Monday, April 03, 2006

MSN Strategy lab

Interesting take on ICICI

As for Suntech Power Holdings (STP, news, msgs), which I hold, and ICICI Bank (IBN, news, msgs) which I dropped, the outlook is mixed. Suntech is involved in the planned floatation later this year of a second Chinese solar company, this one a power generator. The full details of how the future initial public offering on the New York Stock Exchange will be structured, and what the price will be, are unknown. But the assumption that Suntech will be hurt if one of its customers goes public is just silly.

ICICI will be affected by the Reserve Bank of India (the central bank) examination, slated by the end of July, to decide whether to lift all exchange controls on rupee capital exports. Currently, India allows some modest capital exports to invest outside the country. But, to date, most of the liberalization has involved current-account capital exports -- sending or spending money outside India for trade-related transactions.

If the capital-account liberalization goes forward (it did not the last time the New Delhi central bank toyed with the idea), the effect may be to enhance the fees going to Indian banks like ICICI. But ICICI may also face increased foreign competition as the ceiling on foreign ownership of Indian banks will probably also be lifted from the present 5%. India intends to turn Bombay (Mumbai) into a regional financial center; to do this, the silly rubber-stamp raj has to be got rid of.

The country has foreign-exchange reserves equal to 13 months' worth of imports. Its booming stock markets can grow even higher if foreign money can come in without the cockroach trap (that it cannot go out again).

Emerging-market funds, non-resident Indians, institutional investors and Indian funds -- are all waiting for the Reserve Bank of India to move. Then, there will be more inflows, a stronger currency and a better stock market. But right now, the Sensex (The Bombay Stock Exchange's 30-stock benchmark sensitive index) is the best in the world.