fly to predetermined locations.

In any case, people who want to own a copter are said to be astute. "They want to be safe, safe, safe... safety is always the foremost thing in their minds," says Estill. And we thought it was money.

Bigger Magnet: Military Market 

A raft of helicopter makers such as Boeing, Sikorsky Aircraft Corp, Bell Helicopter, Eurocopter and AgustaWestland are hovering over the civil market in India. But they are also eyeing a bigger prize: military deals.

The Indian armed forces are upgrading their ageing fleet and that means big orders and big money, running into billions of dollars, for these companies. According to Reuters, Indian Navy plans to induct 50 light helicopters. First off the block is an order for 16 multi role helicopters. Indian Army has a joint requirement for about 400 light helicopters along with the Air Force.

Some companies are upbeat about the recent contact to buy war planes worth $15 billion that the government awarded to France's Dassault Rafale. Mick Maurer, president of Sikorsky Military Systems, says the procurement process in India is getting better. "It is more rigorous and more transparent. We believe that suits us very well."

Maurer says in the long term, Sikorsky sees a 3:1 ratio vis-a-vis the military and commercial sales in terms of the size of the market. But he says both are very complementary markets. Many of the machines can be used for commercial and quasi-defence activities.

If the civil copter market in India has come alive, it is thanks to the armed forces. Foreign companies in the defence market are bound by what is called offset obligations. India's defence procurement policy rules that foreign companies require that win contracts of Rs 300 crore or more must procure equipment worth at least 30% of the deal amount from local suppliers to boost the homegrown arms industry.

The Indian military has also become smarter, according to foreign company executives. "Sometimes manufacturers give a special price on aircraft, but raise the price on the support side. India has become aware of this and now looks at the total lifecycle costs in deals," says Maurer.

The upshot is that companies like Sikorsky and Eurocopter have partnered Indian counterparts to set up base in India. Sikorsky has formed two joint ventures with the Tatas to make helicopter cabins and aircraft components.

Eurocopter, which formed an Indian unit in 2010, has tie-ups with the Mahindras, the Tatas and government-owned Hindustan Aeronautics Limited. AgustaWestland, the helicopter unit of Finmeccanica SpA of Italy, has a joint venture with the Tatas called Indian Rotorcraft.

All these companies plan to expand in India. Textron, the parent company of Bell Helicopter, has opened a new global technology centre in Bangalore with more than 400 engineers. Bell plans to expand the workforce there over the next year, says the company's India head, BS Singh Deo.

An AgustaWestland spokesman says the company recently opened a new larger office in Delhi. Copter makers are also expanding the customer support network by establishing authorised service centres along with a posse of engineers and technicians.

All this bodes well for the commercial market. The AgustaWestland spokesman says construction work is about to start on the Indian Rotorcraft's facility in Hyderabad, which will produce the company's eight-seat utility helicopter AW119. Sikorsky eventually plans to produce helicopters that are virtually "100% done here". "We are already a local company," says Maurer.

What's worrying Indian IT services and can Infosys, TCS, Wipro, HCL Tech come out unscath?

Infosys CEOs aren't used to listening to sermons. Not from reporters and not from analysts. But that's exactly what happened, last fortnight, when Nimish Joshi, an analyst with brokerage firm CLSA addressed an open letter to Infosys CEO SD Shibulal questioning the direction in which the Bangalore-headquartered IT services company was headed. 

The part homily, part Jerry Maguire-esque letter had D-Street analysts wagging chins about the merit and method of the well-articulated note. Everybody agreed on one thing, though: this was unusual. But then again, what was also unusual was that Infosys missed its quarterly guidance, one which it had lowered just three months before, after a long, long time. 

Like Joshi succinctly put it, "For much of last decade, Infosys' guidance has been a line in the sand to gauge not just company growth but also sector-wide growth. Unfortunately, the divergence in actual performance and guidance over the last 18-24 months has meant that investor confidence in your guidance has gone down. The big miss in the latest quarter has only served to further that sentiment. I hope the recent miss was a blip after 47 straight quarters of meeting quarterly guidance." 

These are unusual and uncertain times for Infosys and the Indian IT industry. The spate of quarterly results last week added to that air of uncertainty. While Infosys and Wipro fended off questions about their weak guidance,TCS celebrated its first ever $10 billion annual revenue with some positive commentary about the year ahead. (TCS doesn't give quarterly or annual guidance.) 

That made analysts split hairs on whether Infosys and Wipro were facing "company-specific problems" or if the industry as a whole was in hot water. Either way, the general consensus was more or less on the lines of what Infosys founder NR Narayana Murthy had said more than a decade ago about the murky market environment prevailing then: "There's so much fog on the windscreen." A helluva lot of it. 

Infy's Speed Bumps  So, what really went wrong? Wipro's IT services revenue growth was the lowest among its peers and its guidance for the first quarter of 2012-13 left analysts disappointed. Infosys on the other hand missed its quarterly guidance and shockingly put out a guidance of 8-10% for 2012-13, much lower than industry body Nasscom's growth projection for the industry at 11-14%.  Optimists pointed out that Infosys has always guided below Nasscom's growth projections - even in the best of times. For instance, its 2005-06 projection was 28-30% while Nasscom projected a growth of 30-32%. In the end, the company grew by 36% that year, well above Nasscom's numbers.  But then again, Infosys' post-results commentary did not give much-needed succour to heart-burnt analysts. "Nasscom has given a very wide range of guidance of 11-14% factoring the uncertainty of the environment.  They have said that they will revisit the numbers somewhere in the middle of the year," Infosys CFO V Balakrishnan told analysts, pointing out that Infosys had arrived on its guidance based on ground realities of customer behaviour. "We don't want to get into a debate whether Nasscom is right or wrong but both [projections] will converge at some point of time. You will know who is right and who is wrong," he added.  A long-time industry watcher believes the Nasscom numbers seem achievable. "Perhaps, Infosys' process-oriented, survey-driven forecasting isn't working in this volatile market when customers themselves don't know what's happening," he says.  Hold That Decision  But perhaps such criticism is harsh right now, as most Tier-I Indian IT services companies (which have announced results) have mentioned that decision making slowed down in the last month of the fourth quarter of 2011-12. Wipro CEO, IT business, TK Kurien had pointed out that deal closures were delayed in the last quarter of 2011-12, but were picking up in the first quarter of 2012-13. Even TCS had hinted the same.  "The year [2012] started a bit like 2009 with budget delays as a result of which companies struggled to get visibility," says Moshe Katri, managing director of Cowen and Co, a financial services firm. Infosys' problems were compounded by the fact that it is among the few companies that gives out annual guidance.  "We have visibility for 65% of our business for the year and 95% of our business for the current quarter," says Infosys' Balakrishnan. Infosys calls this uncertain environment "the new normal". It points to the financial services space to exemplify what's happening.  "In the financial services space, what we are seeing is zero-based budget with month-to-month spending philosophy," says Shibulal. "Usually, when profits go up, technology spending goes up but that's not happening. That's because profits are going up not because of business performance but because of things like write-downs etc," he adds.  The New Normal  So, what does this new normal translate to? And how can Indian IT services deal with it? ET on Sunday spoke to a bunch of analysts to figure out how things have changed. Brian Robinson, research director for HfS Research, a global services advisory, says that competition and pressure on all service providers have increased due to three factors.  One, pricing alone does not differentiate providers anymore. "Nearly all the global majors including IBM, Accenture, CapGemini, have established or are establishing their footprints in India," he says. Two, cost savings (and therefore labour artbitrage) is now just one of the many expectations that customers have from service providers.  Finally, increasing competition not just from the likes ofIBM and Accenture but also from a new breed of ambitious service providers in Latin America (who are tapping the US and European markets) and the likes of Google, Amazon and Salesforce which are offering services like "software as a services" (SaaS) or "platform as a service" (PaaS, where hardware or storage can be rented over the internet).  Competition is also being fuelled by the fact that deal sizes and tenures have shrunk. "Deal sizes are getting smaller. A few years ago, $100 million deals were in play. Now deals are more in the $25-50 million range. Moreover, even the smaller deals are being fought out by not just the Tier II companies but the large MNCs which have a presence in India," says Amneet Singh, India country head for global sourcing advisory firm, Everest Group.  Deal tenures too are being crimped. "The tenure of outsourcing contracts is coming down. The contracts which were 8-10 years in tenure are now being renegotiated to 3-5-year-long contracts," says Sanjoy Sen, senior director, Deloitte, a consultancy. "Indian IT services companies can actively seek contract renegotiations with clients," he adds.  Living With It  So, how are Indian companies dealing with this new environment? Most Indian companies are pushing for non-linear growth (where revenue growth is not related to manpower addition proportionally) a lot more seriously.  "Several have instituted non-linear growth models as a response, restricting their business models to stimulate innovation in their organisations," says HfS' Robinson. "We believe that the largest Indian providers [Infosys, Wipro, TCS...] have strong enough balance sheets to make this transformation. We are less confident that smaller providers will be able to make this transition," he adds. Infosys is betting big on its platforms and products business. As Shibulal pointed out: "Our revenues from platforms was $25 million for the quarter but at the same time we exited the year with $350 million of booked business." TCS CEO N Chandrasekaran says that non-linear is among the biggest areas of focus for the company. "We really want to drive that very aggressively from this quarter... More than 10% of our incremental revenues definitely will be from nonlinear," says Chandrasekaran.  Wipro has been showcasing client wins in new areas like analytics and cloud. "The company's keen focus is to grow its new focus areas like Analytics (35 new accounts in the year), Cloud (40 new wins in this quarter) and Mobility (50 new customers added in FY13)," reads a recent report from brokerage house Prabhudas Lilladher.  In a recent conference call with analysts, Kurien also mentioned that the company was investing in sales capabilities and had divided its sales teams into hunting (new client acquisition) and farming (mining existing customers) teams. Consequently, Wipro's sales and marketing expenses were the highest since the fourth quarter of 2003-04, adds the Prabhudas Lilladher report.  Wooing Uncle Sam  Deloitte's Sen believes that Indian companies which are able to offer a global delivery model as compared to an India-centric delivery proposition are likely to fare better than those who don't. Infosys plans to hire 1,200 people in the US this year.  TCS and Wipro also have stated their intentions to hire in this market. Part of this could also be to assuage some of the shrill criticism that Indian companies get from American politicians on outsourcing related job losses around American presidential elections.  So, what lies ahead in the next year for Indian IT? Is it just slower growth and uncertain times? One can't be sure. Most analysts ET on Sunday spoke to said they expected growth momentum to pick up later this year. However, it's not going to be anywhere close to the robust growth the industry witnessed before September 2008. Growth for the industry is mostly likely to be in its early teens, with a few exceptions.  "We see Cognizant growing at 25-30% growth in the next 3-5 years," says Cowen's Katri. "Infosys is going through an internal transformation of sorts...it would be interesting to see what comes out of it," says Katri. Does he see Tier I companies slashing prices to retain business or market share? "I don't see substantial pricing cuts," says Katri. "Indian IT companies realised in 2002-03 that once you drop prices [which they did back then], it's very tough to get them back up again," he adds.  And then, there is the question of acquisitions, given the vast pile of money that Indian Tier-I companies are sitting on. "Cash is a good thing to have," says Balakrishnan. "We have spoken about Infosys 3.0 where we want one-third of our revenues to come from platform, product and solutions businesses which account for 6% of our revenues today. If we need to get to one-third in the medium term, we need to do acquisitions. We may use the cash for that," he adds. Maybe, it won't be that bad a year after all.  IT results: Mixed bag  Wipro:  Revenue growth for IT services was lowest among peers and its guidance for the first quarter of FY13 was disappointing. The company blamed it on patchy domestic market revenues, especially in the telecom and government verticals.  Revenues (IT services): Rs 28,431 cr (2011-12); up 21% YoY  TCS:  Became the first Indian IT services company to cross the $10 billion revenue mark. The company gave out the boldest commentary among its peers: did not expect any pricing pressure, wasn't worried about client IT budgets in the coming year.  Revenues: Rs 48,894 cr (2011-12); up 31% YoY  Infosys:  Infy missed its last quarter guidance for FY12, blaming it on unexpected slack decision-making and ramp-down by clients. The street was shocked by lower revenue guidance of 8-10% - much lower than Nasscom's projection of 11-14% growth in FY13.  Revenues: Rs 33,734 cr (2011-12); up 15.8% YoY  HCL Technologies:  Recorded revenue growth driven by a rise in offshore volumes. Client addition was robust with 14 new deals worth $1.5 billion in the March quarter. HCL has 4 clients with over $100 million billing compared with just one a year ago.  Revenues: Not available as HCL follows a July-June financial year

Lakshmi Mittal retains tag as richest man in Britain, tops Sunday Times Rich list

It's not a good year to be in metals,mining or owning football clubs. Lakshmi Mittal, who still retains his tag as the richest man in Britain, topping the annual Sunday Times Rich list, is GBP4.8 billion poorer than he was last year, with his wealth estimated at GBP12.7bn - the main reason, a Eurozone crisis that has eroded the share price of Arcelor Mittal. 

Anil Agarwal, Vedanta's promoter, has seen his position dropping from 12th place to 26, thanks, again to dropping share prices that's seen his wealth erode by GBP1.5 bn. Ravi Ruia, who entered the list last year at number 12, has also seen his share price bomb, and in 2012 clocks in at 33, with his wealth almost halved by GBP2.9 bn to GBP 2 bn. The newspaper noted that Essar Global, which was valued around GBP 5.4 bn in 2010 when it floated, is now valued at GBP 1.6 bn. 

The only Indians who have seen their position going up are Sri and Gopichand Hinduja, who last hit the headlines for buying a palatial mansion at Carlton Terrace, within a stone's throw of Buckingham Palace in Pall Mall, who are now estimated to be worth GBP8.6bn, up by GBP 2.6 bn from last year. It puts them at the 4th place in the top 1000 rich list. 

Anurag Dikshit, the reclusive, Gibralter-based former owner of poker site Partygaming, makes it to the number 3 in the top philanthropy list in 2012, with recent donation of GBP 23.4 million to his charitable trust in India, Kusuma, in addition to the GBp 172 million he gave away last year, reducing his personal wealth to a mere GBP 35 million. 

In the top 50, another Indian who's seen he's position rise is Ajay Kalsi, of AIMS-listed Indus Ind Gas, who at number 42 has significantly crawled up the ladder from number 58. The newspaper attributed this to share prices holding up despite the recession. 

Of the other top 3, though, Alisher Usmanov, the Russian mining tycoon best known for his recent acquisition of Arsenal football club, has also lost wealth, as has Roman Abramovich, the oil mogul best known for his ownership of Chelsea football club, has also lost money.