The inflow tilt

BoP data shows higher ECBs, lower NRI inflows in Q4

The key trends in the balance of payments (BoP) for the fourth quarter of 2003-04 are a sharp rise in external commercial borrowings and a slowing down of non-resident deposit inflows. External commercial borrowings rose to $1.898 billion in the fourth quarter.

The Reserve Bank of India's relaxation of the rules for ECBs, the favourable interest rates for dollar borrowings and the appreciation in the value of the rupee all played a part. NRI deposit inflows fell to a paltry $124 million in the January to March quarter.

Foreign institutional investor (FII) net inflows also fell, from $4.1 billion in the third quarter to $3.7 billion.

The trade and current account deficits remained stable. Invisibles too were steady at $7.5 billion, although the composition of invisibles changed, with software exports rising and a moderation in remittances.

Will the tapering off of FII and NRI flows and the lack of ECBs put pressure on the rupee? The BoP data doesn't show that "" the current account balance was a positive $3.4 billion in the fourth quarter, and $8.7 billion for the full year.

True, the capital account balance, at $6.3 billion in Q4 and $22.1 billion in all of 2003-04, was much larger, but the fact remains that the current account has been in surplus since 2000-01, and the growth in exports and invisibles was more than sufficient to offset a 22 per cent rise in the import bill last financial year.

Outsourcing by MFs

At a recent press conference in Mumbai to announce the launch of ABN Amro's asset management company, chief operating officer Nikhil Johri said that he would need only twenty employees to manage a corpus of about Rs 100 to Rs 200 crore.

The secret? Outsourcing. Mutual funds are increasingly outsourcing services such as fund accounting, custodial services, apart from the registrar and front-office functions "" essentially the entire gamut of non-core activities.

Prudential ICICI AMC today manages about Rs 13,000 crore of funds, but employs less than 25 individuals as its entire fund accounting have been outsourced. The idea is to lower staff cost by doing away with non-core jobs.

Unit Trust of India (UTI) on the other hand, has not opted for the outsourcing model and this explains why its staff strength well exceeds 100. Aside from employee size, there is also the question of space, systems and other infrastructural issues that all add to costs.

What's more, in India many foreign-owned mutual funds have outsourced a significant part of the non-core activities to JP Morgan.

"We manage 15 per cent of domestic funds under various mutual fund schemes in the Indian market," said Laurence Bailey, senior vice president JP Morgan.

Does the outsourcing pattern hold true for all countries? Not really.

ABN Amro has adopted for the outsourcing model in China where it manages onshore funds to the tune of $120 million. However, this model cannot necessarily be adopted worldwide, as it depends upon whether outsourcing leads to lower costs, said Alex K G Ng, chief investment officer Asia Pacific, ABN Amro.

Freight pickings for Shipping Corporation

Driven by record freight rates, practically every shipping company posted record all time high profits last year. The Shipping Corporation of India (SCI) is no different.

Net profits for the quarter ended March 31, 2004 have grown 101 per cent to Rs 257.14 crore. A tight control on costs helped overall operating profits jump 54.6 per cent to Rs 296.63 crore in the March quarter while operating profit margins also rose 1025 basis points to 34.3 per cent.

Record freight rates in both the dry bulk segment and tanker segment helped the corporations' key bulk segment to grow profits by 151 per cent.

For the full year, SCI posted record profits of around Rs 626.99 crore, a jump of 128.17 per cent. This is unlikely to be repeated this year, as dry bulk freight rates have fallen 30 to 40 per cent in the last few months after China decided to cool down its overheated economy.

However, the tanker market is still firm and the outlook is still good for the current year, while dry bulk rates continue to rule above the average.

The long term future of SCI depends, even more than that of other shipping companies, on the introduction of tonnage tax. If this regime is announced then the corporation, like most shipping companies, will pay tax at 0 to 2 per cent levels.

If the tonnage tax regime does not come through, then the private sector shipping companies have the option of registering their ships in tax havens like Panama, Liberia etc.

Since, SCI is a PSU it quite simply does not have that option. Tonnage tax could well decide whether SCI truly emerges as a shipping MNC with global size and scale of operations.

With contributions from S Ravindran, Amriteshwar Mathur, Freny Patel and Janaki Krishnan