Friday, April 25, 2014

Visa Tumbles as Russia Sanctions Threaten to Crimp Profit

Visa Inc. (V) fell 5 percent, the most since July, after the world’s biggest bank-card network said economic sanctions against Russia could crimp profit this year.
The shares tumbled $10.47 to close at $198.93 in New York, the worst performance in the Dow Jones Industrial Average. Visa is the biggest component of the 30-company (INDU) index, which slid 0.8 percent. The sanctions may trim “several pennies” per share from fiscal 2014 earnings, Chief Financial Officer Byron Pollitt said yesterday after the firm reported quarterly results.
The U.S. imposed sanctions on more than two dozen individuals and St. Petersburg-based OAO Bank Rossiya, prompting Visa and MasterCard Inc. (MA) to stop processing payments for some banks. Russian President Vladimir Putin responded to the sanctions by recommending that his country create its own payments system and change its laws. He said the two companies will lose market share.
“The geopolitical situation will create additional risk for Visa and MasterCard in coming months,” Christopher Donat, an analyst at Sandler O’Neill & Partners LP, said today in a note to clients. “Pending Russian law could be negative for earnings.”
MasterCard, the second-biggest U.S. network, also dropped 5 percent, the most since January. The Purchase, New York-based company is scheduled to report quarterly results May 1.
“We are disappointed by the proposed amendments,” Seth Eisen, a MasterCard spokesman, said in an e-mailed statement. “We now need to meaningfully evaluate what actions we will be required to take as a result but will continue to work closely with partners and issuers in Russia to continue delivering leading payment solutions to the market.”Members of Russia’s parliament voted today on proposed changes to the nation’s laws to create its own payments system.
MasterCard issued separate comments earlier today in Russian. The adoption of the amendments “causes us deep concern, and at the moment we are working to evaluate the possible consequences of these amendments to our business and business of our partners,” Pavel Gafarov, a spokesman for MasterCard at Ketchum Inc. in Moscow, said in an e-mailed statement translated by Bloomberg News.

Putin’s Forum

Visa Chief Executive Officer Charlie Scharf, 49, is among U.S. executives scheduled to attend an economic forum Putin is hosting next month. Citigroup Inc., which has more than 50 branches in Russia, said yesterday that CEO Michael Corbat, 53, is withdrawing from the St. Petersburg International Economic Forum. ConocoPhillips CEO Ryan Lance also bowed out of the forum, the Houston-based energy producer said yesterday.
Paul Cohen, a Visa spokesman, said the company doesn’t comment on the travel or schedules of its executives.
“We’re caught between the politics of the United States and the politics of Russia,” Scharf said yesterday during a conference call. “We have 100 million cards there and it’s not in anyone’s best interest, inclusive of the Russians, to make those cards not available to their own citizens.”
Visa said net income for the fiscal second quarter ended March 31 climbed 26 percent to $1.6 billion as consumer card spending increased amid a long-term global shift from cash and checks to electronic payments. Adjusted earnings per share were $2.20, two cents more than the average estimate of analysts surveyed by Bloomberg.
Revenue increased 6.9 percent to $3.16 billion, missing the $3.19 billion average estimate of analysts. Visa said it expects fiscal 2014 revenue to climb 10 percent to 11 percent, compared with a previous forecast of “low double-digits.”
(Source: Bloomberg)

Mobile operators dial migrants to power money transfer

Money transfer through mobile phones is slowly becoming popular with the country's top two operators — Bharti Airtel and Vodafone — together having notched up more than 2 million subscribers. Business is slowly gaining traction, say industry watchers, with the subscriber base growing at close to 15% growth month-on-month. Idea Cellular has made a start and Reliance Communications has just won a licence to offer money transfer services.
The biggest catchment for telcos is the 300 million migrant population — labourers working in cities like Delhi and Mumbai who need to send money back home to Uttar Pradesh, Bihar, Odisha or the north-eastern states. While the bulk of the money sent home, approximately 70%, is transferred through informal channels, 20% is routed through the banking channel and 10% via the time-tested money order.
"It is this 70% market which remains largely untapped that we’re looking at,” says Suresh Sethi, business head, M-Pesa, the brand under which Vodafone offers its mobile money transfer service. Sethi’s willing to wait it out because he’s confident business will come; Vodafone has rolled out the service across the country and has around 1.2 million subscribers. For the money transfer piece, it has entered into a strategic tie-up with ICICI Bank.
Bharti Airtel’s Airtel Money, which is subscribed to by more than 1.3 million subscribers, works somewhat differently. The money transfer services are available only in Bihar, Uttar Pradesh, Mumbai and Delhi or what it calls the 'migrant corridor' and its partner for the money transfer service is Axis Bank. However, consumers who are paying phone bills or for DTH services, or transferring money to a bank account, can do so from anywhere in India.
Sethi believes the service is a competitive one given the charges are between 1.5% and 2% of the value of the transaction, similar to that charged by most banks. Money order services, he points out, are costlier, at 5-7% of the amount. Typically, utilities bills whether for DTH or telephone services average R300-400 while the ticket size for money transfers is slightly larger at R1,000.
Telcos, however, are miffed that they can’t offer cash-out services. In other words, if a migrant in Mumbai receives money from his home in UP, it needs to be channelled through a bank which means he would have to collect the money from the nearest branch. Since in rural areas the number of branches are relatively few, operators can set up their outlets within a 30 km radius of their partner bank's branch. Had cash-out services been permitted, the operator could have provided cash from any of its outlets.
While there are some 1.1 lakh banks branches in the country and 550 million bank accounts, active bank accounts are fewer at 200-215 million. In contrast mobile operators have more reach – Bharti and Vodafone have 1.6 million outlets each. Vodafone has 60,000 outlets offering the M-Pesa facility while Airtel Money outlets number close to 1.5 lakhs. “There are 10-15 million kirana stores in the country which we can work with” an industry executive says.
(Source: Financial Express)

Infrastructure loans emerge as banks’ biggest stress point

The asset quality of bank loans to infrastructure developers is deteriorating at a faster pace than that of loans advanced to any other sector, underlining the challenge the next government will face in reviving investment and kick-starting stalled projects.
As of 31 March, banks had restructured Rs.50,239 crore of loans they had given to the infrastructure sector—21% of all loans they recast in the last fiscal year under the so-called corporate debt restructuring (CDR) mechanism.
Restructured loans to public works projects swelled from Rs.21,912 crore (9.57% of the total) in the previous year and Rs.16,774 crore (11.14%) in the year before that.
Total loans restructured by banks via CDR, on a cumulative basis, rose toRs.3.3 trillion as of 31 March, from Rs.2.3 trillion a year ago. Worryingly, the figure does not reflect the total amount of restructured loans in the banking system because banks also recast loans on a bilateral basis outside the CDR platform.
A slump in economic growth to the slowest pace in a decade, coupled with delayed project approvals such as environment and forest clearances, problems in land acquisition and high borrowing costs have hit developers of long-gestation and capital-intensive infrastructure projects particularly hard.
Economic growth slumped to 4.5% in the fiscal year ended 31 March 2013 and is estimated by the Reserve Bank of India (RBI) at below 5% in the year just gone by. With their cash flows crimped by stalled projects, developers have had to take recourse to CDR, which typically means a longer repayment period and lower interest costs.
Banks are now hoping that the new government that emerges from the April-May general election will speed up clearances for troubled projects, and that RBI will allow a longer repayment period for infrastructure projects.
Typically, infrastructure loans are given for a period of 5-7 years, but bankers said many projects take longer to get commissioned, after securing the approvals, and generate cash flows.
“Banks have restructured infrastructure loans with the hope that policy actions will be corrected. If that doesn’t happen, a serious problem can emerge,” said Sushil Muhnot, chairman and managing director of state-runBank of Maharashtra.
What Muhnot is referring to is the risk of restructured loans turning bad, impairing bank balance sheets further and crimping their ability to lend.
Experts warn of more pain emerging from the segment before the worst is over. About 40% of total infrastructure loans are likely to be restructured by March 2015 as against 20% in March 2013, rating agency India Ratings and Research Pvt. Ltd said in a recent report.
“Everyone contributed to the current mess,” said Vishwas Udgirkar, senior director at audit and consulting firm Deloitte Touche Tohmatsu India Pvt. Ltd.
“There was reckless lending by banks in the infrastructure segment without seeing the merits of the projects, probably due to the competition. Things were fine till 2012 but started deteriorating after that due to a slowing economy and clearance delays.”
“The stress in the infrastructure segment today is a serious issue, which requires a more prudent approach from financial institutions, while funding infrastructure projects and the willingness from the government to clear projects fast.” Udgirkar said.
Funding constraints
The deteriorating asset quality of infrastructure loans also highlights the constraints India faces in filling an estimated $1 trillion funding gap for building roads, ports and power projects in the 12th five-year plan (2012-17).
Unlike in developed markets, where long-term investors such as pension funds are active participants in infrastructure funding, in India the burden mostly falls on the commercial banks.
In recent times, conglomerates like the Tata group, the Aditya Birla Group, the Piramal Group and Larsen and Toubro Ltd have initiated investments in the infrastructure sector, either directly or through infrastructure debt funds, but such ventures can only help partly, given the huge funding requirements.
Banks are struggling to meet this demand because most of their deposits are short-term, while infrastructure projects are typically long-gestation in nature, resulting in asset-liability mismatches.
“Financing of infrastructure projects, if not designed efficiently, tends to force a payback period on the companies. The pricing and repayment period should be designed based on the nature of the segment,” saidAnanda Bhoumik, a senior director at India Ratings and Research Pvt. Ltd.
Bhoumik says that despite the long-term nature of infrastructure projects and their ability to generate cash flows, banks are often under pressure to seek speedy repayments to avoid asset-liability mismatches. Pricing of infra loans should be more flexible, he says.
Any improvement ultimately depends on a revival in growth, bankers say.
“There is nothing much a bank or a company could do in such a situation. There needs to a good revival in the economy and the will to clear roadblocks for projects,” said a senior banker with a leading government-owned bank.
Besides hampering banks’ ability to fund infrastructure projects further, the rising stress in loans to the segment could lead to a larger problem in the banking sector, necessitating special measures from the regulators, bankers warn.
“There could be some areas where the RBI could elongate the repayment period of infrastructure loans such as the one for roads and power, where it takes more time for the projects to make money than the loan repayment period,” said the banker cited above.
For banks, the rising pile of restructured loans means having to set aside more money to cover the risk of default.
Under RBI norms, banks need to set aside 5% of the loan value when they restructure a new loan as against 0.4% provisioning required for a standard loan. Banks typically prefer to recast loans because if the loan turns bad, the provisioning requirement shoots up manifold. Provisioning for bad loans can go up to anywhere between 25% to 100% of loan value, depending on the nature of the asset.
There is no accurate estimate of the bad loans of banks in the infrastructure segment.
More pain ahead
As of 21 February, Indian banks had loans outstanding of Rs.8 trillion to the infrastructure sector, up from Rs.7.3 trillion a year ago.
“The pain is likely to continue for sometime,” said Saikiran Pulavarthi, analyst at Espirito Santo Securities India Ltd, referring to the possibility of more loans to the infrastructure segment coming up for a recast by creditors.
Some large loans recasts have taken place in recent months as the economy struggled.
In March, a group of 22 banks led by State Bank of India cleared the recast of Rs.10,000 crore in loans advanced to India’s largest private ship builder,ABG Shipyard Ltd.
In July 2013, banks approved a Rs.13,500 crore CDR package for Gammon India Ltd, offering the engineering and construction company a breather from a crisis brought on by slower growth and project delays.
On Tuesday, Mint reported that four big port projects of Essar Ports Ltd are stuck because of delayed regulatory approvals and litigation. The company has so far invested Rs.2,500 crore in these four projects over the past five years, but revenue will be delayed beyond this financial year, when they had been originally expected to kick in, the report said. To be sure, Essar Ports hasn’t sought a loan recast yet.
Delays in granting mandatory project approvals have been blamed by critics on a perceived ‘policy paralysis’ at the centre as the ruling Congress-led United Progressive Alliance battled corruption scandals and charges of mismanaging the economy during its second term in power.
The government acted by forming the Cabinet Committee on Investment (CCI) in January 2013 to fast-track project clearances. CCI had “unblocked” 99 big projects worth Rs.3.5 trillion, finance minister P. Chidambaram said on 14 November.
Analysts say stress in the infrastructure sector becomes evident only when projects overshoot their timelines. Under banking norms, an infrastructure loan is classified as standard until the deadline for its commissioning. That delays detection of potential stress till such time as the deadline is missed.
“The problem (stress) was already there. It is manifesting only now as more projects fail to commission,” said Vaibhav Agrawal, vice-president of research at Angel Broking Ltd. “If there is no resolution to this problem, banks will have to take a huge hit on their books.”
(Source: LiveMint)

P&G to raise prices in emerging markets

Turbulence in emerging markets is forcing Procter & Gamble to raise the price of its products for consumers as it tries to offset the damage done to sales by weak currencies and inflation.
The US company behind brands including Pantene, Gillette and Pampers said it was preparing to lift prices in emerging markets as shifts in foreign exchange rates led to drops in revenue in four of its five product divisions in the past quarter. 

Jon Moeller, P&G’s chief financial officer, highlighted its exposure to Ukraine, Russia, Turkey and Venezuela, where instability is complicating the efforts of chief executive AG Lafley to revive the company’s overall performance.
“In markets where there is significant devaluation or inflation we will be looking to take price increases, as we always do,” Mr Moeller told reporters.
He said that because some currency shifts had occurred in the first quarter of the year P&G was still adjusting to them. Price increases would be “primarily focused” in developing markets where inflation was high due to weakening local currencies, he added. “We’re not planning broad scale increases in North America.”
Some of P&G’s recent price rises have backfired, with consumers turning to rivals’ cheaper products.
In the three months to March 31 P&G’s sales were lower in its beauty, grooming, healthcare and baby care businesses and only grew in fabric care. Overall, sales of $20.6bn were flat versus a year ago, but excluding currency effects they increased by 3 per cent.
Despite P&G’s emphasis on the foreign exchange market, the weakening of some emerging market currencies against the US dollar has abated. The Russian rouble stopped weakening in March and the Turkish lira began strengthening in April. Ukraine’s hryvnia fell throughout March and remains volatile.
P&G reported net earnings of $2.6bn for the past quarter, up 2 per cent from a year ago, and core earnings per share of $1.04, ahead of Wall Street expectations. But it said currency effects had shaved 12 cents per share off that figure.
Mr Moeller said the group would continue to “monitor unrest” in Ukraine and the Middle East. He also highlighted the risks posed by price controls in Venezuela and Argentina.
P&G managed to increase its profits in the past quarter as Mr Lafley continued a cost-cutting programme begun by his predecessor Bob McDonald in February 2012. It said overhead costs were 13 per cent lower today than they were when the cuts began.
Mr Lafley, who was hired for a second stint as chief last year to reverse the company’s worsening performance, said in a statement: “P&G’s [quarterly] results came in as we had expected. This leaves us on track to deliver our top and bottom-line growth objectives for the fiscal year.”
The company’s shares were trading down 0.3 per cent at $80.36 in New York on Wednesday.

Caterpillar lifted by construction rebound

Caterpillar, the world’s largest maker of heavy machinery, raised its 2014 earnings forecast as a more sustained rebound in the US construction industry helped offset the continued mining slump.
The Illinois-based company increased its 2014 earnings forecast from $5.30 a share to $5.55, including 55 cents of restructuring costs, as it reported a better than expected 5 per cent rise in first-quarter profits.

Brad Halverson, chief financial officer, said the construction rebound was partly because of a weak comparison last year. But he said the company was pleased with its performance, including boosting its construction operating margin to 13.6 per cent from 5.5 per cent last year.
“Clearly in North America, construction is a bright spot,” he said. “Our sales to users are up and we’re hearing anecdotally . . . pretty positive stories about quoting activity and we would say that confidence is growing.”
Mr Halverson said the company was more cautious about construction sales in Europe and reiterated the company’s stance that the European Central Bank needs to be more aggressive.
“They have some important decisions to make,” he said. “Our view would be that more aggressive stimulus policy would be helpful in Europe.”
The company reaffirmed its 2014 guidance for sales in the range of 5 per cent above or below $56bn. But Caterpillar said construction sales would grow twice as fast as previously forecast, at 10 per cent, and would offset a 20 per cent decline in mining machinery sales.
A mining slowdown has weighed heavily on Caterpillar sales for about two years, leading it to downsize. But construction equipment sales have trended upward in recent months in a sign of a modest economic recovery.
Sales for Caterpillar’s mining equipment segment during the quarter fell 37 per cent to $2.1bn, compared with the same period last year. Construction equipment sales rose 20 per cent to $5.1bn, driven by North America, while energy and transport equipment sales rose 8 per cent to $4.8bn.
On Wednesday, the company said retail machinery sales in the three months to March fell 12 per cent compared with the same period last year, driven by a 46 per cent drop in mining equipment sales. Construction sales rose 9 per cent. March was the 16th straight month Caterpillar logged a drop in retail machinery sales.
North America represented a lone bright spot in overall sales, with retail machine sales up 6 per cent during the quarter. Sales in Asia Pacific, Latin America and the Europe, Africa and Middle East region all fell 20 per cent or more.
Doug Oberhelman, chief executive, reaffirmed the company’s forecast of global economic growth of about 3 per cent. But he said geopolitical risks, including China’s attempt to move its economy to a more sustainable growth model and the crisis in Ukraine, could derail a “fragile” global economy.
Caterpillar reported net income of $922m, or $1.61 a share excluding restructuring costs, compared with $880m, or $1.31 a diluted share, in the same period last year. Sales were relatively flat at $13.24bn.
Analysts had expected earnings of $1.24 a share on $13.14bn in sales. Shares in the company were up more than 2 per cent, to $105.50, its highest level in nearly two years, in midday trading in New York.

Manufacturing most optimistic since Heath years

Britain’s manufacturers are at their most optimistic since the Barber boom of the 1970s, raising expectations of rapid growth this year and hopes of some reversal in 40 subsequent years of deindustrialisation.
Figures from the CBI employers’ organisation venerable industrial trends survey on Wednesday showed 41 per cent of companies more optimistic about the general business situation than three months ago with only 8 per cent less optimistic.

The 33 per cent positive balance was the highest reading since April 1973, when Edward Heath and the Tories were in power and growth briefly soared to double digits. lt came as the Bank of England officials raised their estimate of economy-wide growth in the first quarter to 1 per cent.
The bank expects a similar rate of growth in the second quarter, powering the UK economy to a rate of expansion not seen since 2007.
Growing optimism in industry alongside other strong recent data has prompted economists to push their growth forecasts upwards, with the average of new forecasts now just shy of 3 per cent. The Office for Budget Responsibility’s March forecast predicted a 2.7 per cent expansion in 2013.
Michael Saunders of Citi said the CBI figures suggested the economy was “booming” and would continue to grow rapidly. “With the fuel of cheap money and reduced headwinds from fiscal policy and private deleveraging, growth is likely to stay high in subsequent quarters,” he added.
The new BoE forecasts came in the April minutes of the Monetary Policy Committee. This was the last meeting held under the bank’s interest rate guidance that it would not raise interest rates while unemployment stayed above 7 per cent. The committee stressed, however, that interest rate rises in future are likely to be “gradual”.
Rapid growth in the past year has helped improve the public finances with headline public sector net borrowing meeting the Budget target of £107.8bn for 2013-14, down 6.4 per cent from the previous financial year.
The Treasury welcomed the figures as “further evidence the government’s long-term economic plan is working” but Chris Leslie, Labour’s shadow chief secretary, said the figures showed the chancellor’s “initial promise to balance the books by next year now lies in tatters”.

US and Mexico boost manufacturing credentials

The US and Mexico have become attractive as manufacturing locations relative to other large economies over the past 10 years thanks to slow labour cost growth and falling natural gas prices, according to a leading consultancy.
The analysis of the world’s largest manufacturing economies from Boston Consulting Group shows that costs have been rising fastest in resource-rich countries such as Brazil, Australia and Russia, while China and some European countries such as France and Italy have also experienced significant increases.

The trends are expected to drive long-term movements in manufacturing activity towards the US and Mexico.
The evidence of “reshoring” in the US – the relocation of production away from previously low-cost centres such as China – is still only tentative. Examples of companies making such decisions have attracted publicity and political attention, but the data suggest the effects in terms of output and employment have been modest.
However, the international cost comparisons are an encouragement for expectations that American manufacturing will gather strength in the coming years.
The widening cost disadvantage of some western European countries is ominous for the outlook for their industries.
Hal Sirkin of BCG said: “Unless things change, you’re going to see significant falls in manufacturers opening factories in higher-cost countries, and more manufacturing plants shutting down.”
Average cost indices calculated by the consultancy show that the advantage enjoyed by China has been eroded rapidly over the past decade.
Its costs were 86 per cent of US levels on average in 2004, but had risen to 96 per cent by 2014 as a result of rapid growth in both wages and energy costs, BCG said. China’s average labour costs almost tripled over those ten years, while industry’s gas price almost doubled and its electricity price rose almost 60 per cent.
For the US, the most important factor behind the relative improvement in its costs has been the slow growth in manufacturing wages, which have increased much less than the average for large economies.
Mexico has had wage rises in line with the global average, but has had much faster growth in labour productivity.
The US and Mexico have also benefited from the US shale revolution, which has sent natural gas prices tumbling at a time when they have risen in Europe and Asia. US natural gas exports to Mexico have doubled in the past six years, and supply about a quarter of its consumption.
Several western European economies have extended their cost disadvantage over the US, with costs rising in France from 115 per cent of US levels to 125 per cent over 2004-14, and in Italy from 112 per cent to 123 per cent.
The increase in Germany has been much slower, from 117 per cent to 121 per cent of US levels.
There are signs in official data that these cost differences are having an effect on activity. Manufacturing output fell 11 per cent in France from the end of 2003 to the end of 2013, while it rose 11 per cent in the US. However, German output grew even faster, by 18 per cent.
China, still with a significant cost advantage even though the gap has been closing, has grown by far the fastest of the large manufacturing economies, with output rising 250 per cent.
The impact of cost differences on location decisions will vary across industries. Sectors where transport costs are relatively high or being close to the customer is important offer the most attractive prospects for reshoring to the US.
Mr Sirkin argued that over time output would reflect cost differences more strongly, and that some of the impact in Europe had been delayed by employment laws.
“In the US, there is the ability to hire and fire, so you will tend to see more movement up and down,” he said.
“In Europe you’ll see less rapid changes. If it takes eight years to shut down a plant, it won’t be shut down immediately. But it will be losing money, so eventually it will face closure.”
Countries such as China that face steep cost increases will have to move into more advanced high-value manufacturing to remain competitive, he added.
However, countries with lower costs may pose less of a competitive threat. India and Indonesia are still significantly cheaper as manufacturing locations than the US or China, but also score very low on the World Bank’s “ease of doing business” rankings.

Nadella sets out vision for Microsoft

Satya Nadella, Microsoft’s new chief executive, set out on Thursday to make it clear that anyone who still thought of Microsoft as just a struggling PC company was mistaken.
In his first call with investors since becoming the third chief executive in the company’s nearly four-decade history, Mr Nadella sounded upbeat and enthusiastic as he hammered home his vision for how he will help the world’s largest software maker move away from its roots making software for a now-declining PC market

I see a world where computing is more ubiquitous and all experiences are powered by ambient intelligence,” he said.
His task was not easy and required, as Mr Nadella said, “courage in the face of reality”.
Part of what that meant, he said, was shedding the company’s long-term commitment to tying Microsoft’s popular software to the comparatively unpopular hardware some of it runs on.
Mr Nadella was speaking after Microsoft reported higher than expected third-quarter earnings but flat revenue as strong sales of Windows software and cloud computing services helped it balance out the continued weakness in the PC market.
It reported revenues of $20.4bn, in line with expectations and flat year on year. But net income of $5.66bn, or 68 cents a share, exceeded Wall Street’s consensus forecast of 63 cents a share. In the same period a year earlier, net income was $6bn, or 72 cents a share.
The shares were up 2.5 per cent in after-market trading.
Microsoft’s own attempts at building hardware have struggled, with Windows smartphones made by groups including Nokia at less than 5 per cent market share in the US, and its Surface tablets selling only modestly.

While keeping its software largely locked into Microsoft’s own hardware has boosted its sales, analysts argue that it has held the company back from innovating as Apple and others raced ahead of it in the smartphone and tablet markets.
The first sign of Mr Nadella’s new strategy came last month when he took the reins at Microsoft the same day that company unveiled Office for Apple’s iOS and Android, the two most popular mobile platforms.
“In a world of ubiquitous computing, we want Windows to be ubiquitous,” said Mr Nadella. “We think about users and their experiences spanning a variety of devices.”
The allure of that software, particularly for corporate users, remains strong. Tim Cook, Apple’s chief executive, told analysts on a call on Wednesday that the availability of Office on iPads “does help” sales of that device, even as he took a swipe at Microsoft for getting on to the iPad late, four years after it first launched.
“I believe if it would have been done earlier, it would have been even better for Microsoft, frankly. There’s lots of alternatives out there,” Mr Cook said.

Mr Nadella, an engineer who has worked closely on Microsoft’s cloud-based offerings, said its sales in that area too had increased, with revenues from its Azure cloud platform up 150 per cent and with 1m new users of its subscription Office service during the quarter.
The company reported a 4 per cent rise in revenue from sales of Windows to businesses. Sales to developed markets were particularly strong, the company said.
While sales of Windows to consumers fell during the quarter, sales to enterprises have been buoyed by demand from companies, many of which have been investing in new PCs in advance of Microsoft’s move last quarter to end support for its popular Windows XP operating system.
Shipments of computers, the vast majority of which run on the Windows operating system, have suffered in recent years but some data suggest the decline could be hitting a plateau.
Market researcher IDC reported this month that PC shipments in the first quarter fell 4.4 per cent year on year, ahead of consensus estimates for a 5 per cent decline. Gartner, another market researcher, reported declines of just 1.7 per cent.
As well as Microsoft’s decision to end support for Windows XP, analysts attribute the better than expected shipments to corporate demand for PCs, after the financial crisis had prompted many companies to hold off on IT investments.

India’s new politics

Driving home in the gathering darkness, Nandan Nilekani seems tired. His car crawls through Bangalore’s chaotic streets after a gruelling day of glad-handing, dense crowds and half-a-dozen speeches. Sitting in the back seat, the billionaire business executive-turned-aspirant politician coughs slightly as he talks. The man who first uttered the phrase “the world is flat” appears deflated.
Nilekani coined that phrase more than a decade ago, sitting with US journalist Thomas Friedman in his office at Infosys, the IT business he co-founded in the early 1980s. A pioneer of the outsourcing industry, Nilekani is one of India’s most celebrated technology entrepreneurs. More recently he has led a gigantic government effort to give digital identity numbers to each of his country’s 1.2 billion people. Yet his biggest challenge, he says, is breaking into the closed world of India’s parliament as a candidate for the Congress party. “It’s the toughest thing I’ve done, easily the toughest,” he says, without smiling. “We took Infosys public. That was a nonstop three-week global roadshow. But this is twice as long … It’s hard work, a 24/7 job.” He is saying this in mid-March, four days after his official campaign kicked off.

Nilekani’s aphorism about a flattening world – which went on to become the title of Friedman’s best-selling book – came to encapsulate a new era of globalisation and the economic and political growth of emerging markets. It was a moment of heady Indian optimism. Back then, the country’s democracy seemed a source of strength, providing a long-term institutional edge in the race to catch its autocratic Chinese neighbour.
Little has gone to plan. Growth slowed. Corruption ballooned. Confidence ebbed. And India’s system of government now sits at the heart of its troubles: gummed up, unable to act and dominated by elderly leaders and calcified political dynasties, most obviously the Gandhi family that heads its deeply unpopular Congress-led coalition government.
Nilekani defends Prime Minister Manmohan Singh’s administration and remains upbeat about his country’s prospects. But he admits that this election – the largest in history, with results due on May 16 – comes at a moment of national self-doubt. India’s democracy seems closed off, as if unable to adapt to the growing ambitions of its people. “The political system was designed so outsiders can’t come in,” he says. Historically, those from the country’s professional business elite have rarely even attempted to join it. “Why would the system want an outsider, when there are already enough competing insiders?”
With his stellar career and considerable wealth, Nilekani is no stranger to India’s upper strata. Even so, he says that he agonised over entering elected politics. But driven by frustration over the narrow remit and limited legitimacy of his most recent role as an appointed bureaucrat, he jumped into the race for Bangalore South, becoming India’s highest-profile electoral newcomer. But he is not alone. This election will be among the most significant since India’s independence in 1947, ushering in a new prime minister – Singh announced in January that he would not seek another term – with ambitions to reverse a deepening slide into graft and stagflation. But a quieter revolution is under way too, as a mini-wave of new candidates drawn from the country’s professional classes tries to elbow its way into a political system long dominated by hierarchy and blood ties. “At this election in India, the arrival of unconventional politicians is unprecedented,” Nilekani says. “It shows the churn that is happening in the country. The voters are demanding it.”
Two relative outsiders have come to dominate India’s electoral race. The first is Narendra Modi, head of the opposition Bharatiya Janata party and chief minister of the state of Gujarat. A former chai wallah, or tea-seller, he stresses both his administrative competence and limited political lineage. His campaign message has succeeded in blunting criticism over the bloody riots in his home state that led to the deaths of hundreds of Muslims in 2002, shortly after he took power. Polls predict that he will emerge as prime minister once the votes are counted.
Modi draws a pointed contrast with Rahul Gandhi, Congress frontman and the latest in its ruling family dynasty, who is set to lead his party’s election campaign to one of its worst polling performances. Both Rahul’s grandmother Indira and his father Rajiv were prime ministers, and both were assassinated; his great-grandfather Jawaharlal Nehru was the nation’s first leader after independence. But the family’s brand is now toxic: although Gandhi heads his party’s polling effort, he has not been named as its candidate for prime minister, partially protecting him from responsibility in any rout.
Arvind Kejriwal is the second outsider, the leader of the Aam Aadmi, or Common Man, Party. He first leapt to prominence last year, riding a wave of popular disgust over what many see as the Congress party’s record of corruption and crony capitalism to prevail unexpectedly in elections in the country’s capital city New Delhi. Since then the AAP’s faltering moves to fashion a national political operation have tempted hundreds of novice candidates into India’s election, ranging from journalists and academics to environmental activists and business leaders.
“Narendra Modi and Arvind Kejriwal – their appeal is precisely that they are not dynastic politicians,” says historian Ramachandra Guha. “Each has explicitly positioned themselves against [Rahul Gandhi].” He argues that the prominence of such figures hints at a slow ebbing of dynastic power, perhaps with an influx of what he calls “public-spirited professionals” to come in its place. “You are seeing a gradual erosion of all this. People are angry.” 

That anger is on full display as Nilekani sits alone under bright studio lights, fielding questions at a televised election forum in Bangalore. One audience member declares Congress to be “the most corrupt party”. Others attack Gandhi’s suitability to be India’s prime minister; Nilekani, one questioner says to applause, would be a better option.
Nilekani defends his party while selling himself as a business-minded “problem solver” with a clean, can-do record. He signed up with the Congress party because he agreed with its secular outlook, he explains, criticising the Hindu nationalist stance of Modi’s BJP. He and Gandhi also share a belief in openness, he says: “India has a closed system … only a few thousand people control the lives of one billion, and we want to change that and let more people participate. It’s a very important idea.”
The old familiar connections still dominate many areas of Indian life, including business, and around a third of members in India’s lower house of parliament have relatives who are also elected politicians – one of the highest such ratios in the world. As a result, India’s government has come to be “remarkably dynastic”, according to political scientists Kanchan Chandra and Wamiq Umaira. This is partly because a flimsy state and weak political parties make strong kinship ties politically important. Political power has also become an ever more important mechanism for securing wealth in recent decades, argues academic Devesh Kapur at the University of Pennsylvania. “This must make passing power from father to son more valuable,” he says.
Despite having negotiated his way into this world, Nilekani retains the measured tones of a private sector executive. The suits might be gone, replaced on the campaign trail by casual open-necked shirts and sandals, but he becomes most energised when talking about technocratic solutions for his country’s many problems – a belief in social engineering that, he says, lies behind his desire to hold higher political office.
“My background is putting in large systems that change lives … The right kind of systems can bring honesty and efficiency. If you put in a world-class procurement system, you won’t get problems allocating coal,” he says, referring to a recent corruption scandal over mineral rights. Other challenges – from rural poverty to Bangalore’s dismal transport infrastructure – can be fixed with similar approaches, he says.
Some believe Nilekani has his sights set on the very highest office, and though he denies that his ultimate aspiration is to lead India, he talks like a man eager for the national stage. “The fundamental strategic benefits of India are still there,” he says, reeling off a familiar list of the country’s strengths that includes its youthful population and widespread English-language skills. “India’s challenge is more execution.” He cites another billionaire-turned-politician, Michael Bloomberg, the former mayor of New York, as his inspiration. “It’s all about the plumbing … You can’t be an agitator, you have got to get in and solve the whole problem, knock heads together.”
. . .
On a warm spring evening Meera Sanyal, another former executive trying to steer her way to election victory, is waiting on a roadside near one of south Mumbai’s more famous Hindu temples. Cars stream by but the smell of marigold blossom hangs in the air. A ragged holy man dressed in black sits cross-legged on the pavement, selling lotus flowers to passing worshippers.

Ready for an evening of street campaigning, Sanyal wears an orange and yellow sari topped off with the distinctive white peaked cap of all AAP supporters. A few dozen people join her, sporting signs with handwritten slogans and brandishing the old-fashioned brooms that symbolise the party’s plans to sweep away corruption.
Sanyal spent three decades in finance, rising to become head of Royal Bank of Scotland’s Indian operations. During the country’s previous national election in 2009, however, she decided to run as an independent candidate in her home city. She was angered by the incompetent government response to Mumbai’s terror attacks the year before, when gunmen attacked prominent targets, including the Taj hotel.
“A lot of us are armchair critics, or at least I was,” Sanyal says, referring to India’s professional elite. “After the attacks, I said ‘That wasn’t good enough.’” So she stood, only to lose badly to a Congress opponent who happened to be the heir to a powerful political family. This time she joined AAP, attracted by its hard line on graft and the zeal of its leader.
Sanyal and her supporters head off through the crowded streets, chanting slogans and swishing brooms. It is a precarious task, handing out leaflets to passers-by while avoiding potholes and weaving through roadworks. Drivers honk loudly as they pass, although it is impossible to tell through the din if any intend this as a signal of support.
Rounding a corner, a cheer goes up when Sanyal’s group spots a jewellery shop bearing the name Reliance, the conglomerate owned by industrialist Mukesh Ambani, India’s richest man. Ambani lives close by, in a towering skyscraper building that is reputed to be one of the world’s most expensive residences, and has been the frequent target of the AAP’s campaign attacks over crony capitalism. Sanyal’s team cheerfully wave their brooms at the shop’s staff, who smile back from behind the thick glass windows.
Later that week, I watch Sanyal attempt to win over a late-night gathering of young professionals, crammed into the living room of an apartment in the south of the city. She sits at the front, white cap affixed. “I had stood for election but I had lost,” she says. “The paradigm in India was good people can stand but you can never win. You can’t win without a war chest of money, without being the son or a daughter of a politician, or a criminal … Those were the categories that got you into the closed club.”

Some private sector leaders have muscled their way into this club, although most have emerged from the more buccaneering end of India’s business spectrum. India’s public have come to venerate business figures such as Nilekani and Sanyal, who embodied their country’s rising promise in the decades since economic liberalisation, but they were rarely able to vote for them, with any electoral aspirations too often blunted by a well-entrenched political establishment.
The AAP, Sanyal contends, is part of a break with that past. “For those from the corporate world, I’ll say it is like a start-up: lots of energy, lots of good ideas and lots of mistakes.” Those ideas see Sanyal backing a much harder line against India’s business elite, who she says now behave like the “robber barons of America or the oligarchs of Russia”. The power of tycoons such as Ambani must be curtailed, she argues, and systematic anti-corruption laws, such as those found in Britain and the US, should be introduced. “You can send some people to jail, for a start.”
. . .
Hazaribagh in the eastern state of Jharkhand is roughly 1,800km from the relative prosperity of Mumbai, but heading out for a day of electioneering with the BJP’s Jayant Sinha, it feels a world away. Nestled in India’s Hindi-language heartland, it sits squarely within the “cow belt”, a vast and populous area whose votes will prove decisive in the coming election.
Sinha dresses conservatively, sporting a traditional saffron kurta and a scarf with a lotus flower image, the electoral symbol of the Hindu nationalist party. Yet his elegant rimless glasses and mild American twang hint at a different background: a Harvard Business School degree; a partnership at consultants McKinsey; and a more recent role in Mumbai, running the Indian arm of a technology investment fund set up by eBay founder Pierre Omidyar.
“This is one of the poorest, most deprived parts of India,” Sinha says of the state where he was born. “Jharkhand ranks right at the bottom, with the worst African countries.” It can be dangerous too. Heading out of Sinha’s family compound, our three-jeep convoy includes one vehicle packed with half a dozen armed guards. Many villages nearby are controlled by Naxalites, India’s Maoist rebels.

“It is very difficult for someone with my kind of background to come to an area like this, without having the support of my father, for instance,” Sinha says. “In fact, I would say it is just about impossible … A lot of people think I’m quite crazy to do it.” He argues, however, that his lengthy professional résumé would have given him a fair shot of running in an urban area such as Mumbai.Sinha seems energised. He had launched his campaign the day before with a 20,000-strong rally and a speech attacking the sins of the Congress-led government. But he also had another advantage: sitting alongside him was his father, Yashwant Sinha, a veteran party leader and former finance minister. The BJP nominated the son for the seat after the father had announced that he planned to stand down.

Driving through the countryside, we see the changes that have come over India. The roads are improving, Sinha says; most houses now have some electricity. Mobile-phone towers whizz by, as do hastily constructed homes with satellite dishes on their roofs. Yet the area remains undeniably poor. Piles of bricks dot the roadside, ready to replace the mud huts in which many villagers live, when money can be found. Women trudge by in the morning heat, carrying vats of water on their heads.
The convoy bounces from village to village along single-track roads, until the guards call a halt. The next area is Maoist territory, they say. We turn back. At each stop, a small crowd gathers. Loudspeakers fixed to the top of the lead jeep blare out Bollywood tunes, with bubbly lyrics adapted in praise of Modi and his party.
Sinha bounds out of the vehicle to the cheers of local supporters and gives a rousing speech. Only when it ends do the villagers crowd around, asking for help with basic problems. “There is so much poverty here,” says one elderly woman dressed in a green-and-blue polka-dot sari, her skin weathered by the sun. “The politicians come but our electricity doesn’t work, we don’t have enough to eat.”
Back at home, Sinha fizzes with ideas. His technology background sees him enthuse over solar-powered irrigation systems and mobile banking. At a deeper level, he says, candidates with his type of background can help to bring about a decisive break in India’s economic system. “We need a vastly more entrepreneurial type of capitalism,” he says. “And that means getting rid of the state-dominated and crony capitalism that grew powerful under this government.”
Indian politics remains a tough calling, he says. There is little money, if you stay honest. (Indian MPs are paid a base monthly salary of Rs50,000, or $834.) Sinha considered running – “literally for decades”, long enough to build up a cushion. “We walked away from a comfortable lifestyle in America to come and serve. The opportunity cost is very high but it’s going to be worth it.”
. . .
Whether the gamble works, of course, depends on his electorate. Along with both Sanyal and Nilekani, Sinha projects confidence while admitting that he has his work cut out. This trio of newcomers faces formidable opponents, in complex constituencies with close to two million voters apiece. The odds that all three will prevail are slim. Nonetheless, even their decision to stand is a sign of wider change brewing: the new class of MBA-wielding professionals who rose to dominate India’s boardrooms now wants to exercise power of a different sort.
The election these candidates are fighting remains about personality – about whether Modi will beat the Gandhi family, and in turn whether the latter’s dynasty will survive. But this new generation of aspiring politicians reflects a more profound underlying development, one in which India’s growing middle classes are demanding more from a political system that, at best, has tended to reflect the interests of the rural poor and, at worst, served only the whims of those already in power.
Indian democracy will be not be changed instantly when the results are announced in May. The odds are that most powerful dynasties will survive, at least in the short term; indeed, there is evidence that many voters warm to inherited political power, on the assumption that those who wield it are more effective at working the system in the interests of their constituents.
But in coming elections the seeds cast in 2014 are set to grow, as India’s population becomes wealthier and more educated and moves in increasing numbers to its cities. “A rapidly urbanising India is going to be less accepting of dynasties, more open to new types of candidates,” says Ashutosh Varshney, a political scientist at Brown University. “Political lineage will still provide some advantage but it will no longer be a guarantee.” Demands for cleaner governance, liberal rights and improved public services will follow too.
India is not alone on this road. Other nations have felt similar pressures. But it is precisely the power of this broader pattern that makes it difficult to turn back, as Sanyal argued during her evening event in south Mumbai. “From India against corruption to the Arab spring and Tahrir Square, to Occupy Wall Street and the United Kingdom Independence party in Britain – all over the world we have seen movements of people expressing anger against the political system and their old political leaders,” she says, arguing that comparable forces are now at play on India’s streets and in its polling booths. “This is not the Arab spring but the Indian monsoon. It’s gentler and cleaner. And in time it will sweep all this dirt and corruption away.”