DATE: 1ST December 2007

VOLUME NO: I
ISSUE NO: IX

Chanakya
Is Colombo Port humbled by Indian 
Ports! 
Sri Lankan shippers are feeling the pressure of India's booming export-
import trade with some of the major shipping lines deciding to give
priority to Indian ports over Colombo.

Maersk, UASC, K-line and Norasia, one the leading shipping lines in the
world, have diverted some of their services to Nhava Sheva in Mumbai.
Some have withdrawn their European services to and from Colombo.
This Issue
Hanjin-K Line-UASC combine used to operate two services to Europe
Is Colombo Port Humbled by Indian  from Colombo, but recently pulled out one. Norasia-Zim Line pulled
Ports ‐         1  out its weekly European service. This action of these leading shipping
Indian Real Estate Boom: Shifting  lines have created a shortage of 650 TEUs (twenty-foot equivalent
Geographies      2  units) a week for the Colombo-Europe sector.

Construction Boom: Are we Ready  3  Why did they orphan Colombo Port? The answer is obvious, India is
Economic Indicators    4  booming. Look beneath we find interesting facts. The direct services
from India obviate the need for Indian cargo to be transshipped through
Team Chanakya      4  the Colombo port to Europe or the US thus saving around $100 a TEU
for the shippers. India is now a cargo-rich base as industry is booming.

Consider this; the shipping lines will consider diverting the ships based
on the volume. For example, Maersk Line recently introduced a route
change and also introduced a new service out of Chennai. Its European
vessel has now been dedicated to the UK trade mainly giving preference
to garments to the UK. This is despite expenses incurred due to delays
at Indian ports.

The infrastructure in the Colombo Port is also one the concerns, which
has not seen a major investment for the past 15 years. The worst hits
are Sri Lanka's exporters of garments, tea and coir. However, the
Colombo port is not ready to give up its ‘numero uno’ position in the
region and is investing heavily. The strategic advantage of Colombo is its
geographical location, but can it withstand the onslaught of the volume
advantage that Indian ports provide. Remains to be seen!
Indian
n Real Estate
E Booom: Shiifting
Geograaphies
When Faraallon Capital Management,
M a U.S. hedge funnd,
and its joinnt-venture parttner, Indiabullss, snapped up an
a
11-acre prroperty in centtral Mumbai in March 2005 fo or
$54.5 million an acre, thee purchase was called an act of
idiocy by loocal developerrs. A few montths later, whenn the
same jointt venture offereed $95.5 millioon an acre for a
nearby pro operty, it was the
t second-low west bid.

pouured money intto funds that innvest in Indian developers.

Property prices
p a rising fast, and not just inn the
in India are
GE Commercial Finance
F Real Esstate, for exammple, has
biggest citiies. As the techh boom spread ds across the
inveested $63 milliion in an $800 million fund thhat is building
country, ass more Indianss buy homes, and as the econnomy
IT parks,
p and Calppers and the Oregon
O Public Retirement
R
grows at faaster than 8% a year, real esttate is attractinng
Funnd have investeed $100 millionn each in the ILL&FS India
more invesstors, many off them from abbroad.
Reaalty fund.
India is one of the last feew countries where
w there is
primary deemand for real estate rather than individuals Reaal estate funds set up to invesst only in Indiaa have already
trading up.. Merrill Lynch forecasts thatt the Indian reaalty raissed more than $6.7 billion. AndA new funds worth as
sector willl grow from $12 billion in 20005 to $90 billion mucch as $4 billionn are being planned by J.P. Morgan,
by 2015. This
T optimism is i not bought by
b all in the Brittain's Knight Frrank, and other foreign invesstors.
corridors of power. Con ncerns about an asset-price Waarburg Pincus, the t largest privvate-equity invvestor in
bubble havve led the Reseerve Bank of Inndia to raise thhe Indiia, says it is speending nearly a third of its tim
me studying
risk weighttage on real esstate loans exteended by bankks, oppportunities in this
t area.
and mortggage rates havee gone from 7.55% to about 100.5%
as a result. That's still weell below the 15% rates that Butt it isn’t going to
t be a cake walk.
w The one im mpediment is
most Indiaans were used to, but it's eno ough to raise the nature of the Indian real esttate business ittself. A
questions about whetherr the speculatio on of the past two, majjority of develo opment is beinng done by smaall and family
which has driven land prrices up by 30% % to 100% and real runn organizations. In country thhat need around US$100
estate stoccks up as much h as 2,000%, may
m be coming to t billiion of investmeent in real estaate, only 15 listted
an end. commpanies are avaailable and all others
o are smaall regional
playyers, who wouuld not have the ability to scaale-up to the
The run-upp in prices has attracted the likes of Morgaan exppectations of thhe funds.
Stanley, Merrill Lynch etcc., to name few
w, to pour greeen Thee second major concern is thhe falling margins. The
bucks in thhe Indian markket. Foreign companies have also
a marrgins that thesee funds came to
t expect from m Indian
marrkets were upw wards of 35% which
w is languishing at 20%
as of
o now.

So to t circumvent and still sail abbove waters,

t find a way to
several funds are focusing on seecond-tier tow
wns and
second-tier developers. The Next Wave off Real Estate
Boom is In Tierr II Markets!
 Constrruction Boom: Are
A we reeady?
Indiaa's planned infrrastructure outlay over the next
n five years is Thhere is a definitte requirementt of space for these
t
US$$475 billion. Thhe country currrently spends around
a $21 billion a forreign companiees to put their manufacturingg base in
yearr on infrastructture, compared d to China's $150 billion andd now Ind
dia.
wouuld be spendingg close to US$95 billion a yeaar. The effect ofo all
of thhis can be seenn in the order books of infrasstructure build
ders, Off India’s largestt imports by vaalue, next to Oil,
O Heavy
whicch have also reeached a multi--year high. enggineering equippment commands a lot of weeightage.
Thhese foreign co ompanies flockiing the Indian market
m are
Connsider just a feww examples: Puunj Lloyd, an EPC
E company, likeely to set-up shhop in India.
earnned 72% more income for the quarter endeed June 2007, at a
Y its order baacklog rose to $3,859.32 million.
$3599.43 million. Yet, As companies takke on larger sizze projects, thhe capital
Larssen & Toubro, one of Asia's largest
l vertically integrated inttensity of their operations inccreases, forcingg many
engineering and co onstruction companies, anno ounced that gro oss companies to relly on private eqquity or the puublic
saless rose 47% in the
t quarter ended Septembeer 2007 to $1.441 maarkets. So far, the
t Indian capital markets haave been
billio
on, and yet its order backlog rose to a recoord $10.14 billion. suppportive of this, with DLF Ltd. -- one of Ind dia's largest
And d Patel Engineering, which expects to close the current yeear reaal estate develoopers -- raisingg capital in a reecord-
withh sales of $405.58 million, hass an order boook of $1.37 billlion. breeaking IPO earrlier this year. Many realty co ompanies
also managed to raise funds on London's Alteernative
Just to highlight the enormity of the opportunity the planned d roll- Invvestment Markket for investing in projects inn India.
out of highways byy the NHAI ovver the course of the next 100 years
exceeeds the total turnover
t of all construction companies in India
I Lattely, as real esttate stocks havve come underr increasing
todaay. Even if all thhe companies did
d only road projects
p and leeft all preessure, many companies
c havee begun to reaassess the
worrk on building airports
a and poower plants aside, NHAI still has preemiums they can hope to recceive when theey go public.
morre work to offeer then firms can
c take. Inffrastructure buuilders, howeveer, have discovvered that
thee stock markett is still receptiive, with Munddra Port &
The turnover of alll construction n companies in India last yearr was Speecial Economicc Zone becoming the first SEEZ
arouund $15 billionn. This year it may
m rise to $200 billion. But a total devveloper to go public in Octo ober this year and
a has seen
of $95 billion is slaated to be spennt on construcction every yeaar in t day of listing.
its investor’s forttune triple on the
Indiaa, which requirres a capabilityy of 5 times thee sector's size. India
will need several billion-dollar,
b pure-play
p consttruction compaanies Thhe Indian opporrtunity is posittive, the Indian capital
to be
b able to execcute such projeects, but it has only a couple of maarkets are receeptive, the Indian Governmennt is inviting,
suchh companies, calling into quesstion the abilityy of the privatee andd all this are making
m a great case
c for a boomm in this
secttor to build outt infrastructuree in a public-prrivate partnersship secctor.
mod de.
Thhis will call for more industriaal space creatio
on in the
Foreeign firms mighht view the hugge gap betweenn the sector's forrm of SEZs. A construction anda infrastructuure
existting capabilities and those reequired as an opportunity
o to make equipment SEZ will w make a lot of sense in thiis condition.
their mark in Indiaa. Indeed, the infrastructure spending
s boomm in
Indiaa has benefited d a bevy of oveerseas companies, such as W are placed
We d right at the middle of th
his
Donngfang Electric Corporation in China and Doosan
D Heavy
Induustries and Connstruction Com mpany in Koreea, who are filliing
ordeers for turbinees used to geneerate power. A number of leading
globbal construction companies, suchs as Australia's Leighton
Hold dings and Italiaan-Thai Develoopment Public Company,
C have also
enteered India.
 Economic Indicators
Indicators Nov’07 Oct ‘07
Bank Credit 22.47% 20% The Economic Indicators of the Indian economy may
be termed as positive and more efficient then the
Deposits 26.8% 26.6%
Chinese, but is in-efficient in managing the resources.
Money Supply 21.8% 21.8%
The Government is been building up the forex
Inflation 3.11% 3.32%
reserves with a vengeance, the ghost of 1991 seems to
Home Loan Rates 11.5% 11.5%
be hounding the bureaucracy till today, and so the
IIP 9.3% 10.7% inefficient investment and contradictions in the macro
Forex Rate 39.80 39.23 economic variables have started cropping in.
Forex Reserves (US$ 279.80 271.14
To taste a few, the Indian inflation is at 3.11%, very
Billions) comfortable for a 9% economic growth, but RBI is still
raising the CRR which will result in increased interest
rate. The classical economic theory dictates these two
cannot have such a big variance of 10% as it is today in
India.

The culprit is sitting somewhere in the form of global

forex markets and smiling at RBI. With very low/ever
decreasing interest of the US and European economies
all the dollars are washing at the shores of India where
the return is high, just by putting your money in bank
and forget about lending the same.

So where does it lead to? This leads to increased FDI

in Indian financial system, increased value of Indian
Rupee. These events force RBI to buy dollars and
infuse Indian Rupee to save a few exporters (exports
Team Chanakya forms only 3% of Indian GDP). With money infusion
the inflation will go up and RBI will take back the
D Joel K Pandian money from the system (maintain M3) to contain
DGM-Strategic Planning
inflation by increasing the CRR. Which in turn will
force the banks to increase the interest rate, while all
Anup Choudhary
the dollars earn nothing more than 1.2% for the
Asst Manager- Strategic Planning nation, the Indian citizens and companies have to bear
and interest of 13%?

Doesn’t it look funny way of managing the

forex?