View from Delhi: The going gets good in a buoyant market

Reliance has done it again. Last year, Reliance Industries, India's largest private sector company, totted up a two-digit increase in revenues and profits. During the July-September quarter this year, the company has repeated the performance with revenues up by 10 per cent and net profits up by 26 per cent.

The performance lifted its shares to a ten-year high of nearly 500 points, and the Sensex to almost 5,000 points.

According to Anil Ambani, the company's vice-chairman and managing director, the company benefited from higher prices for its petrochemicals, lower raw material and interest costs, and strong demand for its products.

Net sales amounted to Rs127 billion and net profits to Rs12.6 billion during the quarter. The company has diversified into telecom services in a big way and expects to make a profit in this new business next year, the very first year of commercial operations.

The company has spent nearly Rs100 billion until now on the telecom business and will spend the same next year.

Turnover

Reliance's turnover this year is likely to exceed Rs550 billion (from all businesses), nearly four times that of the second company down the line.

The Reliance group has also announced its first ever major overseas acquisition which will give it a big push in the telecom business. It has acquired the FLAG Telecommunications group, a global undersea telecom operator based in London. The all-cash deal is valued at $207 million.

FLAG provides wholesale network services to telecom carriers, ISPs, content providers and other broadband operators around the world. With access to over 50,000 kilometres of underseas fibre optic network and two hubs, one in London and another in the Middle East, the deal catapults Reliance into the big telecom league internationally.

It will also upset existing telecom operators in India, especially VSNL, once a public sector outfit and now a Tata company. The deal with FLAG is expected to result in a sharp fall in international long-distance call rates and make a big dent into the businesses of VSNL and probably other telecom companies.

Not an exception

But it is good news for telecom subscribers who will now pay much less for their overseas calls, maybe around Rs5 to Rs6 a minute against Rs8 to Rs10 they pay now. Reliance results are not an exception, though being a a very big company, it always makes news.

Almost every company, big or small, has reported better than expected results for the September-end quarter, including Wipro Technologies, another IT company which, like Infosys, is now headed for the billion dollar annual turnover club.

Wipro's owner, Azim Premji, was Asia's wealthiest man for a few months two years ago, before the IT bubble burst.

Overall demand seems to be pretty strong all along the line, from cement and steel to software and telecom services, despite what is supposed to have been a poor year for the economy.

This is expected to give a further boost to the Sensex which will most certainly touch the magic figure of 5,000 points this week, if it has not already done so by the time you read this. It has been a good year all round but, according to experts, the next one could be even better.

The writer is an India-based senior economic advisor.