European market The European Economic Area (EEA) was established on 1 January 1994 following an agreement between the

member states of the European Free Trade Association (EFTA) and the European Community, later the European Union (EU). Specifically, it allows Iceland, Liechtenstein and Norway to participate in the EU's Internal Market without a conventional EU membership. In exchange, they are obliged to adopt all EU legislation related to the single market, except laws on agriculture and fisheries. One EFTA member, Switzerland, has not joined the EEA.

Origins In the late 1980s, the EFTA member states, led by Sweden, began looking at options to join the then European Communities. The reasons identified for this are manifold. Many authors cite the economic downturn in the beginning of the 1980s, and the subsequent adoption by the European Union of the Europe 1992 agenda as a primary reason. Arguing from a liberal intergovernmentalist perspective, these authors argue that large multinational corporations in EFTA countries, especially Sweden, pressed for EEC membership under threat of relocating their production abroad. Other authors point to the end of the Cold War, which made joining the EU less politically controversial for neutral countries. Meanwhile, Jacques Delors, who was president of the European Commission at the time, did not like the idea of the EEC enlarging with more member states, as he feared that it would impede the ability of the Community to complete the internal market reform and establish the monetary union. Delors proposed a European Economic Space (EES) in January 1989, which was later renamed to European Economic Area, as it is known today. By the time the EEA was established, however, several developments hampered its credibility. First of all, Switzerland rejected the EEA agreement in a national referendum on December, 6 1992 obstructing full EU-EFTA integration within the EEA. Furthermore, Austria had applied for full EEC membership in 1989, and was followed by Finland, Norway, Sweden, and Switzerland between 1991 and 1992 (Norway's EU accession was rejected in a referendum, Switzerland froze its EU application after the EEA agreement was rejected). The fall of the Iron Curtain made the EU less hesitant to accept these highly developed countries as member states, since that would relieve the pressure on the EU's budget when the former communist countries of Central Europe were to join. Membership The EEA Agreement was signed in Porto on 2 May 1992 by the then seven states of the European Free Trade Association (EFTA), the European Community (EC) and its then 12 member states. On 6 December 1992, Switzerland's voters rejected the ratification of the agreement in a constitutionally-mandated referendum, effectively freezing the application for EC membership submitted earlier in the year. Switzerland is instead linked to the EU by a series of bilateral agreements. On 1 January 1995, three erstwhile members of EFTAAustria, Finland and Swedenacceded to the European Union, which superseded the European Community upon the entry into force of the Maastricht Treaty on 1 November 1993. Liechtenstein's participation in the EEA was delayed until 1 May 1995. At present, the contracting parties to the EEA are the EU and its 27 members plus Iceland, Liechtenstein and Norway. Rights and obligations The EEA is based on the same "four freedoms" as the European Community: the free movement of goods, persons, services, and capital among the EEA countries. Thus, the EFTA countries that are part of the EEA enjoy free trade with the European Union. As a counterpart, these countries have to adopt part of the Law of the European Union. These states have little influence on decision-making processes in Brussels.

The EFTA countries that are part of the EEA do not bear the financial burdens associated with EU membership, although they contribute financially to the European single market. After the EU/EEA enlargement of 2004, there was a tenfold increase in the financial contribution of the EEA States, in particular Norway, to social and economic cohesion in the Internal Market (1167 million over five years). EFTA countries do not receive any funding from EU policies and development funds Legislation

A diagram showing the relationships between various multinational European organisations. The non EU members of the EEA (Iceland, Liechtenstein and Norway) have agreed to enact legislation similar to that passed in the EU in the areas of social policy, consumer protection, environment, company law and statistics. These are some of the areas covered by the European Community (the "first pillar" of the European Union). The non-EU members of the EEA have no representation in Institutions of the European Union such as the European Parliament or European Commission. This situation has been described as a fax democracy, with Norway waiting for their latest legislation to be faxed from the Commission.

European Economic Area Some Key Features

EFTA member countries excluding Switzerland European Union member-states Union type Established Members Economic market 1994 30 full members Governance Basis EEA Agreement EEA Council EU Commission EFTA SA ECJ EFTA Court European Union European Free Trade Area Statistics Population(2011) Area 507,761,408 4,944,753 km2 12.6 trillion $16.7 trillion[1]

Institutions

Affiliated with

GDP (2010)

Indian Economy

The Economy of India is the ninth largest in the world by nominal GDP and the third largest by purchasing power parity (PPP). The country is one of the G-20 major economies and a member of BRICS. In 2011, the country's GDP PPP per capita was $3,703 IMF, 127th in the world, thus making a lower-middle income economy.[ After the independence-era Indian economy (before and a little after 1947) was inspired by the Soviet model of economic development, with a large public sector, high import duties combined with interventionist policies, leading to massive inefficiencies and widespread corruption. However, later on India adopted free market principles and liberalized its economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P.V.Narasimha Rao the then Prime Minister. Following these strong economic reforms, the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people. India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world. The growth was led primarily due to a huge increase in the size of the middle class consumer, a large labor force and considerable foreign investments. India is the nineteenth largest exporter and tenth largest importer in the world. Economic growth rates are projected at around 7% for the 2011-12 fiscal year.

Overview A combination of protectionist, import-substitution, and Fabian socialist-inspired policies governed India for sometime after India's Independence from the British. The economy was then characterised by extensive regulation, protectionism, public ownership, pervasive corruption and slow growth. Since 1991, continuing economic liberalisation has moved the country towards a market-based economy. By 2008, India had established itself as one of the world's fastest growing economies. Growth significantly slowed to 6.79% in 200809, but subsequently recovered to 7.4% in 200910, while the fiscal deficit rose from 5.9% to a high 6.5% during the same period. Indias current account deficit surged to 4.1% of GDP during Q2 FY11 against 3.2% the previous quarter. The unemployment rate for 2010-11, according to the state Labour Bureau, was 9.8% nationwide. [4] As of 2011, India's public debt stood at 62.43% of GDP which is highest among the emerging economies. India's large service industry accounts for 57.2% of the country's GDP while the industrial and agricultural sectors contribute 28.6% and 14.6% respectively. Agriculture is the predominant occupation in Rural India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%. However, statistics from a 200910 government survey, which used a smaller sample size than earlier surveys, suggested that the share of agriculture in employment had dropped to 45.5%. Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software and pharmaceuticals. [ The labour force totals 500 million workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. In 20092010, India's top five trading partners are United Arab Emirates, China, United States, Saudi Arabia and Germany. Previously a closed economy, India's trade and business sector has grown fast. India currently accounts for 1.5% of world trade as of 2007 according to the World Trade Statistics of the WTO in 2006, which valued India's total merchandise trade (counting exports and imports) at $294 billion and India's services trade at $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's total trade in goods and services has reached a share of 43% of GDP in 200506, up from 16% in 199091. India's total merchandisee trade (counting exports and imports) stands at $ 606.7 billion and is currently the 9th largest in the world. European Debt Crisis Causes

There are many contributing factors to the ongoing European financial crisis. To find the origin of the financial distress, researchers have to be conduct and analyze financial records dated many years and possible decades old. According to Zdeneil Kudrna, a political economist and the author of article CrossBorder Resolution of Failed Banks in the European Union after the Crisis: Business as Usual, has pinpointed the true cause of the economical crisis that threatens the existence of the European Union. In his article, Kudrna says that the financial crisis was destined to happen due to the way the European Union deals and make their trade policies. He argues that the European Union only takes action after the facts. They only address a situation when they have already become a problem. The European sovereign debt crisis has resulted from a combination of complex factors, including the globalization of finance; easy credit conditions during the 20022008 period that encouraged high-risk lending and borrowing practices; international trade imbalances; real-estate bubbles that have since burst; slow economic growth in 2008 and thereafter; fiscal policy choices related to government revenues and expenses; and approaches used by nations to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses. It is sometimes suggested that the European welfare state contributed to the disaster, but this is demonstrably false. One narrative describing the causes of the crisis begins with the significant increase in savings available for investment during the 20002007 periods when the global pool of fixed income securities increased from approximately $36 trillion in 2000 to $70 trillion by 2007. This "Giant Pool of Money" increased as savings from high-growth developing nations entered global capital markets. Investors searching for higher yields than those offered by U.S. Treasury bonds sought alternatives globally. [18]The temptation offered by such readily available savings overwhelmed the policy and regulatory control mechanisms in country after country as global fixed income investors searched for yield, generating bubble after bubble across the globe. While these bubbles have burst causing asset prices (e.g., housing and commercial property) to decline, the liabilities owed to global investors remain at full price, generating questions regarding the solvency of governments and their banking systems. How each European country involved in this crisis borrowed and invested the money varies. For example, Ireland's banks lent the money to property developers, generating a massive property bubble. When the bubble burst, Ireland's government and taxpayers assumed private debts. In Greece, the government increased its commitments to public workers in the form of extremely generous pay and pension benefits. Iceland's banking system grew enormously, creating debts to global investors ("external debts") several times GDP. The interconnection in the global financial system means that if one nation defaults on its sovereign debt or enters into recession putting some of the external private debt at risk, the banking systems of creditor nations face losses. For example, in October 2011 Italian borrowers owed French banks $366 billion. Should Italy be unable to finance itself, the French banking system and economy could come under significant pressure, which in turn would affect France's creditors and so on. This is referred to as financial contagion. Another factor contributing to interconnection is the concept of debt protection. Institutions entered into contracts called credit default swaps (CDS) that result in payment should default occur on a particular debt instrument (including government issued bonds). But, since multiple CDS's can be purchased on the same security, it is unclear what exposure each country's banking system now has to CDS. Some politicians, notably Angela Merkel, have sought to attribute some of the blame for the crisis to hedge funds and other speculators stating that "institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere Although some financial institutions clearly profited from the growing Greek government debt in the short run, there was a long lead up to the crisis.

Government debt of Euro zone, Germany and crisis countries compared to Euro zone GDP

Government deficit of Euro zone compared to USA and UK In 1992, members of the European Union signed the Maastricht Treaty, under which they pledged to limit their deficit and debt levels. However, a number of EU member states, including Greece and Italy, were able to circumvent these rules and mask their deficit and debt levels through the use of complex currency and credit derivatives structures. The structures were designed by prominent U.S. investment banks, who received substantial fees in return for their services and who took on little credit risk themselves thanks to special legal protection for derivatives counterparties.

A number of "appalled economists" have condemned the popular notion in the media that rising debt levels of European countries were caused by excess government spending. According to their analysis, increased debt levels are due to the large bailout packages provided to the financial sector during the late-2000s financial crisis, and the global economic slowdown thereafter. The average fiscal deficit in the euro area in 2007 was only 0.6% before it grew to 7% during the financial crisis. In the same period the average government debt rose from 66% to 84% of GDP. The authors also stressed that fiscal deficits in the euro area were stable or even shrinking since the early 1990s.US economist Paul Krugman named Greece as the only country where fiscal irresponsibility is at the heart of the crisis. Either way, high debt levels alone may not explain the crisis. According to the Economist Intelligence Unit, the position of the euro area looked "no worse and in some respects, rather better than that of the US or the UK." The budget deficit for the euro area as a whole (see graph) is much lower and the euro area's government debt/GDP ratio of 86% in 2010 was about the same level as that of the US. Moreover, privatesector indebtedness across the euro area is markedly lower than in the highly leveraged Anglo-Saxon economies. Trade imbalances

Current account balances relative to GDP (2010) Commentators such as financial Times journalist Martin Wolf have asserted that the root of the crisis was growing trade imbalances. He notes in the run-up to the crisis, from 1999 to 2007, Germany had a considerably better public debt and fiscal deficit relative to GDP than the most affected euro zone members. In the same period, these countries (Portugal, Ireland, Italy and Spain) had far worse balance of payments positions. Whereas German trade surpluses increased as a percentage of GDP after 1999, the deficits of Italy, France and Spain all worsened. More recently, Greece's trading position has improved in the period November 2010 to October 2011 imports dropped 12% while exports grew 15% (40% to non-EU countries in comparison to October 2010) Monetary policy inflexibility Since membership of the euro zone establishes able to "print money" in order to pay creditors and ease their risk of default. (Such an option is not available to a state such as France.) By "printing money" a country's currency is devalued relative to its (euro zone) trading partners, making its exports cheaper, in principle leading to an improving balance of trade, increased GDP and higher tax revenues in nominal terms.In the reverse direction moreover, assets held in a currency which has devalued suffer losses on the part of those holding them. For example by the end of 2011, following a 25 percent fall in the rate of exchange and 5 percent rise in inflation, euro zone investors in Sterling, locked in to euro exchanges rates, had suffered an approximate 30 percent cut in the repayment value of this debt. Loss of confidence

Sovereign CDS prices of selected European countries (20102011). The left axis is in basis points; a level of 1,000 means it costs $1 million to protect $10 million of debt for five years. Prior to development of the crisis it was assumed by both regulators and banks that sovereign debt from the euro zone was safe. Banks had substantial holdings of bonds from weaker economies such as Greece which offered a small premium and seemingly were equally sound. As the crisis developed it became obvious that Greek, and possibly other countries', bonds offered substantially more risk. Contributing to lack of information about the risk of European sovereign debt was conflict by banks that were earning substantial sums underwriting the bonds. The loss of confidence is marked by rising sovereign CDS prices, indicating market expectations about countries' creditworthiness. Furthermore, investors have doubts about the possibilities of policy makers to quickly contain the crisis. Since countries that use the euro as their currency have fewer monetary policy choices (e.g., they cannot print money in their own currencies to pay debt holders), certain solutions require multi-national cooperation. Further, the European Central Bank has an inflation control mandate but not an employment mandate, as opposed to the U.S. Federal Reserve, which has a dual mandate. According to the Economist, the crisis "is as much political as economic" and the result of the fact that the euro area is not supported by the institutional paraphernalia (and mutual bonds of solidarity) of a state. Rating agency viewsOn December 5, 2011 S&P placed its long-term sovereign ratings on 15 members of the euro zone on "CreditWatch" with negative implications; S&P wrote this was due to "systemic stresses from five interrelated factors: 1) Tightening credit conditions across the euro zone; 2) Markedly higher risk premiums on a growing number of euro zone sovereigns including some that are currently rated 'AAA'; 3) Continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis and, longer term, how to ensure greater economic, financial, and fiscal convergence among euro zone members; 4) High levels of government and household indebtedness across a large area of the euro zone; and 5) The rising risk of economic recession in the euro zone as a whole in 2012. Currently, we expect output to decline next year in countries such as Spain, Portugal and Greece, but we now assign a 40% probability of a fall in output for the euro zone as a whole.

Euro zone crisis & impact on India Capital flows into the economy and exports are likely to take a beating. Foreign institutional investor (FII) investment pattern is marked with high volatility. A sudden surge in investment pattern is as detrimental as an unannounced withdrawal. A surge in FII investments will lead to increased inflationary pressures and building of an asset bubble that could burst anytime. India is grappling with high inflation and the central bank has raised the key interest rates a dozen times in the past year and a half. Now, the possibility of Greek debt default affecting the European banking and financial sectors is very real. The crisis is expected to spill over to the other European nations that otherwise appear economically stable. While Greece has embarked on austerity measures, the bailout package from the European Union and IMFfunds is expected to help it navigate out of its crisis. However, a rapidly shrinking Greek economy needs a fresh lease of life. But if Greece is only the beginning, then the Euro zone crisis could avalanche into larger trouble. The quantum of impact of Euro zone crisis on markets here is yet to be measured. A slump in domestic industrial growth, unaddressed agricultural woes, rising interest rates and escalating fuel costs have compounded the global factors. A series of scandals emerging from under the carpet have diluted the faith of foreign investors. The market volatility has compounded with the concerns of small investors. Sectors across the board including auto, oil and gas, metal, FMCG and healthcare took a beating. Concerns are the current European financial crisis will curb economic growth. The risk associated with otherwise favorite sectors such as banking has increased. Investors have to study global trends before investing in the unpredictable stock markets today. Have a longterm perspective when taking investment decisions.

India's Finance Minister Pranab Mukherjee Monday said that the escalating Euro zone sovereign debt crisis will severely affect the country's short-term economic growth prospects and will impact exports in the coming months.

"The recent development in the Euro zone has heightened uncertainty in financial markets. India's shortterm growth prospects have been adversely impacted," Mukherjee said while inaugurating the India International Trade Fair in the capital. In October, the central bank Reserve Bank of India (RBI) scaled down India's gross domestic product (GDP) growth forecast for the current financial year 2011-12 to 7.6% from around 8% earlier citing global turmoil and domestic monetary tightening, while Asian Development Bank (ADB) is further looking to revise India's GDP growth projection downwards for this fiscal year from the current 7.9%, according to CNBC TV18 report, flashed earlier Monday. India's exports, which has had a great run in the past months, grew at the lowest in two years in October by 10.8% on-year to touch $19.9 billion, indicating worsening of global situation. "India's export sector has performed well this year. I must add that the tendency of some developed countries to resort to protectionist measures in the face of downturn of their economy is a matter of grave concern, not only to our exports, but also to the recovery of the world as a whole," he said. The mounting debt worries in the Euro zone, which has triggered a change of guard in Greece and Italy, the centers of the crisis, coupled with the slow recovery of the United States and political unrest in West Asia have roiled markets across the globe, raising fears of a 2008-like recession.

Euro zone crisis& Affect on Indian banks Though Indian banks' exposure to the troubled euro zone is negligible, funding pressure could impact them, Economic Survey 2011-12 today said."The recent regulatory prescriptions for European banks have raised fears of deleveraging. Indian banks are not expected to bear any direct impact on account of their negligible exposure to the troubled zone," the survey tabled by Finance Minister Pranab Mukherjee today in the Parliament said. "However, they could be indirectly affected on account of funding pressures," it said. The scope for countercyclical financial policy could be explored in financial regulations in order to minimize negative impact of accumulated financial risks, it said. This will go a long way in providing needed stability to the financial system, it added. The survey noted sovereign risk concerns, particularly in the euro area, affected financial markets for the greater part of the year, with the contagion of Greece's sovereign debt problem spreading to India and other economies by way of higher-than-normal levels of volatility. Despite the demanding operational environment, it said, the Indian banking sector demonstrated continued revival from the peripheral spillover effects of the recent global financial turmoil. Highlighting the importance of financial inclusion in the financial sector, the Survey said it is seen as an important determinant of economic growth. Banks need to take into account various behavioral and motivational attributes of potential consumers for a financial inclusion strategy to succeed, it said. Besides, it said, access to financial products is constrained by lack of awareness, unaffordable products, high transaction costs, and products which are not customized and are of low quality. A major challenge in the times ahead would be to meet financing requirements, particularly of the unorganized sector and the self-employed in the micro and small business sector, it said. With the euro area appearing to head for a recession and the global growth slowing again after a short recovery, growth in India too has moderated more than was expected earlier. Increase in global uncertainty, weak industrial growth, slow down in investment activity and deceleration in the resource flow to commercial sector led to dip in output growth. Inflation risks emanating from suppressed domestic energy prices, incomplete pass-through of rupee depreciation and slippage in fiscal deficit, further fuelled by food and commodity inflation have led to policy tightening. All these factors have resulted in the growth projection for India for 2011-12 being revised downwards from 7.6 per cent to 6.9 per cent.

Indian banking system has, however, not been impacted by current crisis as it does not have any significant presence in countries impacted by the current crisis nor Indian banks have any significant exposures to bonds issued by them. While there is no first order impact of the sovereign debt crisis, there could, however, be second-order impact through various channels including trade. There could be funding constraints for Indian bank branches operating overseas if European banks deleverage. The cost of borrowing for banks and corporate may, therefore, go up leading to concerns over refinancing foreign currency liabilities. Due to the slump in the overseas demand and the associated downturn in investment activity, there has already been some sluggishness in the credit as well as asset growth of Indian banking sector during 2011-12. The crisis also had a measurable impact on the Indian financial markets, with equity prices witnessing sharp decline on account of large net sales by FIIs in the backdrop of worsening macroeconomic environment and bearish outlook on earning growth of Indian corporate. Further, moderation in capital flow coupled with widening trade deficit led to a sharp fall in the INR-USD exchange rate to touch an all time low of 54.30 on December 15, 2011. Reserve Bank has taken a number of measures to contain the excessive volatility in the foreign exchange market. The prudential measures undertaken with a view to contain speculative activities included disallowing rebooking of cancelled forward transactions (involving the Rupee as one of the currencies which are booked to hedge current account transactions regardless of the tenor and capital account transactions falling due within one year), , reduction in Net Overnight Open Position Limits of Authorized Dealer (AD) banks, curtailment in limit for cancellation of forward contracts booked on the basis of past performance route by the importers, prohibiting passing of exchange gains to the customers on cancellation of forward contracts booked under past performance route, disallowing FIIs to rebook cancelled forward contracts, stipulating all cash/tom/spot transactions to be delivery/ remittance based. With a view to encouraging inflows, measures such as raising the limits on FII investments in debt securities, further liberalization of ECB policy, relaxation of interest rate ceilings on NRE and NRO deposits, have been taken.

Takeaways from the Crisis: Notwithstanding the risk of sounding clich I cannot contain myself to remind you that every cloud has a silver lining and every crisis brings with it, a lesson. The Global crisis 2007 and the current sovereign debt crisis offer, in fact, many lessons and the analysts are busy deciphering one each day. While there are many

regulatory and policy lessons that have come to the fore and are under various stages of implementation, I would flag some takeaways which would be most relevant for you as you prepare to enter into the professional world which is currently beset with crises. Takeaway 1: Too much of anything is bad You must have often heard your grandmother saying this and, mind you, this remains relevant even today, in fact more today, post crisis. Too much of leverage, too much of liquidity, too much of complexity and too much of greed- they all have led to the crisis. It is now being argued that too much of finance is also not conducive to growth. Recent studies suggest that while at low levels a larger financial system leads to higher productivity, beyond a point, more banking and more credit result in lower growth. Further, it is also argued that fast growing financial sector can be detrimental to the aggregate productivity growth. Moderation in approach, therefore, is an important lesson. Takeaway 2: Models are not absolute In the run up to the crisis, there was an excessive reliance and almost a blind faith that models convey absolute truths. Entire risk management systems were built around this belief. Post crisis, participants have woken up to the harsh reality that models do not fully reflect the realities of life and excessive reliance on quantitative models is fraught with risk. Exact sciences such as physics are governed by natures laws that are immutable and lead to definite and predictable results. Finance on the other hand, is governed by capricious human behavior and biases which cannot be easily modeled. To an argument that models with all their limitations are better than not having any, Nassim Taleb has said You are worse of relying on misleading information than on not having any information at all. If you give a pilot an altimeter that is sometimes defective he will crash the plane. Give him nothing and he will look out the window Knowing the shortcomings of the models is, therefore, extremely important for their judicious usage. Takeaway 3: Finance should serve the real sector and not the converse While it is agreed that financial system furthers the economic development by enabling efficient allocation of capital and risk, the ultimate objective of finance, which is the furthering of economic development should not be lost sight of. In the period prior to crisis, the financial activity grew so much that the umbilical cord between financial and real sectors was severed and the finance started to exist for its own sake. The dangers of such a scenario have been quite emphatically conveyed by the Crisis. With these thoughts, I conclude my address. I thank you all for your patient hearing and wish you all the best in your future endeavors. Impact of Europe debt crisis on Indian stock market Indian shares fell as led by export-driven software services companies after bellwether Infosys cut its outlook for revenue citing the debt troubles in Europe. Sharply better-than-expected industrial output in November failed to bolster sentiment as the data, while providing a glimmer of hope for the battered economy, could allow the central bank to hold off on easing monetary policy. It is expected that the ongoing European debt crisis to cast a shadow on global financial markets and the global economy during 2012, especially, in the first half of 2012. Fresh concerns about the Euro zone debt crisis are likely to emerge in February, with a large tranche of debt auctions in Italy, Spain, Portugal and Greece. These auctions are likely to indicate whether these peripheral economies are able to secure funding at reasonable rates. Euro-zone is expected to experience a recession in 2012 with a negative feedback loop between the debt crisis and rising funding costs and the weak economy. We expect the crisis to ease in the second half of 2012, leading to a decline in uncertainty and risk aversion. India will not be immune to negative developments in the Euro zone crisis. Even

if the Euro zone fears ease, domestic economic concerns are likely to impact Indian stocks. Indian economic growth could continue to grind lower as high interest rates continue to stifle investment demand. Commodity prices continue to remain elevated and the weak rupee will ensure prices remain high even if they decline globally. These factors will prompt analysts to lower GDP growth forecast. Policy reforms are likely to be put on hold until some of the key state elections are out of the way. These reasons, combined with potential worsening of the Euro zone crisis, could push equity markets lower over near term. The major concerns centre on medium-term trajectory for GDP growth and consequently corporate earnings, and policy disappointments, especially, in the infrastructure sector. In the recent past, environment approvals for coal mines, other infra projects have been slow, leading to stress in the power sector - the economy's lifeline. Going ahead, growth is likely to become a priority again for policy makers. Interest rate cuts combined with policy action has the potential to trigger a rally in equity markets in the second half of 2012. We expect rate cuts and lower rates in the system towards the middle of 2012. There's potential for a rally in 2012 for the Indian market. Valuations are attractive, while interest rate headwinds are easing. At current levels, the Indian market is trading at close to 13X one year forward earnings, a discount to its historical trading range. Thus from a valuation perspective, these are good levels for longer term investors. However, Indian equities remain at a premium to other emerging markets Euro-zone crisis and its effect on Indian property market The inter-connectedness of global investment markets was evident in the slowdown during 2008, when the contagion of the recession spread rapidly across the world. A financial pandemic of such scale had not been witnessed since 1929, nearly eight decades ago. In 2009, markets rallied to regain some of the lost levels. However, the world still pondered whether it was a bear market rally, a sort of dead cat bounce. Postulations on recovery since the global financial crisis have covered quite a few alphabets V, U, L or W, with a possible double-dip dominating the jargon of economists, policy makers and researchers. Since 2009, several events have brought the world closer to the clock the likely default by Dubai World in December 2009, news of debt concealment by Greece in early 2010, sovereign debt crisis in the PIGS (Portugal, Italy, Greece and Spain) nations and the debt downgrade of the USA in 2011. To onlookers, these do not seem like black swans anymore. These recent events have been watched anxiously, and even anticipated, with the complex network of world finance putting checks and balances to firewall itself from the impending crisis. As per the International Monetary Fund, Greece contributed only 0.5% of the worlds GDP in 2010. Most agree that if measures of restructuring and bailout fail, Greece might eventually default, also leading to its eviction from the Euro zone by end of the year. What is linked to a credit event such as this is the likely contagion that would spread to other vulnerable sovereign states, the foremost being Italy, which is the third largest economy in the Euro zone and has a total debt of nearly 1.9 trillion Euros. This will have a debilitating effect on the integration of Europe that the member countries have been aiming for. Demand in European nations will contract as they get drawn inwards, focus on their own backyard and put austerity measures in place, at least for the time being. Political instability might manifest as citizens oppose austerity and elect a populist government. The troubles with Greece and Italy would not remain economic, but encompass a larger political gambit. The truth is, as Dani Rodrik writes Europes single market has taken shape much faster than Europes political community has; economic integration has leaped ahead of political integration. With all this happening in Europe, a variant of the Lorenz question arises: Does The Flap Of A Butterflys Wings In Europe Set Off A Tornado In Indian Real Estate? Indian real estate, as was witnessed in 2008-09, is not decoupled from global events. Despite the fact that Indias GDP grew by 6.7% in 2009, rents of office and retail space fell by 40%-50% and absorption of office space fell by over 40% from 33.1 million sq ft in

2008 to 19.6 million sq ft in 2009. A confluence of global events, high deficits and stagnation in the residential sector might lead to a difficult 2012 for the real estate industry in India. - Nearly 50% of the demand for investment grade office space in India is contributed by the Information Technology (IT/ITeS) sector. Over 80-90% of the revenues of the IT & BPO sector come from North America and Europe, which are the worst affected in the current sovereign debt crisis. - Over 70% of the demand for investment grade office space in India is contributed by firms which are headquartered abroad. Many of them thrive on domestic demand; however, severe demand contraction in their parent countries will definitely push them to exercise caution. - Indias high twin deficit of fiscal and current account is not only a threat to its growth, but has also reduced its ammunition for facing a possible contraction of demand from foreign countries. - The residential sector showed resilience and recovered quickly after staying at the bottom for just 6-9 months. However, the rapid increase in prices and monetary tightening by the Government has led to stagnation in prime residential markets, which is faced by slowing sale velocities and fewer housing launches in the metropolitan cities. Having leveraged themselves extensively, developers cannot rely on sales from residential to sail them through this time around if demand contracts in the office sector. However, there are certain upsides to the downside as well. - While absorption levels improved in 2010 to regain those witnessed in 2008, the supply overhang ensured that vacancy rises and rents remain stable. Hence, the downside risk remains muted, as rents are already at their cyclical lows across most active markets. - Short term devaluation of the Indian Rupee has made Indian exports more attractive and should help the IT/ITeS industry over the next 6-9 months. It will also make Foreign Direct Investments in India cheaper. However, it will nullify the effect of expected decline in oil prices, which could have helped domestic inflationary concerns somewhat. - The Reserve Bank of India has always been a very conservative regulator, which is evident from the monetary tightening during 2010-2011. It has enough headway to infuse liquidity by cutting interest rates, which will directly benefit the residential sector. The 2008 crisis is so fresh in public memory that a collaborative effort is visible in the attitude of Governments worldwide. Policymakers are tactfully taking steps to prevent a Lehman-scale bankruptcy situation. Only time will tell if this collective wisdom and awareness can change those initial conditions of the Lorenz Curve that can alter its eventual shape. For now, the attitude to maintain going forward is caution. Euro Zone Crisis Effect on Indian Exports What with a respite for the last few months in the Indian exports scenario, thanks to the current financial crisis happening in Euro Zone has once again raised its ugly head hampering the Indian exports. Earlier there was total slowdown of exports from India, now the Indian exporters are facing a different strain due to huge variations in exchange rates, a study conducted by the Federation of Indian Chambers of Commerce and Industry says. A combination of factors including the variation of exchange rates, evolving situation in Euro Zone and the rising cost of raw materials including imminent hike of oil price and the increase of interest rates will certainly hit the export segment, the survey on exports say. FICCI conducted the survey between April and May this year has seen participation from 278 companies with a wide topographical and spectral spread. The study further finds the turnover of the firms that took

part in the survey ranged from Rs 1-crore to Rs 1.40-crore, representing segments including automotive, metal and metal products, heavy engineering and a host of other products. The large sideways movement in the value of INR against the USD and Euro has triggered lot of constraints, while the sudden appreciation in the value of INR impacted the margins and further led to lower realization for the exporters. What is more, the recent decline in the value of INR has caught the Indian exporters unaware, eventually losing on accounty of forward contracts that were booked to hedge currency risk, the report says. In order to salvage the currency fluctuation crisis, Indian exporter are initiating three measures including establishing a dedicated forex or treasury team to help solve the issue, negotiating with their respective overseas customers to create a dynamic pricing model built in sales contracts to address the issue of currency fluctuations and lastly few of the big time Indian exporters deciding not to convert their dollar receivables into INR as the exchange rate risk at this point is real high. According to FICCI, many exporters were of the opinion that at least for them, the RBI should provide a facility like in China of a fixed exchange rate. For, this would not only enable these exporters to take care of their businesses and they would be in a better position to managing currency fluctuations in a much more pragmatic way. The situation in Euro Zone is in real doldrums. In spite of the intervention of EU and the IMF with a billion dollar package to improve the situation, skepticism is looming large in the horizon, particularly the uncertainty over the growth trajectory of debt ridden nations including Greece, Italy, Spain and Portugal. If the global recovery was quick enough in the first phase, it is now apparent that the second recovery would be tad bit slower, having direct impact on the pace of expansion of global trade. There is a gamut of issue happening due to evolving situation in Euro Zone. Consider this: In some cases, the buyers in the EU region are showing reluctance in placing orders and in a few cases, Indian companies in particular had been asked to hold back the dispatch of consignments, resulting in huge loss for the Indian exporters. In certain other incidence, the Indian exporters have even had to hire temporary terminals for parking goods in the EU region because of the buyers refusing to take the delivery immediately. This has left the Indian exporters in a catch 22 situation and while they are trying hard to find alternative markets, they are also asking the Union Government to successfully negotiate an FTA with the EU at the quickest possible time to help salvage the situation, the FICCI survey adds. As the Indian exporters are suffering from various problems, to top it all the spiraling cost of inputs and industrial raw material is not giving them a breather either. The rise of oil price would be the last straw on the proverbial camel's back. According to FICCI, the Indian exporters offer few valuable suggestions to the government including requesting it to increase the duty drawback and DEPB rates. For, the exporters believe that once the base rate mechanism is implemented, then the lending rates of banks would go up making their lives further miserable. Therefore, the exporters have now pleaded with the government that bank loans at concessional rates should be made available to them, even in the post 'base rate' period, which kicks in from next month. Euro zone Crisis Affect Indian Apparel Exports Slowdown woes continue to affect the Euro zone and the crisis has negatively hit apparel exports the most. While the US is showing marginal recovery, orders from Europe have gone down significantly. Orders from Italy and Spain have almost become nil and could reduce Indias total apparel exports by 15 per cent. Indian textile exports are considered to be around $25 billion. Of this, apparel alone contributes $11 billion (Rs 58,597 crores) and the rest $14 billion (Rs 74,578 crores) comprises yarn, fabric and made-ups. Fabric export is expected to be down by 5 per cent in the current fiscal. Since the US and European countries are major importers of Indian apparels, the slump in these markets are causing a lot of trouble for some time now. And with Italy and Spain booking low or no import orders, Indian apparel exports are taking a major hit. Conditions in the US are a bit better than Europe for the moment and

there has been some recovery in demand. But AEPC expects a 15 per cent decrease in apparel exports. Orders for mens category of garments, which generally comprise the bulk of orders, have come down significantly and even the orders for womens category are not too exciting. Interestingly, the apparel export sector, reeling under the pressures due to economic slowdown in the US and Europe and depreciating rupee against the US dollar, witnessed a growth of about 23 per cent year-on-year to $913 million (Rs 4,965 crores) in October. The growth is attributed to the growing demand from markets like Japan and Latin America. These exports stood at $744 million (Rs 4,046 crores) in the same period last year, according to the data provided by the Apparel Export Promotion Council (AEPC). Besides rising demand from Japan, Latin America and other newly explored markets, the council attributed the growth to the lowlevel of demand (low base effect) in October last year. Meanwhile, to reduce dependence on traditional markets like the US and Europe, exporters are looking at new markets like Africa, Japan and Latin America to stabilize their businesses. The US and Europe together account for over 70 per cent of Indias total apparel exports. The council expects garments exports to cross $14 billion (Rs 74,578 crores) in 2011-12. During the 2010-11 fiscal, exports grew 4.4 per cent to $11.1 billion compared to the previous financial year. The apparel industry employs about 70 lakh people in the country, out of which almost half are engaged in the export sector. To stabilize the businesses, exporters are now either catering to the domestic market or exploring new territories for exports. After China, with Bangladesh and Vietnam gaining an edge over India due to valueadded products, Indian exporters are further getting affected. Euro zone crisis and its impact on Indian companies The European Monetary Union was a moment of triumph for nations used to holding on to the coat tails of a superpower like the US. But in the rush to create a common currency, many potential trouble points were swept aside by nations basking in euro glory. The 2008 meltdown has exposed those fault lines. ET Intelligence Group reviews the impact of the crisis on Indian companies with significant exposure to Europe. If you thought recent economic data emanating from the US was bad, look over to the other side of the Atlantic and you'll see things are a lot more worrisome there. And what's worse is that India Inc as a whole appears to have greater exposure to the euro zone than to the US going by our exports. As of March 2011, 10% of our total exports were to the US while 18% were to Europe. When Winston Churchill called for a "United States of Europe" little did he think that this unification would be so disastrous! In an effort to form a monetary union among European Union member states, the European Central Bank was established in 1999. Thereafter, a single currency - the euro - was introduced which replaced other regional currencies completely. Over time, several member states joined the exchange rate mechanism by bringing their currencies and monetary policies in line with the euro. But when this single currency was created, it now appears that, the founding members had not fully taken into account the ramifications, if any, of uniting strong and weak countries alike. A crisis of the magnitude we are seeing today was not envisaged at that time, and therefore, no process for correction was evolved. As a result, all EU member countries find themselves in a mess today -regardless of the strength of their economies -as the stronger ones have no option but to keep bailing out the weaker ones. All was well till the global economic crisis of 2008 showed that the fault lines in the over-leveraged economies of Europe a result of weak governance ran very deep. By late 2009, Greece had announced that its budget deficit was actually 15.4% of its gross domestic product (GDP) - and not 3.7% as stated earlier. And by mid-2010, this shipping and tourism dependent economy had to seek help from fellow euro zone members and IMF to avoid default. It soon became apparent that the budget deficits of Ireland, Spain, Portugal and Italy were also in the danger zone. Despite a string of bailout packages and a number of austerity plans from these beleaguered nations, the problems have only worsened. Most European economies are growing at an extremely slow pace, if at all. Their banks continue to post losses and stock market declines persist. They not only have to deal with high fiscal deficits, but also with pension deficits as a result of an ageing population and low birth rates.

In Germany, the region's strongest economy, GDP growth fell from 4.6% in March to 2.8% in June. Consumer confidence dropped from 110 to 100 since January 2011. In France, GPD growth fell from 2.1% in March 2011 to 1.6% in June, and consumer spending in the manufacturing and retail sectors is also decelerating. In the United Kingdom, GDP growth declined from 4.7% in December 2010 to 4.6% in March 2011. Meanwhile, consumer confidence, industrial production and manufacturing have been rapidly declining. Such an environment it becomes extremely difficult for businesses to run profitably. And it's not just European companies that will bear the brunt. There are a number of Indian companies that have significant exposure to Europe. If they haven't already been affected, earnings for these companies are likely to be impacted in the future. But the key question is to what extent? In this issue, ET Intelligence Group has analyzed 13 such companies which earn more than 30% of their revenues from Europe, giving you a perspective of their operations and the impact of the euro zone crisis on their earnings. It is important to note that in certain cases, even though companies have a sizeable business in the euro zone, the overall impact will depend upon the demand situation in markets where they have major exposure. For instance, major IT exporters earn 20-30% from the European market. But the US still remains the major market for these companies. Therefore the impact of sluggish growth in the European economies could be limited. In addition, a high exposure to the euro zone may not be the sole reason of worry for some companies. For example, IT player Tech Mahindra draws over half of its revenue from the UK. The UK-based telecom provider BT is its biggest client. TATA STEEL

After the takeover of Corus in 2007, Tata Steel earns almost 60% of its revenues from operations in Europe, making it extremely vulnerable to the economic slowdown. In addition to sluggish demand in the region, procurement costs for raw materials such as iron ore and coking coal have risen sharply, and since the company is dependent on third parties for the same, its margins remain under pressure. But in spite of these problems, the company reported a 170% jump in per share profit following the sale of its ailing Teesside Cast Products subsidiary. This subsidiary manufactured steel slabs used mostly by car makers and accounted for majority of the company's losses. Considering the slowdown in the auto industry in the region, Tata Steel did well to sell off this business, the result of which was seen in its Q1 FY12 earnings. The recent decline in input costs, which is expected to continue over the next two quarters, will ease pressure on margins. Moreover, the company's sustained focus on streamlining operations will help weather the storm. HINDALCO since the takeover of Novelis in 2007, Hindalco earns about 32% of its consolidated revenues from its European operations. With operations in Germany, France, Ireland and Italy, among others, it runs 12 rolled products facilities and one recycling facility and is one of the largest suppliers to the automotive and beverage can industries. While the slowdown in these user industries pose a concern for the company, its operations in growing markets like India and Brazil will help it weather the storm once the expansion of operations take shape. In the meantime, investors should stay away from this stock for now.

SINTEX

INDUSTRIES

Thanks to its acquisition of French company Nief Plastics in 2007, Sintex Industries has a significant exposure to European markets. Nief has 13 plants - 9 in France, 2 in East Europe and 2 in North Africa. Its revenue grew 26% y-o-y to 142 million Euros in 2010. This is roughly a quarter of Sintex's consolidated annual revenues for FY11. Over past few years Nief has steadily reduced its dependence on automotive industry, which now contributes 45% compared with 65% four years ago. Its exposure to electrical, aerospace and medical has also increased.

Nief has made a couple of acquisitions to build its products portfolio and expanded its existing operations in East Europe. This has enabled the company to improve margins and grow in double digits. However, an economic slowdown in Europe could put pressure on volumes growth and margins in some segments of the business. KIRI INDUSTRIES

In 2010 mid-size dyestuff maker Kiri Industries acquired 17 plants of DyStar spread across Europe and the US, through its joint venture with a Chinese company. Effectively, it has 37.8% stake in DyStar entities. This has given Kiri a substantial exposure to the euro-zone economies. For FY11, DyStar achieved a turnover of Rs 3,363 crore and profit before tax and extraordinary items of Rs 85.1 crore. As against this, Kiri posted standalone revenue of Rs 565.7 crore and pre-tax profit of Rs 38.5 crore. At net level, DyStar entities had incurred a loss due to provision for onetime restructuring costs of Rs 374.3 crore. A slowdown in Europe could have negative impact on DyStar's profitability going ahead. However, considering the extraordinary nature of losses last year, the numbers are still positive for Kiri.

ALLCARGO

GLOBAL

all cargo Globes European exposure is through its subsidiary ECU Line. ECU Line is the world's second largest multi modal transport operator (MTO) in the less-than-container-load (LCL) space. ECU Line works on LCL segment where it aggregates goods from different freight forwarders and transports in the container space booked on ships. Even though the EXIM trade volume might decrease during a slowdown, shipping companies have a tendency to consolidate cargo than shipping in full containers to reduce costs. Hence, all cargo is unlikely to be impacted by a slowdown in Europe. HAVELLS INDIA Havells India ran into trouble after acquiring European light source manufacturing company. Sylvania in 2008 and posted a net loss of Rs 160 crore in the subsequent year. However despite the weak environment in Europe, the company has been able to improve Sylvania's financials, by outsourcing its manufacturing to India. Sylvania turned profitable in the last quarter of the previous fiscal, with an operating profit margin of 7.5% over the past two quarters. To avoid the sluggishness in environment in Europe, Sylvania has plans to expand operations in South America and Asia, where it already has some presence. In the first quarter of FY12, Sylvania's topline grew 1.2% year-on-year led by 8% sales growth in Latin American market. These steps planned by the company would enable it to reduce its exposure to European markets, which currently account for almost 63% of its overseas business and 50% of the operating profit. As far as Indian operations are concerned, the company is clocking a good growth. At the current market price of Rs 365, Havell's is trading at FY11 price to earnings multiple of 15 and investors can consider buying this stock.

MASTEK Mastek has been struggling to grow its business in the past two years. The woes in the European economy, and specifically in the UK, will aggravate matters for the Mumbai headquartered IT company that offers solutions to insurance and government sectors. Mastek's revenue shrunk by over one-third in the past two years to Rs 614 crore for the year ended June 2011. Unlike other mid-tier players, the company was not able to take advantage of the revival in global outsourcing after the subprime crisis that paralyzed the Western economies in 2008. As a comeback strategy, Mastek has been investing in product development in its focus areas. This should help in new client acquisitions. The company has begun to report an improvement in the number of client additions with 10 new accounts in the past two quarters. However, a prolonged

slowdown in the UK will impact Mastek's efforts adversely, given its higher exposure to this market from where it earns nearly half of its revenue. SUZLON ENERGY Suzlon Energy's exposure to the euro zone is clearly an outcome of its acquisition of the German-based REpower Systems. One of the leading international manufacturers of wind turbines, REpower accounts for nearly 40% of Suzlon's total revenue. Its core markets are Germany, Italy, France, the UK, Canada and North America. Given this exposure, REpower is expected to bear some impact of the slowdown as both industrial production and consumer confidence have taken a severe hit. The company has already faced some of the impact because of delay in number of projects in the wind power market last year. As a result, its revenue declined by about 7% in FY11. However, even as the European crisis deepens, REpower has been receiving fresh orders and maintaining a decent order backlog. This signals that the situation may not be as bad as it is being perceived. As of July 31, 2011, REpower's order book stood at over Rs 18,000 crore, accounting for nearly 60% of Suzlon's total order backlog. The company has also asserted of receiving orders from Sweden, a new market for it to explore and establish its business. So, while a temporary slowdown in the business cannot be ruled out, the fact that REpower operates in the renewable energyconscious European market sublimes the probability of the company facing an extreme impact in the coming months.

DIVIS LABS the Parma Company Divis Labs, engaged in contract manufacturing, and has a loss-making Swiss subsidiary marketing its nutraceutical products. Besides, the company earns more than 30% of its revenues from supplying to the European region. And 20% of its consolidated revenues are earned in pounds. The slowdown of growth in Europe may result in some drop in orders from its existing clients in the region, making it difficult for its nutraceutical business to break even in the immediate term. Conversely, with costcutting measures being introduced through the European economy, Divi may actually benefit from more European pharmaceutical companies opting for contract manufacturing of drugs. BHARAT FORGE

Leading global forging company, Bharat Forge operates in Asia, Europe and USA with an annual capacity of 7.6 million tons per annum. Close to one third of its r e v e n u e comes from E u r o p e an n m an r k e t s. Since the economic slowdown in 2008, it has restructured its European operations and reduced its overseas workforce by 30%. This has resulted in a turnaround in the performance over the past two years, which is visible in its consolidated earnings. Investors with a reasonable risk appetite could buy the stock even though the traction of automotive demand looks bleak as the non-automotive sector could act as catalyst for growth in the coming quarters.

MOTHERSON

SUMI

Motherson Sumi System's recent acquisition of Peguform in Germany has increased its E u r o p e an n market share to 50%. Even though the acquisition looks a strategic fit, the company's growth will depend on how it will be able to cash in on the new product portfolio. There also lies a challenge in meeting the debt requirement in the near term due to this acquisition. On the other hand, with the large geographical presence and strong domestic portfolio, the company looks well placed as far as revenue growth is concerned in the coming quarters. Investors with reasonable risk appetite can consider the stock with a one-two year horizon. TATA MOTORS

Tata Motors' sales from JLR units grew 25.6% during FY11 to 2.43 lakh vehicles, with the UK accounting for 24% of total vehicle sales during this period. Europe, excluding Russia, contributed 22.4% to sales. However, in April-August period of the current financial year, the combined sales of JLR grew only 10.9 % to 1.02 lakh units, helped by strong demand for Land Rover models in August. Nevertheless, growth momentum for JLR sales is expected to improve in the second half of FY12 going ahead based on the estimated 20,000 bookings for Evoque model at the end of June quarter. Tata Motors' European brands Jaguar and Land Rover contributed 57% of its consolidated net sales of Rs 1, 23,133 crore for FY11, while for the June 2011 quarter, JLR's operations contributed 58.9% to its net sales. Apart from JLR, luxury car sale volumes have broadly been steady in Western Europe, despite tough macro environment. And leading German luxury brands such as Audi, BMW and Mercedes also reported strong sales growth in units during August.

DR

REDDY'S

LAB

European debt crisis is not particularly going to affect DRL because the worst seems to be over for the company as far as its operations in the region is concerned. DRL has undertaken restructuring of operations at its loss making German subsidiary. Shifting most of the manufacturing to India. It has repaid loans taken to acquire Betapharm, reducing the debt on its books. Pricing pressure on drugs is a phenomenon all generic Parma companies will have to live with while doing business in most European countries and it will only increase as these countries adopt more and more austerity measures. Besides, share of Europe in the company's total revenue is coming down with every passing year. Europe accounted for 21% of total sales in FY11 compared with 24% in FY10.

EU debt crisis & Indian IT Industry Major firms here began work earlier on anchoring in the stronger economies, besides varying their approach. The sovereign debt crisis in Europe may not have much impact on the prospects of the $60-billion Indian information technology (IT) services industry. The impact, say industry players and analysts, would be more in terms of delayed sale cycles, rather than cancellation of contracts or price renegotiations. Europes contribution to the overall revenue of the top four Indian IT service companies has been growing steadily and is between 22 and 27 per cent. Of this, close to half comes from Britain and the rest from continental Europe. However, Indian players are yet to make significant inroads into government contracts and the bulk of business they do in Europe is with the private sector, which typically outsources more in a bid to save costs when there are signs of an economic slowdown. Partha Iyengar, vice president at Gartner India, says: They (Indian IT companies) had just started to see a trickle of work from Italy and Spain (the affected regions). If anything, the companies will see peripheral impact, which might at best lead to lengthening of sale cycles. As of now, I have not seen that happening. Sridhar Vedala, managing director of QS Advisory (which works extensively in Europe) feels this might just be the right moment for Indian players to get their act together. If anything, this should bring in a positive impact. Many who had started to look at Europe immediately after the US slowdown have become a bit relaxed. Other than top players like TCS, Cognizant and HCL Technologies are yet to make significant inroads, he said.

As for business, he feels there is enough opportunity, as European companies are keen to experiment with offshoring in a big way.

VARYING STRATEGIES Similarly Wipros strategy in the European market is based on the maturity of outsourcing. For markets where it has considerable presence in terms of business like the UK and Nordic countries, it has a business unit-driven sales force. But in Germany and France, where outsourcing is underpenetrated, it has a country head-driven model. Many mid-cap firms, too, have not gone beyond Britain. Those who have used either acquisition or a joint venture model to gain traction. Delhi-based NIIT Technologies, which recently closed a $40-million deal with Eurostar, believes the Western European economy has bounced back well, compared to other regions. The Europe crisis, if it escalates, will not only impact the IT industry but the global economy as a whole. Europe, unlike the US, is a much more heterogeneous market. Having a local presence there is very important to get business, said Arvind Thakur, CEO of NIIT. NIIT took the inorganic route to gain foothold in the European market. It acquired two local companies that had presence in Switzerland, Netherlands, Austria and Germany. This also got the company access to local talent. If you see our revenue, we are evenly split across regions. The US and Europe contribute 35 per cent each and APAC (Asia-Pacific) contributes around 30 per cent. In Germany, we have front-end and sales teams entirely of locals, said Thakur. One of the largest clients is German National Railways.

International Monetary Fund (IMF) managing director Christine Lagarde on Monday met finance minister Pranab Mukherjee and discussed the Euro zone crisis and the new role that emerging countries like India are expected to play in the global economy. "We particularly discussed the Euro area situation and we also the role of IMF and importance that emerging market economies have to play within the organization," Lagarde told journalists after meeting Mukherjee. Lagarde said that she had elaborate discussions on the general economic situation. The IMF managing director's two-day visit to India comes at a time when the European debt turmoil poses a risk to the fragile global economic recovery. The multilateral agency is also looking to increase its financial resources with enhanced contributions from emerging majors such as China and India. However, the emerging economies in turn want to have a greater say in the running of both the IMF and the World Bank, both of which are dominated by the US and western Europe. There has been a convention that that the World Bank chief would be from the US while the IMF managing director's post would be held by a European ever since these two international financial institutions were created after World War II. However, the emerging economies are of the view that this outdated convention must change to reflect the true international character of these institutions and the changing economic realities. Currently, the US and European countries command over 50 per cent voting shares in the financial institution. Mukherjee is reported to have highlighted the fact that the sovereign debt crisis even in Europe has a downside risk of spreading to other countries in today's world of close linkages and Indian exports have also been hit by the slowdown.