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Bata India Ltd.

(BSE: 500043 | NSE: BATAINDIAEQ | ISIN: INE176A01010)

Market Cap ( Rs. Cr.) : 5246.815

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Directors's Report

You can view full text of the latest Director's Report for the company.

The Directors have pleasure to present the 78th Annual Report of your Company covering the operating and financial performance for the year ended December 31, 2010.

FINANCIAL REVIEW:

2010 2009 (in Rs 000) (in Rs 000)

Gross Turnover 12,770,888 11,125,882

Less: Excise Duty on Turnover 188,945 209,365

Net Turnover 12,581,943 10,916,517

Other Income 152,529 84,228

12,734,472 11,000,745

Profit / (Loss) before Depreciation & Taxation 1,755,076 1,281,868

Less : Depreciation 325,104 279,234

Profit / (Loss) before Taxation 1,429,972 1,002,634 Provision for Taxation :

-Current Tax 546,378 401,757

- Deferred Tax Charge/(Credit) (Net) (69,926) (66,361)

- Fringe Benefit Tax - 1,722

- Tax for Earlier Years - (6,756)

Net Profit 953,520 672,272 Profit available for Appropriation 2,381,675 1,720,938

OPERATIONS

During the year 2010 your Company achieved a total turnover of Rs. 12,770.9 million as compared to Rs.11,125.9 million in 2009, which reflects a growth of around 15%.

Your Company has undergone a transformation in all areas of its business whether it is sales, profitability, shoe line, visibility and the ambience of its stores. In the last 4 years, 72% of the stores have been renovated.

Due to the continuous and ongoing process of restructuring being adopted by your Company in all areas of its operations, there has been improvement in manufacturing, changes in sourcing, credit management, retail restructuring, labour union - management relationship, retail expansion programs, training and development, team building, internal controls, borrowings, working capital management, business processes, corporate governance, de-risking the business of the Company and now introduction of the Home Delivery Service of shoes for the convenience, comfort and choice of our valued customers. Using this service, customers can now place orders for any footwear which they are unable to find in a Bata store and get it home delivered through courier with no extra cost.

The Company continues to focus on improving its collections by introducing a fresh range regularly and outsourcing some parts to get better margins. The cash flows from higher margins are used to expand our business primarily through large format stores. In order to improve quality and to reduce costs, our factories have been specialized to make footwear of particular variety. Hosur Factory specializes in Hush Puppies, Bangalore Factory makes School shoes and Batanagar turns out sports shoes and sandals. All these efforts have yielded improved margins for the Company and improved production to become more competitive.

Your Company has won the "Consumer Awards 2010" as "Indias Most Preferred Retailer" given by CNBC Awaaz. This award was won amongst stiff competition from other leading retailers and is one of the most prestigious awards the country has to offer. Your Directors are proud in receiving this Award and the credit for this goes to every employee who has worked so hard in shaping the future of the Company. Your Company

has been consistently showing improved results in each quarter and we are now in a position to take calculated business risks to focus on volume growth and to make a deeper penetration in the market place. Your Company will continue to grow its business by focusing on tier 2 and tier 3 cities where the potential for growth is enormous.

TRANSFER TO RESERVES

The Company has transferred a sum of Rs. 95.4 million to General Reserve against Rs.67.2 million last year.

DIVIDEND

The Board of Directors have recommended a dividend of 40% for the year ended December 31, 2010 as against 30% paid last year, subject to approval of the shareholders at the ensuing Annual General Meeting of the Company.

FIXED DEPOSIT

As on December 31, 2010 the Company has Rs 1.47 million unclaimed matured deposits. Necessary reminders have been sent to the deposit holders advising them to claim their deposits from the Company. Presently the Company is not accepting any fixed deposits.

CREDIT RATINGS

ICRA has reaffirmed the rating of A1+ to your Company for its CP programme. This is the highest-credit quality rating assigned by ICRA to short term debt instruments.

AWARDS AND RECOGNITION

Your Company has received the following Awards and Recognition, which has made us all proud:

1. Bata India Limited was awarded CNBC Awaaz Consumer Awards 2010 for "Indias Most Preferred Exclusive Brand Retail Outlet" in July 2010. Mr. Marcelo Villagran, Managing Director was felicitated by Mr. Pranab Mukherjee, Honble Finance Minister of India in a ceremony held in Mumbai.

2. Brand Equity recognized Bata in the TOP 50 Most Trusted Brands in August 2010. Bata is the only lifestyle retailer in the top 50 brands.

3. Bata India Limited was listed amongst Indias Largest Corporations by Fortune India Magazine in December 2010.

4. Bata Industrials received Directorate General Mines Safety Certification for its PU Sole Safety Footwear range.

5. Bata India Limited received Images Fashion Award for the Most Admired Retail Partner of the Year in January 2010.

6. Bata India Limited was awarded "Retailer of Year (Footwear / Non Apparel)" by the Asia Retail Congress. Mr. Marcelo Villagran, Managing Director received the award in a glittering ceremony at Mumbai on 8th February 2011.

7. Bata India Limited received the "Most Admired Footwear Brand" of the year award by Images Fashion Forum in Mumbai on 18th February 2011.

8. Amity University awarded Bata India Limited "Corporate Excellence Award for the Best Retail Chain" during the international business summit on 23rd February 2011.

9. Bata India Limited was recognized as the Most Trusted Brand at 18th position by the Brand Trust Report. This ranking is post survey of 16,000 brands; only 300 top brands were felicitated by The Trust Advisory.

CORPORATE SOCIAL RESPONSIBILITY

The following CSR activities were undertaken by your Company during the year 2010:

- Shoes, slippers and stationery were donated to children in orphanage and tribal children under "Bata Children Program" across India.

- The Company provided support to the disaster affected people by promptly sending in shoes after the earthquake in Ladakh.

- Free Medical check up and blood donation camp organized in Batanagar.

- The Company encourages entrepreneurial spirit in the small scale business located in the vicinity of its factories so that they become independent associates and partners in progress. This generates employment in the area giving opportunities for people to grow.

- The Company is providing free medical services to the people living near the factory in Bataganj (Patna) and also free drinking water facilities to the inhabitants residing around the factory.

- Bata Sports Club, Kolkata provides cricket and football coaching and guidance to budding talents through the services of renowned sporting personalities.

- Bata School of Cricket participated in Cricket Association of Bengal tournaments in junior group (Under - 14 & 17 Years).

- Organized sports day on the occasion of Childrens Day for the underprivileged children from various NGOs/projects in Kolkata.

RETAIL

The year 2010 has been a milestone year for Bata Indias retail business, with opening of 108 new large format stores across all major towns in India. With more than 1200 stores across 400 cities, the Bata Store is one of the most recognizable and favoured landmark in any major market in India.

In Retail, your Company continues to improve the strategic positioning of its stores to cater to the masses and compete better in future with over 60 new Bata Stores opened every year, and existing stores being renovated during the year. The growth of the retail business with penetration in newer markets - especially Tier 2 / Tier 3 cities and growth in existing metro market is the focus for Bata India. All the new stores are in large format, with an average size of over 3000 sq. ft. and offer an incomparable footwear shopping experience to the customer. The renovated stores are also modeled on these large format stores and promise a great shopping experience.

The specially designed shoe display systems, unique furniture for non-footwear sales, contemporary styling, and great ambience ensure that these new Bata Stores provide the best retail environment to its customers, so as to make their footwear shopping experience at Bata a very endearing one.

The large and international layout of these stores help in better exhibition and display of the several footwear concepts from Batas new shoe collection.

The collection improved tremendously during the year 2010, with the company launching trendy and fashionable designs which appealed to todays youngsters. The new collection was well received and ensured that the brand enjoyed great customer support and loyalty. Batas leadership in the dress comfort segment continues and Comfit, Ambassador and Mocassino brands have grown very well. For the ladies segment, Batas popularity continues to grow with the trendy Marie Claire range and its latest designs to enhance a womans femininity, sensuality and individuality. The youth focused brand North Star and specialty outdoor brand Weinbrenner presents new trendy designs with an increased focus on casual styles.

The premium brand of Hush Puppies offers city casual styles to customers while Scholl & Comfit are offered with fresh younger designs for absolute comfort with style. Popular amongst the tiny tots, Bubblegummers continue to allure them with its trendy and lightweight all-weather footwear.

Customer Service remained our focus with launch of new initiatives like Home Delivery service, e-commerce enabled website and a dedicated call centre for customer queries and suggestions. Extensive training of store staff, customer response and research management systems, and customer relationship management remained focal areas for the Company.

NON RETAIL

The Non Retail business has shown remarkable growth in business and profits over last year. New dealerships were opened in unrepresented areas to increase the market coverage. New products launched by the Company resulted in serving many more customers.

The Company is concentrating on the top distributors and working with them to grow our business. Constant incentive programs were offered to existing dealers to ensure growth in wholesale business.

Bata Industrials & Institutional business has been steadily growing for last 2 years and is expected to grow at a healthy rate for next couple of years. Country wide distribution network has been established to harness the market potential to become market leaders in next 2 years. Bata Industrial collection has been awarded BIS & DGMS certification which will allow us to serve more customers.

The Company has invested its resources in the factory to meet the stringent technical specifications and standards of the safety footwear business and ensure that our products are the best in the market.

EXPORT

Your Companys Export sales in 2010 were Rs 117.7 million compared to Rs.77.7 million in 2009.

LOGISTICS

Your Company has a well organized Logistic Team at Gurgaon which controls the distribution process and ensures that footwear of the right size is available at the right time and at right place, to our customers all over the country. Your Companys endeavour is to keep improving its distribution process through greater use of Technology inputs to track the rapid changes in consumer preferences and shopping practices. To support and deliver the growth projections, your Company is strengthening its Logistics Infrastructure through restructuring and consolidation of the space at various Regional Distribution Centres (RDCs), introduction of modern infrastructure and new technologies, reduction in product transit lead-times and faster and more frequent deliveries to stores.

CAPITAL EXPENDITURE

The Capital Expenditure incurred during the year amounted to Rs. 580.4 million as against Rs.436.1 million in 2009. The increase in capital expenditure was predominantly due to opening a number of new stores and modernization of old stores. Capital expenditure has also been incurred for installation of machinery and moulds to modernize our factories and to produce latest trendy design footwear.

INDUSTRIAL RELATIONS AND PERSONNEL

Your Company has continuously been working to improve human resources competencies and capabilities in the company to deliver results as per the plan. Highlighted here are some of the initiatives and interventions taken up during the year 2010 :

Strengthening and Re-designing Organization structure

To strengthen the organization in the area of sourcing quality products, a new procurement function has been setup to support our sourcing from external vendors. All the teams which were earlier working for different category have become part of this team with the objective of sourcing quality and cost effective product on time. The function is headed by a Vice President - Procurement and based at Gurgaon. 17 new professionals are recruited in various disciplines to support the functions like quality control, vendor development, compliance, etc.

Revamping of Logistics function

All 5 Regional Distribution Centres (RDC) teams are restructured over a period of last six months. Your Company has hired total 21 new professional executive including 5 RDC managers during last year and now all our RDCs are managed by experienced professional managers hired from other retail organization. Your Company is now working on improvement in overall inventory and logistics management improvement to cater to all its stores across chains.

Building up the best team in all our functional areas

During 2010 your Company has hired 71 Middle and Senior level Executives for its various functional areas and people moving out, retiring etc. had been replaced with professionals with better qualification and experience.

Creating bench strength and building up capability for future growth

a) Executive Development plan

For the second consecutive year, your Company pursued its aim of nurturing and developing new talent for various responsibilities by successfully training its Executive Trainees. 13 executive trainee have been hired from various retail management schools who have gone through 9 months Executive Development Plan (EDP) which was initiated in the year 2009.

Total 13 executive trainees, who successfully completed their training, have been placed as District Managers across chains in retail operations in 2010.

Many more executives have been hired during 2010 for retail operation, merchandising and whole sale, etc.

b) Graduate Engineers Development Plan

Your Company has also initiated process of hiring and training engineers for its manufacturing division. In the first batch of Graduate Engineer Trainees (GETs) a total of 11 graduate engineers were inducted at Batanagar. The one year duration training program is currently underway. During the initial phase of their training of 4 months at Batanagar, the trainees have been placed to different units to take up On-the-Job training in their final phase of training.

Training and Development

a) Training of store staff, Store Managers and K-Agents

Developing and Training of internal talents continued to be the focus area of your Company in 2010. Identified employees with potential for growth were put on specific developmental plan, Training was conducted for 1905 store employees and 150 store managers and K-Agents to enhance their performance and effectiveness.

b) Store operations management course seminar

In September 2010, Bata India organized a seminar on Store Operations Management Course leaded by Ms. Serena Di Sarra (Course Leader & Business Analyst, Global Footwear Services) for the merchandisers and district managers from all over the region. The objective of the course was to equip participants with the best tools and skills to excel in the area of retail operations.

During the seminar, the participants got an opportunity to interact one-on-one with the leadership team and consolidate their analytical skills, share best practices and familiarize themselves with Bata store operations management process.

Total 15 participants from Kenya, Malaysia, Bangladesh, Thailand, Sri Lanka and India attended this five days program.

c) Store Management Course and Winning Merchandise Course

Nominated buyers, retail manager and district managers from retail operations attended winning merchandising course in Nairobi and Singapore. The program have helped them to broaden their horizon on different facets of merchandise and overall retail management and operations.

Merchandising seminar

A Merchandising Seminar was held, led by Ms. Gerry Tham, the then Chief Buyer - Family concept and attended by merchandisers and distributors with great enthusiasm. The focus was on providing a massive opportunity to all our participants to consolidate their critical expertise and familiarize themselves with Bata Merchandise Management.

Millennium Club 2010

Your Company recognized the achievement of the members of Millennium Club 2010. The Millennium Club is a recognition program for all Retail stores in Bata India Ltd. with an aim of acknowledging the superior performance and extra efforts put in by the store managers who have achieved a turnover of over Rs. 20 million and above during the preceding year.

As a token of appreciation, the members were presented with trophies, certificates and lapel pins for themselves and their team members, by the Managing Director. This appreciation reinforced their commitment and passion towards achieving the goals of the Company.

Performance management: through Quarterly Performance Review.

Your Company initiated a quarterly performance review process for all the operational Retail Managers and District Managers. This process very clearly defines their objectives and achievements. This review takes place in retail chain office by the immediate supervisor before HR representative and feedback of the last quarter is given to the assessees and also their target for the next quarter is set. The overall process has been extremely helpful in setting up a process of continuous performance measurement and performance enhancement.

Information in terms of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 is set out in an Annexure to this Report.

FINANCE

The Earning per Share (EPS) (Basic and Diluted) of your Company has increased substantially by 41.87% (from Rs.10.46 in 2009 to Rs.14.84 in 2010).

Your Company is out of Bank Borrowings since April 2010 as against Rs.146.5 million at the end of 2009, despite the entire capital expenditure and VRS funded through internal accruals.

RESEARCH & DEVELOPMENT ACTIVITIES AND ENERGY CONSERVATION

Your Company continued its local Research & Development activities during the year in the key areas of product, process, material development, footwear moulds, leather and tannery technology with emphasis on creating a pollution-free work environment. Total expenditure incurred on Research & Development was Rs. 50.1 million during the year.

Your Company continues to actively pursue energy conservation measures.

SUPPORT FROM BATA GROUP

Your Company has seamless access to the benefits of technical research and innovative programmes of the Bata group from Global Footwear Services, for which it paid a fee of Rs.135.0 million during the calendar year 2010.

The Company continues to receive guidance and managerial support in its various functions including store layout, marketing, shoe line, up gradation of factories, training of managers and guidance from senior most managers of the group. The Technical Collaboration which expired on December 31, 2010 has been renewed for a further period of 10 years.

STATUTORY AUDITORS

The Statutory Auditors of the Company - Messrs. S R Batliboi & Co., Chartered Accountants retire at the ensuing Annual General Meeting of the Company and have given their consent for re-appointment. Your Company has also received their Certificate pursuant to Section 224(1B) of the Companies Act, 1956.

DIRECTORS RESPONSE TO THE COMMENTS, IF ANY, MADE BY THE AUDITORS IN THEIR REPORT

Auditors Report read together with Annexure referred to in Paragraph 3 of the Auditors Report do not contain any qualification of significant nature and do not call for any explanation / clarification.

COST AUDITORS

In compliance with the Central Governments Order, your Board has appointed Messrs. Mani & Co., Cost Accountants to carry out the Cost Audit of the Company in respect of Footwear. This appointment has to be made in each financial year and based on the application of your Company, the Central Government has approved the re-appointment of the Cost Auditor for the current financial year.

DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of your Company, Mr. P M Sinha and Mr. U Khanna, Directors of the Company are due to retire by rotation at the ensuing Annual General Meeting of the Company. Mr. P M Sinha, Chairman of the Board has decided not to seek any re-election. Mr. Sinha will, however, be stepping down from the Board after the conclusion of the 78th Annual General Meeting of the Company. The Company has achieved several milestones during his tenure as the Chairman. The Board of Directors of your Company wishes to place on record its sincere appreciation for the valuable services rendered by Mr. P M Sinha during his tenure as the Chairman. The Board wishes Mr. Sinha good health in the ensuing years. Mr. U Khanna, being eligible, offers himself for re-appointment as a Director on the Board of your Company.

Mr. Shaibal Sinha, Director Finance of your Company resigned from the Board with effect from September 7, 2010 and the Board accepted his resignation with effect from the same date. The Board of Directors of your Company wishes to place on record its sincere appreciation for the valuable services rendered by Mr. Shaibal Sinha during his tenure as Director Finance of the Company.

The Nomination, Governance & Compensation Committee recommended to the Board which was agreed by the Board that Mr. Fadzilah Mohd. Hussein be appointed as an Additional Director on the Board of your Company with effect from July 29, 2010. The Company has received a notice in writing from a Member of the Company under Section 257 of the Companies Act, 1956 signifying his intention to propose the appointment of Mr. Hussein. Your Board, at the said Meeting has also appointed Mr. Hussein as Director Finance for a period of 5 (five) years with effect from October 01, 2010, subject to approval of the shareholders and also fixed his remuneration within the overall limits specified under the Companies Act, 1956 and as approved by the Shareholders at the 76th Annual General Meeting held on May 26, 2009. The aforesaid appointments of Mr. Hussein are being proposed by separate Resolutions which form part of the notice of the Annual General Meeting.

The Nomination, Governance & Compensation Committee recommended to the Board which was agreed by the Board that Mr. Rajeev Gopalakrishnan be appointed as an Additional Director on the Board of your Company with effect from February 23, 2011. The Company has received a notice in writing from a Member of the Company under Section 257 of the Companies Act, 1956 signifying his intention to propose the appointment of Mr. Gopalakrishnan. Your Board, at the said Meeting has also appointed Mr. Gopalakrishnan as Managing Director-Bata Stores, Bata India Limited for a period of 5 (five) years, subject to approval of the shareholders and also fixed his remuneration within the overall limits specified under the Companies Act, 1956 and as approved by the Shareholders at the 76th Annual General Meeting held on May 26, 2009. The aforesaid appointments of Mr. Gopalakrishnan are being proposed by separate Resolutions, which form part of the notice of the Annual General Meeting.

At its Meeting held on April 28, 2011 the Nomination, Governance & Compensation Committee recommended to the Board which was agreed by the Board that Mr. Atul Singh and Mr. Akshay Chudasama be appointed as Additional Directors on the Board of Directors of your Company with effect from April 28, 2011. In terms of Section 260 of the Companies Act, 1956 both Mr. Atul Singh and Mr. Akshay Chudasama hold office upto the date of the forthcoming Annual General Meeting. The Company has received separate Notices in writing from a Member of the Company under Section 257 of the Companies Act, 1956 signifying his intention to propose the appointments of Mr. Atul Singh and Mr. Akshay Chudasama as Directors of the Company, liable to retire by rotation. The appointments of Mr. Atul Singh and Mr. Akshay Chudasama as Directors of the Company are being proposed by separate Resolutions, which form part of the Notice of this Annual General Meeting.

BATANAGAR PROJECT

Your Company has restructured the Agreements with revised terms and conditions for development of the modern integrated township project at Batanagar. This has been done to ensure that the development of the project proceeds with due urgency and your Company manages to focus on its core businesses. The restructured Agreements have been signed on April 28, 2010. As envisaged, the project is progressing in full swing. The employees of the Company at Batanagar Factory have been shifted to The Bata Rehabilitation Housing Complex, located next to the Batanagar Factory. This Housing Complex has defined a new way of living for the employees as the new flats are full of amenities, e.g., Central open space for community functions, Storm water drainage system, PG Gas Connections replacing earlier stove systems, state-of-the-art multipurpose grounds for various kinds of sports, good housekeeping system, etc. In consideration of the restructured Agreements, the Company has received an aggregate amount of Rs.1,000.0 million in cash for future transfer of shares in the Joint Venture Company - Riverbank Developers Private Limited (RDPL) and variation of the development rights for the project. However, the condition precedent to recognizing such sale of investment and variation of rights in the joint development agreement had crystallized in the month of March, 2011 and consequently, the gains of Rs. 1,093.55 million before tax arising on the said transaction have been recognized in the Books of the Company during the financial year 2010-11. Further, as part of consideration, your Company is yet to receive 3,24,550 sq. ft. of constructed space at no additional cost as per the terms of the agreements. Pursuant to such restructuring, your Company has disposed off its stake in joint venture with RDPL.

Notwithstanding the aforesaid restructuring of Agreements, your Company continues to remain committed to the Government of West Bengal in terms of the approval given by it. The Companys factory will continue to operate from its present site and the Company will continue to make additional investments in the factory for its modernization and for the revitalization and rejuvenation of the employees of the Company at Batanagar. The Companys commitment to its employees and the Government of West Bengal remains undiminished.

DIRECTORS RESPONSIBILITY STATEMENT PURSUANT TO SECTION 217 (2AA) OF THE COMPANIES ACT, 1956

Your Directors hereby confirm :-

i) that in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii) that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year, and of the profit of the Company for that period ;

iii) that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv) that the Directors have prepared the Annual Accounts on a going concern basis.

SUBSIDIARY COMPANIES

As required under Section 212 of the Companies Act, 1956, the Audited Balance Sheet and Profit & Loss Account along with the respective Reports of the Auditors and the Board of Directors thereon of the subsidiary companies of the Company for the year ended 31 December 2010 are attached.

CORPORATE GOVERNANCE

Your Company believes that Corporate Governance is a way of life rather than something to be carried out under legal compulsion. Your Company is committed to the application of the best management practices, compliance with law, adherence to ethical standards and discharge of social responsibilities. Your Company has in all spheres of its activities adequate checks and balances to ensure protection of interest of all stakeholders. Your Company also endeavours to share with its stakeholders openly and transparently information on matters which have a bearing on their economic and reputational interest. This calls for a great degree of judgment and discretion so as not to put business and commercial interest of the Company at risk.

Corporate Governance Report as well as Corporate Governance Compliance Certificate received from the Statutory Auditors is provided as separate Annexure to this Report.

CONCLUSION

The Directors place on record their sincere appreciation for the cooperation and support received from investors, our dear shareholders, customers, business associates, bankers, vendors as well as regulatory and governmental authorities.

The Directors appreciate the invaluable contribution of the management team under whose determined efforts the Company has been able to achieve all its major targets in 2010.

The Board would also like to thank the Managing Director and the Director Finance, the nominated Directors on the Board and the Major Shareholders for their complete support in revamping the operations of the Company. We are also very grateful to our independent Directors who despite their busy schedules have given their contributions and shared their valuable experience and knowledge with the Management to take the Company forward. We wish the Management all the best for achieving even greater heights in the future.

For and on behalf of the Board of Directors

P M Sinha Chairman

Gurgaon, April 28, 2011.

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