Narayana Murthy and Growth of Infosys

Infosys Technologies is one of the few Indian companies that has changed the way the world looks at India. 

No longer is India a land of snake charmers and beggars. It is now perceived as an economic giant to reckon with, bursting with brilliant software engineers and ambitious entrepreneurs. And Infosys is an symbol of India's information technology glory. 

Infosys has many firsts to its name: The first Indian firm to list on Nasdaq; the first to offer stock options to its employees. . . The company crossed $1 billion in revenues for the first time in 2004. TCS, however, was the first Indian IT firm to top $1-bn in revenues.Infosys is an organisation that inspires awe and respect, globally. On July 2, Infosys completed 25 years in existence. This is its amazing success story, illustrated by rare photographs.

The idea of Infosys was born on a morning in January 1981. That fateful day, N R Narayana Murthy and six software engineers sat in his apartment debating how they could create a company to write software codes. 

Six months later, Infosys was registered as a private limited company on July 2, 1981. Infosys co-founder N S Raghavan's house in Matunga, northcentral Mumbai, was its registered office. It was then known as Infosys Consultants Pvt Ltd. 

What was the company's starting capital? 

US $250. Murthy borrowed $250 from his wife Sudha to start the company. The front room of Murthy's home was Infosys' first office, although the registered office was Raghavan's home. 

Who were Murthy's six friends who joined hands to launch Infosys? 

Nandan Nilekani, N S Raghavan, S Gopalakrishnan, S D Shibulal, K Dinesh and Ashok Arora. 

Are all of them still the founding directors? 

Murthy is currently chief mentor and chairman while Nilekani is the chief executive officer and managing director. Gopalakrishnan, Shibulal and Dinesh are directors. Raghavan retired as joint managing director in 2000. He is currently the chairman of the advisory council of the N S Raghavan Centre for Entrepreneurial Learning at the Indian Institute of Management, Bangalore. Ashok Arora worked for the company till 1988 and left after selling his shares in the then unlisted company back to the other promoters. He moved to the United States where he now works as a consultant. 

 

The idea of Infosys was born on a morning in January 1981. That fateful day, N R Narayana Murthy and six software engineers sat in his apartment debating how they could create a company to write software codes. 

Six months later, Infosys was registered as a private limited company on July 2, 1981. Infosys co-founder N S Raghavan's house in Matunga, northcentral Mumbai, was its registered office. It was then known as Infosys Consultants Pvt Ltd. 

What was the company's starting capital? 

US $250. Murthy borrowed $250 from his wife Sudha to start the company. The front room of Murthy's home was Infosys' first office, although the registered office was Raghavan's home. 

Who were Murthy's six friends who joined hands to launch Infosys? 

Nandan Nilekani, N S Raghavan, S Gopalakrishnan, S D Shibulal, K Dinesh and Ashok Arora. 

Are all of them still the founding directors? 

Murthy is currently chief mentor and chairman while Nilekani is the chief executive officer and managing director. Gopalakrishnan, Shibulal and Dinesh are directors. Raghavan retired as joint managing director in 2000. He is currently the chairman of the advisory council of the N S Raghavan Centre for Entrepreneurial Learning at the Indian Institute of Management, Bangalore. Ashok Arora worked for the company till 1988 and left after selling his shares in the then unlisted company back to the other promoters. He moved to the United States where he now works as a consultant. 

 

25 years sheer determination, and growth 

In the last 25 years, Infosys has been growing and growing. 

Today, Infosys is India's second largest software exporter. It now enjoys a strong liquidity position with over Rs 6,000 crore (Rs 60 billion) in assets, including surplus cash. 

During 2005-2006, the Infosys internal cash accruals more adequately covered working capital requirements, capital expenditure and dividend payments leaving a surplus of Rs 1,612 crore (Rs 16.12 billion). 

As on March 2006, the company had liquid assets including investments in liquid mutual funds of Rs 4,463 crore (Rs 44.63 billion). This collectively makes the liquidity strength of Infosys at Rs 6,078 crore (Rs 60.78 billion). 

Where are these funds parked? 

These funds have been deposited with banks, highly rated financial institutions and in liquid mutual funds. Infosys last year derived an average yield of 4.48 per cent (tax free) from these investments. 

The company received Rs 647 crore (Rs 6.47 billion) on exercise of stock options by employees and cash equivalents including liquid mutual funds increased by Rs 1,612 crore during 2005-06.

Diluted Insurance Bill coming up

The government appears to have buckled under political pressure, as the finance ministry is set to take a diluted version of the Insurance Bill to the Cabinet in the coming week. The revised Insurance Laws (Amendment) Bill proposes to retain the foreign direct investment (FDI) cap in the sector at 26 per cent, against 49 per cent proposed earlier. This comes barely two weeks after the Cabinet cleared a toned-down version of the Banking Laws (Amendment) Bill.

A higher FDI cap in insurance was expected to give a push to financial sector reforms that Finance Minister Pranab Mukherjee had been talking about.

But, a foreign investment ceiling status quo will take much of the sting out of the legislation, particularly at a time when the country desperately needs foreign inflows in the wake of a widening current account deficit and a weakening rupee.

The Bill will make some incremental changes to fine-tune the existing legislation. The ministry has broadly followed the recommendations of Parliament's standing committee on finance headed by BJP leader Yashwant Sinha. The panel had said instead of seeking foreign capital, companies should tap the domestic market to meet their needs.

The Bill proposes opening up the sector for branch office operations by foreign re-insurers "on terms and conditions of the standing committee". It also proposes to increase the time period beyond which a policy cannot be questioned on ground of misstatement from two to five years.

"Consumer policy protection remains the prime focus of the Bill. It will be easier to increase insurance penetration in the country... Allowing branches of foreign re-insurers would reduce the exposure of Indian re-insurer (GIC)," an official said in defence of the new version.

Under attack from various quarters for not being able to push reforms, the government recently started moving ahead on key financial sector Bills, stalled for years. The movement, however, has come at the cost of dilutions in some of their key proposals. Last month, the Banking Bill met a similar fate when the Cabinet approved a proposal to raise the cap on shareholders' voting rights in private banks from 10 per cent at present to 26 per cent, irrespective of their total holding. The original plan was to raise rights in proportion to an entity's shareholding.

"An understanding has been arrived at between the government and the Opposition that if the standing committee's recommendations are accepted, the Bills would be allowed to sail through smoothly in Parliament," a senior government functionary told Business Standard.

The government had also conceded to the standing committee's suggestion to fix a 26 per cent FDI ceiling in the Pension Fund Regulatory and Development Authority Bill, but it did not pass muster with Trinamool Congress [ Images ] supremo Mamata Banerjee. The Bill has been pending with the Cabinet since December 2011. The proposals may be diluted further, to Banerjee's satisfaction.

Other Bills such as the Constitution amendment for the Goods & Services Tax and the Direct Taxes Code may also be tweaked so that they can see the light of day before the elections in 2014. Similarly, the decision on allowing up to 51 per cent FDI in multi-brand retail may be altered. 

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Equity v/s Bonds!

The earnings yield vis-a-vis 10-year bond yield may be an important indicator for equity markets. This ratio can be used as a tool to identify how cheap or expensive the stock market is relative to the debt market, other capital instrument available for investing.
Earnings Yield = Earnings per share divided by the stock price

For example,
If earnings per share for the past four quarters = Rs 3 and the stock price = Rs 30, the earnings yield is 10 per cent.
The earnings yield is the reciprocal of the price-to-earnings ratio, which would be 30/3, or 10. A high earnings yield indicates that the market is assuming a lower growth in profits in the future for the company while a low earnings yield indicates that the company is expected (by the market) to have high profit growth for an extended period of time. An expectation of low profitability in the future has a better probability of being exceeded compared to the stock where the expectations are high.

The methodology used to calculate the earnings yield of a stock can be extended to calculate the earnings yield of an index.

Similarly, for the other capital instrument available for investors - bonds - yields are readily available and indicate the returns that they will provide to investors who continue to hold the bond till maturity.

The simplest version of yield is calculated using the following formula: yield = coupon amount/price.

When you buy a bond at par, yield is equal to the interest rate. When the price changes, so does the yield.

A comparison of the yield between the two capital instruments, equity and debt, can be used to assess the risk-reward for investing.

History suggests that earnings yield-to-bond yield may be a very important tool to indicate how much the equity markets are expensive or cheap relative to bond markets. This tool has been a very important indicator to identify bottom of the equity market. Whenever earnings yield have crossed bond yields, it implies that even assuming nil earnings growth in perpetuity equity will deliver better returns than debt. Similarly, when equity yields are lower than bond yields, it indicates that equities are expensive than bonds.

Whenever we have seen sharp drops in interest rates, like during 2003-2005 when interest rates declined sharply and equities became quite cheap compared to bonds. It was followed by a sharp rally in equity markets. Similar, was the experience in February-March 2009 when earnings yield exceeded the bond yield and was followed by a sharp rally in stock markets.

Currently equity yields are almost at par with bond yields indicating both these capital assets are balanced in value terms.

Source: http://www.financialexpress.com/news
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Travel Sector always a boom?

Over six million foreign tourists are expected to descend onto various holiday destinations in India this year, enthusing hotel chains and travel companies to gear up to cash in on the bandwagon.

As the last three months of a year form the peak season for travel and leisure holidays, the country will also witness room rates rising by 10 per cent and airlines doubling fares on popular routes.

This increase will come on the back of striking recessionary trends in several western countries and peaking inflation in India.

Although corporate travel was widely expected to get impacted, the depreciating rupee will aid this section of travellers, say experts and players.

Rajeev Menon of Marriott International says this will be 'fairly solid' with no major challenges.
"This is going to be a strong fourth quarter with occupancy levels maintained at the higher end," he notes.

"Typically, we start negotiating room tariff hikes around this period.

The rise in tariffs will come on the back of better occupancy than last year which are expected to be in the region of 80 per cent and going as high as 95-100 per cent levels in case of a few most sought after properties.

Tour operators say there has been no impact of economic downturn on travel.

"The cost of packages have increased 5-10 per cent over the summer, but that has not impacted travel," notes a tour operator.
"Within the country Kerala and Andaman Island are the favourite destinations."

As a weaker rupee discourages outbound travellers, factors such as terrorism and political turmoil will have an impact on the domestic industry feel experts.

Travel, Hospitality & Tourism, India, claims the current exchange rate is favourable for inbound traffic.

"Fortunately, we don't currently have foreign advisories against travelling to India. On an average there are many cities that haven't reached the 2008 rates.

"Places like Chennai and Pune has excess capacity while Mumbai and Goa has hardly added inventories."

During this year, from January to August, India clocked a 3.81 million foreign tourist arrivals, marking a growth of 10 per cent over 3.46 million registered in the same period the previous year, according to the tourism department.

But not all are too optimistic.

"Advance booking trend, though, suggests that tourist hotels are doing fairly good for the season. Occupancy levels should be about 80 per cent if not more."

Airlines such as Jet Airways are charging Rs 12,300 as a one-way fare from Mumbai to Goa in economy class, more than twice the regular fare.

Seats on some of its scheduled flights on that route are completely sold out for December.

Source: http://www.rediff.com/business/slide-show
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World Tourism Day - 27th Sept'2011!

Going by the 'linking culture with tourism' theme of this year's world tourism day, the state government and travel industry have planned a melange of cultural activities at various tourist destinations in the state on Tuesday.

The objective of the festival was to showcase India's art, culture, cuisine and business and provide a platform for the Japanese to connect with India.

World Tourism Day on September 27, tourism and allied infrastructure are in not-so-good shape in Ernakulam district.

World Tourism Day bring in a lot of enthusiasm and activities around the country. 

For instance: Some Japanese tourists performed Odissi dance at the two-day carnival, he added. "Japanese tourists were impressed by our art, culture and cuisine. The festival is an ideal platform allowing people of India and Japan to interact and understand each other's rich culture," Dash said.

Meanwhile, Puri-based Barefoot voluntary organization has decided to organise a musical concert at the temple town on the occasion of world tourism day on Tuesday. "We will give warm welcome to visitors at the railway station. Well-decorated cycle-rickshaws will take out a procession," Barefoot chief Yugabrat Kar said.

The state tourism department is also organizing a 'heritage walk' programme in Bhubaneswar on the day. "Tourists would walk around different temples in Old Town. Recreational programmes have been lined up," an officer said. In Puri, the department is taking out a tableau to showcase the art and culture of the state.

Capping the day on a sweet note, state-run Orissa Tourism Development Corporation (OTDC) would inaugurate 'pitha parlour' at Pantha Niwas, where food lovers can partake of nearly 10 different types of Oriya pithas. "Pithas like Manda, Kakara, Arisa and Poda Pitha would be available here," OTDC general manager M R Pattnaik said.

Source: http://timesofindia.indiatimes.com/city
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Gold – A hot property suddenly?

The credit growth may be slowing as a result of sharp rise in interest rates and gold buying may have become a costly affair but with the increase in the worth of the gold, financing companies and banks are witnessing a significant rise in their portfolio of loan against gold.

One of the very famous financial companies has witnessed a five-fold increase in the retail loan portfolio from Rs 3,000 crore in March, 2009 to over Rs 15,000 crore in March.

Another one witnessed a 120 per cent rise in its gold loan disbursement in the quarter ended June from Rs 3,111 crore in the quarter ended June 2010 to Rs 6,858 in June 2011.

All financial companies are expecting a rise of 40-50 per cent in its retail loan portfolio. Market players say that there has been a change in the perception about gold loans and that has helped in the growth.

Sources reveal, As organised players have moved to rural areas and small towns there has been a substantial shift from the unorganised players to the organised players. Also, over the last few years, substantial advertising and entry of PSU banks and private banks in this businesses is giving it more and more respectability.

A rise in the interest rate of personal loans between two and three percentage points over the last one year as a result of rising interest rates and several banks reducing their exposure to personal loans is also working to the gold loans advantage.

“Over the last one year, if the gold prices have gone up by over 40 per cent, the value of loan per gram of gold has risen between 25-30%. Given the current rise in prices, gold loan companies are careful about the loans advanced.

Source: http://www.financialexpress.com/new
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Rupee Depreciation By 20% in 2 years

The Indian Rupee may depreciate by around 20 %during next 2 years on account of dip in confidence about the domestic economy leading to outflow of funds.

According to a report by financial and business research firm Evalueserve, there will be pressure on the Rupee unless steps are taken to fix certain structural issues like high current account deficit and dwindling investments.

"During the next two years the probability of the INR (Indian Rupee) to depreciate is the highest (about 50 per cent) as compared to an appreciation or a status quo scenario," Evalueserve said, adding that the depreciation could be in the range of around 20 per cent.

During the past 12 months, the Indian rupee has traded in a relatively narrow range between 47.33 and 43.99 to the US dollar.
"However, the pressure on its stability seems to become more evident," it said.

Evalueserve said Indian rupee's depreciation could be fuelled by exit of foreign institutional investor (FII) money and lack of investor confidence on account of governance issues, besides high current account deficit (which is the net flow of income out of the country, barring capital movements).

"Even a relatively orderly outflow of $15 billion of FII money over a year could result in the Indian rupee depreciating by 22-30 per cent. This could imply an exchange rate in the range of Rs 55-60 to every US dollar," it said.
The situation could be even worse in case the outflow in faster.

Foreign funds have pulled out nearly Rs 3,400 crore (Rs 34 billion) from the Indian stock market during the first half of May as interest rate pressures continue to mount.

"This risk (outflow) is also heightened by the fact that India's capital markets are very shallow and do not have the capacity to absorb even moderate external shocks," it said.

Evalueserve pointed to structural factors like the high inflation, which has been blamed on supply side challenges, problems of governance as shown by recent scams, and high deficits.

"Inflation is at an all-time high... The monetary policy changes undertaken by the government to control inflation have been ineffective," the report said, attributing inflation to supply side challenges including lack of infrastructure.

While the government has not been able to liberalise sectors like insurance for foreign players, the Goods and Services Tax (GST) had to be postponed due to lack of consensus among political parties.

Regarding deficits, it said: "The government finances are in a bad shape and the combined central and state government deficit has stubbornly stayed around 10 per cent of GDP."

The RBI had earlier this month said it expects India's current account deficit to be around 2.5 per cent of GDP in 2010-11.

Source: http://www.rediff.com/business
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